The Concept of IKEA - Essay Example

?Market Planning IKEA Table of Contents Table of Contents 2 Introduction 3 Market Planning Changing &Assessing Capability 4 Macro Environmental Analysis 10 Organizational Barriers & Suggestions for Overcoming Barriers 11 SWOT Analysis & Marketing Plan 13 Marketing Mix & Marketing Strategy 16 Ethical Issues in Market Planning 17 Reference List 20 Introduction IKEA is one of the most successful Swedish based private furniture companies of the world. The company designs, manufactures and sells easy to assemble furniture ranges, appliances and home accessories. It is one of the largest furniture retailers of the world. The company was established by Ingvar Kamprad in the year1948. He wanted to introduce the concept called “Democratic Design” in the furniture industry which means that the designs of the furniture range would be modern yet available at affordable prices. The first IKEA Store was opened in Almhult, Sweden to showcase the entire furniture range to the common people. The main objective of the company was to offer exclusive furniture range at an affordable price for the common people. In the year 1940 the company published its first advertisement in reputed newspaper and also sent 800000 catalogues across Swedish homes (IKEA, 2013h). The furniture range was tested at the Swedish design laboratory for proving its genuine quality. The unique selling proposition of IKEA showroom is its wide availability of products ranging from candlestick to coffee tables and exclusive sofa sets (IKEA, 2013c). In addition to the variety of products the inclusion of the restaurant to each store outlets of IKEA was very popular among the customers. The company is famous for manufacturing the four legged easy to assemble table. In spite of the global economic crisis IKEA has witnessed an increase in the sales of furniture by 1.4 percent in the year 2009 from 2008 (IKEA, 2013e). The company yielded profits from the UK sector in spite of the slow economic growth in furniture industry. Figure 1: Annual Sales of IKEA Market Planning Changing &Assessing Capability The market planning method helps in developing plans which help in identification and satisfaction of customer needs. One of the major elements of market planning is to identify the customer needs and requirements through market research and development. Understanding customer requirements is necessary to develop a product as per customer specifications and requirements. Initially, the IKEA furniture range had shades of European design which reflected the European culture and heritage. IKEA was aware of the refined taste of the Europeans and it reflected in the furniture designs. IKEA came up with a unique idea of providing customers with elegant designs at minimalistic prices. This marketing strategy worked wonders for IKEA and the company started yielding huge amount of profits. When the company opened its first American store in Philadelphia in the year 1985 the market seemed to be a very good prospect for IKEA however, the cold behaviour of the American towards IKEA furniture range took the management by surprise. IKEA revamped its marketing strategy completely and renovated the entire furniture range. The marketing tactics worked wonders for IKEA and the sales of the company skyrocketed immediately. By the end of the year 2008, USA became the second largest furniture market after Germany for IKEA. This incident taught IKEA a lesson that the customers of different countries have different requirements and tastes and products should be developed accordingly. Before entering the Asian markets the management of IKEA did their homework well and studied the Asian culture carefully. For example the designs of the IKEA stores in China were similar to that of Chinese homes with attractive colours. IKEA also started paying heed to specific customer needs and requirement for example when a woman would shop with her husband, her husband would get bored so a tool section was introduced for the comfort of the customers. The customer knows that the publication of the IKEA furniture range in its catalogue is very popular among the customers so it regularly revises and publishes the furniture catalogue for the convenience of the customers (IKEA, 2013g). Assessment of Capability: Value Chain Analysis The value chain analysis will be conducted to understand the internal capabilities of the organization. It will be divided into primary and supporting activities. Primary Activities The core activities of the company are to design, manufacture and sell furniture range and various other decorative items. The IKEA range of products is diversified and multifunctional for the convenience of the customers. The target customer base of IKEA is wide and includes children, teenagers, young adults and the aged people. Inbound & Outbound Logistics IKEA has always maintained a smooth and pleasant relationship with its suppliers. Presently, IKEA furniture range is supplied by 1074 suppliers in more than 74 countries to individual and corporate customers (IKEA, 2013f). The suppliers are responsible for assembling, purchasing and distribution of 14500 products (IKEA, 2013f). Operations The co workers of IKEA are responsible for the easy assembling and packaging of furniture products and