IKEA UK Marketing Analysis - Essay Example

IKEA UK Marketing Analysis By Table of Contents Executive Summary 3 2.Introduction 4 3.Analysis of the Industry, Market Size, Competition 4 4.Segmentation, Targeting, Positioning and Customer Value Proposition 5 5.Marketing Review of Current activities: The Marketing Mix - The 7P’S 6 I.Product 6 II.Price 6 III.Place 7 IV.Promotion 7 V.People 7 VI.Process 8 VII.Physical Evidence 8 6.Existing Product Management and New Product Development 8 7.Distribution Channels, Innovative edge, Pricing Mechanisms 9 8.Porter’s 5 Forces Analysis 9 I.Competitive Rivalry among Firms 9 II.Threats to New Entrants 9 III.Bargaining Power of Suppliers 10 IV.Bargaining Power of Buyers 10 V.Threat of Substitutes 10 9.PESTEL Analysis 10 I.Political 10 II.Economical 10 III.Social 10 IV.Technological 11 V.Environmental 11 VI.Legal 11 10.Ansof Matrix Model 11 11.Conclusion 12 12.Recommendations 12 13.Works Cited 14 1. Executive Summary This report presents a marketing analysis for the company IKEA in the UK. IKEA is a top international company that specializes in furniture and furnishings. This company aims at retaining its position and competitiveness. However, in the current harsh and challenging global business environment, companies have to be more innovative with effective strategies in order to survive. Performing a marketing analysis is important for any company in order to help in the formulation of an effective strategy. In the UK market, IKEA experiences a highly competitive business environment but has managed to compete healthily through the company’s cost leadership, design differentiation, market segmentation and enhanced shopping experience for customers, among others. Although this has had a positive influence on the company’s productivity in the past years, there remains a need for IKEA UK to adjust and adapt to the UK market shunning the standardized marketing strategy of the larger IKEA and increasing its level of creativity and innovation to match up to the changes in customer tastes, preferences and needs. 2. Introduction It is the goal of every business to experience a high level of productivity and profitability. However, for most businesses, this has been challenging to attain due to the prevailing harsh economic times globally, which have solely contributed to challenging business conditions for businesses in the world today (Mochis 1994). Nonetheless, every business attempts to adopt business strategy that they deem to be effective and efficient, as this is considered to enhance business performance, thus enabling the business to compete effectively in the competitive market at both the local and global levels (Doole & Lowe 2005). Performing a marketing analysis for a business is imperative as this helps in the formulation of a strategy on how run the business with different important factors having been taken into consideration (Freathy 2003). In this respect, the purpose of this report is to resent a marketing analysis for the company IKEA in the UK. 3. Analysis of the Industry, Market Size, Competition The UK furniture and furnishing industry is substantial, thus makes a significant contribution to the UK economy, including the GDP and employment of UK citizens. There are approximately 8,116 companies in the UK furniture and furnishing industry, including retailers, wholesalers, repair, leasing and specialist designers. The furniture and furnishing industry in the UK is segmented into three major sub-sectors based on the different products and markets therein as well as the characteristics of the buyers, including domestic, office and contract sectors. Companies in the UK furniture and furnishing industry often serve more than one market (British Furniture Confederation n.d) The UK furniture and furnishing industry comprises many micro and small to medium businesses that specialize in furniture, furnishings, retail, repair and design. However, the industry is not well recognized at the political level and does not receive the government support it deserves despite its contribution to the UK economy. Nevertheless, this industry has experienced growth in imports while exports registered a slight fall in the year 2013. China, Germany and Italy are key players and drivers of the import growth while the Republic of Ireland, Germany and France are the main destinations for exports from this industry in the UK (British Furniture Confederation n.d). 