Marketing Plan for Ikea Estates - Report Example

Marketing Plan: Ikea E s – BoKlok Homes BY YOU YOUR SCHOOL INFO HERE HERE SUMMARY Ikea E s Introduction Ikea has extended its brand to include a new product line: BoKlok affordable housing. The BoKlok concept, which translates to Live Smart, is a line of Scandinavian-style, timber-built homes that are being marketed to the lower-income consumer. High-built ceilings, open floor plans, and large windows give BoKlok products a spacious, quality and contemporary feel (Gateshead Council 2013). Ikea Estates was developed and prototyped for the Swedish market, in an environment that was notoriously prohibitive for attaining affordable housing. Demand in Sweden and Denmark was so substantial that Ikea could not ensure adequate supply in ratio to demand levels. This has given Ikea an incredible opportunity to establish a brand presence in the United Kingdom as it is expected that demand will be just as significant as a result of recent economic problems, austerity packages, and changes to legislation creating problems for renters. BoKlok houses will be pre-built in established locations in the United Kingdom or available as a flat pack which maintains all necessary supplies in a kit which will require assistance of a contractor to finish the construction process (Live Smart Home 2007). Additional features of these high quality home products include wood floors, large balconies attached to upstairs flats, and fully-furnished Ikea kitchens. BoKlok is considered sustainable housing using wood as the primary building material as it is the only renewable construction resource. 2. Current marketing situation There are only a handful of homes already established in the United Kingdom. Thus, the United Kingdom represents a new market entry strategy which will require investment to achieve brand recognition with desired target consumers. 2.1 Marketing strategy audit To ensure the marketing strategy is relevant and appropriate to tackle the UK housing market, Ikea Estates must establish a mission, set objectives, and fully analyse the external market to determine risks and opportunities for the current plan. 2.1.1Mission and Objective The mission of BoKlok and Ikea Estates is to provide top quality, affordable housing to lower-income consumers, enhancing lifestyle and building life-long brand loyal customer segments to the Ikea brand name. This is accomplished utilising high quality assembly products and utilising the fine interior home products from trusted Ikea. The marketing strategy maintains three distinct objectives: Build brand recognition in desired target markets by August 2013. Gain two percent market share of the UK housing market by December 2014. Further increase market share of the UK housing market to three percent by December 2015. 2.1.2 Strategy BoKlok housing maintains a very long product life cycle, thus the ability for Ikea Estates to compete with reputable housing contractor companies in the United Kingdom is feasible and probable based on lower-cost pricing structures. Having research data that creates accurate profiles of desired target markets will assist in developing an appropriate methodology for entering the UK market. 2.2 The task environment Thompson, Gamble and Strickland (2005) describes the model proposed by Michael Porter indicating five distinct forces in the external market that can drive business success or failure. These include threats of substitutes, buyer control in the market, supplier power, competitive rivalry and threat of new entrants. The threat of substitutes is significant, as the pre-fabricated housing market is well-established in the United Kingdom. There is already an identified lower-income target market for similar high quality, more affordable pre-constructed modular homes. These houses begin at around £37,500 and range to £60,000 depending on size and volume of bedrooms (The Independent 2005). Since the aforementioned pre-manufactured homes cater to similar target markets as those being sought by BoKlok and are priced in-line with Ikea’s pricing model, the existence of pre-fab competitors represents a significant threat in attempting to outperform their existing brands and reputations for quality. There is little buying power held by consumers, even though pre-fabricated homes have a foothold in the United Kingdom. Switching costs for buyers are relatively high due to the extent of the financial investment (it is not feasible to change home suppliers after signing high-cost contracts for construction or set-up). There are only a handful of competitors providing pre-fabricated homes that fall within the same pricing structure as those from Ikea Estates. Though these manufacturers, such as Huf Haus, maintain recognised brands in this market environment, limited availability of potential suppliers reduces the amount of power consumers can exert upon market entry. Supplier power is also reduced with Ikea’s strong purchasing power established within its international supply chain utilised for procurement in Ikea stores. Ikea currently has 1,600 different suppliers spread over 55 countries with a well-established global distribution system (Manufacturing & Logistics IT 2006). Diversity in the supply chain and the ability for Ikea to switch suppliers without interruption to the supply network gives the business much more purchasing power and, thus, removes risk of ensuring cost-effective and adequate supplies either domestically in the UK or internationally. There is very little threat of new entrants, as the capital required to establish a similar package and also procure adequate products are extensive. Ikea can establish barriers to new entrants by maintaining a low cost pricing structure and building strategic alliances with materials suppliers across the globe. Development of such alliances provides competitive advantage by exploiting and sharing partner resources (Copacino 1996). Competitive rivalry is also moderate in the UK, giving BoKlok products an advantage. Though there are several pre-fabricated product suppliers, research did not uncover any distinct and advantageous promotion and advertising that would create extensive target market brand loyalty for competitor products. The majority of competitive activity occurs using intermediates (such as real estate agents) or are promoted with a variety of contractor organisations. There is very little risk that competitive promotions will outperform BoKlok. 