Marketing Plan for IKEA Company - Case Study Example

Marketing plan Student name Subject Lecturer University Date IKEA Company Executive summary Globalization, sustainability, and technological innovation are some of the biggest drivers of business in any market. In this respect, companies should maintain the agility to gain competitive advantage. Competitive marketing strategies are robust when a company’s strength is positioned against the competitor’s weakness. As such, companies must demonstrate their ability to use their strengths to take advantage of these opportunities in order to provide desirable products to their clients. It is difficult to demonstrate consistency across different countries and cultures with different value systems. Simply put, a strong marketing plan is imperative in this regard. IKEA is a global furniture manufacturing company that prides itself in the manufacture and sales of high-quality furniture at the lowest prices. The criteria argued in this retrospect paper, highlights a number of variables that justifies an effective marketing plan presented for IKEA. It explicates an approach by which the strategies will result to a superior financial performance. Tentatively, an outline of various dynamics that impact the company’s performance, an analysis of its major competitors and recommendations for products, pricing and promotions, are highlighted. Contents 1.0 Introduction 4 2.0 Strategies 4 3.0 Objectives 5 4.0 Potential problems 6 5.0 Company Description 7 6.0 The company Business Environment 8 6.1 Competitive advantage 10 6.2 Target market 13 7.0 Recommendations 14 Reference List 17 1.0 Introduction The foundational knowledge that supports competitive advantage, posits the need for an effective marketing plan. These strategies call for a creative and systematic analysis on various businesses attributes. It is imperative that an effective marketing plan covers extensively its internal and external environment. Such variables offer an in-depth understanding of the marketing approach attuned to the industry. While competitive advantage necessitates for value creation, understanding the market is significant guiding a company’s approach. Since its inception, IKEA has championed as an iconic image of sustainability and provision of high-quality product – at affordable prices. The company has stores and subsidiaries in many countries, and has been the subject of art exhibitions. It is acknowledge to its global presence in various global locations.[Skl11]. IKEA represents Sweden, with its stores having the signature blue and yellow national colors of the country. It has also become a representation of a whole culture and generation and what the modern millennial stands for. The early fifties however posed significant challenges in adopting strategies that enabled it gain competitive advantage. Amid pressure from Swedish furniture competitors, IKEA opted to source suppliers and shift its production abroad. The new locations offered the production of available products, where production was easily realizable through reduced labor cost. This allowed them to produce high quality at low prices [Skl11]. This was cornerstone to the company’s robust brand name. 2.0 Strategies In the face of growing competition and a constantly changing market base, the most appropriate strategy should be an integrated marketing communications plan. Integrated market communications plan optimizes the effectiveness of marketing communications plan across different channels. Integrated marketing communications has three advantages. The aim is that if the communications reflect the same imagery, themes and values, then they will reinforce the message. Using different media channels also increases the chances of reaching larger audiences. Integrated marketing communications also gives the company an element of control. Instead of ceding control to media specialists when passing different messages and the communications strategy will be easy to control from a single point. Brand portrayal is one of the most important aspects of marketing communications [Hac15]. Being an international company, it is important that the company maintain its brand visibility throughout the different cultures and countries where it operates. While the customer creates value through the direct experience of using the product after buying it, marketing also plays a role in enhancing the brand image through communications customers read, see and hear about the brand. 3.0 Objectives The marketing plan will use various media to reach the following objectives; i. Make use of broadcast media to reach a minimum of 70 percent of the target market within the next 12 months ii. Use social media to achieve and maintain a consistent reach of 5 million members of the target audience, with a minimum of 4 hits per week over the next 12 months. iii. Use outdoor advertising targeting members of the target market living between 1 and 3 hours away from IKEA stores, targeting a frequency of five times a week over the next 12 months period. iv. Target 50 per cent of the company media and marketing resources towards current customers and 50 per cent towardsprospective customers within the target market. v. Improve online marketing campaigns to encourage website visits, targeting a conversion rate of 75 per cent. Broadcast media resources available include running ads on cable television, print newspapers and radio. Social media outlets are Facebook, Twitter, and YouTube. Outdoor ads run at an average radius of 100 miles from every IKEA store. The company will also use search engine optimization strategies to increase website visits and conversion rates of visitors to paying customers. 