supplying it to the retail outlets of IKEA (IKEA, 2013f). Marketing The company regards its official website as a major interactive tool with its customers. Apart from the product variety and details the assembling procedure are also provided in the official website. The company still maintains its catalogue system as a major marketing tool which provides information and also helps the company in maintaining constant touch with the customers Services IKEA offers various services like in store picking, kitchen planning and installation, assembling and financial services. Customers can avail the membership facilities by availing the card which offers customers discounts on various products and services. Supporting Activities Support activities involves support assistance require for the primary activities. Procurement A special department of the company known as IKEA Forestry is specialized in procuring wood from the special regions to process it into fine wood (IKEA, 2013d). Technology development The company is solely dependent on technological advancement for the manufacturing and processing hard wood and softwood. Advanced technology permits the management of the company to process and manufacture the wood easily. Human Resource Management Employees form an integral part of IKEA because they are contributing factors in manufacturing and selling wood. Regular training and induction is imparted to the employees for the enhancing their technical and non technical skills. Infrastructure The IKEA stores are spacious and decorated as per the housing arrangements of a specific country. The company has a large factory layout which is equipped with the latest technological advancement to process the wood and manufacture it into exquisite furniture range. For example the arrangement in an IKEA store in Shanghai resembles the housing arrangement of an individual. Competitive Advantage IKEA is the only furniture company to sell a vast array of products which are easy to assemble. The products range from candlestick to coffee table at affordable prices. Macro Environmental Analysis PEST Analysis This analysis will help in determining the external threats and opportunities faced by the furniture industry of UK. Political Presently, the corporate tax rate in UK for multinational corporations is 23 percent which is very high (KPMG, 2013). The UK economy is recovering from an economic slowdown and the government has increased its corporate tax rate for the betterment of the common people. The furniture market has been growing steadily compared to the other markets of different countries. Economic The furniture industry is one of the most profitable industries in UK. The recession witnessed closure of several furniture manufacturing units but presently amidst the economic slowdown the industry has become stable. In the year 2010 there was an increase of 6370 furniture manufacturing businesses within the UK region (Key Note, 2011). The furniture industry contributes around ?7.03 billion to UK GDP (BFC, 2013). Social House arrangement and decoration is one of the top most priorities in UK and the UK common people are very particular about the quality of the furniture range. Arrangement of the house reflects the personality of the UK common people. Technological Technological advancement is a major contributing factor to the success of the furniture industry. Advanced technology permits the furniture industry to manufacture genuine quality and modern furniture range. From the above PEST analysis we can observe that the UK furniture industry is a mature at the present moment. Apart from the political factors it would be wise for IKEA to expand further in the UK region. Organizational Barriers & Suggestions for Overcoming Barriers Organizational barriers can be called as those factors which act as hindrance to the communication, manufacturing and development process of the company. Organizational barriers can range from the problem in designing of the product to customer attitude etc. IKEA needs to first identify the organizational barriers which have been acting as a hindrance in the wood processing and manufacturing procedure (Ellis, 2013). In spite of the popularity the company faces certain allegations like forced labour, Cuban prisoners to manufacture wood (Connolly, 2012). Some of the other challenges that act as a hindrance for further expansion in UK and other countries of the world are increasing corporate tax rate, decreasing purchasing power of the common people amidst the economic slowdown etc. Increasing Corporate Tax Rate: Countries where the retail sales of the furniture range are high has high corporate tax rates. This is not welcoming news for IKEA as this will pose as a barrier for further penetration. The IKEA furniture range is available at affordable prices for the convenience of the customers but the increasing tax rate would lower the profitability of the company. Since, the western countries are facing financial crisis IKEA should develop plans of expanding into Asian regions further. The furniture industry in Asian region is stable at the present moment compared to the western countries hence it would be wise to enter into these regions as the corporate tax rate is lower, availability of labour and resource is cheap and wide etc. The