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Inside IKEA’s Digital Transformation
- Thomas Stackpole
A Q&A with Barbara Martin Coppola, IKEA Retail’s chief digital officer.
How does going digital change a legacy retail brand? According to Barbara Martin Coppola, CDO at IKEA Retail, it’s a challenge of remaining fundamentally the same company while doing almost everything differently. In this Q&A, Martin Coppola talks about how working in tech for 20 years prepared her for this challenge, why giving customers control over their data is good business, and how to stay focused on the core mission when you’re changing everything else.
What does it mean for one of the world’s most recognizable retail brands to go digital? For almost 80 years, IKEA has been in the very analogue business of selling its distinct brand of home goods to people. Three years ago, IKEA Retail (Ingka Group) hired Barbara Martin Coppola — a veteran of Google, Samsung, and Texas Instruments — to guide the company through a digital transformation and help it enter the next era of its history. HBR spoke with Martin Coppola about the particular challenge of transformation at a legacy company, how to sustain your culture when you’re changing almost everything, and how her 20 years in the tech industry prepared her for this task.
- Thomas Stackpole is a senior editor at Harvard Business Review.
The Business Strategy of IKEA: A Discussion
Before becoming the largest furniture retailer in the world, then 17-year old Ingvar Kamprad started IKEA as a mail-order sales business in 1943. The Swedish company began selling furniture in 1948 and it opened its first physical store in 1958.
The first stores outside Sweden opened in Norway in 1963 and Denmark in 1969. More stores opened across Europe from the 1970s to the 1980s. The succeeding years saw the opening of multiple stores in each country and a further expansion in North America, the Middle East and the Near East, South East Asia, and the Far East.
IKEA is now a conglomerate or a multi-industry and multi-sector business organization. The success of this organization can be attributed to specific business strategies and tactics that revolve around offering well-designed and functional products at affordable prices.
Key Elements in the Business Strategy of IKEA
The marketing strategy of ikea.
Marketing can make or break a business organization. A look into the business strategy of IKAE reveals that the company has put emphasis on specific marketing considerations, tactics, and activities that have allowed it to realize its organizational mission, vision, and values.
Product Strategy: Capitalizing on Affordability and Mass Consumer Culture
Fundamental to the marketing strategy of IKEA is a selling proposition centered on offering a range of well-designed and functional home furnishing products, as well as appliances and accessories, that are affordable to the mass market.
The company expounds on this proposition through specific tactics within its product strategy. For starters, note that its flagship products are ready-to-assemble furniture . The decision to develop and sell ready-to-assemble home furnishing items provides the company and its customers key advantages to include easier storage and shipment and lowered cost.
Furthermore, acknowledging the need to expand customer options while recognizing the diversity of customer preferences, IKEA builds on the modular nature of furniture options to promote flexibility, customization, and mixing and matching of furniture modules.
The ready-to-assemble characteristic of its products has also allowed the company to capitalize on mass consumer culture while remaining sustainable. Prime examples include the extensive use of medium-density fiberboard, as well as the elimination or reduction of raw materials and substances that are potentially harmful to the environment.
Product diversification is also part of its modern product strategy. The company has ventured into smart home business since 2016 and flat-pack or modular house construction business. IKEA also sells residential photovoltaic or solar panels .
Pricing Strategy: Mass Appeal through Affordable Pricing Considerations
Remember that affordability is part of the selling proposition of the company. It is also important to highlight the fact that it targets the mass market to capitalize on mass consumer culture. Based on the prices of its products, it utilizes a mix of penetration pricing strategy, price leadership, value-based pricing, and cost-plus pricing strategy.
IKEA is not the only furniture manufacturer in a particular geographic market. The top competitors of IKEA include Groupe SEB, Ashley Furniture Industries, Walmart, Bed Bath & Beyond, Amazon, Target, Pier 1 Imports, and Wayfair. Furthermore, the Swedish conglomerate also competes with local furniture makers and smaller ones.
To maintain a competitive advantage and remain true to its unique selling proposition, the company has to make its products as affordable as possible. The company initially built on a penetration pricing strategy to allow it to enter a market and gain market share.
However, unlike a traditional penetration pricing strategy, the company did not raise the prices of its products substantially. Instead, it developed capabilities needed to lower costs associated with manufacturing, operations, and customer acquisition.
The company integrated other pricing considerations that revolve around value-based pricing and cost-plus pricing strategy to support further its unique selling proposition. Because the company is now the largest furniture retailer in the world, it now has a price leadership advantage that allows it to determine prices in the market.
Placement Strategy: Maintaining Global Distribution Through Retail Operations
Reaching the mass market also means determining and utilizing the most effective and efficient distribution channels. Nevertheless, the placement or distribution strategy of IKEA fundamentally centers on global retail operations.
There are more than 440 IKEA retail stores across the globe. Note that in Sweden alone, there are 52 retail stores while more than 270 stores operate in entire Europe. There are 52 stores in the United States and 35 in China. The largest store is located in the Philippines. The company also plans to expand further in South America and Southeast Asia.
Global retail operations have enabled the company to reach global customers. It is interesting to note that its retail stores typically occupy large floor areas to showcase the entirety of its product offerings. Furthermore, in addition, these stores are either located in outside cities or within city centers to make them relatively accessible to the public.
Retail operations require proper warehousing. Full-size stores have integrated warehouses. However, in cities with limited land areas such as Hong Kong, the company operated several stores while maintaining a central warehouse in another location.
IKEA implements a variety of store designs and considerations depending on the geography of a particular location. For example, in some countries with limited land area and planning restrictions, retail stores serve as display galleries and provide pick-up services in which customers would have to make in-store or online reservations.
The ready-to-assemble nature of its home furnishing products also forms part of its distribution strategy. This specific product design strategy not only minimizes shipping costs but also allows easier storage in warehouses and maximizes inventory capacity.
