COVENTRY UNIVERSITY BUSINESS SCHOOL [pic] M19CBS – Strategic Marketing 2007 – 2008 By: EK [pic] The ‘inner city’ strategy By: MK & FA Table of contents Summary I. Company background3 I. 1. Historical development of the company4 I. 2. The success of the company6 I. 3. SWOT analysis7 II. The nature of the marketing strategy of IKEA 10 II. 1. The currents marketing strategy of IKEA10 II. 2. Comparaison with competitors’ strategy15 II. 3. STP and Relationship Marketing17 III. The marketing strategy of the new ‘inner city’ strategy of the company27 III.
The success of the ‘inner city’ strategy of the company27 III. 2. Carrying out marketing research to support the findings 29 Conclusion35 Appendices36 References54 Summary IKEA is a success story, starting from a poor village in Sweden and being told all around the world now. It was built on the philosophy, which sounds impractical on a first glance: Giving higher quality at lower prices. How Ingvar Kamprad designed the strategies and implemented them, phase by phase, region by region and how IKEA entered into the list of “Elite TNCs” is the result of successful strategies.
In this report we analyse these strategies and the new strategy of launching an outlet in Coventry town centre and how this shift in strategy is being anticipated by the locals. Also we analyse the segmentation, targeting and strategic positioning of IKEA and the way company is managing the relationships with the customers. Comparative analyses were carried out to evaluate the nature of competition within home furnishing industry. Primary data was sourced from local residents of Coventry, which comprised of qualitative and quantitative data.
The data was analyse to measure the response that IKEA is receiving from residents. Finally the report is concluded supported by the research undertaken about IKEA Coventry. I- Company background I. 1. Historical development of the company IKEA, which is associated to the name of its founder and his native village, is one of the large furniture retailers in the world. The company was founded in Sweden by ‘Ingvar Kamprad’ in 1943 and the group has grown impressively since 90th.
The company operates in more than 30 countries, Europe, US and Asia (Appendix: 8). The IKEA’s fortune is estimated at about 27 billion in 2007, an increase of 21% over 2006, which puts it in a sustainable position (Appendix: 1). The marketing strategy implemented by IKEA leads to reap the long term economic benefits (Anon 2007a). The first IKEA store was opened in 1954 at Almhult in Sweden with fifteen employees, and today, the group owns more than 300 stores in the worldwide market with more than 118,000 employees (Appendix: 1).
The expansion of IKEA group has been seen as an evolution of three stages: The first stage of growth was in Scandinavian market (Norway, Sweden and Denmark), then European market and finally the group has moved into the international market. The growth of the company on the domestic market was in 1950 and 1960. During this period, the Sweden furniture has devoted all his efforts and energy to build and strengthen the brand. In 1963s, following the success at local market, the company has expanded into new geographic areas by opening stores in Norway and Denmark (Dupuis and Dawson 1999).
The success of the company in the domestic market is also followed by an expansion in European territory by opening the first store in Switzerland in 1970. After Switzerland, the company has continued its development in Western Europe, in Germany, France and Belgium. Today, most of IKEA stores are located in Europe. To maintain the growth and to decrease dependency from European market, the company has entered the international market. During 1970s and 1980s the group enter the worldwide development by opening stores in Australia and Canada.
The company has also expanded its geographic area to the American market (1985), especially North America, and in the Eastern Europe (1991), for instance in Poland, Hungary and Slovakia (Dupuis and Dawson 1999). Today, the company plans to increase its market share by expanding its products and its presence in the existing market, for instance opening new stores in UK such as Coventry ‘inner city’ and US market, or to expand to the new market such as Asia, for example in recent years, the group has opened stores in Saudi Arabia.
Today, the fortune of IKEA, 80%, is derived from Europe and just 20% from the international market. The appendix: 8, shows the locations of IKEA stores (Anon 2007b). Mission statement “A good mission statement indicates the relative attention an organisation will devote to meeting the claims of various stakeholders” (David 2003). A mission statement is said to be good when it balances the specificity and generality. Normally almost all the mission statements are designed to leave an inspirational and motivational effect on the reader’s minds.
IKEA’s mission statement is no different from other multinational companies: “To offer a wide range of well designed, functional home furnishing products at prices as low that as many people as possible will be able to afford them. ” The mission statement of IKEA comes from the philosophy of Ingvar Kamprad, which became the basis of home furnishing giants. The analysis of components of mission statement is as follows: Customers |A wide range of people | |Products |Home furnishing | |Markets |Doesn’t tell about the markets | |Technology |Not mentioning the technology | |Concerns of survival |Not mentioning the profitability or growth | |Philosophy |Reaching as many as possible customers with huge range of well designed products at low | | |prices | |Self Concepts |Good quality at lower prices | |Concerns for public image |Not mentioning the company’s commitment to society or the environment | |Concern for employees |Employees are not mentioned in the mission statement | Source: (David, F. 2003, Strategic Management: Concepts and Cases. 9th Edition. New Jersey Prentice Hall pp. 65) I. 2. The success of the company The success of businesses in the marketplace is assured by their ability to understand and provide customers’ needs and wants. IKEA dominates the market with its wide range of products as a result of big investments and efforts devoted to understand the competition. “IKEA offers an immediate satisfaction and pleasurable shopping experience to its customers” (Arnold 2002).
Carrying out marketing research, targeting the market by customer type and investing in research and development has enabled the company to be the most innovative and largest furniture retailers in the market. According to Edvardsson (2006) “IKEA is driven by a combination of Economic, Social responsibility, communication and Environmental which are presented as the core values of the Company”. IKEA’s success is determined by its effectiveness in the implementation of a strong marketing strategy for achieving its long-term objectives. The company is pursuing simultaneously a variety of strategies in order to increase the market share, dominate its competitors, reinforce and enhance its values, and therefore puts the company in a sustainable and profitable position in the market.
