Analysis of IKEA Marketing - Essay Example

? Marketing Case Study of the of the Answer 3 Target market While offering high quality furniture to the customers at easily affordable prices, IKEA focuses on a number of factors in order to segment the target market (IKEA, 2013a). The primary market segmentation focuses on the age, income level, lifestyles, family life cycle etc. Although the company does not provide the best quality products in the market but it is well known because of the cheap price offerings for the quality products. The IKEA products are often referred as ‘start up furniture’ which is bought by the consumers for their first home. It is due to this reason that the company focuses on income level, age, education etc while targeting the market segment. The market has been segmented in the following manner: Segment Age Group Annual Income Level Psychology Education 1 18 - 25 >$ 34500 This particular age group has a tendency of being driven by social trends. They generally do not possess much knowledge about ethical trading. High school and College (education) 2 26 - 35 $34500 - $ 68000 This age group has knowledge related to ethical trading and they remain ready to purchase quality products by paying high prices. College and masters level (education) 3 36 - 65 >$ 69000 This age group purchases products in order to represent their self image in the peer group. Educational level does not have any influence on the purchasing behaviour of this particular age group. IKEA mainly targets the young group with lower income level (Business Today, 2013). The affordable price offerings increase the demand of the company’s products in the market. The college students those who belong to the young generation cover wide target market for the company as it mainly consists of those individuals who are planning to purchase furniture for 1st time. Another target segment set by IKEA on the basis of demography is the family life cycle. The company targets new families who require furniture for filling their houses but do not have high money to spend for this purpose. IKEA always provides quality products and services to these young families and they provide stores which are entirely environment friendly. The stores have specially designed playing area where the parents can keep their children at the time of shopping in order to complete it in a peaceful manner. The company targets those customers who want high value for their money invested and opt for quality products with comparatively cheap prices. Thus from the above table, target segments 1 and 2 are the target segments for IKEA. Answer 4 PESTEL Analysis Pestel analysis would help in the environmental scanning of IKEA (Lorat, 2009). Political The level of consumer taxation and corporate tax which is regulated by the political authorities of any particular country has an effect on the after-tax income of any corporation. The corporate tax rate has an impact on the profitability of the organization thereby affecting the after tax income as well. IKEA regional earnings are generally subjected to the regional tax laws. The corporate tax rate of any region has an impact on the business structure as well. The special business structure of the organization plays a vital role in the tax rate. IKEA business structure has a subsidiary model which instructs the subsidiaries of the company to abide by the regional tax rules and regulations. In addition to the corporate tax, the trade barriers such as tariff and quotas also have an effect on the businesses. The major reasons behind imposing tariffs and other trade barriers are: protecting the local employment, retaliation, national security etc. However imposition of tariff increases the prices of the products that are imported in the country. This benefits the local producers in place as they are not forced to raise the prices. In case of IKEA, their higher reliance on the local producers rather than import of the products decrease the extent of influence of tariff and other trade barriers on the business profit. Economic The economic growth in individual market always has an influence on the business operations. When the economy of any particular industry is growing rapidly, it provides higher standard of living followed by higher employment rate. This has an impact on the disposable income of the consumers which ultimately turns out to be beneficial for the business profits. IKEA belongs to the country having emerging economy which offers a promising future to the company. There are several other factors which have an impact on the profitability and business success. IKEA has its business operations across large number of countries. Many countries like China and India have very low labour cost and skilled labour which facilitates the company to earn huge profit by performing its business operations in these countries. Social The social factors include variations in the demographic variables of any nation (For ex- age, income, family size). This has a significant influence on the strategic decisions that are taken by the business. For Example- In case of IKEA an ageing population has fewer chances to buy the furniture whereas the young generation always has high