Promotion Strategy: Traditional and Contemporary Marketing and Sales Promotion
IKEA tackles marketing promotion using established marketing practices. The company has invested heavily in advertising to promote its product and its entire brand. Some of its advertisements have earned commendations. For example, in 1994, it ran a television commercial in the United States that featured a homosexual couple.
There was an initial backlash due to the sociopolitical status of the LGBT community during that time. However, the company has since continued to run advertisements that appeal to the wider members of the community including transgender women.
Furthermore, the “Lamp” television and cinema ad released in September 2002 won several awards to include the prestigious Grand Clio, Golds at the London International Award, the ANDY Awards, and the Grand Prix at the Cannes Lions International Advertising Festival. The 60-second commercial coincided with the opening of 60 new stores in the U.S.
The company has partnered with other organizations to promote its products further beyond advertisements. Examples include product placements in The Sims 2 video game, public event sponsorship, and guerilla marketing initiatives such as public exhibitions.
Other marketing and sales promotional initiatives include participation in advocacies as part of its corporate social responsibility , public relations, value-added services such as the IKEA Family loyalty card, and the utilization of digital media and related technologies such as the introduction of the IKEA Place augmented reality mobile application.
Nevertheless, considering its target market that comprises the mass market composed of middle-income individuals and families, the company utilizes different types of marketing promotion to ensure maximum exposure and reach.
The Manufacturing Strategy of IKEA
Another critical element of the business strategy of IKEA is a specific focus on mass production. Because its selling proposition centers on designing and producing affordable products for the mass market, its manufacturing strategy complements its manufacturing strategy.
Insourcing and Outsourcing: Achieving Economies of Scale and Reducing Production Cost
Similar to successful business organizations such as the technology company Apple and the fast fashion retail giant Zara , outsourcing and vertical integration through insourcing are critical to the overall business and specific manufacturing strategy of IKEA.
The company designs the products in Sweden and manufactures most of these in developing countries through its Swedwood Group subsidiary. With over 15,000 employees and locations across more than 50 sites in more than 11 countries, Swedwood handles all the production of wood-based products. The largest factory is in Southern Poland.
Insourcing provides several advantages. The first is that it allows the company to have a complete control over the production process while having a separate organizational structure to focus on specific business activities. Furthermore, the manufacturing facilities have been strategically located in areas and countries to lower costs associated with production and distribution.
However, aside from insourcing, IKEA also outsources the production and acquisition of several items within different product categories. This allows the company to expand its product portfolio without the need for building additional production capabilities.
Both insourcing and outsourcing collective represents a source of competitive advantage for the company. It fundamentally maximizes the advantages of each while providing a workaround against their respective disadvantages.
An insourcing-outsourcing manufacturing consideration has also enabled the company to achieve economies of scale that has continuously allowed it to produce in high volumes, lower the production cost, and lower the end-user price points of its productions.
Supply, Logistics, and Inventory Management: Promoting Operational Sustainability
The supply chain operations down to logistics and inventory management at IKEA support the selling proposition of selling affordable household products to the mass market. Remember that the company has intentionally applied the concept of mass production and mass consumption to furniture retail. It is fundamentally a high-volume retailer of furniture.
Raw materials are critical to its production. The company has an established relationship with suppliers made possible through a dedicated team of officers stations in 42 trading offices around the world while maintaining guidelines to align these suppliers with its promise of providing high-quality products without compromising the environment.
IKEA used engineered wood instead of hardwood. Furthermore, to remain aligned to its corporate social responsibility , most of its products are made from recycled and sustainable materials, thus adhering to concepts such as circular economy and upcycling .
Taking into consideration sustainability demonstrates an acknowledgment of the importance of promoting the welfare of the environment to ensure long-term growth by future-proofing the company from possible environmental backlashes.
It is also worth mentioning that part of the business strategy of IKEA is to align geographically material flow or supply with production and distribution. To lessen costs associated with shipments and storage, the company chooses suppliers based on geographical considerations relative to the locations of its manufacturing facilities, warehouses, and retail stores.
Remember that part of the distribution strategy of the company is the integration of its warehouses with its full-size retail stores. Adding to the ready-to-assemble nature of most of its products, IKEA has managed to lower cost-per-touch. Note that the more hands touch the product, the more costs are associated with it.
The company has also utilized proprietary information systems such as an inventory tracking system and order quantitate management to keep track of its inventory and align it with retail demand and production capacity. The warehouses are also divided into two portions: automated facilities for fast-selling items and manual facilities for slow-selling items.
In a Nutshell: Understanding the Business Strategy of IKEA
Central to the purpose of the business strategy of IKEA is the realization or fulfillment of its major selling proposition or the IKEA Concept of offering a range of well-designed and functional home furnishing products, as well as appliances and accessories, that are affordable to the mass market.
It is also important to highlight the fact that the company has built a business characterized by furniture retail that capitalized in mass production and mass consumption. Similar to industries and sectors such as the fast-fashion retail and the consumer electronics industries, the company has a pronounced purpose of being a high volume retailer of furniture.
Marketing and manufacturing represent the two major elements of the business strategy of the company. The overarching goals and objectives of its specific marketing and manufacturing strategies and tactics collectively represent the realization of the IKEA concept.
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Ikea to invest over $2.2 billion in new U.S. store models, pickup locations in next three years
- Ikea is making its biggest investment push since it opened in the U.S. nearly four decades ago.
- The Swedish home and furniture company's investment will go toward omnichannel growth, including new stores, pickup locations, sustainability efforts and other developments.
- Omnichannel retail experiences, where online and in-store shopping experiences complement each other, have become increasingly popular in recent years.
Ikea will invest more than $2.2 billion over the next three years on its omnichannel growth strategy in the U.S., marking the Swedish home and furniture company's biggest investment push since it opened in the U.S. nearly 40 years ago.
Omnichannel retail experiences, where online and in-store shopping experiences complement each other, have become increasingly popular in light of a pandemic-spurred online shopping boom.
