IKEA Marketing Strategies - Term Paper Example

1 Introduction In the world of Furniture, IKEA is a to reckon with. It has built an image for itself in the Do It Yourself (DIY) market and hasintroduced a new middle class concept of assembling furniture inexpensively. This idea promoted by its founder Ingvar Kamprad in 1956 set it apart from all others and since then it has shed every other business and concentrated on this activity alone. Kamprad had founded the company from humble beginnings at age seventeen in 1943. But perseverance and following a simple strategy of offering customer value for money and service, he eventually built an empire that ranked 42nd among the top 100 brands worldwide in 2005. IKEA’S sales have topped $17.9 billion in the same year through its international furniture chain. IKEA marketing strategies are founded on the principles of serving the customer for all his requirements under one roof. It has a vast range of furniture that is aimed more at the new home builder and this segment comprises of young married couples wanting to build their homes either from scratch or refurbishing it in accordance with current and modern design. They derive their competitive advantage from their ability to offer furniture for the entire house with a very wide choice. Delivery is prompt as the furniture is packed in take away packets that can be carried by the customer immediately on selection from the store itself. This connects very well with the impatient customer who is not keen to wait for weeks for delivery. Since the furniture pieces are erectable easily by the customer himself, he gains further in the shape of lower prices as well as quick installations. IKEA also keeps innovating in products and components and its catalogues are always filled with new and modern ideas that are endearing for the customer. Despite its popularity and uniqueness IKEA has a low penetration in its markets and commands only a 10% share in the markets that it operates in. It has also been facing management problems as well as some consumer dissatisfaction issues arising out of employee indifference. IKEA is now venturing in the lucrative and very consumer oriented North American market. It needs to formulate policies that will be suitable for that geographic region and the big question is what changes it will need in its organisation culture for a successful business venture in this part of the world? 2 Critical Issues There are problems that beset the organisation and have been identified as under. 2.1 Management Issues Doing business on a large scale for maximum market share Corporate social responsibility Reducing costs and enhancing efficiency in core business operations Gaining maximum value from human capital Offering better customer service 2.2 Communication Issues There are several issues that demonstrate that IKEA, despite its phenomenal growth, has failed to lay down any policy for strategically communicating with the market in general and its clients in particular. A. The ownership of has remained in one hand and this has denied the management of infusing alternative views other than that of the owner. Although the owner’s views and beliefs are laudable, yet they offer only broad directions on ethical values to its employees. They do not lay down policies and it does not get translated into measurable action. B. IKEA has only 10 % share of the market wherever it operates but when compared with the popularity rate it is appallingly low. It is apparent that the management lacks vision to set it right. There is either lack of ambition or petering off of interest after reaching a sustenance level. C. The DIY idea is unique but there are no alternates and it appears that instructions are not really lucid for the layman and some amount of technical knowledge is expected of the customer. D. There have been reports of customer dissatisfaction as well as satisfaction in equal proportion. This is not a healthy sign and can deteriorate with competition geared up to do better. E. It has a strange policy opening stores without properly managing the event. Time and again accidents and fatalities occour but except for apologies and promises of future reforms it is repeated all over again. F. It has great advertising but this does not match out in actual sales. The stocks often run out and customers are frustrated. The store management is also very lackadaisical and do not have sufficient resources especially in manning payment counters. 2.3 Planning for the Future Companies need strategies to remain competitive in the market. This is a continuing exercise which brings in changes. These changes lead to strategic issues and managers deal with them in a duality of theory and practice. The theories recommend cold reason and logic wile the practice is overwhelmed by culture and politics of its people. The culture of the organization, whether sponsored or patronized by management or developed by customs and practices, often becomes a barrier in implementing strategic management policies. 3 Competitive Advantage The heart of strategy lies in its competitive advantage (Porter M.E. 1980). When a firm becomes different by offering value, quality and some attributes through which it offers some uniqueness then it will become an above average performer in its industry. But to arrive at this stage the firm must make difficult choices. In a later essay Porter M.E., (1966) redefined strategy to be a combination of differently performed activities. While the activities remain the same, the approach taken to perform or enact them is the strategic decision that pays off. This brings about strategic positions that are unique by themselves and set the organisation apart from its rivals. Corporate strategies have been divided into Five Ps by Mintzberg and they are Plan, Ploy, Position, Pattern and Perspective. While each is a separate type of strategy with its attendant qualifications, yet they are usually present in all strategies to some degree. The real difference lies in the fact that one of them will be dominant and others will play a supportive role. (Mintzberg 1987). Positioning is a long term objective of corporate operations and requires more attention to detail and a firm commitment to accept the consequences and to overcome roadblocks. It is an assertive policy that will require substantial investments and total cooperation of all stakeholders otherwise it might fail. The stakes are huge and results are very rewarding. The one big risk is that in case the