Ikea i1y23

OKIN ADEIFE M00271585

MGT 4010 MARKETING STRATEGY FOR MANAGEMENT

A CASE STUDY OF IKEA

SUBMISSION DATE: 10th JANUARY 2010

WORD COUNT: 1467

1. Develop a profile of the typical IKEA customer. To what extent does the profile vary across countries? In order to develop a profile of a consumer, it is essential to view consumers in certain segments such as geographic and demographics (Jobber, 2004). According to Guardian newspaper in the U.K, a typical Ikea customer is a young, single or married man or woman with an average age of 42 and a low-medium income. The profile of Ikea consumers are different and similar in of their geographic and demographics. Ikea consumers are in four different geographic regions namely; Europe, North America, Middle East and Asia. They are also in various cities in 38 countries (Ikea, 2003). The middle class of IKEA customers has similar spending habits. In Russia, a consumer spends an average of $85 per store visit, which is exactly the same in Sweden (Capell, 2005). A typical Ikea customer in China is from 20-45 years old. Most of these customers have families with children, while some are well-educated couples with double income and no children (The Chinese Business Review, 2009). 1. Discuss Ikea’s strategy in of: •

Positioning the brand in the eyes and minds of their customers.

•

The drive for building a strong global brand

•

It’s pricing (strategy) and whether it is sustainable? A strategic position is the face of a business strategy, it specifies how a business aspires to be viewed by its customers, employees and partners in relation to its market and competitors (Aaker & McLoughlin, 2007). Overtime, Ikea has been able to device various strategic avenues or options to help position its brand and ensure that it is highly valued in the eyes and minds of its customers. Some of these strategic positioning avenues include value, quality, contemporary, innovation, emotional and self-expressive benefits,

experience, being global and so on (ibid, p235). In the eyes and minds of Ikea customers, they see Ikea brand as a means to derive emotional and selfexpressive benefits. This is because Ikea has been able to develop a strategy to become more than a furniture merchant by selling a lifestyle that consumers around the world view as a means to express their personality and an indication that they have arrived, have a good taste and can recognize quality and value. Different emotional and self-expressive benefits by consumers can be seen in the case study. Examples include; “Ikea makes me free to become what I want to be” or this: “Half my house is from Ikea and the nearest store is six hours away” (Capell, 2005). Customers also see Ikea brand as been contemporary and innovative. The company has been in existence for long, yet they constantly come up with modern designs to suit the changing taste and expectations of customers, hence Ikea regularly accelerates the creation of new stores in order to serve its growing market. Ikea customers see the brand as an experience. All over the world, Ikea stores are designed in such a way that consumers think of visiting the store as an outing or relaxing activity rather than a task because there are facilities within the stores to cater for children while parents are shopping, there are also restuarants and ample parking spaces. The settings of the stores are usually designed in circles to ensure that the consumers can see almost everything in the store as long as they walk in one direction (ibid). The customers of Ikea perceive the brand as beign global. Ikea has utilized the services of the Internet to enable customers all over the world have access and buy its products. It has also been able to open various outlets all over the world, this is an evidence that it is has the business capabilities to compete and operate successfully in different countries (ibid).

The pricing strategy of Ikea is based on its mission to provide a wide range of home furnishing items of good designs, quality, function and durability at low process to enable majority of people afford them (Ikea 2003). To fulfill their mission and gain competitive advantage, Ikea adopted Porter’s generic strategies that enable companies differentiate their products and services from those of their competitors by offering greater value at low costs (Porter 1985). It is illustrated in the diagram below.