Its roots predate the pandemic: In the U.S., the trend was buoyed by Amazon 's purchase of Whole Foods in 2017 , which integrated a host of technological advancements into the in-person shopping experience. Soon, big-box retailers such as Walmart and Target followed suit .
Ikea, already well known for the carefully curated showrooms and model apartments in its flagship stores, has already started making moves toward such a strategy. In recent years, the company has routinely rolled out updates to its at-home augmented reality preview tools. And as a home and furniture company, there's an added appeal to blending in-store and online shopping, since customers need to envision how products will fit into their existing homes.
The retailer's $2.2 billion investment will be used for a variety of efforts, including expanding new store models and pickup locations, and is aimed at improving accessibility while keeping products affordable, Javi Quiñones, CEO and chief sustainability officer at Ikea U.S., told CNBC.
"It's also an indication of how important the U.S. market is for Ikea," Quiñones said. "We started here in the U.S. almost 40 years ago, and this is the biggest [investment] we've ever done."
An exact breakdown of how the multibillion-dollar investment is going toward any of Ikea's specific omnichannel efforts is not yet available, an Ikea spokesperson said.
As part of the investment, the company will open nine "Plan & Order points," an extension of the company's existing "planning studios," where customers can get personalized help on bigger home projects, such as kitchen or bathroom remodels.
Plan & Order points will function just as the company's planning studios have so far: After consulting with Ikea's in-studio planners, customers can order items to be shipped directly to their homes. No items are actually stocked for purchasing in the planning studios.
The chain opened its first planning studio in New York's Upper East Side in 2019, calling it its first "city center" location , and has since gone on to open several other storefronts, but it shuttered its New York store in January 2022, saying it was looking to relocate.
These alternative in-person shopping options are meant to complement, not replace, Ikea's flagship stores, Quiñones said.
The company is currently "exploring absolutely every single option" when it comes to the ideal placement of these different store models, he added. The first Plan & Order point slated to open this year will be in Arlington, Virginia, with many more in the pipeline, according to Quiñones.
Down the road, some might open in locations that already have an Ikea store nearby, while others might open in cities without any Ikea presence. "The whole intention here is to be closer to many more Americans," Quiñones said.
As part of that effort, Ikea's new investment will also see eight new stores added to its existing lineup of U.S. stores. To date, there are 51 stores in the United States. When combined with the Plan & Order points, the addition of those eight stores will usher in 2,000 new jobs at the company, Ikea said.
Ikea is also adding 900 new pickup locations to its slate, allowing customers to retrieve ordered goods from more convenient locations. Like omnichannel retail more broadly, order pickup options have flourished at a variety of retailers throughout the pandemic.
The majority of Ikea's pickup locations will be tied to Ikea stores, and some stores will have multiple pickup locations, Quiñones said. In some cases, if there's no Ikea store near the site of a pickup location, orders will be delivered from a distribution center instead, he added.
While Ikea is investing in expanding its pickup options, Quiñones emphasized that the company is still committed to its larger locations, saying that "the full Ikea experience" happens when customers step inside an Ikea store. "Pickup points will be there to just make things more convenient for the customers," he said.
Ikea's investment will also fund a continued effort to modernize existing stores, in part by improving energy efficiency, solar panel installations and electric vehicle fleets, Quiñones said.
Those efforts will be crucial for the company's climate goals: By 2025, Ikea plans to have its home deliveries arrive exclusively via EVs , a key part of its larger plan to reduce greenhouse gas emissions .
IKEA Business Strategy and Competitive Advantage: Capitalising on IKEA Concept
IKEA business strategy is built upon the IKEA concept. The IKEA Concept starts with the idea of providing a range of home furnishing products that are affordable to the many people, not just the few. It is achieved by combining function, quality, design and value – always with sustainability in mind. The IKEA Concept exists in every part of the company, from design, sourcing, packing and distributing through to business model. 
The following points constitute integral elements of IKEA business strategy.
1. Offering the lowest prices . Cost effectiveness is one of the solid bases of IKEA competitive advantage. The global furniture retailer is able to offer low prices thanks to a combination of economies of scale and technological integration into various business processes.
2. Increasing variety of products . Great range of products also belongs to the list of IKEA competitive advantages. There are 12000 products across in IKEA portfolio and the company renews its product range launching approximately 2000 new products every year.  The company is also increasing its presence in food and catering industries.
3. International market expansion strategy . The home improvement and furnishing chain has traditionally engaged in new market development in an aggressive manner. IKEA has11 franchisees operating in more than 500 locations in 63 countries.  Furthermore, The Swedish furniture chain has long-term plans to establish its firm presence in many developing countries.
4. Benefiting from strategic alliances . The global furniture retailer benefits from strategic alliances to a maximum extent. The formation of strategic alliances is placed at the core of IKEA business strategy. The list of the most successful collaborations include partnership with Apple to explore the possibilities of Augmented Reality as a tool for home-furnishing, partnership with LEGO for new product development and partnership with Adidas in knowledge sharing about customer behaviour. Experience and competency in the formation of strategic alliances can be specified as one of the most important IKEA competitive advantages.
Currently, IKEA is in the middle of transformation of its business model that made it successful in the global scale. Specifically, for many decades IKEA business strategy was largely based on having giant out-of-town warehouses, where shoppers pick their own furniture and then build it at home. But now it is looking increasingly at city-centre stores, online shopping, home delivery and assembly, and more radical ideas such as leasing furniture and selling on websites such as Alibaba. 
IKEA Group Report contains the above analysis of IKEA business strategy. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on IKEA . Moreover, the report contains analyses of IKEA leadership, organizational structure and organizational culture. The report also comprises discussions of IKEA marketing strategy, ecosystem and addresses issues of corporate social responsibility.
