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IKEAs Strategic Management
IKEAs Strategic Management
IKEA`s
Strategic
Management
2011
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summary of the contents of the document. Type the abstract of the document
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Table of content
Acknowledgement 3
Abstract 4
1. Introduction 5
1.1. Furniture industry trends 5
2. 2. Ikea 6
2.1. Ikea background 6
2.2. Current mission 8
2.3. Goals 8
2.4. Core competence 9
2.5. Environment and corporate culture: 9
2.6. Organization culture 9
2.7. Ikea corporate social responsibilities 10
3. 3. Organizational structure and management 11
3.1. Ikea business strategy 12
3.1.1. Operations strategies 12
3.1.2. Ikea communication strategy 14
3.1.3. Ikea –organizing strategies 14
3.2. Managing supply chain 15
4. 4. Marketing strategy 16
5. 5. Ikea group strong financial growth for fiscal year 2010 17
5.1. Liquidity ratios 18
5.2. Assets management ratios 18
5.3. Debt management ratios 18
5.4. Profitability ratios 18
6. 6. Analysis 21
6.1. Ikea-internal factor analysis 21
6.1.1. Strengths 21
6.1.2. Weaknesses 21
6.2. Ikea-internal factor analysis summery (IFAS) 22
6.3. Ikea - external factor analysis 23
6.3.1. Opportunities 23
6.3.2. Threats 24
6.4. External factor analysis summery (EFAS) 26
6.5. Strategic factors analysis summery (SFAS) 27
6.6. Tows- metrics analysis 28
6.7. Porter‘s six forces model analysis for Ikea 30
7. 7. Recommendations 32
8. 8. Conclusion 33
9. 9. References 34
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ACKNOWLEDGEMENT
given constraints.
3
Abstract
threats.
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1. INTRODUCTION
As the world economy is developing fast in the past 10 years, the furniture markets have
opened up more and the world furniture industry has been growing fast. Over 70% of the
global market has been taken up by the traditional furniture making countries. This is
possible because of their long established production capacity, advancement in science and
technology, solid funds and rich management experiences. Meanwhile, developing countries
and regions like China, Southeast Asia, Poland and Mexico, with China taking the lead, have
built upon their respective competitive advantages and gradually have covered almost 30% of
the world market. The furniture industry in such countries is developing strongly and
showing great potentials. The European Union furniture industry accounts for about half of
the world's furniture production. The production value of this industry in this region is around
€ 82 billion. Considered to be a labor-intensive industry it provides employment for around 1
million people. Among the European countries, Germany takes the lead as the largest
furniture producing country, accounting for about 27% of total EU production. This is
followed by Italy (21.6%), France (13.5%) and the UK (10.4%).The Canadian Furniture
Industry is the 5th largest exporter of furniture in the world. The major furniture producing
countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore, Thailand,
Korea, Taiwan and India. In the context of global furniture trade, Asia shows healthy signs of
growth with respect to its other international competitors. Asian furniture has always been
popular in developed countries like USA, Europe and Australia.
Over 20 years of fast growth, China has been able to bring unlimited business opportunities
and vitality to the global furniture industry. Now, China has today emerged as a furniture
production center, a circulation center as well as an exhibition center in the world. The rise of
China's furniture industry has brought about a new round of restructuring of the global
furniture industry and trade pattern. According to a recent estimate, the Indian furniture
industry is estimated at around 350 billion. Eighty-five per cent of this falls into the
unorganized sector. According to a study by the World Bank, the organized furniture industry
is expected to grow by 20 per cent a year and India, Brazil and Russia will witness a boom.