IKEA group has a strong brand image because of the high quality of products that can offer to customers at an affordable price. In fact, the strong brand has a direct impact upon making purchase decision and its advantages are that customers will have confidence in the brand that will lead to the strengthening of sales and enhance customers’ loyalty to this brand. Today, businesses and people are more conscious about the importance of ethical and environmentally friendly products. IKEA is trying to minimise its impact on the environment by using recyclable materials for its products such as, new recycling bags, catalogues made with recycling old catalogues in order to gain a competitive advantage over competitors. IKEA is a good company showing respect for people and the environment and at the same time selling products at low prices” (Edvardsson et al. 2006). IKEA uses the innovativeness in its advertising and promotion as a source life of the company. IKEA objectives: ? To increase the total demand ? Extend and protect the market shares by introducing new products and expand into new geographic areas (25 new products in 2007; and ? To maintain high standards of quality I. 3. SWOT analysis Strengths The revenue of IKEA group, 27 billions in 2007, has enabled the company to invest massively in research and development which has allowed it to be the most innovator furniture industry.
The advantage of having a strong financial investment has facilitated the company to enhance its value, increase its market share, reinforce customers’ loyalty, develop the brand image and expand its products in current and new market. Being the innovator in flat packaging and its compact designs, IKEA is exploiting the opportunities rising from the declining room sizes (Keynote 2007). IKEA has a strong brand image. It provides customers with high quality products at a low price which puts the company in outstanding success position. “In 2006, IKEA group was ranked 41st among the best global brands around the world” (Anon 2007b). These advantages sited above, puts the company into profitable position. “IKEA is a vertically integrated group”.
In fact, the group controls most of its production chain, from the earliest stages of production to the end-users, which enables it to save cost for each phase in the chain lines, and delivers high quality products at affordable price (Anon 2007b). Controlling suppliers, distributors, retailers and also control competitors has enabled the company to maximize productivity and minimizes waste which leads to the sustainable and profitable position in the marketplace. Weaknesses Most IKEA stores are located in the old continent thus three-quarters of group revenue, 80%, comes from Europe and only a quarter, 20%, from international market, US and Asia.
The concentration in Europe market limits IKEA growth opportunities and increases the risk of total loss due to the change of government (Anon 2007b). Offering distinctive products is the right way to stay competitive in the global market. Customers from different countries need different products that distinguish them from other cultures but unfortunately IKEA produces the same products for every market. This is shown by the disability of the company to reach its objectives (Klevas 2005). For instance, the company has difficulty in satisfying Japan market because the people link high quality products at high prices and this has affected the purchasing decision and led to the loss of value and customers’ loyalty to the brand.
In North America, the market is almost disastrous due to the high prices established by the company and due to the disability to provide customer’s needs and wants. “Their price too high …curtain that were too short and kitchens that didn’t fit” (Anon 2006a) The policy of the company is to produce high quality products at affordable prices. Some parts of IKEA production come from Asia, due to the low cost of raw materials and labour, which is an ideal source for the company to achieve its objectives. But the products damage has disrupt the status of the firm by increasing the production cost and therefore lose their value and market share. Opportunities
The company can expand its products on the domestic and international market and thereby reduce its dependence on the European market. “The USA is now one of Ikeas three fastest growth markets, Russia and China being the other two” (Anon 2006a). The company can improve existing products or develop new products in order to remain the most innovative in the market and thus dominate competitors. It can also use its website to sell its products and increase its market share as it is one of the most visited website, 450m visits (Anon 2007b). Threats Decrease of the economy in Europe can have a direct impact in IKEA growth and profits as it derived most of its revenue from Europe (Anon 2007b).
IKEA Group strategy is to sell high quality products at low prices and all changes in prices of raw materials can profoundly influence the IKEA strategy. In recent years, the steel’s price has increased in the international market due to the increased demand of steel. This one causes a direct impact on IKEA operating costs. New entrants lead to increased competition and the loss of market share. In recent years, new competitors have entered the market with the same IKEA product and this has slowed sales of IKEA and resulted in loss of profits. Analysis Today, the company uses its strengths, which consist in strong brand image and big revenue, $30 billions, to take advantage of opportunities and therefore avoid threats of competitors.
IKEA is willing to expand its products and services into international market to reduce its dependency in Europe market so to overcome its weaknesses. In US market, the world larger furniture retailer is developing and implementing new strategies in order to be the number one furniture retailer in the marketplace. In Europe, IKEA is trying to boost its profits by launching new products (25 new products last year) and opening new stores, for instance, IKEA is the first UK city centre store that has opened in November 2007 in Coventry and the company is willing to open new stores next year. The company uses conversion strategies, weaknesses into strength and threats into opportunities, to strengthen its values and gain customers’ loyalty. II.
The nature of the marketing strategy of IKEA II. 1. The current marketing strategy of IKEA IKEA group success is due to its commitment in pursuing a range of strategies to achieve its objectives. According to the SPACE and grand strategy matrix, IKEA is using vertical integration strategy, intensive strategies, differentiation and cost leadership strategy, diversification and joint venture strategy. (Appendix: 2 and 3) II. 1. 1- Vertical integration strategy IKEA is both efficient and effective in the marketplace due to its independency in producing and selling products in its own stores. The company is an industrial group, “vertical integrated group”, which develops its own products. Operations cover every step of production”, from earlier stage of production to the end-user (Anon 2007b). The objective of the group is to gain cost leadership strategies and it is regarded as a significant source of competitive advantage. IKEA controls over a large part of the supply chain and this make it possible to study the impact of its products in the marketplace. “IKEA has more than 1300 suppliers in more than 50 countries” (yahoo. com). The group designs its own products to ensure that the furniture could be assembled by customer himself in order to minimize waste and cost. “The backward strategy makes operations more efficient and therefore more cost-effective”. Anon 2003) The company did not limited control over its suppliers, but it has extended its control over distributors, retailers and competitors to better control prices in the markets (Klevas 2005). Forward, backward and horizontal strategies are one part of the whole IKEA strategy which makes the group feel strong and put it in an ideal position in the marketplace. II. 1. 2- Intensive strategies: The company expends massively in advertising and promotion, through catalogues, for existing products to boost its sales in present market. Media choices and expenditure vary from market to market. In recent year, the company has changed its marketing strategy by reducing the ‘online advertising’ and increasing a large ‘catalogue distribution’ to reduce its expenditures and thus maintain it in a profitable position (Mintel 2006).