 The IKEA Concept (2019) IKEA, Available at: http://www.ikea.com/ms/en_US/this-is-ikea/the-ikea-concept/
 Sustainability Report FY 2021,IKEA
 Inter IKEA Holding B.V. Annual report FY21
 Milne, R. (2019) “Inter Ikea’s Torbjorn Loof: making the vision clear” Financial Times, Available at: https://www.ft.com/content/6b250c0a-2486-11e9-b329-c7e6ceb5ffdf
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Spotlight: IKEA Strategic Considerations
Get out the toolkit and read on as Georgina gives her thoughts on IKEA’s strategic considerations… 🛒
Table of Contents
Spotlight: IKEA Strategic ConsiderationsBuilding a strategy is like building furniture. Stick with me on that analogy… you have different pieces of your business, different objectives, and they need to be linked together to make each part stronger and your overall vision a reality. One company that most likely sees it’s strategic plans in that way is IKEA.
The company was originally founded in 1943 by Ingvar Kamprad in Sweden and expanded to the UK in 1987. The UK market itself is under great change due to the recent political decisions, so what strategic considerations should IKEA have? Let’s take a look…
PESTLE Analysis for IKEA in the UK
The impact of Brexit has already affected IKEA. Brexit caused prices to increase in 2017, but this did not end up hindering sales. However, the uncertainty of the pound to euro exchange rate could affect IKEA in the long run.
Climate change is a major issue that big corporations like IKEA need to evaluate. Their process of improving their sustainable image has begun by selling and using solar panels as well as beginning to eliminate one use plastic products. They are aiming to become a fully circular business by 2030 to eliminate waste and reuse resources.
The social cultural trend that could benefit IKEA in the future is the increase in online shopping. IKEA could use this to their advantage to push online sales to increase overall sales.
- UK leaving EU
- Minimum wage in UK due to increase to £10.50 by 2024
- Will affect trading deals with EU, meaning higher barriers to entry.
- Harder for smaller companies that do not have the infrastructure.
- Effect will vary depending on company but retail is said to find increases harder to manage
- Have already been affected by import costs as prices raised by 3.6% in 2017, but sales still increased despite this.
- Uncertainty of the pound exchange rate will affect prices of products.
- Employees’ wages might increase – more costs for IKEA. Increase in customer income could persuade them to a premium brand.
- 1.7% inflation rate – Lowest rate since 2016
- GDP growth predicted to increase to 2% by 2022
- Will increase consumer spending on non-essential items.
- Could benefit or harm companies based on their target markets.
- Will increase sales, but inflation rates could be unpredictable with Brexit looming.
- If customer’s income increases them other premium companies could gain IKEA’s customers
- UK online spend is forecast to increase 29.6% between 2019 and 2024
- Aging population in UK
- Companies would want to alter companies to keep up with trends.
- Will be more of an emphasis on targeting the older population.
- Emphasis on online sales and incorporate online promotional tactics into their strategy
- Should be taken into consideration for future target market – older demographic not the main target market
- £6.3billion total venture capital investment in UK technology in 2018
- “UK homeowners are starting to show greater interest in smart home technology and awareness is growing fast
- Will be necessary to invest to keep up with competition
- Force companies to match this trend to compete
- Possible threat but IKEA have already implemented augmented reality and virtual reality, putting pressure on competition. This technology merges the store experience with the visual experience.
- Already implemented smart lighting, blinds, speakers and charging devices, but will need to make sure its functions correctly and they stay ahead of competitors.
- The UK is installing solar panels faster than any other European country
- Threat of climate change
- Possibility of companies changing to solar panels due to new customer expectations
- Could change how corporations are run. New laws could be implemented to improve corporation pollution
- Already implemented in stores and have now made it available to buy solar panels for customers to use at home
- Aiming to no longer produce one use plastic free products by 2020.
- Creating sustainable store in London run by solar panels
Read the Ultimate Guide to PESTLE Analysis.
Five Forces Analysis for IKEA in the UK
While IKEA have proven themselves by maintaining their strong sustainable competitive advantage, there are threats in the competitive environment that should be analysed. Due to the volume of competitors in the furniture industry, IKEA needs to make sure that they are innovating and maintaining their large market share.
There is a threat of substitutes for IKEA due to the innovation of new furniture outlets like Gumtree. Additionally, because there are lots of choice for furniture stores, the bargaining power of buyers poses a threat for IKEA.
Bargaining power of suppliers have a low impact because suppliers need IKEA more than IKEA needs them. To ensure that the right suppliers are chosen, IKEA uses the IWAY contract (IKEA.com, 2019c), which lists what the supplier is not allowed to do (i.e. child labour). New entrants also do not impact IKEA much because it is hard for start-ups to compete with a company as established as IKEA and in a competitive market.
Industry Rivalry: High
- Highly competitive growing market. High exit barriers.
- Competitors: DFS, Wayfair, B&Q, Wickes, John Lewis, Amazon, Argos
- IKEA should maintain its sustainable competitive advance by differentiating themselves by providing low cost, high quality products.
Threat from New Entry: Low
- High barriers to entry because of established market and high competition. Hard for newcomers due to economies of scale.
- New entrants competing with IKEA is hard and costly as IKEA are such a globally known company, thus making IKEA have a competitive advantage.
- High expertise and innovation in the sector which pushes IKEA to focus on innovating products (e.g. home technology, AR)
Threat from Substitutes: Medium
- Gumtree, charity shops, furniture markets.
- Not many alternatives that are low price, high quality and offer the same variety of products.
- Their brand image aids in preventing substitutes to be a major issue.
Threat from Suppliers: Low
- Furniture industry have the choice of their suppliers.
- Due the substantial amount of suppliers that IKEA are able to acquire means that the suppliers are in a more vulnerable position and do not hold much bargaining power.
- IWAY is the code of conduct that IKEA’s suppliers must follow to be one of their suppliers (if violated, they are removed) create strong relationships with suppliers (IKEA.com, 2019b)
Threat from Customers: Medium
- Customers have lots of choice in the furniture industry so important for companies to differentiate themselves.