4. Segmentation, Targeting, Positioning and Customer Value Proposition IKEA, UK uses demographic bases including age, sex, family, job type, socioeconomic status and life cycle to segment its markets. IKEA, UK is mostly visited by females aged 38, and recently, the company targets young couples. Since IKEA, UK mainly targets the middle class people, its products are synonymous with the taste of the middle-class people (Burt, Johansson & Thelander 2011). Positioning and customer value proposition are key concepts in the marketing strategy of any company (Proctor 2000). The IKEA, UK has unique Swedish designs and cost leadership in the market, and these differentiate it from its competitors. This company sells 30-50 percent lower than its competitors. This is partly made possible because IKEA designs its own low-cost ready-to-assemble furniture. Employees of IKEA are trained on energy conservation and managers are encouraged to use buses and not taxis. Low-cost suppliers mainly from developing countries are chosen and expensive wood is used only on the visible parts of the furniture (Burt, Johansson & Thelander 2011). The shopping experience at IKEA, UK is excellent. The company has show rooms where furniture is displayed in room-like settings thus customers need no decorator to explain how the furniture would look when put together. The stores also open till late and on weekends to take care of customers that shop at odd hours. Besides, IKEA offers its services to young people who may not be wealthy but need furniture. The Swedish designs of IKEA furniture are also functional and simple and this makes the company unique (Edvardsson & Enquist 2009). 5. Marketing Review of Current activities: The Marketing Mix - The 7P’S IKEA, UK offers diverse well designed and functional furnishing products to its customers in its broad target market at a low price. The marketing mix comprises the marketing activities that a company undertakes in order for it to effectively meet the needs of its customers in its target market. The marketing mix thus consists of seven elements namely price, product, place, promotion, people, processes and physical evidence (Kotler 2000; Davies & Ward 2001). Generally, the marketing mix of IKEA, UK is well defined to offer creative value for customers, including lower price and retain them for a long time mainly by winning the loyalty of customers. Below is the marketing mix of IKEA, UK. I. Product IKEA, UK has a large number of products that are readily available to customers for all their home needs and sells quality products to its customers at affordable prices. IKEA, UK encourages its customers to embrace the concept of DIY. In the IKEA, UK stores, there are consulting sellers who assist customers with any concern including assembling furniture, purchase decisions and information about the products (Edvardsson & Enquist 2009). This aspect thus differentiates the products of IKEA, UK. II. Price Pricing products in a highly competitive business industry is quite challenging (Rugman & D’Cruz 2003). IKEA, UK adopts a low price strategy which is achieved by ensuring that prices between manufacturers and customers are low and affordable. The company has been able to sustain this pricing strategy partly because it makes bulk orders. The company also ensures that transport from the furnishers via the stores to customers is affordable, and the location of its stores in the outskirts of city centres help to keep this price even lower. Additionally, IKEA, UK offers different payment and credit options for its customers, thus making it easy for customers to make their purchases (Burt, Johansson & Thelander 2011). III. Place By the year 2010, UKEA, UK had a total of 17 physical stores. Most of the physical stores of IKEA are located in the outskirts of cities, and this has helped to cut costs, especially on the side of the customers. Apart from these physical stores, IKEA, UK also maintains an online presence where buyers can view products and make orders for delivery. IKEA’s online presence makes it convenient for customers to shop for products, make inquiries and present complaints, thus saving time (Burt, Johansson & Thelander 2011). IV. Promotion The promotion of products and general marketing efforts of IKEA UK are dominated by the IKEA catalogue. Promotion of products is also done through the television and newspapers, online marketing and use of brochures that consist of information on new offers and new products, which all together promote efficiency in the side of the customer in identifying a product and making purchase decision. Additionally, IKEA, UK collaborates with NGOs such as UNICEF, and this helps the company create a positive public image, which in turn attracts new customers (Burt, Johansson & Thelander 2011). V. People IKEA, UK consists diverse people that make possible the operations of the company. There are also front line employees in the company, who are in direct contact with customers. The sales people promote company sales, and are in contact with customers. The back stage employees influence the product quality and the management process of the company thus indirectly influencing customer-company relationship (Edvardsson & Enquist 2009). VI. Process IKEA, UK has different approaches of handling customer orders, identifying customer needs and addressing customer complaints. The company has both physical and online presence. The customer representatives in the physical stores also play an important role in handling customer complaints and concerns, while customers can also make their complaints known through the online platform. Market research is also important for IKEA, UK to identify the customer needs and requirements in various contexts (Burt, Johansson & Thelander 2011). VII. Physical Evidence The IKEA, UK has 17 stores and serves a population of approximately 60 million people, making this to be one of the biggest markets of IKEA. The major problems that have arisen in the past include access to stores and products running out of stock, even as some customers complain of time wastage with regard to them accessing IKEA, UK stores and sometimes not finding their desired products because of a deficient stock (Edvardsson & Enquist 2009). 