corporate tax rate in the western countries would lower down by the end of the year 2020 hence it would be wise for IKEA to enter these market where the corporate tax rate is lower. Forced labour &Cuban prisoners: Although, IKEA has apologized for utilizing the skills of Cuban prisoners and forced labour for the manufacture of furniture range in East Germany has tarnished the image of the company to a certain extent. The company should develop marketing strategies which would help in brand restoration and also enhance the brand image further. The company should analyze societal and environmental needs and develop plans accordingly. The common people are attracted towards companies attending to the societal and environmental concerns. IKEA can manufacture a furniture range under the brand name “Green IKEA” which would promote environmental awareness among people and enhance the brand image further. SWOT Analysis & Marketing Plan A SWOT analysis will be conducted to understand the strength, weakness, opportunity and threats of IKEA at the present moment. Strength The company manufactures high quality furniture range which is tested at Swedish Laboratory for its genuineness. The stylish and easy to assemble furniture range is available at affordable prices for the convenience of customers. Weakness The designs of IKEA furniture range are modern and do not cater to the customers who prefer elegant and classy European designs. The IKEA furniture range is more suited for the customers who prefer modern designs than elegant and exquisite designs. Opportunity Due to its immense popularity the company has had several opportunities of manufacturing and distribution of furniture range for leading Swedish multinational corporations and associations. Threats It is observed that the potential customers of IKEA complain about the repetitive designs reflecting in the furniture range. This has curbed down the power of IKEA to increase its customer base and expand into other countries. We have observed that in spite of the immense popularity the company faces several accusations like utilizing forced labour, repetitive designs etc. Thus, IKEA should carefully develop an intelligent marketing plan which would cater to a wider customer base and also help in customer retention of the existing customers. Firstly, IKEA should identify the customer needs and preferences in its existing and potential market. The company can conduct a thorough market research and segmentation for the development of accurate marketing strategies. The management of the company should keep in mind that there are four types of customers; external, internal, business and government. Secondly, they should analyze the existing competitor strategy in the potential market and study the designs of the competitors. A marketing plan should be developed after studying the competitor products and design unique furniture range which has never been introduced by the competitors. IKEA needs to categorize its competitors; immediate, near, strong and weak. This will help the company to understand its current strategic position. Since, IKEA is already an established company it does not need to opt for aggressive promotional strategies instead it should showcase its furniture range through its traditional catalogue system. A survey will be conducted in the existing stores of IKEA and leading supermarkets to understand the customer psychology. Understanding customer psychology is prerequisite in understanding the customer needs, preferences and specifications. Thirdly, it would be beneficial if the company revaluates its existing furniture range and chart out the strength and weakness. For example the company should evaluate whether they offer rustic and termite free furniture range, energy and pulp conservation procedures are followed by the company. Fourthly, adhering to corporate social responsibly charter is essential for the company to address the environmental and community concerns. IKEA has been negatively criticized for excessive tree felling and logging (Karlsson, 2012). Although, wood is a natural raw material for IKEA products and feeling of trees is inevitable in the manufacturing process the management can adopt several initiatives like felling of old growth trees (Bradford, 2013) which can provide sturdy wood and also prevent the company’s image from being tarnished to a large extent. Marketing Mix & Marketing Strategy Product: The Company offers exclusive furniture range at affordable prices. The furniture range offered by customers is modern and is exquisitely designed. Apart from offering exclusive furniture range the company also offer services like rent facilities, pick up delivery, bathroom and kitchen cabinet installation, kitchen planning, renting and finance services (IKEA, 2013b). Price: The IKEA furniture range and others services are available at affordable prices for customers. Place: The furniture range is available worldwide in more than 38 countries with 287 stores in more than 26 countries worldwide (IKEA, 2013a). Promotion IKEA follows a traditional form of promotion by providing information about the furniture range and various other services through the traditional catalogue system and also through official website. Therefore, we can observe through SWOT Analysis that