- With the threat of a growing market, IKEA should not be too threatened by the competitive environment as they produce high quality and affordable products using a cohesive and thought-out strategy that will satisfy the target audience.
- Follow the customer trends of affordable pricing – IKEA customers are price sensitive.
Complete your own Five Forces here.
SWOT Analysis for IKEA in the UK
- Low price, high quality and stylish products
- Strong global brand image
- Variety of products
- Extensive market research
- Economies of scale – large number of units for cheaper products
- High barriers to entry for start ups
- Has increased renewable resources
- IKEA customer experience – in the store
- Lack of stores in the UK, which makes it harder for customers to get to stores
- Size of the company makes it hard to control standards and quality
- Reliant on suppliers to provide materials
- Demand for sustainability. Reducing carbon footprint
- New, smaller stores
- New technology – smart home technology (Schwartz, 2019)
- Adding premium furniture line – reach bigger demographic
- Celebrity endorsement
- Leasing furniture (Rogers, 2019) – implement in all of UK
- Effects of Brexit – possibility of increased prices
- Highly competitive industry
- If there is an increase in customer household income, then customers likely to buy from higher quality competitor need to keep prices low
- Alternatives to furniture stores leasing them or buying cheaply from charity shops
Read the Ultimate Guide to SWOT Analysis.
Strategic Objective: Digital Marketing
Digital marketing would be a key tool to help implement a market penetration strategy for IKEA. It would bring more brand awareness, which would inevitably increase the market share and increase online sales. This approach would also help to promote the sustainability of the company and would increase the brand image by showing customers that the company is environmentally responsible.
While IKEA has proven its dedication to digital marketing, they could emphasise this to further enhance their position in the market.
Digital Marketing Mix:
- Price: Promotions for buying products online, student discounts, family discount
- Product: Showcasing their smart home technology, continue using their augmented reality (AR) technology to showcase furniture
- Place: Use social media more to reach younger target market, improve online website for customers – make it easier to use and include all products that can be found in the stores
- Promotion: Increase advertisements that highlight the sustainability of IKEA to reach target market (using environmentalist celebrity), continue using guerrilla marketing to get customers involved more
5 I’s :
- Identification: Make customers at forefront of decisions, target students and families that care about the environment
- Individualism: Individual or family IKEA account which helps consumers to see products relating to products that have been previously bought or looked at
- Interaction: Guerrilla marketing in big city stores to interact with customers, social media to increase customer’s awareness of IKEA’s sustainability, virtual reality, augmented reality, getting customer feedback to stay ahead of trends, emphasise sustainably being done affordably
- Integration: Need to make sure that all marketing elements agree with the brand image of the company and have a cohesive message
- Integrity: IKEA should continue to show their down-to-earth values through their marketing (IKEA.com, 2019a), make sure that website is safe for customers to use and online service is positive
Overall, implementing digital marketing further will allow IKEA to achieve their company objectives of financial growth, brand positioning and customer acquisition.
In short, a lot for IKEA to consider! If you’ve enjoyed this article you might like to read our article on strategic considerations for the retail industry .
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Table of Contents
Founded in 1943, Ikea operates 422 stores in 50+ markets. The favored furniture brand has an impressively wide customer base, with nearly 70% of its stores in Europe. Ikea added 19 stores last year, including its first in India. The Ikea marketing strategy includes some of the most iconic logos, campaigns and companies in recent history.
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Ikea Target Audience
Ikea serves the unique functional needs of each target audience, with special attention to 16-34-year-old adults. It has solutions for:
- Single people not living at home
- Newly married couples
- Families with the youngest child under six
- Older married couples with dependent children
- No children families
- Labor force
Thus, it uses the following types of product positioning :
- Mono-segment positioning. It appeals to the needs and wants of a single customer segment that is cost-conscious and prefers value for money.
- Adaptive positioning. It believes in periodically repositioning products and services to adapt to changes in customer preferences. Its Swedish furniture chain considers the dynamic nature of customer preferences. For instance, its latest products reflect increasing minimalism on the global scale.
Ikea Marketing Channels
Ikea utilizes the power of the following marketing channels:
- Mobile Application
- WebEngage: Email, SMS, and Whatsapp Marketing
- Social Media
Ikea Marketing Strategy
The Ikea marketing strategy contributes majorly to its success because it's original, imaginative, and distinctive while maintaining a transparent value proposition.
A Creative, Consistent Brand Theme
From the Swedish national colors on its buildings to rich meatballs in its store cafeterias, Ikea's marketing strategy reflects its cultural heritage proudly. It infuses all elements of their identity with a sense of self-assuredness that maintains their identity in the market of stiff competition.
Emphasizing Affordability and Sustainability
Understanding that a simple tiered strategy won't encourage repeat business, Ikea extends customization, flexibility, and mix-and-match furniture modules. It effectively combines the elements of affordability and sustainability in its marketing strategy to ensure success.
While the furniture options don't pledge a lifelong guarantee, the products are built to last. Even its reusable shopping bags reflect its commitment to sustainability.
Sponsorship and Influencers
IKEA-sponsored comedic series Easy to Assemble. Its innovative content marketing was way different from a furniture product demo. Incorporating sponsored digital marketing campaigns and social media influencers have boosted the Ikea marketing strategy.
Ikea’s Easy to Assemble Series
Exceptional In-store Experience
Ikea brilliantly displays products employing the best lighting systems to generate more sales. It strategically arranges best-matched items in mock rooms to encourage impulse purchases and inspire decor. The company also extends excellent customer service to provide a memorable experience and incite customers to come back for more.
Ikea’s Store Decor for Inspiration
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Website and Mobile Application Marketing
Ikea ensures an optimal mobile website's speed, button displays and gesture controls on its website and mobile app to retain and attract individuals to the site. It carefully invests in its UI/UX , enquiry-based chatbot, and regular updates on new offers, discounts, and promotions.