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2. IKEA
IKEA was founded by Ingvar Kamprad (Kamprad) in 1943 in Agunnaryd, Sweden, when he
was 17 years old. Kamprad started by selling goods like pencils, wallets, jewelry, picture
frames, and watches. Kamprad tried to keep costs low by purchasing goods in large quantities
and passed on a part of this benefit to his customers. In 1947, Kamprad introduced furniture
in his product line and found that there was a good demand for it. He sourced furniture from
manufacturers in local forests so that he could keep the costs low. As the scale of business
grew, Kamprad found it difficult to make individual sales calls and so started advertising in
the newspapers. In 1951, he designed a product catalogue and distributed it to potential
customers who lived near his store.
IKEA opened its first furniture showroom in Almhult, Sweden, in 1953 where customers
could see, touch, and feel IKEA‘s furniture before they placed orders. As IKEA was selling
furniture at very low costs compared to its competitors, the competitors forced their suppliers
to boycott supplying to IKEA. That led IKEA to design and engineer its furniture and then
outsource the manufacturing to Eastern European countries, particularly to Poland, from
1955. IKEA designed its furniture to cost less, look stylish and also be functional. In the same
year, one of IKEA‟s co- workers decided to remove the legs of a table so that he could fit it
in his car and minimize any damage in transit. That idea led IKEA to test flat packing in
1956. IKEA realized that flat packing could bring down the costs of transportation and
storage drastically. The company started designing its furniture to support flat packaging. In
1958, IKEA opened its first store in Almhult. The store, spanning 6,700 square meters, was
then the largest furniture retail store in Scandinavia. IKEA saw an opportunity to cut costs by
letting the customers transport and assemble the products themselves. The company was thus
able to sell furniture at around a 30% lower cost than other furniture retailers.
In 1963, IKEA opened a store in Oslo, Norway, its first store outside Sweden. In 1965, it
opened a store in Stockholm, Sweden. This was then the largest IKEA store and covered
33,000 square meters. The company introduced the self-serve concept in the store. Customers
were provided with information about the products on display through written material and
information desks. They were invited to check out the products and select them but there
were no sales staff. That enhanced the customers‘ shopping experience at the store as there
were no salespersons who were constantly urging customers to make purchases. Customers
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were given tickets for the goods they purchased and were asked to collect the goods at the
delivery docks. There was no door delivery service available and the customers were asked to
provide for their own transportation. Car racks could be bought and self-driven vans could be
rented. IKEA expanded into more European countries and by 1974; it had 10 IKEA stores in
five European countries. IKEA shifted its headquarters from Almhult to Copenhagen,
Denmark, as it felt Copenhagen‘s central location made it a better choice to support its
European expansion plans
IKEA became highly successful in Germany where it opened its first store in 1974. The
company realized the huge growth potential it had in Germany and expanded aggressively.
By 1980, it opened 10 more stores in Germany. In 1975, IKEA entered Australia by opening
a store in Sydney. It continued to expand globally by opening stores in Vancouver, Canada,
in 1976, Singapore in 1978, Canary Islands in 1980, Iceland and France in 1981, Saudi
Arabia in 1983, and Kuwait in 1984. In 1982, a family controlled charitable foundation
named Stitchting INGKA Foundation (SIF) was formed in the Netherlands and ownership of
IKEA was transferred to that foundation. This was done to ensure the continuation of
business, maintain the family control on it, and minimize taxes as trusts and foundations had
tax benefits.
IKEA entered the US in 1985 by opening a store in Philadelphia, Pennsylvania. As the
company followed the same products assortment and specifications in all of its stores
globally, it decided to follow the same in the US. However, this did not work because of the
difference in the lifestyles of American and Europeans. For instance, the size of beds used in
the US was larger than the size of beds used in Europe. IKEA realized that it had to modify
its products to suit the local needs and hence made certain modifications to products like beds
and kitchenware. Though the products were modified, the Scandinavian touch was
maintained in the style and design. In 1986, Kamprad stepped down from the post of CEO
and made B.V. Anders Moberg (Moberg) the President and CEO of IKEA. Kamprad became
the advisor of SIF.
