IKEA's Global Strategy - Furnishing the World - Essay Example

CASE STUDY: IKEA’S GLOBAL STRATEGY: FURNISHING THE WORLD Introduction IKEA started its operations from Almhult, Sweden in 1958 and then targeted various international markets like Switzerland, Germany, Canada and USA. From 1958 to 1985, IKEA expanded its operations to 18 international markets (IKEA 2010), which shows a waterfall expansion strategy of company. In this report, the expansion and promotional strategies of IKEA in the mature markets have been anlayzed, which helped the company to establish its current market position. Analysis IKEA’s Expansion Energized Mature Markets As analyzed from case study, by standardizing key competitive advantage of offering, IKEA successfully expanded to international markets. The entrance of IKEA into Germany has been unbeaten because of low prices of IKEA’s products. Although Germany was a mature market and various established retailers were attracting the major consumer segments, still IKEA enlarged the market and changed the competitive position because even the established retailers adopted the formula of IKEA in their own operations. In Germany, unlike traditional retail stores, IKEA introduced lean organizational strategies through which it enhanced responsibilities and freedom of employees. These strategies energized employees by increasing their motivation level. Canadian market was also a mature market, however, IKEA through its full advertising campaign, positive word-of-mouth and newly recruited local suppliers, energized Canadian market and successfully established its position. Moreover, in Canada, lean organizational practices were welcomed. In the huge and mature market of U.S. IKEA established it position by catering to the local taste and tapping into local expertise through franchising, acquisitions and joint venture. Therefore, IKEA’s practices insisted the competitors to reconsider their pricing strategies, advertising strategies, product features and management styles. TV advertising campaign of IKEA It has analyzed from case study, that most of the markets which IKEA has targeted, word-of-mouth remained the best effective advertising strategy of the company however, in the U.S. market more focused media-advertising was required. IKEA through its TV advertising campaign touched the personality, life style and emotions of people and encouraged the sales of company. Through this campaign IKEA actually changed the furniture buying behavior of the consumers in the United States. The series of eight TV advertising spots was featured in such a way that every consumer in the U.S. could associate himself/herself with one of the series. Therefore, after this campaign, consumers started buying furniture not only to furnish their living space but as a matter of their lifestyle, personality and emotions. The campaign benefited IKEA because other companies in the U.S. were spending huge in advertising to stay in the business, whereas, by changing the behavior of consumers towards furniture, IKEA grew its customer base. Future IKEA’s Expansion Before making any recommendation to IKEA on its expansion strategy, knowing the early strategy of company is also important. The graph shows cultural distance and learning curve and it is interesting to note that it totally goes with IKEA’s strategy. The company entered into Switzerland, a smaller region and similar to Scandinavian and then it entered into European market. Before entering into U.S. market, a distant market, company not only made late entry but it also targeted Canadian market first, because entering directly into U.S. market was riskier. Cultural Distance and Learning Source: Global Marketing: Foreign Entry, Local Marketing and Global Management by Johansson (2006) It is recommended that IKEA should continue its expansion in the U.S. and at the same time it should continue its expansion in other countries as well. Expanding in the U.S. is beneficial because IKEA has significant knowledge of U.S. market and most of the regions are still unexplored. IKEA should expand into other economies because of the increasing demand of IKEA’s products and also to achieve first mover competitive advantage. Conclusion Based on above analysis, it is concluded that IKEA has proved itself as a leader in furniture manufacturing and retailing. Company’s expansion strategy to expand gradually from more familiar to less familiar distant markets has been very successful. The company through its lean organizational practices, full advertising campaigns, low cost products, easy-to-carry furniture and modern furniture energized the mature markets and changed the competitive situation. TV advertising campaign changed the furniture buying behavior of consumers and helped the company in facing advertising rivalry in the U.S. market and reducing entry barrier. Moreover, it has been recommended that IKEA should continue its expansion in the U.S. and at the same time it should also target other overseas markets. Recommendation IKEA should do enough research on its promotional techniques before entering into any new market because entry into U.S. market has been made after exhaustive study, which proved beneficial for the company. The best mode of entry in the other U.S. markets for IKEA will be to establish wholly owned manufacturing subsidiary, in which company will have its assembly and full-fledged manufacturing in the U.S. Although company does have wholly owned subsidiary in the U.S. however, the company has been entering into new U.S. markets by making joint ventures and franchises. While expanding in the U.S. market, IKEA should come up with more customizable options because customers in the U.S. are more demanding. According to Hofstede’s cultural dimensions, U.S. is considered low in power distance (citied by Johansson 2006); therefore, IKEA’s lean organizational practices should be used in the U.S markets. Executive summary IKEA is one of the renowned manufacturer and retailer of low cost and modern furniture. The successful expansion strategy of IKEA has set useful lessons for the businesses intending to go international. This report discusses the expansion strategies of IKEA through which it energized the mature markets like Germany and Canada and changed the competeitive situation in these economies. It has found that low cost operations, low priced products, modern furniture, lean management practices and unique promotional technqiues helped the company to establish its position in the mature markets. It has found that advertising campaign of IKEA helped the company to overcome the high cost advertising entry barrier in the U.S. Through this campaign, IKEA changed the furniture buying behaviour of consumers and associated furniture with life style, personality and emotions. It has recommended to IKEA that it should continue its expansion in the U.S. however, it should not solely focus on the U.S. market. To achieve first mover advantage in various international markets, IKEA should keep expanding into these markets. To avoid problem, such as IKEA faced in the U.S. market, company should do enough research on promotional technqiues. If company expands in the other U.S. markets then it should establish wholly owned subsidaries and it should give more focus on introducing customizable products. Moreover, lean management practices are also expected to be admired in to U.S. because of low power distance in U.S. economy. Bibliography IKEA. Facts & Figures. 2010. http://franchisor.ikea.com/showContent.asp?swfId=facts3 (accessed August 16, 2010). Johansson, J. K. Global Marketing: Foreign Entry, Local Marketing and Global Management. Boston, Massachusetts: McGraw-Hill Publishing Group, 4th Edition, 2006. Read More