One of the most successful marketing moves includes downloading its 3D modeling app to envision a dream home. It's one of its most successful marketing moves that allows IKEA to upsell its low-demand items by creating a desire in its customers to revamp the room.
Ikea’s Website With Engaging Content
Ikea's SEO (Search Engine Optimization)
Ikea's marketing strategy aims at enhancing the site's visibility for relevant searches to attract the attention of new and existing customers. It includes the right product-specific keywords and Google advertisements to further augment its organic ranking .
Ikea Ranking for Bookcases on Google’s First Page
Ikea's SMM (Social Media Marketing)
Ikea's handles are very active on digital marketing platforms like Facebook, Instagram , Twitter, and Youtube . Their digital presence is impressive, with more than 30 Million likes on Facebook, 1 Million followers on Instagram, 5.3k followers on Twitter, and 41.2k subscribers on YouTube.
Ikea’s Instagram Profile
Its Instagram bio links to its website. The website also has links to its various social media posts. Its 'view shop' and 'call' options for product catalog and direct assistance, respectively, are a testament to a well-crafted Ikea marketing strategy.
Ikea’s Youtube Advertisements
IKEA also conducts free online workshops that lure lots of enthusiastic customers, resulting in gaining leads.
Ikea’s Online Workshop Ad
Ikea relies on its content marketing strategy to create a distinguished presence amongst furniture brands. Its commercials, print ads, social media, and website stands out with attention-grabbing content. It combines innovation and humor to present the brand's core values and inspire people.
Ikea’s Captivating Commercial
Ikea Marketing Strategy bears testimony to a well-thought and structured marketing venture. Sign-up for our Digital Marketing Specialist and learn more about marketing case studies published by Harvard Business. You will be taught by experts from facebook and Purdue University. Sign-up for the course TODAY!
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About the author.
Rahul is a Senior Research Analyst at Simplilearn. Blockchain, Cloud Computing, and Machine Learning are some of his favorite topics of discussion. Rahul can be found listening to music, doodling, and gaming.
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IKEA SWOT Analysis
Before we dive deep into the SWOT analysis, let’s get the business overview of IKEA. IKEA is a multinational company specializing in designing, manufacturing, and selling ready-to-assemble furniture, kitchen appliances, and home accessories. Founded in 1943 by Ingvar Kamprad in Älmhult, Sweden, IKEA has become one of the world’s largest and most successful furniture retailers.
Business Model: IKEA’s business model is centered around providing affordable, functional, and stylish home furnishings to customers across the globe. The company achieves this through its unique combination of low-cost production, efficient supply chain management, and a self-service, warehouse-style shopping experience.
- Low-cost production: IKEA designs its products to be simple and easy to manufacture, which helps to reduce production costs. The company often uses flat packaging, which minimizes shipping and storage costs, and allows customers to assemble the products.
- Efficient supply chain management: IKEA maintains close relationships with its suppliers and works to optimize its supply chain, minimizing costs and ensuring timely delivery of products. This efficiency allows the company to maintain its competitive pricing.
- Self-service concept: IKEA stores are designed to facilitate a self-service shopping experience, with customers navigating through showrooms, picking up products from warehouse-like areas, and assembling the products at home. This approach reduces staffing costs and encourages customer involvement and satisfaction.
Product Range: IKEA offers a wide range of products, including furniture, storage solutions, lighting, textiles, kitchen appliances, and decorative items. The company’s products are designed to cater to a diverse range of customers, with various styles, materials, and price points available.
Global Presence: Since its inception, IKEA has expanded its operations to over 50 countries, operating more than 400 stores worldwide. In addition to its brick-and-mortar locations, IKEA also uses an e-commerce platform, allowing customers to purchase products online and deliver them directly to their homes.
Sustainability and Social Responsibility: IKEA is committed to sustainability and minimizing its impact on the environment. The company invests in renewable energy, focuses on using sustainable materials in its products, and aims to become a circular business by 2030. Additionally, IKEA is involved in various social initiatives and partnerships, such as working with UNICEF and Save the Children to improve the lives of needy children.
In summary, IKEA is a global leader in the home furnishings industry, known for its affordable, functional, and stylish products. The company’s unique business model, wide product range, global presence, and commitment to sustainability and social responsibility have contributed to its success and growth.
IKEA’s total retail sales for FY22 reached EUR 44.6 billion (EUR 41.9 billion in FY21). This includes sales of IKEA products, food, and services to customers.
Here is the SWOT analysis for IKEA
A SWOT analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats of a business, project, or individual. It involves identifying the internal and external factors that can affect a venture’s success or failure and analyzing them to develop a strategic plan. In this article, we do a SWOT Analysis of IKEA.
SWOT Analysis: Meaning, Importance, and Examples
- Economies of scale : As one of the largest furniture retailers globally, IKEA benefits from economies of scale, which allow the company to achieve cost advantages in production, procurement, and logistics. This enables IKEA to offer competitive pricing to its customers.
- Strong brand identity : IKEA has cultivated a unique and consistent brand identity. Its minimalistic Scandinavian design, affordable prices, and innovative furniture and home goods approach have made it a household name worldwide.
- Wide product range : IKEA offers a comprehensive range of products, catering to various customer segments, tastes, and budgets. This extensive product offering helps IKEA appeal to a broad audience and meet the diverse needs of its customers.
- Efficient supply chain : IKEA’s efficient supply chain management and close relationships with suppliers enable the company to streamline its operations, reduce costs, and maintain product availability, further enhancing its competitiveness in the market.
- Innovative store layout and customer experience : IKEA’s distinctive store layout, which combines showrooms and warehouse-style shopping, creates a unique and engaging customer experience. This self-service approach encourages customers to explore and interact with products, increasing the likelihood of sales.
