Marketing Aspects of IKEA Furniture - Coursework Example

work: marketing report Table of Contents Phase 4 Executive Summary 4 Introduction 4 Procedure 5 Findings 5 Competitor Analysis 5 Market Analysis 5 Environmental Analysis 6 Customer Analysis 7 Internal Analysis 7 SWOT Analysis 7 Conclusion 8 Phase 2 8 Executive Summary 8 Introduction 9 Procedure 9 Findings 10 Marketing Objectives 10 Market Targeting and Positioning 11 Strategies for Growth 11 Competitive Advantage 12 Marketing Mix 13 Conclusion 14 Recommendation 14 References 15 Bibliography 17 Phase 1 Executive Summary This study includes the analysis of the marketing aspects of IKEA furniture. The aim of the project is to identify the market share, competitors’ strategies, and external environmental conditions of the country and the attitude of the customers for the company and its products. For analyzing each of the stated factors, different methodologies or tools has been utilized such as PEST analysis and Porter’s five force model analysis. This has also been done for understanding the external environment. The findings derived after analyzing the market for IKEA revealed that IKEA is one of the major players in the furniture retailing market and though the company has many competitors, but due to certain Unique Selling Proposition (USP) the competitors would not be able to shake the strong foundation of the company. The company might face problems due to the economic slowdown that is prevailing around the world, due to which the sales might get affected. Introduction IKEA Furniture is private furniture retail chain in UK, which sells furniture and home products. The company also deals in customized furniture which has to be assembled according to the preferences of the customers. IKEA is one of the world’s largest furniture retailers and it sells furniture like beds, desks, chairs, tables, home appliances and accessories. The company was founded by Ingvar Kamprad in the year 1943, in Sweden. IKEA is best known for stylish, designable and easy to handle furniture. Their furniture is eco-friendly and simply designed. Apart from its products, the company is also known for its cost control aspect. The company has always maintained a standard in controlling its internal cost, paying ample attention to the operational details and continuously developing and improving their product. IKEA is now owned and operated by both profit and non-profit organization. So the corporate structure of the company is segregated into two parts, namely: franchising and operations. The aim of this study is to analyze the functions and developments of IKEA furniture, conduct a complete market analysis of the company so as to understand the present position of the company in the industry and finally recommend strategies for improvement (IKEA, 2012). Procedure The aim of the study is to conduct competitor, market, environmental, customer and internal analysis for IKEA Furniture, so that the actual position of the company in the global market can be identified. Competitors’ analysis can be done by first identifying the competitors, understanding their strategies for the customers, predicting the future steps of the competitors, assessing the value chain of the competitors and developing strategies to challenge their method. The market share of the competitors has to be estimated. The environmental analysis can be done by analyzing the external environmental of the country where IKEA has planned to open up a retail store. Similarly customers’ analysis can be done by studying the behavioural and psychological patterns of the consumers. Finally the internal analysis of the company would be done by assessing the human, financial, and physical resources within the company. Findings Competitor Analysis The major competitors of IKEA are ASDA, Ashley, and Bassett Furniture Industries among others. According to the CEO of the company, their brand awareness is must more than the size of the company. This is because IKEA is not just a furniture merchant like the competitors, but it sells lifestyle to its customers. Apart from the few names IKEA has to compete with the regional furniture brands in the countries which it operates (Hoovers, 2012). Market Analysis IKEA is one of the world’s largest retailers. It has recorded a profit in 2011. There net profit rose 10.3 percent that is about €3.8 billion in the last year. The revenue of the company increased by 6.9 percent which was about €25.17 billion, this was for its 2.5 percent increase in sales. The market share of the company has increased in all markets (Bloomberg Businessweek, 2005). Environmental Analysis PEST Analysis Factors Analysis Political Due to the credit crunch prevailing in the economy, the political conditions of the country is also unstable. Moreover, political pressure from other countries has also compelled the government to take necessary steps because other countries are also taking measures for recession and all the countries are economically interrelated due to global trade and commerce. Economical UK was also going through one of its deepest credit crunch. The retailers in the shopping centres and other departmental store and shopping malls were not getting adequate footfall in their shops. Socio-cultural Most of the companies opted for down-sizing about 40 to 50 percent of the employees lost their jobs. Eventually this led to decrease of purchasing power of the people in the