2.3 The macro environment The PESTLE Framework served as the model by which Ikea measures the risks or opportunities of the macro environment upon market entry. 2.3.1 Political Current conditions in the UK government make it highly favourable for BoKlok to establish immediate brand recognition with low-income consumers. Current welfare reforms are forcing lower-income social housing tenants to take responsibility for the rental payments rather than having these funds delivered directly to their landlords (Easton 2012). This is creating concern for a variety of current landlords that rents will not be paid, incurring costs for eviction or delaying capital production. Ikea maintains opportunities to target the current landlord population in an effort to sell low-cost BoKlok properties and exit the social housing environment; thereby incurring much less long-run costs. The UK legislature has also established what is referred to as a Bedroom Tax which is forcing low income homeowners with a spare bedroom to pay a sizeable subsidy (Mackie 2013). Growing anger of this and many other legislative developments that seem to target low-income renters and homeowners are leading to widespread protesting throughout the United Kingdom. Ikea can stay informed of the consumer outrage over UK legislation to utilise this as a selling point to coerce downsizing for low-income buyers and illustrate how the floor plan of BoKlok products can better facilitate lower taxation rates. 2.3.2 Economic The current economy in the UK has burdened many low- and mid-level income holders due to recent austerity packages to reduce government debt load and lingering effects from the 2008 and 2009 recession. Unemployment in the country remains stable at 7.8 percent (Huffington Post 2013). It is largely the low-income buyer that is impacted by the current instability of the UK economic environment. The Council of Mortgage Lenders reports that the rental market has increased by 14 percent between 2009 and 2010 (Capstick 2011) due to lack of lending availability with financial institutions that have changed their credit restrictions to remove risk from their lending models. This represents a tremendous opportunity for Ikea to target the renter markets by providing them with low-cost alternatives to renting which provides no long-term return on investment for the renting parties. 2.3.3 Social No unique social trends will impact BoKlok in the United Kingdom. The UK is a very individualistic nation (Hofstede, Hofstede and Minkov 2010; Hofstede 2001) maintaining their own unique needs for seeking home ownership. Research did not identify any socially-related risks attributable to the current social environment in this new market. 2.3.4 Technologic The UK government has set a priority to have all homes maintain zero carbon footprints by 2016 (Capstick 2011). Many environmental imperatives are already considered by the design and construction of BoKlok housing, which is facilitated with modernized construction technologies. However, Tesco announced in 2010 that it had gained the capabilities to sell flatpack housing right off its website, which is a company with a very well-respected brand reputation in many markets. The facilitating technologies using online promotions and sales represent a small risk to Ikea. 2.3.5 Environmental There are many environmental regulations that drive current homebuilding practices that will impact Ikea’s supply chain and capital investments. In 2009, the UK government imposed a Fabric Energy Efficiency Standard designed to regulate fabrics that have been installed into homes (Capstick 2011). BoKlok will have to remain aware of all regulatory frameworks and changes to current regulatory policy when determining the most appropriate construction methodologies that will impact operational design. However, BoKlok products are already designed with superior energy efficiency standards in construction, thus regulatory changes represent only a marginal risk to the current manufacturing strategy at Ikea. 2.3.6 Legal The most significant hurdle to establishing a presence in the UK is the legal risks. In order to establish an estate presence, the business must consult with local planning councils in order to gain approval for timber-built housing developments. This can be a complicated and in-depth process to secure real estate for development. Additionally, inability to procure locations for a complete estate development will force consumers to locate their own real estate, which will compound the total cost of purchasing BoKlok products. Ikea must be sensitive to the legal complications when attempting to develop subdivision BoKlok estates and allocate adequate capital for combating or cooperating with these risks. 3. SWOT Analysis This section describes the strengths of the Ikea BoKlok business model, its weaknesses, what market opportunities exist in the UK and the specific threats to achieving competitive advantage and profitability. 3.1 Strengths BoKlok is already compliant with long-run objectives for environmental sustainability established by the UK government. These strengths are reflected with Ikea’s powerful emphasis on corporate social responsibility. Ikea works with such organisations as The World Wildlife Fund, UNICEF, and Save the Children to identify opportunities for responsible forestry practices, improve cotton growing sustainability, and attempting to improve the lives of impoverished children (Ikea 2013). This emphasis on CSR has given Ikea a very respected brand for its commitment to aiding developing nations and improving environmental sustainability across the world. The Ikea company boasted sales revenues of €25.2 billion in 2012, with a sustainable net income of €3.202 billion in the same year (Ikea 2013; PR Inside 2012). This positions BoKlok with the capital availability (cash flow) and credit worthiness necessary for business expansion and improvement. 