- Global presence : With over 400 stores across more than 50 countries, IKEA has established a solid global footprint. This international presence enables the company to cater to local tastes and preferences while benefiting from global brand recognition.
- Commitment to sustainability : IKEA’s focus on sustainability and environmental responsibility has resonated with customers and helped to differentiate the brand from its competitors. The company’s initiatives, such as using sustainable materials and investing in renewable energy, contribute to a positive brand image.
- Digital transformation and e-commerce : IKEA has embraced digital transformation, investing in its online presence and e-commerce platform to cater to consumers’ changing shopping habits. This has allowed the company to expand its reach and maintain its relevance in the age of online shopping.
- Complex assembly process : Although IKEA’s flat-pack, ready-to-assemble products help reduce shipping and storage costs, some customers find the assembly process challenging or time-consuming. This could deter potential customers or lead to dissatisfaction among those who struggle with assembly.
- Perceived product quality : Due to its focus on affordability, some customers may perceive IKEA products as being lower quality than more expensive alternatives. This perception could limit IKEA’s appeal to customers seeking higher-end or longer-lasting furniture.
- Limited customization : IKEA’s standardized designs and production methods can restrict the level of customization available to customers. This might make it difficult for the company to cater to individual tastes and preferences, especially compared to smaller, bespoke furniture manufacturers.
- Dependency on large store formats : IKEA’s traditional reliance on large, out-of-town store locations can lead to higher operational costs and may not be as convenient for customers who prefer shopping in urban centers or online.
- Environmental impact : Despite its commitment to sustainability, IKEA’s business model is not without its environmental impact. The company’s reliance on wood and other raw materials and the transportation of goods can contribute to resource depletion and carbon emissions.
- Cultural adaptation challenges : As IKEA expands into new markets, it may face difficulties adapting its product offerings and store layouts to cater to the local culture, preferences, and regulations. This could affect IKEA’s ability to establish a strong presence in certain regions.
- Market saturation and competition : In some mature markets, IKEA faces increased competition from traditional furniture retailers and e-commerce platforms. This market saturation can lead to slower growth and increased pressure to differentiate its product offerings and customer experience.
- Supply chain disruptions : IKEA’s vast and complex global supply chain can be susceptible to disruptions, such as natural disasters, political instability, or global pandemics. These disruptions can impact product availability, increase costs, and negatively affect the company’s reputation.
- Expansion into emerging markets : IKEA can target untapped markets, particularly in Asia, Africa, and South America, to increase its global presence and tap into the growing demand for affordable and stylish home furnishings.
- Enhancing online presence and e-commerce : By investing in its e-commerce platform and digital marketing efforts, IKEA can cater to the increasing number of customers who prefer shopping online. This will help IKEA broaden its customer base and remain relevant in the digital age.
- Customization and personalization : Offering customers more options to customize and personalize their furniture can help IKEA differentiate itself from competitors and cater to the increasing demand for personalized products.
- Smaller and urban store formats : Opening smaller, urban store formats can help IKEA reach customers in densely populated cities where large store formats are not feasible. These smaller stores can offer a curated selection of products tailored to the needs of urban dwellers.
- Sustainability and circular economy : IKEA can further strengthen its commitment to sustainability by focusing on circular economy initiatives, such as promoting product reuse, repair, and recycling. This can improve IKEA’s brand image and appeal to environmentally-conscious consumers.
- Smart home technology integration : Integrating smart home technology into IKEA’s product offerings can help the company stay ahead of market trends and cater to the growing demand for connected, intelligent home solutions.
- Collaboration with designers and artists : By collaborating with renowned designers and artists, IKEA can introduce exclusive, limited-edition collections that can help differentiate its product offerings, create buzz, and attract new customers.
- Strengthening the supply chain : Investing in supply chain innovations, such as automation and artificial intelligence, can help IKEA further optimize its supply chain, reduce costs, and mitigate risks associated with disruptions.
- Intense competition : IKEA faces strong competition from both traditional brick-and-mortar furniture retailers and e-commerce platforms. Competitors may offer similar products at competitive prices, alternative designs, or superior customer experiences, putting pressure on IKEA to continually innovate and differentiate itself.
- Economic downturns : Economic recessions or downturns can lead to reduced consumer spending on discretionary items like furniture and home accessories. This can result in decreased sales and lower profits for IKEA.
- Fluctuations in raw material prices : IKEA relies heavily on raw materials, such as wood, textiles, and metals, to manufacture its products. Fluctuations in the prices of these materials can lead to increased production costs and potentially affect IKEA’s profitability and competitive pricing.
- Regulatory and political risks : As a global company, IKEA is exposed to various regulatory and political risks in its operating countries. Regulation changes, political instability, or trade restrictions can impact IKEA’s supply chain, operations, or market access, leading to increased costs or reduced sales.
- Changing consumer preferences : Consumer tastes, furniture, and home goods preferences can change rapidly. Failure to adapt to these changes and offer products that resonate with customers can decrease sales and market share.
- Environmental concerns : Growing concerns about the environmental impact of businesses, including resource depletion, carbon emissions, and waste generation, can affect IKEA’s reputation and demand for its products. Failing to address these concerns or meet evolving sustainability standards could harm IKEA’s brand image and customer loyalty.
- Technological disruptions : Rapid technological advancements, particularly in e-commerce, logistics, and manufacturing, can disrupt IKEA’s traditional business model. Failure to adapt and embrace new technologies can hinder IKEA’s competitiveness and market position.
- Supply chain disruptions : IKEA’s complex global supply chain is vulnerable to disruptions from natural disasters, political instability, labor strikes, or global health crises. These disruptions can lead to increased costs, delays, and damage to IKEA’s reputation for product availability.