The current company strategy seeks to introduce existing products into new geographic area and it is explained by the opening of new IKEA stores in different countries such as UK, France and US market. Today, consumers are enjoying shopping in IKEA stores as it provides them with a wide range of high quality products at affordable prices. By implementing the intensive strategies, IKEA could achieve its objectives which are to be the world leadership in the furniture retailers. (Appendix: 4) II. 1. 3- Differentiation and Cost leadership strategy: According to the matrix competitive advantage (Appendix: 5), differentiation and cost are two essential factors, emerged from resources and capability, which lead companies to the long term success. The broad target is the competitive scope of IKEA.
The company establishes a focus strategy by targeting only young people aged between 25 and 35, single, couple, divorced with or without children and with a reasonable income. This targeting creates a competitive advantage, which is associated to the cost leadership and differentiation. With a comparison to competitors, such as FMI, ILVA and Argos, IKEA introduces high quality products at affordable price which allow it to be in an ideal position. According to the relative cost and differentiation matrix, IKEA is in the outstanding success (Appendix: 6). In fact, customer satisfaction is determined by the company’s ability to offer them low price, differentiated products with a wide range of choice and convenience, and good service. Suppliers costs are reduced through long product runs and volume production” (Arnold 2002) IKEA designs the products price first, decide how much the product should cost by including all raw materials prices, fixed and variable cost and than carry out research to find out if the prices are enough affordable to most people or not. (Appendix: 5) The core competencies are the source life of companies because it creates and develops solution to customers to satisfy their needs and wants. The company uses its core competencies to determine what new resources and capabilities can be useful to protect the existing market (Premier + 10) or to exploit new one (Mega opportunities) and the advantage of having a strong core competencies can help to reach long term profitability. (Appendix: 7) II. 1. – Diversification strategy: Diversification is a very successful strategy to enhance values and sales when you have a high brand image. In recent years, IKEA has added new brands such as Habitat to its portfolio (Concentric strategy). The beneficial of adding brands is to strengthen the brand name and to increase control over competitors and it is explained by an increase of IKEA profits. As Habitat is targets the high-end customers (Keynote, 2008), this factor will give IKEA a control over its customers for a long-term i. e. IKEA’s young customers are likely to stay with the same brand in years to come by shopping from Habitat, having higher disposable incomes.
IKEA announced moving into grocery business (Horizontal strategy) after the Wal-Mart’s plans of moving into wider European markets (foodproductiondaily. com ) IKEA announced moving into grocery business after the Wal-Mart’s plans of moving into wider European markets (foodproductiondaily. com). As a part of its unrelated diversification, IKEA moved into food business in 2006 by launching 30% of the food products in food range. Like the home furnishing, the food items too are positioned to be high quality being made accessible at the lower prices (ikea-group. ikea. com). The strategy of moving into food businesses has already been implemented at different departmental stores like M&S and BHS. II. 1. 5. Competitive Strategy
From the start, IKEA chose the unexploited and niche market where it gained the market share by giving higher quality at lower prices. Porter (1996) termed the company as targeting the young furniture buyers who want the style but can’t afford to pay the higher prices. Compared to the conventional furniture retails, IKEA designs it’s own low-cost and ready to assemble furniture that matches well with its positioning (Porter, 1996). As the company targets the young consumers so it can be inferred that these consumers will be willing to put the efforts and energies in order to visit through the large IKEA stores and buy the flat packed furniture and assemble it on their own while paying the lower prices.
Whereas the traditional furniture retailers (MFI and DFS) offer excellent customer services coupled with interest-free crediting and product customisation but in doing so they are often unable to keep their costs low. Once a customer makes a selection, the order is relayed to the third party and it takes from 6-8 weeks to make the deliver (Porter, 1996). Ikea’s low-cost positioning comes mostly from self-service but additional services like child-care and extended hours perfectly match with the needs of its target markets i. e. young adults and newly married couples. Competitors like Argos operates with somewhat differently designed activities by operating within extended hours and self-assembling products but limit itself to a catalogue and online retailer because of the lack of displaying facilities.
Michael Porter (1996) described IKEA of having focused cost based furniture retailer with a narrow group of customers. (Appendix: 9) II. 1. 6. Sustaining the Competitive Advantage A company is potentially capable of outperforming its rivals when it establishes the differences that it preserves. The strategies designed around the unique activities by setting the trade-offs (Porter 1996), firm’s own resources creating a values which are rare and difficult to imitable (Barney 1995) and breaking the herds around profits (Phillip 2000). Being the first mover into mainstream industry, IKEA enjoys this advantage. The first firm in an industry is more capable of implementing the strategies, which can lead to sustained competitive advantage (Barney 1991).
These firms are more likely to gain the access to distribution channels, develop goodwill with customers by developing positive reputation, all before firms that implement their strategies later. Another important aspect is looking at the industry attractiveness, for instance, are the margins within furniture industry are attractive? The CEO IKEA U. S, Andres Dahlvig described the company of having much bigger brand image than company itself. Similarly the British style magazine Icon described IKEA as the most affordable contemporary designers in home fashion. Mattias Karlkjell of Stockholm’s ABG Sundal analyses IKEA generating operating profits of $1. 7 billion, with operating margins of approximately 10%, being the best in home furnishing industry, whereas the Pier 1 Imports and Target, both competitors of IKEA in U.