By the year 1990, IKEA had 89 stores in 21 countries. Along with global expansion through
its stores, IKEA also expanded the sources of supply to include countries like China. In its
early days, IKEA sourced most of its products from Eastern Europe but as it expanded its
business, its dependence on Eastern Europe came down to a certain extent. In the 1970s,
around 25% of its supplies were from Eastern Europe. This came down to 15% by 1990. In
the same way, IKEA‘s revenue dependence on Scandinavian markets also came down from
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85% in 1975 to 26% in 1990. In 1991, IKEA started a furniture manufacturing subsidiary,
Swedwood, to manufacture wooden furniture and components.
In the 1990s, IKEA further expanded into countries like Taiwan, Malaysia, Spain, and China.
In 1997, IKEA launched its website www.IKEA.com where it provided its customers with an
online product catalogue. In the mid-1990s, IKEA launched a separate line of products
specially designed for children. In 1999, Anders Dahlving replaced Moberg. On October 09,
1999, IKEA celebrated a „Big Thank You‟ event to recognize its co-workers. It distributed
IKEA‟s global sales of that day amounting to € 84.85 million, among all its co-workers.
IKEA has a clear mission: selling a wide range of furniture and accessories at a reasonable
price so that most people can buy them. By offering a wide range of assortment the key word
is functionality, consumers can find everything under one roof. That‘s why you can find
everything at IKEA. (IKEA, 2011)
2.3. GOALS:
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2.4. CORE COMPETENCE
IKEA has an original approach to deal with customers: it employs the self-serving method.
Customers chose their products, take them out of the shelves and assemble them at home on
their own. Although this approach is quite unusual in the furniture business the customers are
willing to do that because of the low prices, the easy to handle and storable flat packages and
simple constructible furniture. With this limited customer service IKEA safes sales staff and
customers don‘t have to wait long to be served.
As most customers follow the ―green‖-trend IKEA is keen on protecting the environment and
trying to minimize any possible damaging effects on it. Therefore IKEA‘s suppliers have to
follow some rules: they have to reduce the produced waste polluting the air, water and
ground, they have to use recycled or recyclable materials and they have to use wood from
known areas.
Additionally, suppliers may not use components that are on the list of chemical ‗Compounds
and Substances‘ and they may not use the woods from national parks or nature reserves or
areas with high conservation values. They may only use the woods if they are certified for
their use.
IKEA also operates with a few companies such as trade unions, NGOs and it has partnerships
with UNICEF, Save the Children and WWF (the global conservation organization).
IKEA and these partners are focusing on improving children‘s rights and they are promoting
responsible forestry, better cotton cultivation and reduction of CO2 emissions. (IKEA, 2011)
IKEAS founder Kamprad had once written in a manifest that ‗the true IKEA spirit is still
founded under enthusiasm, on our constant will to renew, on our willingness to assume
responsibility and to help, on our humbleness before the task and on the simplicity in our
behavior‘. (Daft, 2010) Page 74
IKEA tries to give employees a family friendly feeling. There is no to the outside noticeable
hierarchy among workers, so e.g. managers also have to stock shelves and all design team
enjoy complete autonomy in their work but are expected to design new appealing products
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regularly.. This corporate culture of IKEA is built upon the philosophy of sustainable
development and a continuous strive for improvement in all areas of the value chain which is
an effective way to shape the industry to better fit IKEA‘s future strategies. Due to the
uniqueness of IKEA's strategic positioning, being the largest competitor in its field, the firm
has the advantage of setting the phase of the industry.
Cost is another part of corporate culture; the culture emphasizes efficiency and low cost
which is not to be achieved on the expense of quality or service.
IKEA believe that it is possible to make traditional business objectives and social and
environmental responsibility work together for the benefit of the many people. IKEA wants
to take a leading role towards a low carbon society, and significantly reduce the carbon
footprint from all aspects of its operation, while also helping to reduce coz emission in
society. IKEA CSR activity involves in three main areas Children, better living and
environment project.