3.2 Weaknesses Surges in demand for Ikea products have strained the business’ current distribution system significantly, which already utilises boats, trucks and trains to facilitate meeting demand (Ikea 2010). Online orders for Ikea products continue to escalate, which creates problems establishing the physical and technological systems to sustain distribution needs. This will impact the pre-fabricated home kits available to consumers that must be stored in various warehouse facilities owned and operated by Ikea (a significant volume problem for storage and handling). The business may have to invest in new facilities to keep up with demand, which requires significant capital investment. The business is not currently equipped with contingency plans for distribution that could significantly impact warehousing activities and costs. Contingency theory indicates that as a market fluctuates, the structure of the organisation must be adaptable to remain relevant for business needs (Buchanan and Huczynski 2010). This is something that requires management development and planning to address before launching this campaign. The business has no detailed value proposition for BoKlok products. This is a necessity in order to illustrate to potential buyers how BoKlok and Ikea can provide long-term sustainable value. Value propositions are growing increasingly vital to effectively positioning a brand (Parasuraman 1997; Slater 1997). 3.3 Opportunities Because BoKlok will have to comply with UK regulatory forces associated with environmentalism, the business maintains opportunities to promote its corporate social responsibility efforts to position the business on quality. The heavy financial investment into a variety of CSR activities worldwide can be utilised to provide consumers with a perception of ethics and morality that is critical in the real estate industry. Using this same promotional methodology for advertising tangible, sustainable features provides an excellent opportunity. BoKlok and Ikea maintain opportunities to create strategic alliances with a variety of real estate companies that have a strong competitive foothold in the UK. This will lower some of the promotional costs of the new brand, allow the business to exploit the knowledge resources of well-established realtors to identify potential customers, and can also lead to partnered advertising on inter-linked company websites. Ikea is not well-versed on the geographic and socio-economic characteristics of certain buyer markets in the UK, thus partnering with these agencies will help to facilitate internal knowledge production needed for the promotional campaign. 3.4 Threats Tesco represents a threat to the business with its recent intention to launch very inexpensive pre-fab homes. Tesco has a very well-established brand reputation for quality in the UK and abroad and this company maintains very strong purchasing power along the supply chain as well as the internal capabilities to expand into new product lines. If Tesco is able to undercut even BoKlok’s low price model, the business will have to devote more human and financial capital to identify opportunities to differentiate effectively from Tesco pre-fab products. Should the business be branded as BoKlok or Ikea Estates? Ikea already has very prominent brand loyalty in many different target segments, however the goal is to separate BoKlok from the traditional Ikea business model to make it a stand-alone housing brand. BoKlok has virtually no brand recognition in the UK which poses a threat to gaining immediate consumer demand for the company’s home products. 5. Marketing strategy The section outlines the specific marketing activities that will develop an integrated campaign to, initially, achieve brand recognition with desired target consumers and build market share in the UK housing industry. 5.1 Market segmentation Income demographic segmentation is the most viable strategy for identifying the markets most likely to purchase BoKlok products. Since the pricing structure will be aligned with those who require value in their purchases, demographic characteristics will be identified. The business will benchmark the segmentation strategies of Daewoo, the budget auto maker, which utilises demographic segmentation for price-sensitive buyer markets that require multiple benefits at a fair price (Learn Marketing 2012). There is also evidence that psychographics would be an appropriate segmentation methodology as home buyers have diverse emotions and motivations for why they seek home ownership. Some buyer markets are looking to raise families whilst other markets seek home ownership to build asset value (such as some renter markets). The business will be conducting preliminary research on buyer segments fitting the income profiles most likely to purchase BoKlok products, both qualitative and quantitative, to identify and correlate these traits to develop a more effective promotional campaign. 5.1.1 Target markets and market growth strategies The first buyer market is the 21 to 60 year old market maintaining an income level between £15,000 and £30,000 annually. This market is often driven to rental properties which provide no long-term asset-building opportunities. Further burdened by changing regulatory and taxation structures, this low-income renter market is the most viable buyer for Ikea Estates and BoKlok products. Another identified market is the 60 to 80 year old buyer, normally living on fixed incomes and/or pensions that are seeking affordable housing. Current landlords that have invested in social housing and are finding considerable risk with poor quality rental unit payments is a third market. It was previously identified that many in this market are concerned about costs and capital production problems from the changing regulatory framework for welfare recipients or other social housing tenants. The business will be focusing only on these three markets during the first two years before considering further growth strategies as BoKlok maintains no brand presence in the UK market, thus no brand recognition with other markets. 