S are operating within the thin margins of 5% and 7. 7% respectively (How the Swedish Retailer Became a Global Cult Brand). When the competitors start using the benchmarking in the same way, declining margins is bound to follow (Phillip 2000) and that is where the industry looses is attractiveness. The first glance indicates the activities organised by IKEA e. g. outsourcing the supplies, flat packaging and self assembling, being the source of profit margins but the closer look reveals that competitors like Argos are performing the similar activities. Where does IKEA generate its competitive advantage and how this advantage is being translated into profits?
Phillip (2000) gives the example of Sony TV’s Trinitron picture tubes, which are copied within six months to 1 year by its competitors. Here Sony uses brand image heavy advertisement and huge R&D budgets to sustain its competitive advantage. He further finds IKEA breaking the herds by balancing the quality with price. IKEA sources it is supplies aggressively by acquiring the stocks from more than 2000 suppliers around the World, which gives it a huge bargaining power over its suppliers. Another unique activity performed by IKEA is development of its price tags before the development of the products i. e. prices are translated into quality and style rather than translating the quality and style into the prices (franchisor. ikea. com).
The designers from the IKEA work very closely with the suppliers to design and produce the desired products. The designing, production, packaging and logistics have helped the company to achieve 40 fold revenues over the past 20 years, even though the industry merely grew from 2 to 4 %. IKEA has achieved higher growth and profitability by deriving more value from its value chain (Porter 1996). The company has performed the key strategic tasks better than its rivals in re-configuration of roles and relationships among a constellation of actors i. e. suppliers, partners and the customers in order to re-invent the value by the changing the combinations (Normann et al. 1993). II. 2. Comparaison with competitors’ strategy Strength Measure |Weight |IKEA |MFI |ARGOS |DFS | |Quality/product performance |0. 20 |1. 0 |1. 6 |1. 0 |1. 2 | |Reputation/image |0. 10 |0. 7 |0. 9 |0. 6 |0. 8 | |Manufacturing capability |0. 10 |0. 8 |0. 7 |0. 5 |0. 6 | |Market share |0. 10 |0. 8 |0. 7 |0. 5 |0. | |Dealer network/distribution |0. 05 |0. 7 |0. 9 |0. 8 |0. 8 | |New product innovation |0. 05 |0. 7 |0. 8 |0. 5 |0. 6 | |Profits |0. 10 |0. 9 |0. 6 |0. 5 |0. 4 | |Relative cost position |0. 20 |1. 8 |1. 6 |1. 6 |1. | |Brand loyalty |0. 10 |0. 7 |0. 4 |0. 6 |0. 3 | |Sum of weights |1. 0 | | | | | |Overall strength rating | |8. 1 |8. 2 |5. 6 |6. 5 | Competitive strength assessment of furniture retailers (Weighted) IKEA is currently operating in 37 countries (IKEA 2008), from Asia pacific to Europe, from North America to Middle East.
The nature of competition varies from region to region. But during the three decades, IKEA has emerged as a single giant in home furnishing industry. However, the diversification of its business brings IKEA in the direct competition with other retail giants, like Wal-Mart, Home Depot, Carrefour and Tesco. Sales volumes, growth, number of stores, number of countries and longevity are the criteria, which take these giants above the rest (Arnold 2002). The comparison drawn here is in the home furnishing business within the U. K market. In competitive strength assessment, MFI stands as a strong competitor in the home furnishing industry within the U. K.
The group is the largest retailer in furniture industry with its expanding operations in French market as well (Keynote 2004). The company’s revenue rose by 13% to 976. 5 million pounds (MFI Group 2008). MFI offers top of the range products which are often tailored to customer’s needs and premium priced. The company stood third on the list after DFS and Courts plc in advertising expenditures. DFS, being the top spender in advertisement and media campaigns, saw a growth of revenues by 8% in 2004 (Keynote 2004). In 2005, MFI blamed heavy advertisement by DFS as a result of its declining sales and responded with heavy advertisement during the later portion of the year. In 2007, DFS started interest free crediting on the purchase of its products.
DFS also promotes its sales with sales promotions and price cuts (DFS 2008) Like IKEA, Argos operates with catalogues and online, but lacks the displaying facilities. Similarly Argos uses the flat packaging practice in order to reduce the logistic, storage and assembling costs. Argos offers a huge range of products from toys to kitchens to DIY and consumer electronics in more than 700 stores across U. K and Republic of Ireland (Argos 2008). Argos performed strongly in 2007 and the profits soared by 50% in the first half of the year. The analysis of IKEA strategies with the help of different models is available in the appendix. II. 3. STP and Relationship Marketing II. 3. 1.
Design Ikea is said to be one of the first companies to sell design together with its designer’s image, by attaching their black-and-white photograph alongside the product. According to Lena Simonsson-Berge, Design Executive, such approach of presenting designers, their achievements and design philosophies, allows the company to educate its customers and add credibility. Ikea seems to go further than that, by presenting the whole design and production process of such designer product online. Despite Swedish roots, Ikea’s design team is global. It consists of 16 members from 8 different countries and more than 70 freelancers from all over the globe.
Such ‘international’ approach to product design allows the company to meet customer needs also on a national level. Lars Engman, Ikea’s Design Manager, claims to be closely co-operating with design schools in 30 countries in his search of young designers and to receive hundreds of portfolios a year from graduating students. However, he seems to favour women in his choices. He explains it as follows: “When a couple moves in together, everything the man brings in gets thrown away in a year (…)” (Chang 2005) and backs up with some research stating that 80% of home-furnishing purchases are made by women. In the product creation cycle, the tag price is established first. Natural, aw materials, recycling and utilisation of production waste helps ensuring low production costs. Example here can be Gulhollmen rocking chair seat that is made of banana leaves’ left-over. In terms of product varieties, 4 categories of products can be distinguished (Chang 2005): 1. Country (traditional) 1. Scandinavian (traditional) 1. Modern 1. Young Swede. At the moment, 70% of merchandise seems to come from Modern category, and only 30% of Traditional. Lena Simonsson-Berge explain it with a customer need of living “lighter”, as traditional designs are nowadays perceived heavy and troublesome to maintain. Also the importance of colour is stressed, as Ikea is famous for unique colour combinations.
