Low prices are central to Ikea’s strategy, enabling it to reach a very broad consumer base and to remain robust in the face of extremely challenging economic conditions, even attracting new consumers who may previously have been put off by its mass-market image.
However, rising raw material and transport costs forced the company to raise prices in 2009, stating that this was the first price hike in five years. Moreover, the differentiation conferred by Ikea’s pricing strategy is undermined by similar approaches from direct rivals and low-price retailers such as Wal-Mart, Carrefour and Tesco venturing into furniture and furnishings New market entries Ikea aims to accelerate the pace of its expansion into new markets.
In the 10 years to the end of 2008, the company entered only two new markets –Japan and Portugal –a significantly lower rate of expansion than during its early history. However, Ikea has stated its intention of entering seven or eight new markets over the next decade. 90% will be in emerging markets, with India and Mexico amongst the markets under consideration. Thus, the company hopes to tap into the expansion of the urban middle class and counter maturity and increasing competition in developed markets. Slowing down store expansion
While Ikea intends to speed up expansion into new markets, it is responding to the impact of the unfavourable economic environment in developed markets by slowing down its overall store expansion. In 2007, Ikea opened 22 stores, with 20 more being added in 2008. However, from 2010, the company intends to open only 10-15 stores a year, down from a planned 20-25 stores a year. Moreover, while Ikea intends to increase its staff numbers from the current 130,000, it does not rule out eventual job cuts as it seeks to adapt to a harsh economic climate. Expansion in Eastern Europe
With Ikea increasingly looking to emerging markets to generate growth beyond mature developed markets suffering from severe economic difficulties, Eastern Europe is becoming an increasingly important focus for the company’s development strategy. With plans to open stores in all major cities in the country, Ikea foresees Russia becoming its largest world market. It is also investing heavily in Poland, and entering or considering entering several new markets in the region, including Croatia, Serbia, Slovenia and Ukraine. SOURCE : © Euromonitor International Ethical Development Strengthens Brand Distinctiveness Sustainable values
With rivals imitating Ikea’s pricing strategy and product design, and the expansion of major grocery retailers into furniture and furnishings sales, the company is having to work increasingly hard to maintain the distinctiveness of its brand. Ongoing creative marketing activity maintains a buzz around the brand, and is particularly helpful in raising awareness of new store openings. However, the company is also seeking to develop a more sustainable image bringing additional resonance with consumers, associating the brand with deeper values in the context of a growing consumer concern with ethical issues. Distinct advantages
While many retailers are seeking to generate an image of corporate responsibility related to social and environmental issues, Ikea’s established high levels of consumer trust and the association of its Scandinavian heritage with progressive and environmentally-aware values, place it in an unusually strong position to build a positive ethical and transparent image. Thus, while the efforts of retailers such as Wal-Mart to develop a socially and environmentally-responsible image are often attempts to turn around negative consumer perceptions, Ikea once again has the opportunity to build on established strengths instead.
Furthermore, it has the advantage of a loyal consumer base which is willing to view its social and environmental plans in a generous light and thereby strengthen its association with the brand. For example, the Ikea Social Initiative is an organisation which sponsors medical treatment, and educational and environmental projects on a national and international level, including a programme to introduce cancer treatment training to doctors in Vietnam. Environmental focus Ikea is particularly focused on the environment, an area in which it appears to go some way further than competitors such as Wal-Mart and Home Depot.
The company’s eco-friendly activity extends from no longer offering disposable plastic bags in its stores to investing US$75 million in new green technology in five areas -solar technology, energy conservation, water saving products, alternative lighting and new product materials –through its Green tech subsidiary.
Ikea also recycles 84% of the waste generated in its stores, while 71% of all Ikea products are recyclable, made from recycled products, or both. In addition, the company aims to have 100% renewable energy sourcing for its stores. Moreover, when forced to adapt to stricter environmental legislation in particular markets –as when Japan restricted formaldehyde emissions to close to zero –Ikea extended the restrictions to its global operations.
Develop internet retailing presence Increased access to the internet, the rising popularity of mobile internet devices, greater transaction security and convenience and price-consciousness are all driving strong growth in internet retailing in the majority of Ikea’score markets. “Click and brick” operators with established store-based brands, such as Tesco and Wal-Mart, are expanding strongly in the channel.
Ikea’sstrong brand and established distribution infrastructure position it well to develop its own internet retailing presence. Continue expansion in emerging markets Despite its geographic expansion, Ikea’ssales remain heavily biased towards Western Europe and North America, which jointly accounted for 87% of company sales in 2008. With these markets subject to maturity and increasing competition, as well as severe economic problems, the company should make good its commitment to increase its focus on emerging markets.
It should focus on targeting the growing urban middle class in these markets, continuing to move beyond first-tier cities in existing markets such as Russia and China, and entering new ones, such as Ukraine and India. Stay receptive to opportunities of economic climate Ikea’sallegedly strong financial base and its low-priced strategy mean that it is well adapted to survive in the current testing economic environment. The company should look beyond mere survival, however, at the opportunities thrown up by these conditions. Ikeashould target consumers who may previously have considered it too downmarket.
It should also court the customers of failed rivals, such as MFI in the UK. The failure of rivals and the condition of the real estate market in several key countries also offer opportunities to acquire cut-priced store sites. Tapping into such potential will leave Ikeaa stronger company as economic conditions improve. Focus on ethical image With the distinctiveness of its offer being undermined by rivals’ imitative strategies and the aggressive pricing of major grocery retailers expanding into its key product areas, Ikeaneeds to concentrate on maintaining its brand differentiation.
The company should look to build on its high levels of consumer trust and the positive associations of its Scandinavian heritage by developing its corporate image in line with growing consumer concerns with ethical issues. It should continue, for example, to develop environmental practices ahead of legislative demands, and invest in eco-friendly product development.