5.1.2 Market positioning The business believes that quality is the most appropriate positioning strategy, rather than focusing on price. Ikea is utilising top quality construction materials and quality kitchen development that is common within trusted Ikea stores. Pricing will speak for itself, however the quality of the brand will require development to position among other pre-fab manufacturers. 5.2 Marketing mix This section outlines how each element of the brand will be approached in a consumer-centric methodology. 5.2.1 Product It is all about quality. The BoKlok features and high quality construction will be emphasised when approaching target markets. Figure 1 illustrates where the product fits along the BCG Growth-Share Matrix Figure 1: Ikea BoKlok position along BCG Growth-Share Matrix Model Source: Nemani, J. (2011). Strategy frameworks for innovation. [online] Available at: http://www.sys-con.com/node/2076582 (accessed 7 March 2013). Demand in pre-fabricated home buying continues to grow rapidly as consumers seek to move away from high rental rates, but still maintain the benefits of home ownership. As a star, BoKlok might have to invest more capital for promotion and business development, however it is expected that these efforts will eventually transform the product into a cash cow. 5.2.2 Price The price of the products must be aligned with the income levels of the target markets. Assuming income levels between £15,000 and £30,000, the housing must be priced to offset all manufacturing costs, ensure profit, and also market affordability. Pre-fab kits will sell for £30,000 and on-site BoKlok homes fully constructed with be priced at £60,000 that will also include a small plot of real estate. These prices can be adjusted according to inflation, profit expectations, and competitive pricing established by the small volume of competitors in the market. 5.2.3 Place Fortunately for Ikea and BoKlok, place is not largely relevant. Since many kits will be sold, the buyer is free to identify their own real estate needs. Ikea will only build in regions that support commercial activities, safe and secure community services, and other elements of what would be considered a quality neighbourhood that make up the common criteria when seeking real estate agent assistance in the home buying process. 5.2.4 Promotion Advertising will be the most critical dimension to establishing brand recognition and building market share among competitors. The business will be utilising the data gleaned through market research on the psychographic characteristics of desired target markets and then developing relevant ad concepts based on these findings. Using relevant actors sharing characteristics of the markets, either the elderly low-income markets, landlords, or perhaps young families, the business will create brand connections with consumers. The goal of promotion is to illustrate to target consumers that Ikea and BoKlok can provide opportunities for self-expansion both socially and in the familial sense. Brand attachments are more likely to occur when perceptions of self-expansion is provided by the marketer (Zhang and Chan 2009). The business will also be developing a system of direct mailing that will be targeted to rental property tenants throughout the UK. These mailings will offer limited time incentive coupons for five percent off the purchase to motivate more consumer interest. Sales of kit houses will also be promoted in this literature for sale on the company website, driving more traffic to Ikea. 6. Budget It is expected that demand will significantly outweigh supply capabilities currently maintained by Ikea and BoKlok. The following is the budget for the campaign: Year One Promotions Year Two Promotions Year Three Promotions £3,000,000 £2,000,000 £500,000 Administrative Costs for Alliance Development £100,000 Operational Model Improvements (i.e. warehousing, distribution and technology) £4,000,000 Direct Sales Costs £150,000 E-service BoKlok sales website development £50,000 TOTAL BUDGET FOR CAMPAIGN: £9,800,000 Estimated time for return on investment for campaign: 1.5 Years at 2% market share. 7. Controls The business, on its direct mailing literature, will give potential buyers with their own dedicated website that is distinct, yet linked to the main Ikea web server and portal. A per-click methodology will measure the volume of consumer traffic that is being led to the dedicated sales website that could only be achieved through the website address printed on the sales literature. A redirect function will count volume to determine if the distribution strategy and demand from direct mailing promotions are worth the investment. Quarterly audits will also be conducted by senior and mid-level management to assess operational capacity, production, and the ratio of orders from lower-cost kits to on-site constructed BoKlok houses available on the market. The business will further be developing a metric to measure quality, establishing a total quality management approach to ensure that all products are compliant to regulations and exceed industry norm quality standards. This will be crucial to maintaining the business’ quality positioning. References Buchanan, D.A. and Huczynski, A.A. (2010). Organisational Behaviour, 7th ed. Essex: Pearson. Capstick, L. (ed.). 2013. Key Note Market Report 2011 – Homebuilding, 19th ed. [online] Available at: http://www.keynote.co.uk/reports/a (accessed 8 March 2013). Copacino, W.C. (1996). 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