Competitive Advantage Low Cost

High

1.cost leadership 2. differentiation 3a Cost focus 3b. Differentiation focus Broad target Competitive Scope Narrow target

Fig1-Generic Strategies The objective of the cost leadership is to become the lowest cost producer in

the industry (ibid). Ikea has been able to attain the position of being cost leaders by giving their suppliers mandates every year to cut prices but deliver products with great value and quality. To achieve this, the company ensures that designers and in-house production teams work together to identify suitable materials and least costly suppliers (Capell, 2005). To sustain being cost leaders, Ikea should examine some suppliers in countries and make them major suppliers of finished products such as Russia, Canada and United States which are top timber producing countries (Maps of The World, 2006). Where possible, Ikea could make each country produce some materials like plastic and glass. Differentiation aims at delivering products and services that are different from the product mix of their competitors at a cost (Porter, 1985). To attain differentiation, Ikea has a strategy of providing items that are different from that of their competitors. They offer products that are simple with high quality and Scandinavian design. They source for their components globally, the deisgn of their outlets in all countries and are unique and outstanding from their competitor’s. Ilea’s differentiation strategy also involves efficient warehousing and its unique customer selling service of “Do it yourself”. Hence they cut their prices at an average of 2% to 3% each year. Where competition in some market segment is intense, they slash the prices of their competitors and offer the products to customers (Capell, 2005). To sustain this strategy of minimizing cost while producing quality items, IKEA could use raw materials and other resources economically. Differentiation focus aims at differentiating within one or a small number of target market segment (ibid). Ikea has been able to achieve differentiation focus by carrying out researches on styles, cultures and unmet needs of customers in different countries and integrating it into their strategy. Hence they offer a range of products that is wide and versatile in several unique ways while emphasizing simple and distinctive designs and styles at lower cost than their competitor’s. Ikea also ensures that suppliers and designers customize some of their products to enable more sales in local markets. To sustain the differentiation

strategy, Ikea should keep adding functional features into various products so as to avoid customers from buying too many complementary products and afford them a chance to use the products with ease. 1. Describe and evaluate Ikea’s value chain strategy. Value chain is a tool used to identify value added components of a business. Porter developed a model that suggests that the business value chain be grouped into two activities. Primary activities are directly concerned about creating and delivering products, while secondary activities are not directly involved in production process but could increase efficiency and effectiveness of the business (Aaker & McLoughlin, 2007). The primary activities include inbound logistics, operations, outbound logistics, marketing and sales, and services. The secondary activities include procurement, HRM, technology development and infrastructure (ibid). Inbound logistics involves activities concerned with receiving and storing externally sourced materials (ibid). Ikea collect products, components and raw materials from suppliers. The mode of collection depends on the location of the suppliers; it could be by ship, rail or road. Thereafter, the materials are stored in the warehouse (Tait, 2003). After the necessary components and raw materials are available, operation regards the finished products commences. The end products are usually made in such a way that they could be flat packed and mapped together without screws. This saves Ikea from cost of shipping and also enables customers to haul their products home (Capell, 2005). Then, the outbound logistics regards sending the finished products to consumers commence. The products are fit into covers, wraps and are packed and loaded into lorries and trains. To detect damages, video cameras are positioned to look straight into the containers. Thereafter the containers are sealed and bar-coded to ensure proper computerized recording of all products leaving the warehouse and for proper documentation for clearance by customs (Tait, 2003). The next activity is informing consumers about the products and prices. Communication with consumers could be via ment in televisions, newspapers and on the Internet. Ikea also offer services such as delivery,

assembly and installation. Ikea sources for suppliers with appropriate materials that could provide materials at a low cost. Their employees enjoy autonomy, less hierarchy and family-friendly culture.

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(2005).

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Ikea. (2003). Retrieved 27th December 2009, from http://www.ikea.com/.

Jobber, D. (2004). Principles and Practice of Marketing (5th ed.). Mc Graw Hill.

Maps of The World. (2006). Retrieved from http://www.mapsofworld.com/world-topten/countries-with-most-timber-producing-countries.html

Porter, M. (1985). Competive Advantage. Free Press.

Tait, P. (2003). Improving Supply Chain Management in the U.K Industry, Case Study-

Ikea Trading Area Poland. pp 1-10.

The China Business Review. (2009). Retrieved 27th December 2009, from http://www.chinabusinessreview.com/public/0407/company_profile.html.