The IKEA foundation extended its support for UNICEF‘s water and sanitation program in
some countries like India, in totally, the IKEA foundation projects together with NICEF, save
the children around the world.
IKEA wants its products to have the minimum impact on the environment and for these
products to be manufactured in a socially responsible way such as lowering price but not at
any price
In addition, IKEA stores and national retailers are also active in many social responsibility
projects to maximize society well-being and produce product which has minimum impact on
the environments.
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3. ORGANIZATIONAL STRUCTURE AND MANAGEMENT
The present organizational structure can be defined as highly functional with a global market
strategy. On that account IKEA is able to maintain centralized control over functional
activities and at the same time take advantage of low cost and enhanced quality from
international suppliers. On top of that, control over strategic direction is improved and
functional lay-offs are minimized. In order to ensure efficiency in the logistics process, the
organization has integrated purchasing and distribution processes under one umbrella
function.
As IKEA continues to expand overseas, the importance of centralized strategic direction will
increase. The rapid internationalization triggers a range of challenges imposed on the
headquarters in Sweden e.g. increasing difficulty of responding to national needs and cultural
nuances, impact of emerging demographic trends forcing IKEA to broaden its focus strategy
to respond to varying nation-level consumer groups etc.
These changes can influence the maintaining of IKEA‘s global organizational structure. The
solution for the problem is to find the proper balance between country level autonomy and
centralized intervention through increasing subsidiaries and franchisee autonomy. With
logistics complications and long lead times, IKEA is forced to maintain high control levels
over its suppliers. The long-term relationship with suppliers guarantees high quality,
technology transfers and economies of scale and prevents potential suppliers from trying to
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integrate forward and produce competitive products for IKEA's local competitors. Without
IKEA's centralized logistics system it could lead to severe store shortages and
IKEA is cost leader in the home furnishing market. To hold on to this position IKEA is
forced to make the internal production as efficient as possible. Otherwise, competitors will
take over the cost leader position of IKEA.
The suppliers of IKEA are usually situated in low-cost countries. The suppliers can easily
access the raw-materials needed for the production and they are capable to reach the
distribution channel. The products that the suppliers sell on the market are standard furniture.
Because IKEA is such a big company it can buy thousands of pieces of furniture at the same
time. With these hug orders it usually gets big discounts, this is called economies of scale.
IKEA doesn‘t only provide low cost furniture but also a certain quality. IKEA has become
such a strong brand because they create a good mix of low cost furniture with high quality.
Besides, IKEA is also a precursor on innovations.
Also the brand IKEA is really strong, IKEA stands for low prices and high quality. But also
the more expensive furniture has a certain target group. The combination of low cost
furniture and more expensive furniture provides that everybody can find what they want at
IKEA.
To keep this position it‘s necessary for IKEA to keep on refreshing and renewing their
service model. But also innovations and new techniques are important to IKEA if they want
to sustain their position. ―The global expansion of IKEA gives some more opportunities, not
only to expand their brand but also to cut cost even more‖. (The times, 2011)
IKEA's success is based on the relatively simple idea of keeping the cost between
manufacturers and customers down. IKEA doesn‘t have its own manufacturing facilities.
Instead, it is using subcontracted manufacturers all over the world for supplies (Swedwood).
On top of that, in order to maintain low cost, IKEA customers have to assemble the bought
products themselves. That creates innovation upstream, which help suppliers to save costs,
and downstream, as self-assembly became a large cost saver for customers. On the other hand
all R&D activities are centralized in Sweden – IKEA follows the international business
strategy.
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IKEA follows all of Porters generic strategies. Its mission statement indicates a cost
leadership strategy. However, the company is also applying an indirect differentiation
strategy due to its unique way of incorporating the customer in the value chain. This
combination indicates a focus strategy.
At a high level, IKEA designs distinctive products that are also designed for low-cost
manufacturing. Most furniture is designed for the customer to assemble, and they are also
designed to fit into an efficient packaging cube for low-cost transport, which benefits both the
customer and IKEA. Because the company is a very high volume retailer, it gets good prices
on what it procures.