6. Existing Product Management and New Product Development The products found in the IKEA, UK stores are not different from those found in other stores across the IKEA world. However, IKEA, UK sells bigger beds than the normal size UK beds. In addition, electrical products are sometimes adjusted. Mainly, the current products that IKEA, UK specializes in include outdoor furniture, home furniture, office furniture, wireless charging, mirrors, clothes storage, flooring, beds and mattresses, textiles and rugs, tools and fittings, decorations and lighting among others (IKEA 2015). IKEA as a whole is considering diversification as a strategy to increase its productivity and maintain growth. The diversification will result in new product development outside of the furniture market. In the year 2012, IKEA announced its plans to develop a chain of economical hotels that would operate across Europe and which would be promoted through the IKEA catalogue (Winter 2013). 7. Distribution Channels, Innovative edge, Pricing Mechanisms IKEA, UK sources larger products from Europe while the company sources other accessories from different parts of the world. IKEA in the UK is known to maintain a low price thus customers are attracted to the company’s low price image. Despite the low price strategy, the IKEA in the UK still promises its customers quality products. This is highly important in any marketing strategy. Brits appreciate companies that can offer them low and affordable prices and quality products at the same time (Dupuis & Dawson 1999). The company also demonstrates innovativeness. Through its advertisements, the company encourages customers to update their furniture based on their lifestyle changes. The company offers flexible furniture, for instance sofa and bed in one, and furniture that serve dual function such as bed with storage. Furthermore, furniture is highly personalized and there is experimentation with new materials (Burt, Johansson & Thelander 2011). 8. Porter’s 5 Forces Analysis I. Competitive Rivalry among Firms The market IKEA, UK operates in highly competitive. The main competitors include Argos, DFS, Ashley Furniture Home Stores, B&Q, Bob’s Discount, Next, John Lewis, Pier 1 Import, Tesco and Rooms To Go among others (Burt, Johansson & Thelander 2011; Craven 2010). II. Threats to New Entrants This force is weak due to market saturation as well as the amount of capital and skilled labour needed to enter into the market. Furniture is also considered to have a low spending priority (Craven 2010). III. Bargaining Power of Suppliers The force is weak as there is competition among IKEA, UK’s suppliers. IKEA, UK has an easy access to resources and diverse suppliers to choose from (Burt, Johansson & Thelander 2011). IV. Bargaining Power of Buyers This force is weak because IKEA, UK sells low cost and quality products that the Brits prefer (Burt, Johansson & Thelander 2011). V. Threat of Substitutes Threat of substitutes is low because IKEA, UK sells low-cost but quality products. The furniture by IKEA, UK are also functional and trendy. 9. PESTEL Analysis I. Political The level of corporate tax and consumer taxation affects IKEA, UK. In the UK, businesses are taxed 30 percent of their profits. Tariffs and trade barriers do not affect IKEA, UK since it relies on local manufacturers. Political instability has not influenced IKEA, UK because the country has enjoyed stability in past years. II. Economical The high potential of economic growth that is exhibited by emerging markets provides a promising future for IKEA, UK. (Burt, Johansson & Thelander 2011). The high level of inflation in the UK affects IKEA, UK in a quite adverse manner. III. Social The ageing population in the UK influences IKEA, UK adversely as old people are less likely to buy furniture. Rural to urban migration increases the demand for furniture as newly settled families might opt for low-cost furniture. Consumer behaviour and fashion trends also influence demand of furniture, as most consumers today may prefer less bulky and easy-to-assemble furniture. IV. Technological An online presence of IKEA, UK has become highly convenient for customers. Additionally, mobile payment and credit card use for payment has also increased convenience on the side of consumers. The use of social media has resulted in increased popularity of the business and acts as an advertising strategy (Burt, Johansson & Thelander 2011). V. Environmental IKEA faces scrutiny over its contribution to carbon emission and environmental sustainability. The local authorities compel business to meet the required standards that have been set for the reduction of negative effects that emanate from business activities. VI. Legal Legislation on consumer protection requires businesses to produce products that comply with the specific consumer protection standards set. Businesses are also required to adhere to legislative requirements that pertain to employee protection, and health and safety at work, among others. 