4.0 Potential problems The nature of integrated marketing communications in itself poses problems. The nature of a marketing campaign depends on the marketing brief and the creativity of the campaign developers. Integrated marketing campaigns pose problems because sometimes it is impossible to create a campaign that fits across all required channels seamlessly. While media channels and the access to them have changed over time, the control that integrated communications marketing provides is unrealistic. Absolute control over the message is almost impossible since the chances of leakage are very high. The overall image of a brand depends not only on the value propositions of marketing but also on what people say about it. It is close to impossible to control content generated by other users such as the ones found on blogs, tweets, Facebook posts and Wikipedia. Even if it were possible, many companies would not desire that much control. Brands result from culture and the interaction of customers in the product usage phase. Many brands now include user-generated content in their marketing strategy [Hac15]. However, integration is still important across various channels such that everyone recognizes the brand. 5.0 Company Description A strong vision, mission and company ethic guide the company. The company mission is to provide so many high-quality products at such low prices that the majority of their target market can afford them. Their mission is to create a better life for their customers [Wad15]. They have a strong business culture embedded in their IWAY way of operation. IWAY outlines their values and guidelines for interaction with customers, suppliers, and partners. Initially, the position of the company was that it did not own any one of its suppliers. It did not allow any of its suppliers to have IKEA as the only customer. However, the company position has since changed, and it owns subsidiaries and industrial companies. While it represents Sweden all over the world, the company itself is no longer Swedish. It belongs to a Dutch corporation, owned by a non-profit foundation. The IKEA group itself only works on the design, production and retail end of the company operations (Sklyarova & Kobets, 2011). IKEA has millions of visitors to its stores all over the world and is one of the most profitable companies worldwide. It has a huge product range, with company catalog having an almost religious following [Skl11]. IKEA sources producers from all across the world, looking for those who can produce the highest quality at the lowest price. It organizes its purchasing such that it is always as close as possible to the suppliers in order to maintain good business relations. Most of the products used in the manufacture of IKEA products come from European countries. However, the biggest single country from which it purchases products is China. The company has a general rule that sees it enter into agreements with multiple partners for the manufacture of its high-quality products. This optimizes their volumes and enables them to achieve the low prices that attract customers. They enter into long-term deals with their clients that enable them to make the investments they require with the safety of assurance of supply of raw materials for a long time. One the company’s strength is its efforts towards sustainability. For more than two decades, the company has had an environmental action plan broken down into ten key initiatives [Skl11]. The company way of doing business, the IWAY, is another strong pillar in its operations. The IWAY is a code of conduct that contains the minimum requirements that any partners with the company must meetin order to do business with them. 6.0 The company Business Environment Business environment continually changes and has an impact on every organization in whatever industry. The following are some of the environmental factors that impact the operations of IKEA Technology In a competitive market, no company can survive without reinventing itself, the goods and services it provides and the methods of production. This is the case in European countries where up to 90 per cent of the GDP comes from products that emanate from medium to high technologies. IKEA continues to improve its technology to adapt to the changing needs of the market[Elg15].Being a global company that diversifies production, IKEA must do this in a world where the difference between the developed and developing nations with respect to technology is huge.Although IKEA products do not look very high tech, the scale of operations of the company requires technological support in terms of advanced information technology systems and logistical support. Government Regulations Every product produced by IKEA must be tested and comply with all the safety regulations [IKE15]. Since 1961, it has been testing all its products to make sure they are safe to use. Any new product must undergo extensive risk analysis and safety testing. The company upholds its promise of low prices but not at any cost. It does not follow any shortcuts when it comes to environmental regulations. The company complies with all the safety regulations regarding the sourcing of wood, use of chemicals and any substance during its manufacturing process. Their forestry knowledge is central to their operations, and they elicit the help of various forestry agencies both in the public and private sector to make sure the wood they use does not come from illegal sources or from natural intact forests. The overall goal of the company is to make sure all the wood they use in future comes from responsibly managed forests [IKE15]. Social and Cultural Changes Socially, the marketing environment is changing rapidly. It is becoming increasingly evident to consumers and that the world faces a scenario of unlimited needs with limited resources. Consumers therefore expect the companies which provide goods and services to them to them to make the world a better place[Ser12].marketing is at the center of this socio-cultural change[Pal11], and moral and socially accepted behavior must be part of the process[Hun111].The marketing strategy must be careful not to lead to a culture of degradation and destruction [Kot111]. IKEA marketing strategy preaches sustainability and conservation first. Confidence in a business and the intention of its leaders depend on whether they keep the promises they make in their philosophy. A view of businesses as being narrow-minded has reduced the confidence of the general public in business leaders[Por111]. Another interesting social and cultural dynamic of IKEA operations and success comes from the design of their products. Their furniture is mostly assembled at home after purchase, meaning they transfer some of the labor and production cost to the consumer. The general view is that this results in unwillingness of the consumer to pay for the products because of the perceived subtraction of the added cost from the overall price[Nor11]. Contrary to popular belief, popular research points to the connection between labor and well-being. Many people want to feel useful or feel part of an important goal [Kei11]. People like the reward that comes from jobs, and, therefore, overvalue those things on which they worked [Nor11]. This is the reason the nature of the furniture sold at IKEA is so popular. 6.1 Competitive advantage Internal company situation Strengths Weaknesses Strong company culture Well defined company mission and vision Strong brand identity Diversity of products Cost effectiveness of products Investment in environmentally sustainable technologies Good treatment of employees Strong worldwide network Difficulty to maintain standards across different markets and cultures Reliance on cost effective products makes it difficult to expand in some areas No provision for the purchase of already assembled furniture External company situation Opportunities Threats Increased interest in sustainability Increased demand for affordable furniture products Increased use of social media and opportunity for social media marketing Interest of the millennial generation Competing stores selling low price furniture Long recession in America and Europe Similar products and services online Bad press from poor environmental practices in some countries SWOT analysis Strengths The company has a well-stated mission and vision, and a strong organization culture that guides its activities and interactions. Evidence suggests that a high organizational culture can result in a competitive advantage for any company [Mat13]. The company philosophy of the IWAY or the highway paints a picture of an ethically managed company. Their environmental track record resonates with renewed interest in sustainability. Many consumers today wish to identify with environmentally responsible companies; companies that make profits without jeopardizing the needs of future generations. Many companies therefore wish to align themselves with the wishes of the society and their customers. IKEA does this perfectly [Pap111]. The company also invests in its employees, calling them coworkers and considering them, partners. Its global market share comes from a strong worldwide network of franchisees and subsidiaries. Franchisees go through a rigorous procedure for selection, but the company has ways through which it passes good business practice from one store to another [Jor15]. Weaknesses The company relies on the low cost to make profits, which then translates to a reliance on bulk supply and production. This makes it difficult for them to expand in markets that are profitable but do not have characteristics that necessarily support bulk. As a global company, it is difficult to maintain the principle of integrated marketing communication across the various markets. Some customers like to buy already assembled furniture. IKEA does not provide this option for its customers. Opportunities An increased interest in sustainability plays into their hands as their business philosophy involves a strict adherence to environmental sustainability. Social media interest especially by the millennial generation provides an opportunity to leverage social media and online marketing to improve sales. Threats The major threats come from competing stores like Wal-Mart and Target, which have entered the low price furniture market and are tapping into the target market. The threat of competition is especially strong from low price stores like Wal-Mart and target because of their product portfolio. These companies stock more than just furniture, and so have the backing of a strong sales position and economy of scale to expand and succeed in areas where the business model of IKEA does not allow it to expand, like in higher priced furniture for a niche market. Walmart, for instance has wide reach and is one of the biggest employers in many markets it operates. This means it has the opportunity to market its furniture to shoppers of various different commodities who visit their stores. Other competitors include Tesco, Amazon, Ashley Furniture and La-Z-Boy. The effects of the recession are still being felt in some areas, reducing the purchasing power of many potential customers. Poor logging practices especially in the Russian market have resulted in the negative press that affects the company position as committed to sustainability. 