3.1.1.1. CATALOGUE
KEA chose its store location on the city outskirts as the company‘s stores were large
and required huge parking spaces. IKEA realized that its customers were visiting
stores in their cars and that resulted in higher carbon emissions. Hence, the company
made sure that the store location chosen was well connected through public transport
so that environment conscious customers could visit IKEA stores using public
transport. The stores are designed as very large blue buildings with yellow accents
and innovative layout inside. The stores were designed in such a way that furniture
was displayed in a real room setup, along with the details of each displayed product.
Customers were given pencils and papers at the store entrance to list down product
details like item code and respective aisle number in the store‘s warehouse. IKEA‘s
intention was to take customers through all of its products so that even a customer
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who entered the store with a planned shopping list would check out other products
which might interest him/her. However, shortcuts were also provided at a few places
and these were mentioned on the floor maps that were made available to the
customers.
IKEA tries to standardize its products to people. Therefore the role of the communication is
to make people change their attitude and style and to show them, that IKEA is not what they
have thought. It is achieved by a radical change of the tone of communication provocation.
The communication of IKEA towards consumers takes place in four types of major media the
catalogue and other booklets, websites of the group, another advertising media such as
newspaper industry, radio, television, cinema and posting, and the communication in the
stores. Promotion and advertising are in important part of strategies used by IKEA .All
catalogues and promotional advertising is the responsibility of the headquarters
Because IKEA‘s operations are spread worldwide, the management organized the company
in four different areas.
The first area is product range and development. The second one is purchasing, followed by
the Distribution Service and the last area is retailing. All the IKEA stores have the same retail
concept. That means that all the methods and services are the same in all IKEA stores.
Further Information about the areas can be found in the functional analysis on page 7
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IKEA has a wide variety of product range. You can find everything for your home
from plants and living room furniture to toys and kitchen appliances.
IKEA is known for the splendid service it is providing. The service is one of the
reasons why IKEA was able to expand so much. The self service is a big part of
IKEA‘s service model. It is a different concept then what the consumers are used to.
If consumers buy furniture at IKEA, they don‘t buy a fixed couch or bed but they
have to assemble the furniture themselves at home. Although most customers do not
mind the self-service, IKEA offers help with the transport and assemblage
additionally. (IKEA, 2011)[
IKEA has quickly evolved from a local Swedish home furnishing manufacturer into
the Largest home furnishing company in the world; partly by convincing their
customer to Perform the transport and assembly processes of the furniture
manufacturing value chain. They have executed their strategy by building a
worldwide sourcing network of high quality global manufacturers to support their
growth.
3.1.4.1. IKEA Modified Value Chain
Ikea's role in the value chain is to mobilize suppliers and customer to help them
Further add value to the system. Customers are clearly informed in the catalogs of the
firm's business systems provides, and what they are expected to add to the final
process. In order to furnish the customer with good quality products at a low cost, the
firm must be able to find suppliers that can deliver high quality items at low cost per
unit. The headquarters provides carefully selected suppliers with technical assistance,
leased equipment and the necessary skills needed to produce high quality items.
3.1.4.2. This long-term supplier relationship
IKEA does not only produce superior products, but also add internal value to the
suppliers. In addition, this value-chain modification differentiates Ikea from its
competition IKEA‘s supply chain is global with sales in more than 250 own stores in
24 countries and 32 external franchisees in 16 countries. The stores are supplied
through 31 distribution centers, or directly from the 1,350 suppliers in more than 50
countries. IKEA‘s supply chain consequently has a global spread with both sales and
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purchasing in all major regions of the world. IKEAs growth has been tremendous and
sales are still growing. Currently IKEA plans to open 10-20 new stores every year
with a goal to double sales within the coming five year. Considering the pace of
growth in sales, the many stores and warehouses, and the fact that some business
areas change up to 30% of its assortment every year, supply chain planning is a real
challenge. The supply chain needs tight control and high levels of visibility to keep
costs down and avoid obsolete inventory and/or stock outs. The IKEA supply chain is
mainly make -to-stock (MTS) and only a few Products are made to customer orders.