chances to demand for trendy furniture. The cultural factors also have an impact on the fashion trend as well as the consumer purchasing behaviour which regulates the demand for the ‘easy-to-assemble- furniture. IKEA also has huge demand in the customer segment with reduced income level because of affordable price offerings made by the company for its products (Innovation Leaders, n. d.). Technological The emergence of latest technology mainly within the retail industry such as online or mobile shopping, RFID (Radio Frequency Identification) have been beneficial for the corporations like IKEA. RFID facilitates the businesses by reducing the cost of operations. The cost is reduced by means of smart labelling, inventory shrinkage, efficient checking out procedure, self stocking etc. Moreover easy access to the online stores of the company offers huge selling opportunities. In addition to this, various other technological facilities like the mobile gift cards, mobile gift payments etc promises the customers easy buying experience. The reliance of IKEA on social media, which acts as an unconventional marketing channel, has benefited the company by incrementing the awareness amongst the targeted market segments and developing strong bonding with the customers. Environmental There are various environmental factors that should be taken into consideration by the company while conducting its business activity such as maintenance of ethics reflecting accountability and sensibility towards forestry, community development, carbon emission etc. All the mentioned issues are significant for the business sustainability and success. IKEA, being an industrial giant, has made continuous contribution towards recycling, proper disposal of hazardous production waste material in the environment etc (IKEA, 2013b; IKEA, 2013c). The local government also ensures that the business performs activities that would reduce the adverse affect to the environment. IKEA performs its business operations in accordance with all these rules and regulations. Legal The legislative requirements like health and safety of the employees at work, employee protection etc demands for the proximity of the objectives of IKEA with local legislations. The company maintains its responsibilities in terms of employee protection, their safety at workplace. The other legal frameworks are also followed by the company in order to sustain and achieve success as a market leader in the industry. Answer 5 ANSOFF’s Matrix IKEA should utilise ANSOFF’s matrix in order to reduce the competitive threat in the business operational market (Mintzberg, Ahlstrand & Lampel, 2009; Pettigrew, Whittington & Thomas, 2006). IKEA should adopt the strategy of product development and market penetration (Walker, 2003). Product Development Rationale: IKEA has achieved success with the existing product offerings in the market. It should plan for introducing new products in order to attract more customers towards the company (Venture Navigator, 2006). The company has set the young generation with lower level of income as its target segment. Thus it should provide new products which would be able to target new customer segments in order to widen the target market. Market penetration Rationale: The Company should sell more established products in the existing market. This would involve reduced risk level that would have been involved in introducing new products into new market. Porter’s three generic strategies Porter’s three generic strategies, which have been suggested by Michael Porter, would help IKEA in planning and implementing the best strategy for achieving competitive advantage in the market (Eldring, 2009; Porter, 2008). IKEA should implement the strategy of differentiation (Griffin, 2010; Miltenburg, 2005). Differentiation Rationale: The differentiation strategy would help IKEA in strengthening its position and reputation in the existing market segment (Hitt & Ireland, 2008). Frequent market research must be conducted in the market to understand the change in customer trend and performances in order to perform the differentiation in a successful manner. References Business Today. (2013). Couching tiger tames the dragon. Retrieved from http://businesstoday.intoday.in/story/how-ikea-adapted-its-strategies-to-expand-in-china/1/196322.html Eldring, J. (2009). Porter ?s (1980) Generic strategies, performance and risk: An empirical investigation with German data. Hamburg: Diplomica Verlag. Griffin, R. W. (2010). Management. Connecticut: Cengage Learning. Hitt, M. A., & Ireland, R. D. (2008). Competing for advantage. Connecticut: Cengage Learning. IKEA. (2013a). Welcome to Ikea.com. Retrieved from http://www.ikea.com/ IKEA. (2013b). Social & environmental responsibility. Retrieved from http://www.ikea.com/ms/en_US/about_ikea/low_price.html IKEA. (2013c). About social and environment. Retrieved from http://www.ikea.com/ms/en_JP/customer_service/faq/help/about_ikea/social_environment.html Innovation Leaders. (n. d.). Profile: ikea. Retrieved from http://fp05-527.web.dircon.net/ikea_company_profile.html Lorat, N. (2009). Market audit and analysis. Berlin: GRIN Verlag. Miltenburg, J. (2005). 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