IKEA marketing concept - Essay Example

Task: Marketing Essay Value based pricing is a pricing strategy based upon the potential value the product or service will bring to its customers; based on the amount they are willing to pay for the product or service. The company determines how much value the prices will bring to customers from factors such as efficiency and stability. It is favorable for sale of goods based on emotions, shortages or indispensable add-ons. Cost based pricing is a pricing strategy based on the cost of producing the given product in the market. The price gets set above the cost of production in order to take consideration of the profits the company wants to accrue. The consumer lacks consideration, but the cost of production is considered. It is favorable for goods sold to highly sophisticated customers. (Hilstrich 2000 page 12). The benefits of value-based pricing are the ability to set prices that are likely to attract buyers because of the market consideration. The major challenge for this approach is the extensive need of advertisement to sell the brand name to customers for them to accept its benefits. The profit margin is also extremely low, and it is not easily accounted for entirely. It can also alienate some customers who purchase based on pricing. (Hilstrich 2000 page 24). Cost based pricing benefits ranges from the high profit margins by goal setting by the company. The greatest drawback is the high pricing that may exceed the consumer threshold, which leads to a struggle in the generation of enough volumes for the market. It also ignores the image of the product to consumers and thus lower profit per sale than would otherwise be realized. The IKEA Company uses the value based pricing strategy in the pricing of its products. This is the best pricing strategy that the company uses to provide the home products to its customers. A nonprofit oriented company provides the goods to the market at somehow consumer friendly prices. The company also enjoys a large market and is being exempted from taxation due to consumer consideration during pricing. During the company’s establishment, they used the penetrating pricing strategy by offering lower prices for their products in order to attract the market. This approach made them accrue a larger market around the world. Their production costs were also low because they used the prisoners as their source of labor. With time, they gained momentum in business but continued offering their products at lower prices. They were exempted from taxation due to this undertaking. They did not mostly use the skimming approach though they were a significant competitor in the market. To attract other companies into the market, they used the skimming approach, which later lowers the prices due to increased supply in the market. The company’s aim is to provide the household products to the market at lower prices. They are exempted from taxation and the profits accrued are shared to the owner at a constant rate. Economic recession forces it to increase the prices as well as the other competitors increase their prices. The economy approach also gets used because the costs of marketing and product promotion are low. The price notations at different times of the year by using offers are common in the company. The power pricing consideration shows that the company determines its prices in relation to the price elasticity of demand. Therefore, an increase in the prices of its products does not decrease the demand of its products. The increase in prices is so low and thus it has a little effect on the demand. Question 2 – on distribution Hilstrich, 2000 states that vertical marketing is a form of distribution from the producer to the wholesaler, then to the retailer and to the consumer with the aim of targeting a given industrial niche. This is carried out by related businesses that take part in the provision of a given specialized needs. Horizontal marketing is a form of distribution channel whereby many organizations, which are at the same level, join for capitalizing on a new business opportunity. The firms combine resources and production capabilities to maximize their profits. The IKEA Company uses the vertical level of distribution. They have the work areas in distribution that is necessary towards the overall distribution of the products worldwide. These include the warehouse distribution, customer distribution, retail managers, and wholesalers all over the 33 countries. They have a central store in Sweden and which import their products to different countries. The products then get to the regional distributors who then distribute to the wholesalers and the chain expands to the final consumers. The company employs the vertical approach in marketing since delegation is necessary in the chain of distribution. The strengths of this vertical distribution are the central management of the whole distribution process. The management can control all aspects of the business, anticipate problems, and try to make the necessary changes, which are likely to increase the production and distribution efficiency. The central management also enjoys communication management between the market and the company. This makes them aware of the market trends and the consumer requirements. Though IKEA company produces cheap products, their qualities are necessary in the consumer satisfaction and, therefore, the products are produced under a fair market research. The company also gets a chance to build a strong relationship with the suppliers, distributors and retailers. The company serves a large market and, therefore, the market valuation by these quotas is necessary. This provides the company with the vital information about the market structure and the volume of anticipated production. The company is also able to expand its international market beyond its borders by the use of the proper distribution channels. This ensures the availability of the product to the final consumer, which is likely to improve the brand reputation and thus global product networking. The many channels involved also maximizes the sales of products to the market (Hilstrich 2000 page 242) The main challenge of the vertical marketing is the increased prices of goods. The channels involved in the distribution are numerous and thus bureaucratic increase in prices since all the levels wants to increase their profits. This leads to increase in the cost of production a thus increased pricing. However, the company can cut costs by reducing the channels of distribution involved in the production. This will reduce these bureaucracies and thus reduces costs of distribution of the product to the market. Another challenge facing the company is