10. Ansof Matrix Model The market development strategy of IKEA has more risk that its market penetration strategy. Diversification is the riskiest because it requires market and product development strategies. IKEA, UK has expanded its supplier base in order to meet its customer needs. Both low-cost labour and inexpensive raw materials for IKEA are some of the aspects that motivated the business’ launch in the UK. IKEA, UK also negotiates with its suppliers effectively and reach a low cost. Although IKEA, UK offers low-cost and quality products, it aims at a long term relationship with customers. IKEA, UK has a strong brand and maintains cost leadership in the market. However, the reliance on the Europe market by IKEA is limiting. Future prospects of IKEA is to expand to newer markets. The introduction of finest lines in IKEA, UK is also limiting as this poses a threat of product over-saturation especially considering the economic situation of the European market (Burt, Johansson & Thelander 2011). 11. Conclusion IKEA UK aims at achieving high level of productivity while ensuring value for its customers. This company is seen to compete effectively in the UK furniture and furnishing industry, and this success can be attributed to strategy the company adopts. Cost leadership is a significant strategy that IKEA UK adopts and this continues to attract more Brit customers who prefer quality products at affordable prices. The design differentiation that IKEA UK adopts equally helps to attract new customers and retain current ones. IKEA UK also caters for the needs of each of its market segment through infusing creativity in product designs and improving on the self image. This company also offers good shopping experience to customers. However, IKEA UK should embrace innovation and improve on its strategy in order to remain competitive in the UK market. 12. Recommendations In order to continue surviving in the competitive and challenging business environment, IKEA UK has to constantly adapt to changes in customer needs, tastes and preferences and be continually aware of the preference trend of its customers. It is considered that the IKEA Company utilises the same marketing strategy for its different markets across the globe (Burt, Johansson & Thelander 2011). For the IKEA UK to increase its productivity, it must shun the standardised marketing strategy of IKEA and instead adopt a marketing strategy that is more suitable for the UK market. IKEA UK should increase the number of its physical stores in the UK. Additionally, IKEA UK must ensure sufficient supplies at all times so as to make products available to customers. This has been an issue with the UK stores, thus needs to be addressed in order for the company to retain its customers. 13. Works Cited British Furniture Confederation n.d., “About the Furniture Industry,” Accessed from http://www.britishfurnitureconfederation.org.uk/about_furniture_industry.php, 18 June 2015. Burt, S., Johansson, U. & Thelander, A 2011, “Standardized marketing strategies in retailing? IKEA’s marketing strategies in China, Sweden and the UK,” Journal of Retailing and Consumer Services. Craven, N 2010, “Competition cuts Ikea sales in UK,” This is Money.co.uk, 31 January. Accessed from http://www.thisismoney.co.uk/money/markets/article-1688065/Competition-cuts-Ikea-sales-in-UK.html, 18 June 2015. Davies, B. & Ward, P 2001, “Managing Retail Consumption,” Chichester, John Wiley & Sons. Doole, I. & Lowe, R 2005, “Marketing Decisions in Global Markets,” Cengage Learning, EMEA. Dupuis, M. & Dawson, J. A 1999, “European Case in Retailing,” New York, Blackwell Publishing. Edvardsson, B. & Enquist, B 2009, “Sustainable Business in Service Companies: Lessons from IKEA,” London, Taylor and Francis. Freathy, P 2003, “The Retailing Book: Principles and Applications,” New York, Prentice Hall. IKEA 2015, “IKEA, United Kingdom,” Accessed from http://www.ikea.com/gb/en/catalog/allproducts/ , 18 June 2015. Kotler, P 2000, Marketing Management Millennium Edition, 10th edn, Prentice Hall, Mochis, G 1994, “Marketing Strategies for the Mature Market,” Westport CT, Quorum Books. Proctor, T 2000, “Strategic Marketing: An Introduction,” London, Routledge. Rugman, A M. & D’Cruz, J R 2003, “Multinationals as Flagship Firms: Regional Business Networks,” Oxford University Press. Salzer, M 1994, “Identity across Borders: A study in the IKEA-world,” Unpublished PhD thesis. Winter, C 2013, “Ikeas Expanding Empire Includes Hotels and Cities,” Bloomberg Business, 06 March. Accessed from http://www.bloomberg.com/bw/articles/2013-03- 06/ikeas-expanding-empire-includes-hotels-and-cities, 18 June 2015. Read More