country. The standard of living and their lifestyle started degrading. Technological Big companies spend good amount of money on innovative technology. Porter’s Five force Model Factors Analysis Threat of Substitutes High Bargaining Power of buyers Medium Bargaining power of suppliers Medium-High Threat of new entrants Low-Medium Customer Analysis In case of furniture, different customers have different choice. It depends on the age, personality, lifestyle and preferences. The young generation prefers trendy furniture which is easy to handle and have reasonable price too, while the elderly people would prefer ethnic designs. So customer analysis can be done by analyzing the behavioural patterns and the psychology of the customers (Poulter, 2010.). Internal Analysis The company generates an annual income of €23.5 billion and it employees around 127,000 people. IKEA has around 267 stores around the world. The largest market of IKEA is Germany. There are about 44 IKEA stores in Germany; USA being the second has 37 IKEA stores. The products of IKEA are manufactured in Sweden. The company tries to set its manufacturing unit in the developing countries only, so as to reduce their cost of production. IKEA has its suppliers around 50 countries in the world. About two-third of the purchases are done from Europe and the rest one-third are done from Asia (Reuters, 2012). SWOT Analysis Strength Weakness Economies of scale Stylish product Smart knowledge of using raw materials. Democratic designs Cost has to be balanced against quality of the products Need to keep the stakeholders informed about environmental activities Size of the company Opportunity Threats Greener products Low prices Reducing carbon footprint Economic factors in financial crisis Market forces Conclusion In phase 1 of this study we have analyzed the external environment of UK to assess the market share of IKEA, the position of the company in the market compared to its competitors and also the strengths and weaknesses of the company. It was found that IKEA furniture is the major player in furniture retailing in the world and its profit percent has been increasing every year due to its low price and high quality policy. Moreover, the company is efficient enough to manage all its operational functions and provide the best designed furniture to its customers around the world. Phase 2 Executive Summary The aim of phase 2 is to identify the marketing objectives of IKEA for understanding their goals, visions or missions. It would also help to understand the factors for which the brand is popular among people and the policies of the company to maintain such policies. The methodology used to gather information regarding the company is the simple marketing tools such as analysing the marketing mix elements, identifying the target customers and the way products are positioned for them, preparing sets of competitive advantage and finally developing strategies for growth. It was found that IKEA offers mainly furniture and home accessories. The target customers for the company range from youngsters to old people. The prices are the core area of strength for the company, as it is affordable and customers get attracted to this feature. IKEA has established large retail stores in the outskirts of the city to offer wide variety of products under one roof. IKEA is already one of the major players in the market. The revenue is increasing every year, but it can be recommended that IKEA also pays ample attention to its product quality because furniture are not use and thrown items. The second recommendation would be that the company can open its retail stores within the city too, though the size is small. Lastly, the expansion plan of the company should also include expansion in developing countries. Introduction The vision of IKEA is to provide a huge array of designer products to its customers. The idea of the company is to provide home furnishing products at a low price. The company offers furniture for romantic, stylish, professional and all other type of customers. Low price has always been a cornerstone for the company. The company has kept this goal constant right from the beginning. That is why they have tried to reduced operational cost and efficiently use their raw materials to avoid wastage. In IKEA the price tag of the product is made before the product is ready. This means that product is made to suit the price, and not the reverse. The company has about 1350 suppliers in around 50 countries. This shows that IKEA has strong relationships with its suppliers round the world. The company is not solely concerned about profit but also about the environment and the people living in it. Apart from providing affordable products, the company also uses its raw materials, water, and energy efficiently for maintaining environmental balance. The management in IKEA should first conduct a market research analyzing the demand for the product in the market, then take decisions regarding developing the new product. The emphasis of the company mainly lies on ordering and distribution system. The suppliers of the company are organized according to lead time decided by the company. According to the suppliers, IKEA’s management is very supportive and provides them their desired earning from the product sales. The suppliers are also linked to IKEA’s IT system called ECIS. So there is total transparency in the supply chain management system (IKEA, 2011). Procedure In the second phase of this study we are going understand the marketing objectives of the company, the strategies developed and the process undertaken to implement those strategies in the organisation. The marketing objectives of the company can be analysed through the strategies that the company formulates at the beginning of the year to run the business for a financial year, the market target can be identified by studying the available market segments for furniture industry and the target group can be identified by studying the type of products the company want to produce. After the target group of customers are identified, strategies to position the products can be formulated. The analysis and comparison of the competitors’ strategies would help us to find the competitive advantage of IKEA and finally marketing mix analysis of the company and its products would reveal the product, pricing strategy, place of distribution and promotional strategies of the company. Findings Marketing Objectives The basic activities such as sleeping, eating, storing things, etc creates demand for furniture and other practical products which are essential for human needs. The range of products offered by IKEA serves all these purposes. The primary objectives of IKEA furniture are stated below: To provide good quality products at affordable price to the customers IKEA’s mission is to offer the right product to the right customers. This means to cater to the customers according to their preferences and needs. Reduce the cost of production for offering products at low cost The product development and manufacturing should not affect the environment or the society adversely To improve and create better daily life for people To expand globally and gain market share in most of the countries around the world To establish strong relationship with the suppliers and develop an efficient supply chain system for the company To offer right quality products to the customers To offer everything under one roof, that is offer convenient shopping atmosphere to the customers (Churchman, et al., 2012). Market Targeting and Positioning The target customers of IKEA range from the female and males customers who are young to the old people in their 70s. The customers who purchase products from IKEA are renovators, interior designers, or simply those customers who want to decorate or redecorate their homes. IKEA also has those customers who buy products for reselling them in their retail shops; this is because IKEA offers products at very low cost. Those customers can also be targeted who wish for edgy designs and tailor made products for their home. IKEA was opened with the objective of targeting those people who were looking for cheap and study furniture for their houses. This included young families, college going students or individuals who stay alone and require convenient furniture. IKEA stores are usually found outside the city limits, in those places where there are not many shops. This strategy was to attract the customers and have them all by themselves for IKEA only. IKEA offer a 360 degree shopping experience to its customers. The shop consists of cafeteria in between to fuel up the customers in between their shopping expedition. There are proper parking arrangements for the customers. IKEA offers in store display to allow its customers take a realistic look of the furniture and it would look with a particular background. The furniture of IKEA is made strong and sturdy, so that the furniture could not be damaged by kids in house. Finally, IKEA also targets the hotels and restaurants for supplying them furniture. At these places furniture are required in bulk, so the company gets an upper hand due its low price. Strategies for Growth As a company, IKEA has always been clear about stating their vision for creating better life of people. This means that that company offers products at such low price, that most of the people can afford to buy from their stores. The company has prospered a lot in the last few years. Then the global recession weakened the economy of the world thoroughly. IKEA used this opportunity to increase their profitability. They were already offering products at very low cost. During recession when customers have less purchasing power, they looked for cheap products, which were offered by IKEA. The company did not think of cutting the cost by laying off people, rather they made structural changes in their organization. The company is functioning on the changed structure of the past three years, so in 2011 when the cost of raw materials increased, IKEA offered furniture to its customers at similar low cost, it used to offer. The outcome of such step was increasing market share in almost all the countries, where IKEA does business. There are many competitors in the market, but the range of products offered by IKEA is unbeatable and cannot be matched. The customers get to choose products in amazing designs, vibrant colours and lowest possible price (Kotler, 2008, p. 45-46). Competitive Advantage IKEA is one of the major players in the furniture retail segment. The management of the company has always the motive of offering products to the customers at the lowest possible price. The qualities due to which IKEA always has an edge over its competitors are stated below: IKEA has suppliers in around 50 countries round the world The company maintains a very strong relationship