objective is changed due to influence of external factors, the whole strategy will have to be abandoned at great cost. Therefore it has to be planned and well thought out over a period of time. It is preferable to first test this strategy for a short period on a smaller scale to confirm its feasibility and acceptance before making full fledged commitment. Porter has described three generic strategies; cost leadership, differentiation and focus that are the foundations of competitive advantage or difference. A cost leader lowers cost through different activities while a differentiator asks for a premium due to the unique features of its product or service. The two can combine to form another generic sub-strategy that offers unique feature while remaining a cost leader. The third strategy of focus is aimed at serving a niche segment limiting to serve a segment with its needs giving up other opportunities. IKEA falls under the sub-strategy of the second type. 4 Effective Communication Strategies In keeping with current trends, following communication strategies play a vital role in customer relations besides achieving management goals for stable growth and stakeholders’ objective of return on investment and profitability. 4.1 Customer Oriented Marketing Strategies A Customer Driven Marketing Markets are heterogeneous and are created by reasons of different values, needs wants, constraints, beliefs and incentives. Customers differ in their values and perceptions and want to purchase things that have value for them. Value is not just the monetary part, but also the usefulness and emotions that with go with it. Their need and want play a great role in determining this value. The price actually determines the location from which this purchase will be made. Service and reliability are other important determining factors. Marketing therefore has to be customer oriented to be successful. For this purpose markets need to be divided into segments and the business should aim to model itself on the segment which it identifies as its target segment to offer it the best service possible. Therefore a market segment is a set of customers that have a common approach to above questions and have a common desire to purchase a common set of goods and or services. They also respond to such offers in a common way. Marketing segmentation would therefore cover the process of dividing customers who have a common need for common variety of products whose preferences vary in very narrow bands for these items. B Strategic Planning & Marketing Process There are many variables of demography and geography that help to determine segmentation. The company needs to consider if the segment is large enough to support its intended sales by price and quantum. Then is there a growth possibility or is it restricted or even declining by nature. The company’s own skills and those of its workers are important too in being able to service the segment being carved out. Both knowledge and communications skills have to be developed and training must be carried out for improvements. Finally it must also be borne in mind that such segmentation must be within the scope of the company and stakeholders policy. For an effective and efficient Marketing strategy, segmentation is an important tool, but segmentation research data precedes selection and segmentation methods models and procedures are based on customer profiles. Profiling requires certain pre-conditions and they are that a group of customers need specific products and there is nominal variance in their expectations. This will result in effective and profitable Targeting. Customers, by nature are of three distinguished types and a company needs to handle each with great care. They are purchase decision makers and they must be cultivated according to their outlook and preferences. There is the ultra-conservative type. This segment is highly consistent with their way of doing things. In their case any deviation might alienate them therefore it is very important to cater to them repeatedly in the same form and manner as the last time. Once established they seldom change preferences. They become wary if discounts are offered or premium charged as for them it translates into loss of consistency. Cost effectiveness is acceptable if it does not disturb the status quo and bulk offerings are acceptable on similar conditions. They are very negative towards complex offerings. Then there are the conservative ones who will veer towards the new or unknown only if it involves low risk and competitive pricing. They are neutral to complex offerings and prefer to stay within a wide band of preferences, making few experiments. Lastly the Liberals who would like to try anything new and willing to take up a challenging offer. For them the price is secondary and the end result is foremost. They are the daring types who will experiment with new offerings. 5 Managing Change Devising Strategies is but one part and communicating them to the market is the second part of the effort towards reorganisation of IKEA to facilitate its entry in the North American market. But the most crucial part is bringing about a radical change in its culture that has been patronised from the top for a very long period. This culture needs to be reviewed. The culture of the organisation has been defined by Edgar Schein (1985) and acknowledged at three levels of cultural phenomenona: basic assumptions, values, and artifacts. Basic assumptions are the conditions taken for granted in an organisation and considered to be the "correct" way of doing things. These are the foundations and are the deepest level of culture and are the most difficult to change. At the next level are values and these are perceived to be changeable and also that need to be changed. The artifacts are behavioral usages at the front like rules, procedures, communications and technology that are readily changed and indeed do not change values or traditions but are mere change of presentations or mannerisms. The need for change is threefold and all are external factors. Customer requirement, competitive environments and societal expectations all force changes. This was highlighted by George Gordon (1991). He has concluded that these outside influences change both basic assumptions and values. Organisations that fail to recognize these pressures will loose their competitive advantage. The most practical way to bring about any change is to work through the existing culture. This avoids vacuums that are created if one