The company has even developed a unique system of naming its products. Maria Vinka, one of Ikea’s designers, says: “There is a system: for bathrooms it’s Norwegian lakes. Kitchens are boys, and bedrooms are girls. For beds, it’s Swedish cities. There’s a lady who sits there and comes up with new names, making sure there isn’t a name that means something really ugly in another language. But it doesn’t always work. We gave a bed a name that means “good lay” in German. (…)” (Burkeman 2004) What is also important is Ikea’s attitude towards product design: Make-it-and-they-will-come (Chang 2005). It is all about inventing the product before customer even realises he or she might need it.
Example here, given in Burkeman’s article, could be the Mallen clip for hanging up magazines in the bathroom, one of the best-sellers in the Mallen bathroom range. Customer will probably never think of such a thing, however going to Ikea showroom and seeing rows of magazines hanging in the bathroom, he or she will find it brilliant idea. What also helps is the low price of the product, which is only 90p for 3 items, which is so cheap that it will be illogical not to buy them, especially if it took him or her some time and effort to come to Ikea store. Those articles are called by Ikea’s product teams “hot-dogs”, as they cost approximately the same as a sausage roll on the checkout. Behind the whole strategy lies the concept of “retroactive need” created by German sociologist Theodor Adorno.
The customer is not coming into the store with a need to satisfy. The need and its immediate satisfaction are offered to him or her simultaneously. Even though the customer did not intend to make such purchase, on seeing the item he or she had illusion of being offered a product designed just for him/her. Due to the fact that product is often invented in advance, before the customer need appears, Ikea does not spend as much on conducting market research. It is more about getting to know customers to offer him/her practical solutions that will ease in everyday difficulties, rather than asking precisely what he/she wants. II. 3. 2. STP 1. Segmentation
Jobber (2004:209) defines segmentation as division of the whole market into a number of smaller units to identify customers with similar characteristics and requirements, what allows the company to create successful marketing strategy. One cannot say that Ikea uses geographic segmentation, even though it has strong Swedish heritage that is highly visible in corporate culture and product designs. It has stores all over the world, and now attempts to reach its customers by intensive online activities. Ikea does pay attention to geographic and cultural differences, though. Examples here could be redesigning of product ranges for the purpose of American market or adjusting it to different income levels or safety regulations of Eastern Europe. Segmentation techniques used are demographic and lifestyle, what can be proven by research conducted by Mintel in 2006.
Tables 1 and 2 from the Appendix present the use of demographics to distinguish Ikea’s target customer profile. In spite of having comparatively small numbers of outlets in UK, Ikea managed to achieve leading position in terms of market penetration, which accounts for 29% (Mintel 2006). Even though it fits into general home furnishing market trend of broad appeal, it seems to concentrate more on pre-family and family customer groups. Average age group of its customers is 25-34, however it can be observed that high percentages of both slightly younger and older customers contribute significantly to Ikea’s success. Mintel explains it by the fact that while younger customers ill shop in Ikea for furniture for their first homes, older will go back for additional items, replacements or decorative. In terms of income, Ikea seems to attract wealthier customer groups, usually from ABC1 income ranges, that occupy middle-to-high supervisory positions. Taking into consideration the relatively small number of outlets, usually located in the suburbs of big British cities, customers from lower income groups may find it hard to access the stores. To make itself more approachable, Ikea experimented with opening few smaller stores located near city centres and launched online shopping facility on its website. Ikea’s customers seem to live in bigger cities in London area, Midlands or North West.
That is confirmed by the fact that its offer mainly attracts urban prosperity category of ACORN technique (49%) (Mintel 2006). Possible explanation might be that in bigger cities young executives may be occupying flats of smaller houses due to higher real-estate prices. In such circumstances, Ikea’s furniture compactness and modernity will be preferred to more traditional designs of competitors. In terms of consumer behaviour, Ikea’s clients are likely to be active Internet users (38%), rather than TV (medium activity, 2-5 hours a day) (Mintel 2006). They will be most likely to read newspapers. In that respect online expansion seems to be a correct move in terms of corporate strategy. Also seasonal advertising in daily newspapers is justified.
Ikea’s customers will prefer buying food from high-end supermarkets such as Marks, Sainsbury’s and Waitrose, which is probably a result of higher disposable income and therefore higher quality expectations. In terms of lifestyle, Ikea targets young and active people, who enjoy spending time with family and friends. They treat homes as reflection of themselves, as their sanctuaries. 2. Targeting Detailed demographical analysis of Ikea’s customer base was conducted earlier in this report. To summarise, the following customer profile could be created: Ikea’s customer is a young, approximately 25-35 years old professional. He/she belongs to ABC1 income category, which results in relatively high disposable income.
The customer will be in a pre-family stage or just settled, possibly with small children of whom she/he is likely to take care in person (no nannies). He/she lives in bigger city, in a flat or a small house. While working for a living (often long hours), he/she does not have much time for watching TV or reading magazines, therefore uses Internet as a main communication and information tool. Due to busy schedule the customer is only able to shop outside usual opening hours, often with children. That is why he/she chooses stores with long opening hours or shops online. He/she requires simple, modern and durable solutions that Ikea successfully delivers.
Also the concept of experiential shopping applies, as the whole family can enjoy themselves while visiting the store, offered such facilities as play areas, restaurant, bar and design tools. Also, self-assembling of furniture does not seem negative, even if the customer is of high income and could possibly afford higher quality and more expensive furnishings. It is perceived in terms of self-fulfillment and the time savings. Flat packaging allows taking the furniture home on the same day, without complicated and troublesome delivery arrangements (as customer works due to usual hours, he/she will be probably only able to have it delivered on the weekend).