with its suppliers IKEA offers good quality products The designs of the furniture are unique, trendy and convenient IKEA offer a wide range of products IKEA publishes yearly catalogues containing its product pictures and items for the customers The company has an efficient logistics system Innovative design is another USP of the company Special teams are employed in the company for research and development of innovative products and utilizing advanced technology The company has a very positive image in the minds of the customers, so its products are given first preference by them (Baker, Graham, Harker, and Harker, 1998, p. 57). Marketing Mix Product IKEA offers a big range of furniture ranging from kitchens, bedrooms, children room accessories, sofa sets, arm chairs, leather sofas, sideboards, book cases, etc. IKEA also offers furniture for restaurants, hotels and play areas. Apart from this the company also offers home decor items to the customers. The company spends around 70 percent of the marketing budget for preparing and developing the catalogue. About 110 catalogues were circulated around the country last year (Lamb, Hair, and McDaniel, 2011, p. 47-48). Place IKEA is an international business and it deals in furniture and home decor accessories in Europe, Asia, America and Australia. IKEA follows the retail store format. Most of the IKEA stores are out of the town and they are really large for stocking wide range of products. The stores have restaurants, food shops and Swedish markets. Some stores even have play area for children. There are more than 300 IKEA stores (Lamb, Hair, and McDaniel, 2011, p. 25-26). Price IKEA’s core marketing strategy is based on its pricing policy. IKEA does not skim its price, neither does it charges high price to the customers. The policy of IKEA is to balance its operational functions, reduce the internal cost of production and make the products available to the customers at an affordable price or low price. The company also offers home delivery to the customers but charges an additional cost to them (Kotler, 2011, p. 108). Promotion IKEA is one of the biggest furniture retailers in the world. The brand is most popular among people because of its stylish furniture at affordable price. The promotion mix for IKEA would include advertising, sponsorship in television, print advertisements in magazines and newspapers. The company can also advertise in hoardings and other forms of media vehicles. IKEA introduced its recent advertisements for promoting Kitchen fittings and it was called be happy inside campaign. The yellow coloured logo of IKEA serves as a brand symbol for the company. Conclusion In Phase two of the study, IKEA’s marketing strategy and its objectives are discussed. IKEA has always cornered its most important mission or objective right from the advent. The sole purpose was to control cost and reduce product price, offer designer furniture to customers and establish long term relationship with the customers. IKEA wanted to offer a 360 degree experience to its customers. So the shop does not only have furniture, but also play areas for kids, restaurants, food shops, etc, to prevent the customers from getting bored. The core competency of IKEA is its price and wide variety of designer products. None of the other retailers could compete with IKEA furniture variety. Recommendation IKEA is already a market leader. The company does not require many changes, but there are few suggestions which can be stated: Quality of the products should also be good enough. Retail stores should be there within the city too. Company can look for expansion in other countries too apart from only the developing countries. References Baker, M. J., Graham, P., Harker, D., and Harker, M., 1998. Marketing: Managerial Foundations. South Yarra, Australia: Macmillan Education AU. Bloomberg Businessweek, 2005. IKEA. Available at: < http://www.businessweek.com/stories/2005-11-13/ikea> [Accessed 19 July 2012]. Churchman, L., et al. 2012. IKEA Marketing Plan – Part I. Available at: < http://learn.senecac.on.ca/~kskhangura/IKEA_Part_1.pdf> [Accessed 19 July 2012]. Hoovers, 2012. Top Inter IKEA Systems B.V. Competitors. Available at: [Accessed 19 July 2012]. IKEA, 2011. Annual Report 2011. [online]. Available at: http://www.ikea.com/ms/en_GB/about_ikea/pdf/welcome_inside_FY11_20.01.11.pdf. [Accessed 19 July 2012]. IKEA, 2012. Our vision and business idea. Available at: < http://www.ikea.com/ms/en_GB/about_ikea/our_business_idea/index.html> [Accessed 19 July 2012]. Kotler, P., 2008. Principles of Marketing. 12th ed. New Delhi: Pearson Education India. Kotler, P., 2011. Marketing Insights from A to Z: 80 Concepts Every Manager Needs to Know. New Jersey: John Wiley & Sons. Lamb, C. W., Hair, J. F., and McDaniel, C., 2011. Essentials of Marketing. 7th ed. Connecticut: Cengage Learning. Lamb, C. W., Hair, J. F., and McDaniel, C., 2011. MKTG. 5th ed. Connecticut: Cengage Learning. Poulter, S., 2010. This flatpack nation: Ten per cent of all furniture bought by UK householders is from Ikea. Available at: < http://www.dailymail.co.uk/news/article-1318381/Ikea-furniture-accounts-cent-household-items-UK.html> [Accessed 19 July 2012]. Reuters, 2012. IKEA posts record profit, gains in almost all markets. Available at: < http://www.reuters.com/article/2012/01/20/us-ikea-idUSTRE80J0DV20120120> [Accessed 19 July 2012]. 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