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EXECUTIVE SUMMARY In 1998, the first IKEA store was opened to the Chinese market in Shanghai, the country’s financial cradle and now ready to expand further. With a consistent economic growth level, China is attractive to most multinational companies as a green of business potential. However, a successful expansion needs to reflect the way in which IKEA understands the marketplace in terms of cultural infrastructure, protection of its brand, trade barriers such as host country legislation, political structure of the intended market e. . failed market entry in Russia and Japan, although it aims at re-entering Japan. Earlier this year’09, the company pulled out of a $1 billion investment plan to start retailing in India because of the Indian government’s strict licensing laws for foreign-owned companies whereby the government refused to raise the ownership cap by foreigners from 51% on single-brand stores. As attractive as the potential Chinese consumer market is with a population of 1. 3billion, not all of multinational companies that have ventured have succeeded.
The method of design, production/manufacture of IKEA products as well as distribution, promotion and sales are steered along course by the “IKEA Concept”. The basis of the IKEA Concept ideology is making available home furnishing products at affordable prices, combining design, quality and functionality. This ideology has helped give access to a vast variety of customers instead of a selective target segment, enabling better living giving a range of lower priced product IKEA is considering further expansion in emerging markets e. g. ore stores in China and new opportunities in India, thorough market assessment is essential especially one which has a pricing strategy taking into account the difference in levels of income of consumers. This paper presents a case study of IKEA’s marketing implementation using techniques such as the marketing mix (the 4Ps) model. The findings illustrate what IKEA must consider in its strategy blue print as it further expands to foster long-term customer relationships and capturing customer value as it adopts a polycentric approach. Contents 1. History3 2. The IKEA Experience3 2. 1IKEA FAMILY4 3.
MARKETING STRATEGY4 3. 1 Guerilla Marketing5 4. MARKETING MIX6 4. 1The 4 P’s6 4. 2Product7 4. 3Price7 4. 4Place7 4. 5Promotion7 5. IKEA in CHINA8 5. 1SWOT Analysis of China8 5. 1. 1Strengths8 5. 1. 2Opportunities8 5. 1. 3Weaknesses9 5. 1. 4Threats9 5. 2PEST Analysis of China10 5. 2. 1Political Environment10 5. 2. 2Economic Environment10 5. 2. 3Sociological Environment10 5. 3Managing sustainable growth for the future10 6. CONCLUSION11 7. RECOMMENDATION12 8. Bibliography13 History IKEA is one of the largest retailers in the world and is a success story starting from the humble roots of a young entrepreneur from Sweden.
Probably the biggest symbol underlying this is with the name itself, coming from the founders initials, Ingvar Kamprad, along with the farm and village from which he was raised, Elmtaryd, Agunnaryd. IKEA has a long history of being innovators starting with its most famous concept of flat pack and self assembly design. This concept was born in 1956 out of a combination of factors including, competitors trying to influence suppliers to boycott IKEA, the need to reduce costs, and with an employee removing the legs off a piece of furniture to easier transit and an ffort to avoid damage. Other concepts where IKEA was a leader with the household furniture industry included, using catalogues, showrooms, restaurants in store, using denim as a furniture fabric, and even with using “particleboard” furniture as a stronger and cheaper alternative to its main natural resource, wood. Fig 1. 1 ??? IKEA Global Reach and Sales Figures With IKEA’s success, it has grown and expanded into 37 countries with over 301 stores (circa 2009). This is a combination of mostly wholly owned stores and some franchised stores.
It is a privately held company with a complex corporate structure including a Dutch registered non-profit parent company that claims a worldwide turnover of ???22 Billion (www. ikea. com). The IKEA Experience The retail experience at IKEA is based on the idea of self-service. Many customers receive a copy of the IKEA catalogue through the post and copies can be picked up as the customer enters the store. Customers can also visit www. IKEA. co. uk for product and store information before their visit. Customers take a trolley and collect a purchase selection form to complete as they go round the store.
Each item in a room set is marked with a ticket bearing the name of the item (e. g. the “Billy” bookcase) which also details its location in “the Warehouse” which is situated on the lower level of the store. The customer is asked to make a note of the warehouse aisle reference number from the ticket and they are then invited to collect furniture items from “the Warehouse”. Items are supplied in flat pack kit form and require self-assembly. Payment for the items is made at the checkout before the customers take the items to their cars. Home delivery is available to customers for an additional fee.