Self-assembling means achievement and activity for the whole family, which is desirable when there is not enough time for family members to be together. As Ikea’s MD Goran Nilsson says: “Ikea is somewhere you can’t go with both hands in your pockets – you have to be active” (Burkeman 2004) As per Mintel’s report of 2006, Ikea achieved 65% penetration in the chosen target group (see Table 3 in the Appendix: 11). Recently, the company is also trying to concentrate on SME sector, especially small businesses up to 20 employees or those working from home. Those customers are mainly to be reached online, as they are active Internet users (Dupuis and Dawson, 1999). 3. Positioning In terms of Ikea’s generic strategy, cost leadership has to be mentioned. The ompany through the years of its existence has developed engineering, manufacturing, purchasing skills and built distribution network that allowed to greatly reducing production costs. Flat packaging, self-assembly of furniture, self-delivery, and utilisation of raw materials, intense recycling and low number of physical stores backed up with online sales results in savings that can be utilised on developing competitive, differentiated product range of satisfactory level of quality. Ikea stresses its price competitiveness everywhere, from catalogues to advertisements. However, it binds customers to take an active part of the furniture purchasing process, which will not work for everyone.
According to Michael Porter (1996), three types of strategic positioning can be distinguished: variety-based positioning – when company positions itself as a producer of variety of products, need-based positioning – being nothing else than offering products or services that could satisfy all the needs consumer might have and access-based positioning – which is grouping customers by their accessibility. Ikea, as a company, has been successfully using the second positioning type, by offering to its wide group of customers a range of products and tailored set of services and in-store activities to meet the entire home furnishing needs they might be willing to satisfy. The target group is specified in terms of demographics and lifestyle, however wide enough to accommodate people of different needs, tastes, price-sensitivity or information needs. To assure competitive advantage, Ikea tries to redesign their range of services and inventor products its target group might need to make their life easier and more comfortable.
Ikea positions its products on the basis of two main attributes: price and quality. The principal of quality consists of three dimensions and applies to whole product life-cycle. On the level of product creation, it is understood as active participation. Ikea does not simply distribute ready products. It has his teams of designers in R centres round the globe who are working on new product development on a daily basis. Even if outsourcing, Ikea has products developed exactly for itself. Products are not strings of numbers, there is a whole naming strategy behind it (described earlier in this report), and therefore products are treated more like family members.
On the level of product range, quality means variety of choice to suit all individual tastes. That is why Ikea has over 12000 products available in its offer. Finally, quality of use that is measured by various trial tests: strength, resistance, surface and workability. All items are given Mobelfakta quality certificate based on Swedish quality norms. Return policy of Ikea also seem to ensure the principal of quality of use, as all items of production or functional faults can be returned even outside usual warranty timescales. Such positioning strategy seems to work well. Corporate mission did not change much and seems to be consistent through the years.
Ikea aims at offering “a wide variety of functional furniture for the house, of a quality at a price affordable by a majority of people” (Dupuis and Dawson 1999). Positioning is also clear and credible, as Ikea is widely associated with attributes it desires to stress. It can be proven by high level of UK furniture market penetration. The company does not highlight its position in relation to competitors, however it remains favourite furnishing brand and it is often preferred to others. II. 3. 3. Relationship Marketing The intense competition among companies at the Global level has made them recognize the importance of customer retention. Relationship Marketing has emerged as a successful concept in the field of marketing (Appendix: 10).
Relationship Marketing involves the identification, specification, initiation, maintenance and (where appropriate) dissolution of long-term relationships with key customers and other parties, through mutual exchange, fulfilment of promises, and adherence to relationship norms in order to satisfy the objectives and enhance the experience of the parties concerned. (O’Malley et al. 1997:542) Pressey and Mathews (2000) suggest that the following are relevant in consumer-service relationships: • Much trust between customer and service provider; • A high level of commitment between both parties; • A relationship extending long into the past or planned to last well into the future; • Easy exchange of information between service provider and client; • Service providers having the customer’s best interests at heart; • A commitment to quality by both parties; and • A keenness by the service provider to retain the customer.
IKEA has a strong customer base and to avail of the opportunity to retain their large loyal followers IKEA uses Relationship Marketing as a powerful tool. To retain their large customer base, IKEA applies the Relationship Marketing approach. It joined hands with Prevision and Presky Maves Group Limited to help them with their Relationship Marketing Strategy. To start the IKEA Family Club, IKEA undertook market research to understand their customers’ needs and demands. It was done by studying the industry and the customers visiting the IKEA stores. With the help of the information gathered, they could identify the areas to increase the current sales and also the new high potential segments.
IKEA has a complex network of relations to grow and retain in 25 countries with more than 1300 suppliers and millions of customers. Customers are in a marketing relationship with IKEA when they are visiting the stores. The Relationship Marketing aspect is practiced through the annual catalogues distributed to over 100 million people worldwide and also through IKEA FAMILY CLUB. Annual IKEA Catalogue The catalogue is used to communicate with a huge audience. It is IKEA’s most influential tool. The Catalogue is distributed at the end of August each year and shows the entire range of the products available at the stores for the price mentioned in the catalogue valid for entire twelve-month period.
As a tool of marketing, the catalogue highlights and strengthens the IKEA brand by giving IKEA its own place among their competitors. IKEA Family Club The IKEA Family Club is a loyalty programme that satisfies the Relationship Marketing aspect of IKEA the most. It was set up in 1994 and initially has 2 million customers as its members who were allowed a series of benefits at IKEA. Presky Maves Group Limited works with IKEA as their global loyalty-marketing partner. It helps IKEA to position their IKEA Family Club programme in different cities on the basis of local requirements. IKEA defines its FAMILY CLUB as: “IKEA FAMILY is for people who love their homes.