Consequently, the entire supply chain is heavily dependent on forecasts. The regions
and the stores have traditionally had a strong power and a high degree of local
freedom in terms of planning and placing replenishment requests. This has led to a
fragmented supply chain planning with local optimization and a lot of manual
intervention with plans throughout the supply chain. Furthermore, due to frequent
shortage situations.
4. MARKETING STRATEGY
Marketing, among all business functions, is most down-to-earth in terms of dealing with
customers. As ordinary customers, every one of us already knows about marketing. After all,
it is all around us. Many people may be under the impression that marketing is only selling
and advertising, i.e. what we can see. However, Armstrong and Kotler (2006) argue that
selling and advertising is only the tip of the marketing iceberg. There exists a massive
network of people and activities, competing for customers‘ attention and purchases. In
today‘s marketplace, marketing must be understood in the new sense of satisfying customer
needs. They define marketing as the process by which companies create value for customers
and build strong customer relationships in order to capture value from customers in return.
On the basis of the above definition, we can describe the marketing process in detail and
divide it into 5 steps. The first 4 steps create value for customers and build customer
relationships. At first, the company has to understand the marketplace and customer needs
and wants. Therefore, the company needs to research its customers and the market place in
order to collect and manage marketing information and customer data. The second step,
designing a customer driven marketing strategy, takes place once the market place and
customers are fully understood. The company will select which customers to serve through
market segmentation and targeting. A value proposition will also be decided through
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differentiation and positioning. After deciding on its overall marketing strategy, in the third
step, the company is ready to construct a marketing program, which transforms abstract
strategies into real value for customers. The program is also known as the marketing mix
which consists of 4 elements (the 4Ps)—product, price, place and promotion. The fourth step,
which is actually throughout the whole marketing process, is to build profitable relationships
and create customer delight. To achieve the goal, the company must establish strong
relationships with marketing partners as well. The fifth step is when the company can finally
reap the fruits of its strong customer relationships by capturing value from customers in
return. Once the company has created satisfied and loyal customers, it can capture customer
lifetime value with a result of increased share of market and customer. However, in order to
succeed in today‘s changing marketplace filled with competitors, the company also has to
take into consideration the new features of the marketing landscape: advanced technology,
globalization and social responsibility.
International companies like IKEA have to transform challenges posed by the new marketing
environment into opportunities, which echoes Armstrong and Kotler‘s earlier argument—a
good marketing strategy is a must.
The marketing mix starts with product strategy. Product covers more than the
physical goods the company wants to sell. It is the goods-and-service combination the
company offers to the target market. Thus, IKEA offers a whole range of products,
almost everything you need for your home. The same category of products, for
example, sofas, IKEA designs models with different features. Some sofa models are
even provided with different covers to choose from. IKEA is positioned as selling at
affordable price and offering reasonable quality. In order to cut down the costs, IKEA
does not wrap its products fancily but with simple and environmental friendly
material. Here we see again the societal marketing concept takes into effect.
Concerning services, IKEA encourages its customers to do-it-yourself (DIY) but it
also provides technical help if needed.
Price is the amount of money charged for a product or service, or the sum of all the
values that customers give up in order to gain the benefits of having or using a
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product or service. As shown in Figure 4.1, in terms of pricing, changing list price is
complemented by offering discounts or allowances and altering the payment period or
credit terms. Every now and then, IKEA reduces the price of certain products because
if they are popular among customers then IKEA can make a bigger order, which
leaves the profit margin wider so suppliers can quote lower offers. The company also
offers various payment options and credit terms to choose from for the customers.