IKEA stores are painted in the Swedish national colours of yellow and blue, a colour scheme that is used throughout the store and on bags and signage. The stores are designed to take high levels of visitor traffic. There is also is a supervised pay area for small children, a baby care room, a restaurant and a small food store where Swedish food items can be purchased. 1 IKEA FAMILY IKEA family is different to regular loyalty schemes. IKEA want to get to know their customers, and so we reward each purchasing visit they make to our stores, regardless of how much they spend.
The more you visit the more you a customer gets. Benefits with IKEA FAMILY include 25% off selected products from the regular IKEA ranges 25% off the exclusive IKEA FAMILY range Free home furnishings magazine Offers via e-mail [pic] Fig 2. 1 – IKEA Family Card IKEA family membership is completely free to join by signing up online or in store. MARKETING STRATEGY The IKEA vision, business idea and market positioning statement provide a framework for all IKEA marketing communication worldwide. The IKEA vision is “To create a better everyday life for the many people. IKEA works on a price leadership strategy. While deciding on any product IKEA first agree to a price, a price that their customer would be willing to pay for that product. They then develop the product around that price. 3. 1 Guerilla Marketing IKEA uses non-traditional marketing techniques especially around new store openings. These techniques are known as Guerilla Marketing and are designed to achieve maximum results for minimum costs. Often they are displayed in busy areas within cities. The key to success is maximum exposure.
With Guerilla Marketing it’s important to make your point quickly, keep it current and relevant and use the element of surprise. IKEA recreates public areas such as redecorating a New York bus top or a Japanese Subway Train. By placing their products in commonly used places they gain that exposure they are looking for. (Preferredposition. com) [pic] Fig 3. 1 – Beijing Loves IKEA ??? but not for shopping The above picture is taken from an article in the LA Times and shows how some of the Chinese customers view IKEA. IKEA has managed to successfully build stores in China, but the locals view the stores in an unexpected way.
Rather than thinking of IKEA as a place to buy some cheap furniture they see it as a place to relax for the day and lie down on the sofas and beds. It is also seen as a good place to get a cheap meal and entertain the kids. Some locals take a camera along to take pictures of all the furniture and see no need to buy the furniture because they have the pictures. (latimes. com) MARKETING MIX 1 The 4 P’s A marketing strategy remains only on paper without detailed planning of the marketing mix. According to Armstrong and Kotler (2006), the marketing mix is one of the major concepts in modern marketing.
It is the set of controllable tactical marketing tools???product, price, place, and promotion (the 4Ps)???that the firm blends to produce the response it wants in the target market. One should notice that the 4Ps model is a framework under which marketers can design marketing programs more systematically. [pic] Fig 4. 1 – The 4Ps of the marketing mix (Source: Armstrong and Kotler (2006) Marketing: an introduction) 2 Product 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.
IKEA is the home furnishing specialist and its product range is developed to be extensive enough to have something that appeals to everyone and to cover all functions in the home. The products are modern not trendy so they are practical enough for everyday use. 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. 3 Price 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 product or service. The low price is not appealing unless it represents good value for money. This is where IKEA is able to make a real difference. IKEA is committed to have a good relationship with the suppliers and so able to purchase good quality, economically produced designs that are bought in bulk to keep costs down.
By making all of the furniture flat packed they cut down on transportation and assembly costs. 4 Place Place includes company activities that make the products available to target customers. 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. Locating the shops in the suburbs of cities also helps to cut down the costs.
Another feature of many stores is their long opening hours. 5 Promotion It 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. IKEA catalogue is the main marketing tool with around 70% of the annual marketing budget. It is produced in 38 different editions, in 17 languages for 28 countries.
In a word, an effective marketing programme blends all of the marketing mix elements into a coordinated program designed to achieve the company’s marketing objectives by delivering value to consumers (Armstrong and Kotler 2006: 53). However, multinational companies, such as IKEA, operate in various markets facing customers from different cultural backgrounds. IKEA in CHINA The Chinese economy has developed greatly since China began to take the road of reforms and opening in the late seventies. China has an unbelievable economic change in the last three decades.