For people who love to furnish, decorate and transform their homes from four walls and a roof into a living space that reflects their personality”(IKEA 2008). IKEA FAMILY is different to regular loyalty schemes. It aims to know their customers better and reward them with each purchasing visit with benefits that satisfy their customers the best, regardless of how much they spend based on certain terms and conditions. IKEA FAMILY offers the following benefits to its customers: • Special Product offers: 25% off selected products from the regular IKEA ranges • IKEA Family Products: 25% off the exclusive IKEA FAMILY range • Free home furnishings magazine • Access to in-store home furnishing advisor • Free Catalogue home delivery Offers at the Restaurant • A home makeover IKEA Family Club also communicates to its members of the upcoming sales promotions and events. It is FREE TO JOIN and customers can sign up online or in the store. To log the visit on the card, the customers are required to swipe it every time they visit IKEA. IKEA uses their website resourcefully for IKEA FAMILY MEMBERS where the members can log-in and view the latest offers running at the stores. For the home makeovers section, IKEA has a link called INSPIRATIONAL HOMES where viewers can read the experiences of IKEA FAMILY members all over the world on their home makeovers and also view the pictures.
It also allows the users to submit the pictures of their house for a makeover. Relationship marketing does not stop only at the customers for IKEA. They make an effort to build and maintain good relations with the society by practising Corporate Social Responsibility. They have a partnership with The Woodland Trust in UK with an aim to create 181 hectares of new woodland in UK. Every time a customer Swipes the “IKEA Family Card” at the store, IKEA donates a certain amount to “The Woodland Trust” to create a square of woods. Summary IKEA uses The Catalogue and The Relationship Marketing strategies together to communicate with their customers and to reinforce their brand identity.
These help in working towards achieving their vision of “a better everyday life for the many people” in the long-run by meeting the changing needs and preferences of customers by understanding their needs better using the IKEA Family Club effectively i. e. Involving their customers by taking their feedback on how services and products can be improved in future to build better relationships with their current customers and also attract the potential customers. III- The marketing strategy of the new ‘inner city’ strategy of the company III. 1. The success of the ‘inner city’ strategy of the company In 1947, only 22 years old, Ingvar Kamprad has already established his strategy by offering products at unbeatable prices. Catalogues have been made to provide the latest information on products to consumers, in order to maintain the competitive advantage on price.
The strategy established by the founder was emerged from one of his questions: “Why must well designed furniture always be so expensive? ” and this put the company in a profitable position and it has been regarded as an example of success in the market. If the majority of people can recognise the IKEA store with its yellow and blue colour is because most Ikea stores are located in urban area and the company invests heavily in the various communication tools such as television, radio, newspapers and catalogues to maintain the growth. The strategy set up by IKEA Company to build stores in urban concentration aims to facilitate access by consumers and therefore increase sales. IKEA opens the first UK city centre store in November 2007 in Coventry.
The inner city, which dominates most of the city view, seeks to create a new atmosphere different from the traditional stores in order to attract new customers and thus distinguish it from its rivals such as MFI. Some studies have clarified that the city is one of the 50 top retail centres in UK and the city risks to fall from its current rank which is 43rd to 51st in the next ten years so “the inner city is designed to boost shopping provision in the heart of the city” and this will keep the current ranking of the city (Anon 2007c). The furniture store with restaurant is the new strategy established by the group. Adding restaurant to the portfolio can in one hand increase the company profits and on the other hand customers can save time by eating and shopping without moving to any other store.
People find it convenient to shop in the city centre and most of them claim to be willing to return to the store. In U. K, by late 1990’s tighten land use planning regulations made an impact on the development programmes of the major retailers and those retailers started adopting the urban re-generation agenda to drive forward the new stores development which is vital to their corporate growth (Wrigely et al. 2002). The positive aspects of this approach are the improvement of economic activities in and around the town centre for example creation of employment opportunities. Since the retailing is one of the biggest service industries in the U.
K, providing employment to nearly 13 % of the labour force, it is not surprising that government urban regeneration policy has sought to place in-town retail development schemes (Professor Tim Dixon, 2005, Deptt. Of Real Estate and Construction, Oxford University: The Role of Retail Development in Brownfield Regeneration). “The competitive advantage of Inner City (1995) turns received wisdom on its head. In it, I argue that only by focusing on the competitive advantages of inner-city locations will economic development be sustainable” argues Michael Porter (1998, On Competition, Harvard Business School Press, pp. 10-11). Similarly road congestions, centralisation of opportunities and environmental problems are the main negative aspects of developing major retailers inside the city centres. MFI, being the largest furniture retailer in the U.
K generates sales of 300 pounds per square foot from its high street stores as compared to an average of 190 pounds per square foot from out of town stores (keynote 2007). Being the major competitor, the first inner-city IKEA store in Coventry seems to be an inspiration from the success of MFI. III. 2. Carrying out marketing research to support the findings – Questionnaire analysis Simple questionnaire was design to gather data regarding Coventry inhabitants’ perception of IKEA and its strategic ‘inner city’ move. It has been conducted in front of IKEA store and in several places in Coventry city centre. The target sample was 100, however we managed to collect data only from 73 people, of which only 50 was filled in correctly and analysed further. The data was analysed by SPSS for Windows 15. 0 tool.
The questionnaire consisted of 25 questions, divided into 4 main parts: general section of single choice questions on general furnishing preferences, section of single choice questions on the perception of IKEA, section on IKEA Coventry store that was a mixture of single choice and Likert Scale questions, and finally a demographic data part to gather information on respondents. This may slightly limit the credibility of data collected. As a group, we decided that the results of research conducted are worth presenting in this report as a valid opinion of Coventry inhabitants on company’s strategy. Sample questionnaire is attached in the Appendix. Demographic structure of a sample
Both men and women were approached for the purpose of data collection, the structure of a sample was 62% male and 38% female. What is your gender? | |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Male |31 |62. 0 |62. 0 |62. 0 | | |Female |19 |38. 0 |38. 0 |100. 0 | | |Total |50 |100. 0 |100. 0 | | Table Q1. What is your gender? (Source: Own work) In terms of age, majority was aged 21-35, which is consistent to IKEA’s target customers’ age.
