IKEA E-Commerce - Case Study Example

IKEA E-commerce Founded by Ingvar Kamprad and headquartered in Sweden, IKEA Company is one of the most prominent and largest home furniture manufacturers in the world now. ‘The first IKEA’s store in the world was opened in 1958 in Älmhult, in Småland’ (Burt et al.11). Since then the growth and development of IKEA as a leading furniture manufacturer was phenomenal. In the 60s-70s, Ikea was able to seize a considerable market share in global furniture industry. The introduction of globalization in the 1980s helped Ikea to expand its operations to overseas countries such as USA, Italy, France and the UK. The better utilisation of opportunities in the global market helped IKEA to double its revenue in few years’ time period. Foutilizationr example, from 1997 to 2001, IKEA was able to double its revenue in America. By 2002, America was IKEA’s largest market (Moon 8). As of now, IKEA has more than 292 stores in 40 countries (Sandelands 43). Until a couple of decades before, Ikea has concentrated only on offline sales. However, the introduction of computers and internet and the subsequent development of ecommerce technologies motivated Ikea to expand its operations in the virtual world also. This paper analyzes the ecommerce activities, revenue model, marketing mix and marketing strategies of Ikea Company. Product, People, Price and Promotions are usually considered as the four major elements of marketing mix. Ikea is making periodical changes in the designs of its products to cater the needs of the customers. Consumer buying habits and their perceptions about beauty and quality are changing day by day. Yesterday’s popular or big selling products may not sell well today and tomorrow because of the changing consumer behavior and psychology. Newly designed furniture will definitely catch the attention of the people. That is why Ikea is using production updating or changing designs of its furniture time to time. Earlier, Ikea has given more importance to low priced furniture manufacturing at the expense of better and less importance to designs. That is why their products were labeled as “functional at best, ugly at worst” (Moon 4). Today Ikea is giving more attention to the aesthetics or designs while manufacturing furniture and that also without going for any compromise on pricing. Price is the second element in marketing mix. Ikea uses the slogan “Low price with meaning” (Moon 5) in order to catch the attention of the customers. The company knows very well that the modern consumers are more interested in quality products with cheaper price. The purchasing abilities of the modern consumers has been weakened by the recent recession. For example, American consumers have already started to cut down their expenditure on expensive products. Therefore, Ikea is ready to fix competitive price for its products in American market and elsewhere. “Once a product priority was established, a product developer would set the product’s target retail price using what the company referred to as the matrix” (Moon 3). Pricing is done after the analysis of competitor prices in the market. Ikea is following a matrix approach in pricing. The core of matrix approach is to reduce the prices of Ikea products as much as possible to compete effectively in the market. Ultimately, the future of a company rests in the hands of the end customers even if the company has plenty of resources, and capabilities. Ikea knows this fact very well and it gives ample importance to customer servicing. According to Meyer- Wardeen (87), customer relationship management is an important business strategy which aims to build long-term business relationship with existing customers. Relationship building with the customers is accepted as one of the core business strategy by IKEA. In order to boost customer relationship management, IKEA has provided facilities such as IKEA Family card, electronic shopping, customer interaction channel, telephonic customer service, etc. IKEA uses the family card as a measure to collect customers’ information and to provide rewards to the customers. Promotion is the fourth element in marketing mix. Even good quality products may fail in the market in the absence of adequate promotions. On the other hand cheap quality products may excel with the help of cleverly formulated advertisements. Ikea knows this fact very well and gives ample importance to promotion activities. The slogan “Low price with meaning” is an example for Ikea’s smartness in constructing meaningful advertisements. Another promotion activity undertaken by Ikea is the free coffee and home decoration lectures from Monday to Friday to the family card holders. IKEA’s vision and mission statements stress the importance of people or customers to the company. “The IKEA vision is to create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them’ (IKEA corporate website). IKEA expects its famous blue-and-yellow superstores to remain the lifeblood of an ambitious growth plan, even as visits to ikea.com increased nearly 20% in fiscal year 2013 while