Posted at 10.16.2018
This statement critically analyses the competitive position of IKEA which includes resulted in its success and failures within the last five decades. IKEA has been popular for its low price concept and extensive range of furniture's. IKEA is continuing to grow enormously and now operates in 55 countries.
This survey analyses the exterior environment of IKEA utilizing the PESTEL Analysis. The analysis implies that political factor performs most significant role while other external factors such as economical, socio-cultural, legal, environmental and technical contribute to some extent in determining the extension and success of IKEA.
The learning resource and capacity for IKEA is analysed by using the Michael Porter's five pressure analysis. The analysis shows that IKEA must dominate in every the five areas to achieve future. The report also studies that marketing blend used by IKEA in various countries that have had a major part in IKEA's success.
IKEA is committed to fulfill its customers. For client satisfaction IKEA has worked hard to understand the needs of their customers. This survey also examines the client belief and the IKEA beliefs resulting in happy and satisfies customers.
The strengths and weaknesses of IKEA as well as opportunities for expansion and hazards from opponents are disclosed by doing the SWOT examination.
Finally the causes that may lead to the demise of IKEA are reviewed along using its future.
The economical slowdown has already established a negative effect on most businesses world over. Despite the slowdown IKEA packages to open up stores in china and world over. The business was started by business owner Ingvar Kampard who acquired the idea of reselling things cheaper than the market price. Thus IKEA came into existence in 1943, when he was just 17 in the tiny village of Agunnaryd in Sweden. Furniture was released in the IKEA product range in 1947 and there after IKEA designed its furniture. After starting its first store in Almhult in 1958(IKEA, 2009), Ikea has extended its business worldwide and today manages in 36 countries about the world. Its sales for 2008-09 were 21. 2 billion euros and possessed 127, 800 employees. IKEA's success in the retail industry is because of its great experience which spans over five decades in the retail market. Ikea also achieves product differentiation and cost leadership by its unique concept of reselling furniture's in products that are constructed by customers at home. IKEA's vision is to create a better normal life for many individuals (IKEA's Annual report 2009).
According to Scherrer (2003), changes in politics and legal environment adversely affect the market place as well as the sales and syndication of something. The political factors are the nature, level of corruption and stability of the federal government. As the legal factors include import laws, taxation, work law, competition regulation, health and safeness laws. Europe makes up about large part of IKEA's business with 82% of its sales coming from there (IKEA, 2009). This is because the government authorities in European countries are been secure, encourage overseas trade and advantageous taxation plans. IKEA relocated its Group management, funding and treasury departments to Leiden in the Netherlands from Denmark. This move can be attributed to the favorable federal regulations in Netherlands that benefited the business in addition to any country in European countries and even Sweden. Globalization inspired IKEA to get into the Chinese furniture market much later after the import control guidelines were calm and government opened up property markets. Regarding to Miller (2004), heavy import taxes have struck IKEA; thus IKEA has been having difficulty in setting up a cost which best for the customers and the company. IKEA projects to relocate creation of several items in china. One the other side IKEA has no plans of getting into Indian markets because of its strict licensing laws for the foreign owned companies.
According to Scherrer (2003), economic expansion of any country is mirrored by its financial climate which affects its strategies for enlargement. IKEA has no plans on enlargement into underdeveloped and growing countries like India. The economical conditions do not prefer its business strategy as the buying vitality of the customers is low. Thus IKEA's main market is Europe where every regular person including students are able to buy an IKEA product. IKEA confronted substantial problem in china because of its monetary condition as it became a luxury furniture brand in the Chinese language mind and not many could manage its products.
Scherrer (2003) state governments that consumer inclination; purchasing patterns and conditions under which products can be sold are damaged by the socio ethnic changes. IKEA was required to adjust to the ethnical environment to extend its business in china. It had to obtain the Chinese language customers to adapt to the do-it-yourself (DIY) idea. As labor is cheap in china, the DIY notion has not taken carry in china just as the western countries where customers know they save money by assembling the furniture
IKEA uses technology to stay ahead of the competition by producing furniture cheap and quality furniture. IKEA also uses technology by marketing and providing its products online. Thus IKEA is able to market its products to way many homes and increase its sales considerably. Matching to Rowley and Slack (2003), a new technology known as kiosk is used by IKEA's customers to see their choice of sofa covered in a variety of fabrics available for the reason that range.