the strength of the company is the USP of the company however, the weakness and threats of the company needs to be evaluated while developing a marketing strategy. Presently, the company provides home decoration and arrangement tips to customers but the company should start interior decoration and design facilities which will be beneficial to customers. A strong marketing strategy needs to be developed to penetrate into the markets further and become the market leader in the furniture industry. Although, IKEA provides assembling direction through official websites and catalogues it has been observed that the majority of the customers face difficulty in self assembling the furniture. Thus, the company should be providing furniture assembling guidance in the shop while customers purchase the furniture. Ethical Issues in Market Planning Product management constitutes an important marketing activity which can also lead to rise of various ethical problems. Hise and McGinnis (1975, cited by Nantel and Weeks, 1996) stated that companies offer product with premature life cycle to benefit from product repurchasing. It is observed that marketers will apply moral philosophies and ethical approach to marketing procedures and activities only to achieve target and objectives of the company and not to enhance the brand image of the company. The common people expect the marketers to follow the utilitarianism concepts which define that a marketing service or products should be developed for mass consumerism and provide benefits to an entire consumer mass. The international marketing practices also highlights certain ethical issues and corporate values like providing customers true and accurate information about the products and services. In this case IKEA has to be extra careful because the requirement of wood for manufacturing purposes has been cause of environmental degradation. The core value of the product cannot be altered as wood is essential for the manufacturing of furniture hence, the company should opt for innovative marketing strategies which leads to less felling of trees for addressing environmental issues. IKEA should manufacture energy conservation lighting products which help in satisfying customer needs and also address the environmental concerns. Brand image enhancement is essential from the shareholder’s perspective and therefore it is insisted by them to lay emphasis on strategic decision making which will help in attainment of goals and objectives ethically. Reference List BFC, 2013. About the furniture industry [online] Available at: < http://www.britishfurnitureconfederation.org.uk/about_furniture_industry.php > [Accessed 22 June 2013]. Bradford, H., 2013. 8 Things IKEA Wants You To Forget About . Huffington Post, [online] 9 March. Available at: < http://www.huffingtonpost.com/2013/03/18/ikea-secrets-horse-meat_n_2411475.html > [Accessed 22 June 2013]. Connolly, K., 2012. IKEA faces allegations that it used Cuban prisoners to make its products. The Guardian, [online] 3 May. Available at: < http://www.guardian.co.uk/business/2012/may/03/ikea-furniture-cuban-prisoners > [Accessed 22 June 2013]. Ellis, L., 2013. What Are Organizational Barriers? E how money, [online] 29 May. Available at: < http://www.ehow.com/info_8447643_organizational-barriers.html > [Accessed 22 June 2013]. IKEA, 2013a. Facts & figures. [online] Available at: < http://www.ikea.com/ms/en_GB/about_ikea/facts_and_figures/facts_figures.html > [Accessed 22 June 2013]. IKEA, 2013b. Services. [online] Available at: < http://www.ikea.com/ms/en_GB/customer_service/ikea_services/ikea_services.html > [Accessed 22 June 2013]. IKEA, 2013c. Ideas and inspiration [online] Available at: < http://www.ikea.com/gb/en/ > [Accessed 22 June 2013]. IKEA, 2013d. Forest tracing [online] Available at: < http://www.ikea.com/ms/en_AA/about_ikea/our_responsibility/forestry_and_wood/index.html > [Accessed 22 June 2013]. IKEA, 2013e. IKEA Group net profit FY09 up 11,3% to €2.5 billion [online] Available at: < http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/annual_report.html > [Accessed 22 June 2013]. IKEA, 2013f. Annual reports [online] Available at: < http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/annual_report.html > [Accessed 22 June 2013]. IKEA, 2013g. Catalogues [online] Available at: < http://www.ikea.com/ms/en_AA/about_ikea/our_responsibility/forestry_and_wood/paper_for_the_ikea_catalogue.html > [Accessed 22 June 2013]. IKEA, 2013h. IKEA history [online] Available at: < http://www.ikea.com/ms/en_AA/about_ikea/the_ikea_way/history/index.html > [Accessed 22 June 2013]. Karlsson, I., 2012. IKEA under fire for ancient tree logging. The Guardian, [online] 29 May. Available at: < http://www.guardian.co.uk/environment/2012/may/29/ikea-ancient-tree-logging > [Accessed 22 June 2013]. Key Note, 2011. Household furniture market report 2011 [online] Available at: < https://www.keynote.co.uk/market-intelligence/view/product/10398/household-furniture > [Accessed 22 June 2013]. KPMG, 2013. Corporate tax rates table [online] Available at: < http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx > [Accessed 22 June 2013]. Nantel, J. and Weeks, W., 1996. Marketing ethics: is there more to it than the utilitarian approach? European Journal of Marketing, 30(5), p.09-19. Read More