However, 64% of respondents come from 21-25 age range that may suggest high percentage of students and young professionals within a sample. Taking into consideration academic character of Coventry, it is not unusual. Which age group do you belong to? | |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Under 20 |3 |6. 0 |6. 0 |6. 0 | | |21-25 |32 |64. 0 |64. 0 |70. 0 | | |26-30 |8 |16. 0 |16. 0 |86. 0 | | |31-35 |6 |12. 0 |12. 0 |98. | | |Over 35 |1 |2. 0 |2. 0 |100. 0 | | |Total |50 |100. 0 |100. 0 | | Table Q2. Which age group do you belong to? (Source: Own work) As per income, majority of respondents earned up to ? 15000 a year, which can be argued in terms of IKEA’s targeting (aimed at ABC1 income group clients). It can also be explained by the demographic structure of Coventry CV1 and CV2 areas, as those are mainly inhabited by students. However, examining larger sample may result in wider income spread and improve reliability of the data. Which income group do you belong to? |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Below ? 10k |22 |44. 0 |44. 0 |44. 0 | | |between ? 11-15k |15 |30. 0 |30. 0 |74. 0 | | |between ? 16-20k |8 |16. 0 |16. 0 |90. 0 | | |between ? 21-25k |4 |8. 0 |8. 0 |98. 0 | | |Over ? 26k |1 |2. 0 |2. 0 |100. 0 | | |Total |50 |100. |100. 0 | | Table Q3. Which income group do you belong to? (Source: Own work) Age and income structure of the sample suggest the marital status of the sample as single. Data analysis confirms that majority, 74% of respondents were indeed single. Further 18% married without children. What is your marital status? | |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Single |37 |74. 0 |74. 0 |74. 0 | | |Married |9 |18. 0 |18. |92. 0 | | |Married with children |2 |4. 0 |4. 0 |96. 0 | | |Single with children |2 |4. 0 |4. 0 |100. 0 | | |Total |50 |100. 0 |100. 0 | | Table Q4. What is your marital status? (Source: Own work) A profile of our respondent matches with some attributes of IKEA’s target customer. It is more likely to be a man, in pre-family of early family stage of life, with an income growing together with job opportunities.
Examining larger sample will allow more detailed and accurate description. Data analysis In the analysis of the data we decided to concentrate mainly on the third section of our questionnaire that was to assess people’s opinion and perception of IKEA Coventry store and its attributes. The table below proves that 69. 69% of respondents, who visited IKEA’s Coventry store, found its central location a major advantage. Have you visited IKEA store in Coventry? * What do you think is the best attribute of IKEA in Coventry? Crosstabulation Count | |What do you think is the best attribute of IKEA in Coventry? Total | | |Central location | | |Parking |Lifts | | |Same impression |Positive |Negative impression|Confusing, hard to | | |as any other |impression | |say | | |IKEA store | | | | |Valid |Quality of products fro reasonable |19 |38. 0 |38. 0 |38. 0 | | |price | | | | | | |Employment |20 |40. 0 |40. 0 |78. 0 | | |Convenience of shopping for |8 |16. 0 |16. 0 |94. 0 | | |furniture in the centre | | | | | | |Attraction that will bring people |2 |4. 0 |4. 0 |98. | | |to shop in Coventry | | | | | | |Architecture and design that adds |1 |2. 0 |2. 0 |100. 0 | | |to Cov CC image | | | | | | |Total |50 |100. 0 |100. 0 | | Table Q8. What IKEA Coventry gave to the city and its inhabitants? (Source: Own work) In terms of Likert scale part of the questionnaire, where respondents were presented with five statements on IKEA Coventry store and asked to express their view about them, the results were as follows.
Majority (60% of respondents) agreed to the statement that IKEA store fits into Coventry city centre. Only 10% were negative about company’s entrance to Coventry. IKEA store fits well in Coventry city centre architecture. | |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Strongly agree |8 |16. 0 |16. 0 |16. 0 | | |Agree |22 |44. 0 |44. 0 |60. 0 | | |Neither agree nor |10 |20. 0 |20. 0 |80. | | |disagree | | | | | | |Disagree |6 |12. 0 |12. 0 |92. 0 | | |Strongly disagree |4 |8. 0 |8. 0 |100. 0 | | |Total |50 |100. 0 |100. 0 | | Table Q9. IKEA store fits well in Coventry city centre architecture (Source: Own work) Respondents were generally positive about the role that IKEA is to have as a city centre attraction. 74% agreed that it will help to attract more people (also from other cities or suburbs) to the city centre. IKEA store will attract more people to Coventry city centre. |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Strongly agree |5 |10. 0 |10. 0 |10. 0 | | |Agree |37 |74. 0 |74. 0 |84. 0 | | |Neither agree not |8 |16. 0 |16. 0 |100. 0 | | |disagree | | | | | | |Total |50 |100. 0 |100. 0 | | Table Q10. IKEA store will attract more people to Coventry (Source: Own work) 4% of questioned group was uncertain, whether the construction of IKEA in Coventry city centre complies with City Council’s strategy of developing the centre and converting it into modern, competitive shopping and entertainment facility similar to Bull Ring in Birmingham. 52% agreed to the statement, only 4% were negative. IKEA store fits into Coventry city council’s strategy of development. | |Frequency |Percent |Valid Percent |Cumulative Percent | |Valid |Strongly agree |7 |14. 0 |14. 0 |14. 0 | | |Agree |19 |38. 0 |38. 0 |52. 0 | | |Neither agree nor |22 |44. 0 |44. 0 |96. | | |disagree | | | | | | |Disagree |2 |4. 0 |4. 0 |100. 0 | | |Total |50 |100. 0 |100. 0 |
Cite this Ikea – the Inner City Strategy Assessment Essay
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