IKEA is devoted in using resources in an financial and careful way. (IKEA 2009, public and environmental responsibility). IKEA has been offering compact florescent light bulbs (CFLs) which can last up to 10 times longer and use 80 percent less energy than incandescent. IKEA is also committed in reducing the utilization of plastic bags and there by has launched the Blue Bag which is cheap, reusable and durable.
Resource and capacity is illustrated by Porter's Five Make Model
IKEA will not enter into real creation but has taken further steps thus keeping the suppliers within an even tighter grasp. These suppliers are not only reliant on requests from IKEA but are also in immediate credit card debt to IKEA, because IKEA has paid for the assembly of the machinery. Hence IKEA gets the buyer's capacity to pressurize its suppliers to lessen processing costs anyhow. To lessen the supplier electric power, IKEA has more than 1300 suppliers in 53 countries with most its products from European countries (64%), followed by Asia (33%) and North America (3%) (IKEA, 2009).
According to Hopkins (2008) there is more competitive pressure if there tend to be rivals in the industry. The number of rivals for IKEA is limited in Europe which is where major revenue is generated, because they are able to restrict competition due to their cost authority and product differentiation. In addition to the competition IKEA faces from UK founded B&Q (the most significant DIY store in Europe and third greatest on the planet) in china; its biggest get worried is that it's facing competition from many international and Chinese language chains who are copying its products. Many stores in china have IKEA's catalogue in their stores plus they tell customers they can reproduce the same furniture at less price. IKEA's online catalogue makes it easy to see and duplicate.
Furniture made with wood can only be substituted by furniture made out of plastic. But wood is bio degradable which 's the reason wood is preferred over plastic material.
Pass, Sturgess and Wilson (1994) state that it is difficult for entrants with unidentified products to gain viable market talk about as customer loyalty exists with the prevailing firm. IKEA relishes devotion from its customers which includes been developed by huge and continuous investment in making its products better and cheaper. There may be high hurdle for entry established by IKEA which makes it extremely difficult for a fresh entrant with unknown and untitled products to gain a viable talk about of the marketplace.
According to Armstrong and Kotler (2006), modern marketing involves a major notion know as marketing combine. A firm needs get its marketing blend which includes product, price, place and promotion (the 4PS) right to get the response it wishes from the prospective market.
Source: Armstrong and Kotler (2006) Marketing an launch. New Jersey: Pearson Education, Inc
Product strategy forms the to begin the 4PS of modern marketing strategy. Product includes goods as well as services the business wants to sell. IKEA has large range of products for nearly everything that is needed at home. IKEA is positioned itself as an organization which offers quality goods at affordable price. In terms of service, IKEA promotes the idea of DIY but makes technological help available for its customers when needed. This makes IKEA's products not the same as other products available for sale.
According to Myers, Caustic and Diamantopoulos (2002) it is difficult to price products in the international markets as the competition boosts. IKEA's adopts low price strategy which is achieved by keeping the expenses low between then manufacturers and customers. IKEA can also sell its products cheap because it makes bulk requests. IKEA plans to lower its prices in china by 27% to increase its sales. This is possible as china produces 30% of its products. Also large percentage of its recycleables also comes from china. IKEA also offers payment and credit options because of its customers.
IKEA has been able to reduce its costs by finding its shops in the suburbs of the cities. In china they have exposed its store in shanghai city knowing that only 20 percent of visitors in shanghai have their own cars.
IKEA promotes its products by advertising on Television and newspapers. In addition, it markets and markets its products online. Broachers and catalog are imprinted that have the latest offers and the services for convenience of customers. IKEA is also involved in assisting NGO's like UNICEF. This creates a good company image in the clients mind.
According to Eggert and Ulaga (2002), customer recognized value (CPA) consists of three elements,
the multiple components of value,
the subjectivity of value perceived and
the need for competition.
The difference between benefits and costs of any offering recognized by the clients can be stated as customer recognized value.
According to Heinonen (2004), organisations cannot only give attention to process and end result of service delivery which are easy to control. Managers have to put in work to consider the temporal and spatial elements operating. IKEA's warehouses are wide open for customers to check and select the furniture's. Thus IKEA has been able to set-up value by providing an world where customers is capable of doing services at their own convenience.