6.2 Target market Segmentation divides the market into homogeneous groups. Dividing the market into groups helps organizations to study their target market, design desirable products and market it to them [Goy11]. The target market for IKEA is the millennial generation, born between the years of 1977 and 2000. This generation has a huge buying power, making them not just candidates for the future but also a huge potential market now. This generation favors high quality but loves bargains [Fro11]. 7.0 Recommendations Before launching or strengthening the position of a product in the market, one needs to consider four decisions. Any targeted campaign must take into consideration the product, price, promotion and placement factors. The perfect marketing mix uses variables from the four elements, called the 4Ps, to market goods and services. Using elements of the 4P principle gives companies greater power in influencing the response of the buyers. Price Product Place Promotion Wholesale Retail Online sales Peer to peer sales Direct sales Multi-channel sales Technology Design Value Usefulness Convenience Quality Packaging Endorsements Advertising User trials Leaflets/posters Direct mailing Free gifts Skimming Strategies Penetration Cost-plus Loss leader When using the four Ps, the marketing manager must first identify the target market, after which they must use behavioral evidence to decide on which combination of elements to use. There is no theoretical method of approach and with a changing market; a delicate balance of the four elements is required. IKEA has three of the four Ps locked down. It produces quality products at the right price, and has an elaborate promotion plan. However, it lags behind in placement, especially considering the growing competition from other companies. It has the right people, programs and processes, but must improve its marketing strategy to improve performance [Kot]. The company must especially improve its presence online and in audiovisual media like television, especially considering the trends in behavior of their target market. Millennials are more likely to adopt technology and use entertainment devices. They are more likely to contribute to and consume web content, and value social networking. The company must invest in an SEO strategy, which will enable it to examine how members of the target market use the internet [Tan15]. A good SEO strategy helps the company strengthen the position of the website, attracting visitors and improving online sales. It also tracks what members of the target market say about the products in their interactions on social media and in user produced content; blogs and videos. With a strong marketing campaign across all the available channels, the company can execute an integrated marketing communications plan and reinforce its position as the market leader in the furniture industry. Budget Advertising medium Description Cost Print magazines Full page-color, weekly for 12 months $2,500,000 Online marketing Twitter $50000 Facebook $50000 Blog $50000 YouTube $100000 SEO $200000 Outdoor advertising Sales and promotions $2,000,000 Banners $1,000,000 Marketing impact evaluation Continuous $1,000,000 The budget focuses on establishing a marketing presence across all the channels available to its customers. Unlike in past years, it is now highly likely that individuals have access to multiple channels at the same time. Having a consistent message across the board reinforces the effectiveness of the message and reaches more people. The budget also divides equally the marketing resources targeted at existent customers through banners and promotions, and the resources targeted mainly at newer customers through print and online marketing. Promotional Strategies Promotional strategies will entail the integration of divergent strategies. The advent of new media poses significant advantages, in that, a large number of consumers can be reached conveniently. New media offers extensive advantages in that a large consumer base can be reached out to over a short period of time. This will extensively reduced the cost incurred in the event that traditional strategies were employed. In this respect, creating a social media strategy is imperative in order to have an effective social media communication campaign. While social media can be merged with the company’s marketing plan, short and long term goals will guide the approach to business. A clear and focused insight on potential customers will be developed in attuning to its social media strategies. Conclusion It is evident therefore that the proposed marketing plan is effective in addressing IKEA’s approach. While it presents significant advantages, it attunes its approaches to the contemporary business environment. The ability of a business to operate sustainably is important, and the success of IKEA is and continues to depend on their environmental policy and whether they follow their IWAY code of conduct and company promises strictly. Reference List Skl11: , (Sklyarova & Kobets, 2011), Hac15: , (Hackley & Hackley, 2015), Wad15: , (Waddle, 2015), Elg15: , (Elg, 2015), IKE15: , (IKEA, 2015), Ser12: , (Seretny & Seretny, 2012), Pal11: , (Paliwoda & Borland, 2011), Hun111: , (Hunt, 2011), Kot111: , (Kotler & Amstrong, 2011), Por111: , (Porter & Kramer, 2011), Nor11: , (Norton, Mochon, & Ariely, 2011), Kei11: , (Keinan & Kivetz, 2011), Mat13: , (Matko, 2013), Pap111: , (Pape, Rau, Fahy, & Davies, 2011), Jor15: , (Jordan & Grant, 2015), Goy11: , (Goyat, 2011), Fro11: , (Fromm, Lindell, & Decker, 2011), Kot: , (Kotler P. , 2012), Tan15: , (Taneja, 2015), Read More