China, the world’s largest developing country became a vast investment market for the developing countries because of cheap labour, abundant natural resources and the best potential market. 1 SWOT Analysis of China SWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. ??? Strengths: attributes of the person or company those are helpful to achieving the objective. ??? Weaknesses: attributes of the person or company those are harmful to achieving the objective. Opportunities: external conditions those are helpful to achieving the objective. ??? Threats: external conditions which could do damage to the objective. Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs. IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the Strengths, Weaknesses, Opportunities and Threats involved in a project or business venture. Strengths Strengths could include a company’s specialist marketing expertise or its location. They are any aspect of the business that adds value to its product or service. IKEA’s strengths include: ??? A strong global brand which attracts key consumer groups. It promises the same quality and range worldwide ??? a strong concept ??? based on offering a wide range of well designed, functional products at low prices ??? a ‘democratic design’ ??? reaching an ideal balance between function, quality, design and price. IKEA’s ‘Cost Consciousness’ means that low prices are taken into account when each product is designed from the outset. 2 Opportunities A business uses its strengths to take advantage of the opportunities that arise. Some of the opportunities that IKEA takes advantage of through its sustainability agenda are: ??? Solutions for a sustainable life at home ??? IKEA gives online tips and ideas for this. ??? Sustainable use of resources. IKEA aims for zero waste to landfill, wastewater treatment and programmes to reduce its use of water. ??? Reducing carbon footprint.
IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015. ??? Developing social responsibility. IKEA’s policy includes support for charities such as the World Wildlife Fund, UNICEF and Save the Children. ??? Being open with all its stakeholders. This involves building trust through good communication with consumers, co-workers. 3 Weaknesses IKEA has to acknowledge its weaknesses in order to improve and manage them.
This can play a key role in helping it to set objectives and develop new strategies. IKEA’s weaknesses may include: ??? The size and scale of its global business. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products. Talking about IKEA in China, we know that IKEA products largely come from Europe??? so, a major priority is to develop relationships with more Asian suppliers.
IKEA should establish a large chain of Chinese suppliers to reduce the manufacture cost. An increase in the amount of Chinese suppliers could potentially drive down delivery expenses from suppliers to stores and thus increased savings could be reaped by both IKEA and their customers. 4 Threats If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from: Social trends: IKEA is building online help to guide customers to a more sustainable life.
It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economic factors: IKEA’s low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. Communication plays an important role here. What about IKEA’s competition in China?
UK-based B, the largest DIY retailer in Europe and the third-largest in world, has several stores in China. But IKEA’s biggest worry may be the many international and Chinese chains and companies that counterfeit IKEA products. 2 PEST Analysis of China 1 Political Environment Chinese government encourages foreign companies to join with Chinese companies, enterprise or other economic organizations in establishing joint ventures in China in accordance with the principle of equality and mutual benefit. 2 Economic Environment When IKEA entered Chinese market, the Chinese economic environment affected its price position.
It was not success in the beginning of IKEA entering Chinese market. IKEA’s business idea is offering a wide range of well-designed, good-quality and functional home furnishing products at prices so low that as many people as possible will be able to afford them. In Europe or other countries, IKEA keeps this core business idea to do its business. Almost every ordinary people including students can afford IKEA products. But because of Chinese economic environment, at the beginning of IKEA entering China, it became a luxury furniture brand in Chinese consumers’ mind. 3 Sociological Environment
Chinese tend to spend most on their living rooms, which he terms the heart of the home where many people “show off” and entertain. Many Chinese living rooms contain a dining table as well, so dining room purchases are also common. Because Chinese kitchens are generally small, customers spend less on them. At one time, bedroom furniture and decorations were the least popular purchases in China, perhaps because the room is the most private and thus least visible place in the home. 3 Managing sustainable growth for the future IKEA has also made a public commitment to be socially responsible through the following objectives: To only use materials from appropriate, sustainable sources; ??? To use the minimum of raw materials and energy; ??? To reduce waste and emission levels in all production for IKEA; and ??? To treat all employees including subcontractors and suppliers with respect and social concern – the use of child labour is not acceptable to IKEA. (IKEA 2003 catalogue) CONCLUSION IKEA succeeded in the metropolitan cities like Beijing and Shanghai. IKEA plans to expand its business in other cities in China. They will open more 10 stores respectively in Chengdu, Guangzhou and Wuhan which are main second level cities in China.