culture is to be replaced by another. This also provides smooth transition from one state to another in gradual and regulated fashion. After studies undertaken by Beer et al (1990) they concluded that if work is the focus of change then it will be successful. They suggest that instead of trying to change the culture, effort should be on changing the work. Hofstede (1990) clarifies this as change in work practices. They go on to state that organisational renewals should begin at the bottom for any change to be effective, and not with the top. Direction from top as diktat fails to change the basics. Instead they argue that their study reveals that outside consultants are more effective in bringing about the coordination, commitment and competencies in the staff and departments as compared to the organization’s own specialists. This has been corroborated by Bates (1990) who further states that actually focus on networking and relationships brings about successful change. The ingredients of change are coordination, commitment and competencies. Coordination is the key to improving the organisation. Commitment is the key to concerted effort to achieve the vision that magnifies the desired improvement. Competencies are the skills that are required to bring about the change. Handy C.B., (1985) has described the culture of the organisation in a different way, one that is easy to comprehend. He has stated that there are four kinds of cultures that organisations follow. He has named them after the Greek Gods, showing their respective power position among the Greek gods hierarchy. In small companies or closely held companies, there is a central source of power and from it all directives emanate and set the tone and pattern of behaviours. In this culture power is derived from top down and personal relationships are of paramount importance and even supersede protocols. He has named it the culture of the Zeus organisation. Currently IKEA falls under this category as it looks to its founder for all ideas and follows them diligently. In highly structured and stable companies there are rules and procedures that define roles and authority. There is a distinct beurocracy that governs all actions and is quite predictable in its thinking and actions. This is a very consistent organisation but it is not flexible and is most difficult to change. This type is named as Apollo Organisation with very firm views. The third type is the network organisation where small teams cooperate and coordinate to deliver specific projects. These types are task oriented and regroup for each job. This promotes and culture of empowerment that is result oriented. It is extremely flexible and quickly adapts to requirement as its sole objective is the result of specific projects. This is named after Athena the youthful god and this culture displays respect for youthful energy and talent. This type prevails in company’s that offer consultancy or similar services. The fourth and last variety is based on the individual as the central and controlling factor. The whole organisation exists to serve the individual’s cause and has no other objective. There is only one principal and one principle. All power emanates from this single source. Examples of such organisations are professionals and this culture has been given the name of Dionysus. Each of these groupings will react to change in a different way and the change management has to be tailored accordingly for maximum effect. 6 Conclusions For entry into the new North American markets IKEA needs to retain or obtain competitive advantage. For this it must have new strategies. Strategies are made by managements who have a vision and a mission to accomplish. For achieving this they need to change the organisation’s focus to the future that is more profitable, productive and provides a better quality of life to its stakeholders. It must also offer extrinsic and intrinsic rewards and recognise achievements. All this points towards, and calls for, changes. Changes are met with resistance through clash with the existing culture of the organisation that is under threat from these changes. The current beliefs, values and customs form the ingredients of culture. The first two are difficult to break but easier to mould. Changes should be introduced in an adaptive mode to work through existing cultures. But this is not easy as there are barriers to the effort exercised through powerful individuals and groups who resist change. There is also a negative perception of change that has to be removed through effective communications. Power politics of vested interests has to be identified and either manipulated or eliminated for change to proceed smoothly. The balance of power has to be redistributed amongst the constituents to facilitate change. At the end of the day most people are not motivated by being pushed. The motivation comes out of the desire to meet their own needs, to achieve something that holds value for them, to be in control, to be recognized, to have self esteem and the satisfaction of having achieved their personal objectives. A successful management connects with these human values and excites people with vision that will help them achieve their personal objectives through visionary strategies. This involvement must be real and for this IKEA has to formulate a vision that takes these aspirations into account. The results of this vision come out in the shape of recognition and reward for the people. Bibliography Bate, P. "Using the Culture Concept in an Organization Development Setting," Journal of Applied Behavioral Science, 26 (1990): 83-106. Beer, M. Eisenstat, R.A and. Spector, B.,"Why Change Programs Dont Produce Change," Harvard Business Review, November-December 1990, pp. 158-166 Gordon, G.G.,"Industry Determinants of Organizational Culture," Academy of Management Review, 16 (1991): 396-415. Handy, C.B. Understanding Organizations, 3rd Edn, Harmondsworth, Penguin Books, 1985 Hofstede, G. B., Neuijen, Ohayv, D.D. and Sanders, G., "Measuring Organizational Cultures: A Qualitative and Quantitative Study Across Twenty Cases," Administrative Science Quarterly, 35 (1990): 286-316. Mintzberg, Henry., THE STRATEGY CONCEPT I: FIVE Ps FOR STRATEGY Mintzberg, Henry California Management Review; Fall 1987; 30, 1; ABI/INFORM Global Porter, M. E., Competitive Advantage. New York: Free Press: 1980 Porter M.E., What is Strategy, Harvard Business Review, 1966 Schein, E.,Organizational Culture and Leadership (San Francisco: Jossey-Bass, 1985). Read More