Hence, IKEA handles pricing quite well that its pricing policy emphasizes customer
values and integrates with the other 3Ps.
Place includes company activities that make the products available to target
customers. Related activities are listed in Figure 4.1, such as channels, coverage,
assortments, locations, inventory, transportation and logistics. Over the years, IKEA
has established an efficient network of delivering its products from the suppliers to its
customers. Several logistics hubs around the world are now transporting the products
to different countries and territories. IKEA‘s flat packs play an important role in
transportation to keep the costs low. Locating the shops in the suburbs of cities also
helps to cut down the costs.
Like the marketing mix, promotion is a mix of tools as well. It is also called
marketing communication mix, consisting of the specific blend of advertising, sales
promotion, public relations, personal selling, and direct-marketing tools that the
company uses to persuasively communicate customer value and build customer
relationships. Ideally, the company integrates the above tools to communicate well
with its customers. Apart from advertising on TV, newspaper and delivering
brochures with the latest offers to people‘s home, IKEA pays a lot of attention to
environmental and ethical issues. IKEA‘s cooperation with NGOs such as UNICEF
and World Wide Fund for Nature (WWF) contributes a lot to building a favorable
corporation image and good public relations. In a word, an effective marketing
program blends all of the marketing mix elements into a coordinated program
designed to achieve the company‘s marketing objectives by delivering value to
consumers.
However, multinational companies, such as IKEA, operate in various markets facing
customers from different cultural backgrounds. Hence, to blend the 4Ps into a coordinated
program in each of its world markets, companies must understand how culture affects
consumer reactions; understand local traditions, cultural preferences, and behaviors.
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5. IKEA Group Strong Financial Growth for Fiscal Year 2010
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5.1. Liquidity ratios
These ratios measure the short term liquidity and indicate that IKEA has high liquidity and able to meet
short term debt as well as the unexpected demands.
, this ratio measures the efficiency of the usage of the fixed assets in sales
assets
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. . This represents a fundamental indication
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6. ANALYSIS
The fluctuating commodity and raw material prices all over the world result in rising
purchasing costs for IKEA. This will have an impact on the margins of the
organization and might lead to passing over the cost to consumers by increasing
prices of most things in the supermarket. Furthermore, fluctuating commodity and
raw material prices leading to an overall situation of increasing prices, resulting in
decreased competitiveness.
The credit crunch can impact IKEA negatively as it might decrease the purchasing
power of consumers and though they will still buy the essentials they may be more
cautious. Furthermore, furniture, unlike fast moving consumer goods, are durable and
can last for several years and in such economic uncertainty. Consumers may be
reluctant to change what they perceive to be still serviceable sets. They may also
spend less on luxury items, something that has a greater profit margin for IKEA. All
this may result in lowered sales and thus, reduced margins for the firm.
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At the same time, leading to an overall situation of increasing prices, resulting in
decreased competitiveness - something which will appeal to cost conscious
consumers. This may cause IKEA to reduce its margins, affecting profitability.
As Ikea forays into the lesser tap markets of China and India, social factors may also
come into play. Asian societies are generally more savers than spenders and in such
economic certainty; Asian consumers may be unwilling to spend on new furniture,
preferring to save for a rainy day. At the same time, the more affluent consumers who
are able to spend may be unwilling to buy products from Ikea which has a reputation
of requiring self-assembly.
RFID (Radio Frequency Identification Device) technology can be used for significant
benefits to the supply chain of IKEA. If adopted, this technology will lead to less
inventory for the supermarket firms resulting in lower cost for the company which
could translate into cheaper prices.