New locations to place stores in other cities are new opportunity for IKEA in China. Investment in China has two-fold benefits: (a) to produce furniture for the export market and (b) to produce furniture for the huge domestic Chinese market. The business potential in China has been further boosted with the country to entry into the WTO. If IKEA is able to get a major share in the Chinese furniture market, then it may well realize its dream to be the largest furniture superstore of the world. IKEA should also take advantage of the Indian market which is the other growing economy in the region.
It has very similar characteristics to that of the Chinese market and the lessons learnt from the mistakes in China should be a good foundation to enter the Indian furniture market. The IKEA policy to create price worthy product will attract the Indian consumers towards them. Products which are cheap and durable are always an attraction in the Indian market. IKEA’s effort on social responsibility has been ahead of the curve compared to most large retailers starting over 15 years ago working with UNICEF to help eliminate Child Labor within its supply chains.
Since then, its policy in this area has continued to evolve and their focus is to get to root of the problem through education and empowering woman in these regions to change the culture that produces child labor as an acceptable practice. Because IKEA has such a committed relationship with UNICEF focused on South East Asian area (Retail Week), we believe that it is another strong indication that IKEA is planning to and will do well to open Retail stores in India, not only to capitalize on the market opportunity of a growing middle class, but to further its social initiative agenda in that part of the world.
RECOMMENDATION IKEA statistics show the company’s current turnover in China accounts for less than 1 percent of its global total. However, growth of the profit margin and market potential in China are greater than anywhere else. It is estimated China will become IKEA’s largest market in 10 to 15 years. The graph below depicts what we think should be the focus areas of the marketing team, in order to expand their presence in China and also when they enter the new Indian market. [pic] Fig 7. 1 – Proposed Focus Areas Currently IKEA is facing a stand-off with the Indian govt. ecause of the govt. ‘s strict licensing laws for foreign-owned companies, and refuses to raise the 51% foreign ownership cap on single-brand stores to full ownership. We suggest that IKEA take up a “Joint Venture” approach to enter the Indian market and create an initial foothold in it. It can then capitalize on the benefits that it brings to the Indian economy and have its say. The development of trusted supplier networks is fundamental to the market driving strategy of IKEA, such that IKEA is able to maintain price leadership in all its operating markets.
Existing IKEA suppliers demonstrate an understanding of working towards the vision and mission of the company such that it can deliver high quality of inexpensive goods. However because the Chinese market is still rigid with the amounts of control foreign investors can have IKEA has to develop the system of inclusion eventually applicable in India. It can develop supplier networks with local “copycats”. Registering of patents and IPR would also be essential to dissuade illegal replication.
To retain appeal as a brand to its current customers as they grow older it would have to extend its product line by developing slightly upscale products thereby gaining customer equity. The suitable method to meet the challenges of its expansion is to find the proper balance between country level autonomy and centralized intervention. It will be more difficult to respond to national needs and cultural sensitivity issues. Bibliography Boone, Louise E. , and Kurtz, David L. Contemporary Marketing, Dryen/Harcourt Brace. Churchill, Gilbert A. and Peter, Paul J. Marketing: Creating Value for Customers. Farese, Lois, Kimbrell, Grady, and Woloszyk, Carl. Marketing Essentials. Glencoe/McGraw-Hill. Kotler, Philip and Armstrong, Gary. Principles of Marketing. Semenik, Richard J. , and Bamossy, Gary J. Principles of Marketing: A Global Perspective. National Post (f/k/a The Financial Post) (Canada), Friday, July 31, 2009, National Edition, Peter Shawn Taylor, Editorial, page A12 ??London Times, Monday October 12, 2009, Edition I, National Edition, Kaya Burgess, News, page 51.
Retail Week, October 23, 2009, “Analysis, Social Responsibility ??? Winning over shoppers with sound ethics”, Sara McCorquodale INTERNET REFERENCES The IKEA website http://www. ikea. com/ms/en_GB/about_ikea_new/press_room/student/index. html Wikipedia Reference Pages on IKEA http://en. wikipedia. org/wiki/Ikea Los Angeles (LA) Times – 25 Aug 2009 http://www. latimes. com/business/la-fi-china-ikea25-2009aug25,0,7736661. story UNICEF Website http://www. unicef. org