IKEA idea is to increase customer perceived value by providing extraordinary customer service. IKEA reduces perceived sacrifice because of its customers by offering them a amazing experience through their new designs, high quality and low cost furniture's.
IKEA retains its low prices by reducing its transport costs, inventory costs and also by their DIY idea.
IKEA is able to maintain its concentrate on being easier, cheaper and faster. It is also in a position to provide excellent customer service by its cost clipping and process search engine optimization techniques.
According to Lee and Ko (2000), the internal as well exterior customers is highly recommended while determining the strength of an organisation. IKEA can maximize productivity and minimize waste materials generation as maintains complete control over production process. All of the steps in the development process from forestry noticed milling and plank creation to furniture is treated by the commercial band of IKEA to create Swedwood.
IKEA's own design group makes sure that their products match the development of the market. The look group also co-ordinates with the industrial group and vise versa to effectively convert the design into furniture's.
IKEA is a long term spouse of UNICEF assisting UNICEF's programs benefiting children and their opportunities for learning and development in Asia, Africa and Central and Eastern Europe. IKEA has also been dealing with UN to abolish child labor. By gratifying its corporate sociable responsibility and repeated client satisfaction, IKEA has had the opportunity to create a strong brand image and thus likes enhances customer loyalty all around the globe. IKEA was rated 41st among the best global brands throughout the world in 2006.
IKEA has to be based upon sub contracted manufacturers as it offers limited manufacturing features, rendering it difficult for IKEA to coordinate and control quality benchmarks in some areas. IKEA could also face competition from the subcontractors as they may produce their own line of products.
IKEA products are also easy to reproduce which the reason it is facing competition in china from the neighborhood suppliers. These suppliers in china are able to duplicate the IKEA products and sell at a cheaper cost.
Lee and Ko (2000) declare that opportunities are present everywhere such as changes in authorities policies, social patterns and even technology. Asia makes up about small part of IKEA's business with only 3% of its sales made after that. IKEA senses an opportunity to make its tag in Asia. IKEA programs to slice prices in china substantially and wide open new stores. IKEA can also develop by using e-commerce to its benefit. By using progressive technology IKEA can reach customers in parts of the world where it does not have a store.
The major risk to IKEA is distinctive demand in various regions. Within a vast country as china, IKEA has to modify to the living style and culture which differ from one part to the other. IKEA plans to expand regardless of the business being strike by the global downturn. IKEA will have to be careful of the decisions it takes for its future in these difficult times.
IKEA success can be attributed to its potential of turning problems into opportunities. IKEA has had the opportunity to globalize and compete with local products in diverse marketplaces because of its eyesight and business idea.
IKEA is learning ways to lessen costs in china and also designs to open 10 more retailers by 2010. IKEA needs china to be the second largest furniture use market by 2014 only after USA. Therefore, IKEA has streamlining its resources in Asia-Pacific and will transferred its purchasing, financial, procedure, security and other efficient departments from Singapore to Shanghai.
Rowley and Slack (2003), a new technology known as kiosk is employed by IKEA's for customer convenience. Thus by using better technology like kiosk, IKEA will be able to satisfy more and more customers and can keep growing.
IKEA has to constantly consider new and innovative ways to reduce costs and improve quality to remain ahead of the competition. IKEA needs to be in control of the huge growth it has designed. Inability to lessen costs and lack of ability to maintain control of development may lead to the demise of IKEA.
Analyzing IKEA by PESTEL examination reflects the external factors that IKEA has to counter to accomplish its goals. IKEA must package with different external factors like taxation plans, government rules and regulations, exchange rate in various countries. IKEA product prices vary from country to country essentially due to the exterior factors.
IKEA has adopted a distinctive marketing mix which has resulted in the enormous expansion of the business. IKEA has been so successful because it has had the opportunity to change its marketing strategy to match the culture of the country. Most of IKEA's business originates from Europe however now it's broadening in Asia. To be successful in the highly competitive Asian and especially Chinese markets, IKEA will have to adopt new strategies which suit the cultures of the markets which is different from the european culture.
IKEA's plan of enlargement in China could be quite dangers as they have got not been able to make their tag in the Chinese markets as they have got had the opportunity to make in Europe. In addition, IKEA's business has been hit by the financial meltdown world wide; it could be strategic for IKEA to concentrate on increasing their sales in the existing stores than extension in China.