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6.2.IKEA SWOT Analysis
6.2.1. STRENGTHS:
20-40 % Low cost furniture than competitors and no extra Cost included
No wastage of material
6.2.2. WEAKNESS:
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No enough distribution channels
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6.2.3. OPPERTUNITIES:
for companies to use less water when making products and reduce their carbon footprint
6.2.4. THREATS:
Market Forces
29
6.3.IKEA-Internal Factor Analysis Summery (IFAS)
Weigh
Weigh
Internal Factors Rating ted Comments
t
score
Strengths
30
6.4. EXTERNAL FACTOR ANALAYSISSUMMERY (EFAS)
Weight
External Factors Weight Rating ed Comments
score
Opportunities
Focus on differentiated products 0.1 4 0.4 Business strategy in
for the broad market broad market
To sustain in the long run 0.09 4 0.36 Critical for success
keep the core values alive 0.07 3.5 0.245 Company becomes
larger and more diverse.
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6.5. STRATEGIC FACTORS ANALYSIS SUMMERY (SFAS)
Weighte
Strategic factors SFAS Weight Rating Comment
d score
Internal factor
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6.6. Tows- metrics analysis
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6.7. PORTER’S SIX FORCES MODEL ANALYSIS FOR IKEA
Threat of new
entrant
Power of Threat of
Relative subsititude
stakeholser product & services
Rivalry Bargaining
among powe of
existing foms suppliers
Bargaining
Power of
Buyers
There is a little power because of the exiting low-price options. Furniture and other
small items have an alternative and consumers have limited alternative choices that
make the IKEA unique among its competitors. In addition the low price strategy is
another way of the company to response in buyer‘s need.
6.7.2. Power of supplier
IKEA has its thousands of suppliers that set standards in delivering the
material. Once in a while, for some products, the IKEA bids for the
contracts with multiple companies to craft the same products. Most of the
supplier work in IKEA and compete with other suppliers, and they have a
little bargaining power. Because of the low-pricing, IKEA‘s profit margin
also affects the price in raw material than by prices in labor.
6.7.3. Rivalry
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the IKEA‘s furniture competitors‘ offers different styles and
functionality corning targets a new low cost in terms of furniture line;
cratel& Barrel offers a furniture in box which is subject in higher prices
Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a
big box furniture that is categorized under the general store must have
items, but don‘t have much of a style. IKEA is the most successful in
delivering the complete package for the customers that reflects on weak
rivalries.
6.7.4. Substitutes
There is no specific product that can be a substitute for furniture but IKEA
at least, have to keep up with the latest trends, to avoid becoming out of
style. Another advantage is that through their cutting and leading
technology, IKEA could copy any new style fairly and move each the
product into its stores.
6.7.5. New Entrants
IKEA has being opened with all its stakeholders. This involves building
trust through good communication with consumers, co-workers, key
opinion formers and the press. Being sustainable is a central part of
IKEA's image.
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7. Recommendations
Asia is considered as emerging market and has largest consumers‘ base with
more than three billion populations, IKEA need to build many stores in these
countries to facilitate easy access to stores without time consuming.
For IKEA to have competitive advantage, they should design a web site
which can help the customers to design their own furniture (customization),
with the dimensions and the colors they need. This will give them large
market segmentation that the customers would like to design their furniture.
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8. Conclusion
market.
and design means more items can fit into a crate, which means
footprint.
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9. References
Competitive Strategy: Techniques for Analyzing Industries and Competitors Michael E. Porter
Thompson, AA Strickland AJ & Gamble J 2005. Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill,
New York, pp. C2-C32.
Anonymous ¡¥IKEA strategy targets big/bigger/best stores¡¦, DSN Retailing Today; Nov 8, 2004; 43, 21;
ABI/INFORM Global, p. 28
K. Kling and I. Goteman, 2003 ¡¥IKEA CEO Anders Dahlvig on international growth and IKEA¡¦s unique corporate
culture and brand identity¡¦, Academy of Management Executive, Feb 2003, Vol. 17,
WEB SITE:
http://www.thetimes100.co.uk/case-study--swot-analysis-sustainable-business-planning--110-368-1.php
http://www.IKEA.com/ms/en_US/about_IKEA/pdf/sustainability_Report_2010.pdf
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