the coordination of the channels. The central management becomes ceremonial in the decision making of these channels and thus delegation of duties. The company lacks the possibility of flexibility in distribution since it is a large firm. The size of the firm also deters the customers from making significant concerns about the products directly to IKEA Company. This is likely to derail the company of the vital information necessary for the production. Question 3 on promotion The IKEA Company uses various elements of the promotion mix. The company uses personal selling to its customers using sales persons in the 33 countries. They use catalogues, manuals and other techniques to make the customers buy their products. This advertising occurs at the worldwide stores to convince customers to buy the products. The company also carries out advertising in the social media and their websites. Their catalogue can be accessed online, and this provides information to customers. Sales promotions such as sweepstakes are done, and this provides the consumers the opportunity to win various prizes. This later promotes the household products the IKEA Company produces. The company provided furniture to over 100 bridge schools and other charitable organizations. Hilstrich 2000 states that the company uses direct mails to its customers on their purchases and the potential customers. This enables the potential buyers to make direct orders on the products by filling the brochures online. The marketers also explain the benefits of products to consumers. They also undertake exhibitions in their stores, which allow consumers to view their products before buying. The consumer gets a variety to choose from in their pursuit for the best product of their choice. Leveraged sales strengthen the sales strategy by refining the sales skills and aligning the corporate goal of increasing sales. It also allows for effective technology management, and effective time spending in marketing. The company uses different ways in displaying the brand identity, personality and vision. The target market is the low earners who may not have the funds to buy expensive products provided by other companies. The restaurants and the food markets the company engages in include traditional foods, which appeal to consumers. The consumers identify with them and say that the items are just exclusive. The furniture are high class and are manufactured from the Scandinavian wood trees and imported. They satisfy the consumer requirement and thus this provides the market management. The products have low prices and appeal to them. The extensive advertisement provides information to the target market and thus giving them a vision. The target market is considered by providing cheap products without caring about the cost. According to Hilstrich 2000, a brand is first built by PR and later sustained by the advertisement. PR protects the brand of the company from criticism by giving the brand an online voice. It also carries out brand education and after sale services to consumers. It also defines the brand by displaying messages that are likely to go viral and thus acting as a link between the company and its customers. It also addresses issues concerning to the product by depicting how the brand is better than the other brands. They also protect the brand by checking on the negative information concerning the product. All this is necessary before advertising, which strengthens it on the market. Question 4 on the global market place Theodore Levitt; (1983) argues that technological changes are instrumental for the development of new global markets on an unimagined scale. Therefore, multinational corporations have become obsolete; and the global companies become predominant and absolute. The economies of scale of the current multinational companies are based on national markets with higher prices and profits that are viable in a global economy. MNCs treat the products as one entity of the whole market. This makes them charge higher prices for their products in different economies such as the third world countries. It also limits the technological flow between different countries since the products are managed centrally. However, in GC, there is free technological flow between the different countries that these companies operate. From Hilstrich 2000 page 273, the global corporations treat key regions as single entities and this aid in its low cost of operations. It also aids in the technological transfer of ideas between regions and countries on the idea of modern goods that lead to the homogeneity of the products. This leads to the establishment of similar products in the market and the consumers do not have a problem in making a choice. According to Levitt, the MNCs serve the old market, and they rely on products, but the current GCs are price based and are necessary in the new market structures. He concludes that technology determines the human preferences and globalization determines economic realities and this renders MNCs obsolete and GCs absolute. The IKEA Company faces challenges in relation to globalization. The company offers tax exempted goods to the local market at extremely low prices. However, the consumers do not take this opportunity seriously and, therefore; the consumer prejudgment of low quality for low prices haunts them. The consumers only get access to the final product after the manufacture and importation and, therefore, it is not easy to convince them otherwise. The company also experiences managerial hitches in the control of pricing of the products due to the difference in the economic structures of different countries. This makes their goods cheap in a few countries and expensive in other countries. Technological transfer to a few countries is an issue, since remarkably few countries embrace the technological variations and their environmental effect. Their products are linked to global warming in some countries and thus a significant drawback. To strengthen the global position of IKEA Company, there is a need to undertake extensive economic and consumer research before delivering any product in the market. The consumer needs and preferences should be considered in order to reduce the issue of price prejudgments. The company should set up its production branches in different countries to allow for the technological flow of their brands. They should also get involved in the environmental conservation measures to ascertain their support in the market. Implementation of these recommendations will make it become global and command a larger market. Work cited Robert D. Hilstrich. Marketing, 2nd Edition. Boulevard Hauppauge New York; Barron’s Educational Series. 2000. Print. Read More