visits to physical stores modestly declined. The companys new chief executive, Peter Agnefjäll, said in an interview Tuesday near Stockholm he sees IKEAs e-commerce efforts growing in coming years. But to reach a goal of €50 billion ($68.4 billion) in sales by 2020, the worlds largest furniture retailer needs to keep its focus on setting up more stores (Hansegard and Rolander) Ecommerce or electronic shopping facilities are provided by IKEA to its valued customers. It should be noted that all major companies in the world are currently giving importance to online sales along with offline sales. In fact, online sales or ecommerce is growing much rapidly than offline sales now. E-Commerce helps IKEA to analyse customer information, enhance operating speed, and provide personalized services to the customers. IKEA’s website provides instant chat facility so that customers can contact IKEA any time in a day. Such a strategy helps Ikea not only to improve the online sales but also to improve its customer relationship management strategies. In order to improve the traffic to its website, Ikea has done many things. Just like the architect or designer of a building, e-business also requires an architect or designer to design the site correctly. Ikea has used the services of expert website builders for designing their website. As a result of that, Ikea’s website became very much user friendly in all respects. It takes minimum time for loading and at the same time provides all necessary features needed for the visitors. Ikea uses different business strategies in different countries or regions since global markets are extremely different in terms of economy, revenue streams, politics and culture. The illustration given in the next page provides a rough idea about Ikea’s business strategies in Europe and China. From this illustration, it is evident that Ikea uses different value propositions in Europe and China. In other words, Ikea uses low cost strategy in Europe and affordable price strategy in China. Since Europe is currently struggling because of the recent recession, Ikea is selling good quality products at cheaper rate there. On the other hand, China is one of the most rapidly emerging economies and hence Ikea is selling slightly expensive products there. Ikea has made a lot of customizations in its products ranges in Europe and China to suit the requirements of the people there. Promotions activities and logistics operations in Europe and China are entirely different for Ikea. It should be noted that the advertisements successful in Europe may not be successful in China. For example, David Beckham could be a better brand ambassador for Ikea’s operations in Europe. However, he may not be good brand ambassador for the company in China. In China, Ikea needs the services of local celebrities like Jackie Chan. In short, Ikea uses different strategies in different countries and regions. (Chu et al) “IKEA built a number of factories in China and increased local sourcing of materials. While globally 30 per cent of IKEAs range comes from China, about 65 per cent of the volume sales in the country come from local sourcing. These local factories resolved the problem of high import taxes in China”(Chu et al). China is one of the most important markets for Ikea at present. The rapid economic growth and the increased readiness of the Chinese authorities in welcoming foreign direct investments are helping Ikea’s operations in China. The company is currently giving more importance to its Asian operations even though it concentrated in Europe and America in the past. To conclude, Ikea became one of the leading furniture manufacturer in the world because of its ability to implement customized business strategies in its operations in different countries and regions. The company is currently providing ample importance to ecommerce business activities. Its website helps the customers all over the world to get effective servicing all the time. The company is using the marketing mix- Product, Place, Promotions and Price cleverly to maximize the sales in different parts of the world. Works Cited Burt, Steve., Ulf, Johansson and Asa, Thelander. “Standardized Marketing Strategies in Retailing? IKEA’s Marketing Strategies in Sweden, the UK and China”. Web. 05 July 2014. Chu, Valerie., Alka, Girdhar and Rajal, Sood. “Couching Tiger Tames the Dragon”. Business Today. July 21, 2013. Web. 05 July 2014. Hansegard, Jens and Niclas Rolander. “IKEAs Focus Remains on Its Superstores”. The Wall Street Journal. 28 Jan. 2014. Web. 05 July 2014. IKEA’s corporate web site. “Inter IKEA Systems B.V.” Web. 05 July 2014. Moon, Youngme. E. “IKEA Invades America”. Harvard Business School Case 504-094, April 2004. Web. 05 July 2014. Meyer- Wardeen, Lars. “The Influence of Loyalty Programme Membership on Customer Purchase Behavior”. European Journal of Marketing, Vol. 42 Issue 1 pp.87-114. Print. Sandelands, E. “China Teaches IKEA Limits of Homogeneity: Not Yet Part of the Eastern Furniture”, Strategic direction, Vol. 25 Issue 11, pp: 43-45. 2009. Print.   Read More