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An Insight Into IKEA’s Supply Chain Strategy
IKEA has been able to maintain a consistent level of customer satisfaction and market share. A large part of this success can be attributed to the company’s supply chain strategy. This blog post will take a closer look at IKEA’s supply chain strategy and how it has helped the company to achieve its current level…
IKEA has been able to maintain a consistent level of customer satisfaction and market share. A large part of this success can be attributed to the company’s supply chain strategy. This blog post will take a closer look at IKEA’s supply chain strategy and how it has helped the company to achieve its current level of success. We will discuss IKEA’s global sourcing, automation of processes, lean manufacturing, and e-commerce strategies, and how these have enabled the company to remain competitive in the retail market. Ultimately, this blog post will provide insight into IKEA’s supply chain strategy and how it has helped the company to remain a market leader.
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Table of Contents
IKEA’s Supply Chain Strategy
IKEA’s supply chain strategy is a key component of its success in the retail market. The strategy is focused on leveraging global sourcing, automation of processes, lean manufacturing, and e-commerce to optimize the company’s operations. Global sourcing allows IKEA to access a larger range of products at a lower cost, while automation of processes helps to reduce costs and improve efficiency. Lean manufacturing is used to reduce waste and improve production, while e-commerce enables the company to reach a wider audience. All of these strategies have enabled IKEA to remain competitive in the retail market and remain a market leader.
IKEA’s global sourcing strategy is a key part of its supply chain strategy. This involves sourcing goods from a wide range of countries, including Europe, Asia, and the US. This allows IKEA to have access to a larger range of products at a lower cost, which helps it to remain competitive in the retail market. The company also has a strict ethical code that ensures that all goods are sourced responsibly and with respect to the environment. This has helped IKEA to establish a strong reputation for quality and sustainability.
Automation of Processes
IKEA’s supply chain strategy also involves the automation of processes . This involves the use of robots and other automated systems to reduce costs and improve efficiency. This allows IKEA to streamline its operations and reduce costs, while also ensuring consistent quality and customer satisfaction. Automation also helps to reduce the amount of manual labor required, which helps to improve the working conditions of the people employed by IKEA.
IKEA’s supply chain strategy also includes the use of lean manufacturing . This involves the use of techniques to reduce waste and improve production. This includes techniques such as Just-in-Time (JIT) production, which ensures that materials and components are delivered just in time to be used in production. This helps to reduce costs, improve efficiency, and reduce the amount of waste produced.
IKEA’s supply chain strategy also includes the use of e-commerce. This enables the company to reach a wider audience and extend its reach beyond its brick-and-mortar stores. IKEA has an extensive online presence, with an e-commerce store, mobile app, and social media presence . This helps to increase the company’s visibility and reach a larger customer base. Additionally, IKEA has invested in sophisticated logistics systems to ensure that online orders are fulfilled quickly and accurately.
In the previous blogs, we looked into the supply chains of famous and leading companies, which you can read about each of them in the section below.
In conclusion, IKEA’s supply chain strategy is a key part of its success in the retail market. The company’s global sourcing, automation of processes, lean manufacturing, and e-commerce strategies have enabled it to remain competitive in the retail market and remain a market leader. Through its use of innovative strategies, IKEA has been able to optimize its operations and ensure customer satisfaction. The company’s supply chain strategy is a testament to its commitment to excellence and customer service.
How does IKEA manage its supply chain?
IKEA has a global supply chain network that consists of thousands of suppliers, manufacturers, and logistics providers. These suppliers and manufacturers are managed through a combination of IKEA’s own Quality Assurance teams, external auditors, and other monitoring systems.
What are the main components of IKEA’s supply chain?
IKEA’s supply chain consists of four main components: sourcing, production, logistics, and customer service.
How does IKEA ensure quality in its supply chain?
IKEA uses a combination of its own Quality Assurance teams, external auditors, and other monitoring systems to ensure quality throughout its supply chain.
What is IKEA’s strategy for managing its supply chain?
IKEA’s strategy is focused on increasing efficiency, reducing costs, and ensuring quality throughout its supply chain. The company also strives to ensure that its supply chain is socially and environmentally responsible.
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IKEA`s Strategic Management
We would like to extend our sincerest appreciation to our helpful Professor Dr. Siong-Choy CHONG, for giving us the opportunity to analyze IKEA deeply according to the basic knowledge which we got during the class. The supervision and support that he gave truly help the progression and smoothness of our analysis is much indeed appreciated. We would also like to thank the various individuals who have contributed in any way possible; we would also like to thank the various individuals who have contributed in any way possible, thereby allowing us to create as accurate a representation as possible within our given constraints.
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IKEA: Strategic Planning Analysis
IKEA is a home products merchant with its branches distributing internationally which is privately had. It provides furniture, Bathroom and Kitchen items and accessories in even packages. IKEA is the worlds major furniture sellers due to its unique idea of the furniture sold in flat packages, affordability with home assembling by the costumer.
Immense retail experience, product diffentiation and sensible prices are the key for IKEA s success. It is the world's most successful multinational merchants.
In 37 countries IKEA has 301 stores (31 August 2009). This past year a complete of 286 million people went to the IKEA Group's stores round the world, most of them in Europe, THE UNITED STATES, Asia and Australia.
Its catalogue is branded in 118 million copies in 45 editions (23 languages).
IKEA is owned or operated by way of a Dutch registered foundation and is handled by Kamprad Family. It had been founded by Ingvar Kamprad in 1943 in Smaland, Sweden when he was only 17 years old. He started out with an innovative concept for the economically stricken but hard working folks of Smaland. He first started out his company with 15 co individuals. His theory mainly predicated on cost cutting alternatives which do not impact the quality of the product and thus offering the sales in a much less price than his competition. He never compromised on the quality but he scrapped from the rest. The term IKEA comes from the first initials of his first and previous name and the plantation and the community he came from (Elmtaryd and Agunnaryd)
IKEA is had and operated by convoluted groups of profit and nonprofit companies.
The corporate framework of IKEA has two major parts:
Management of various stores is the IKEA Functions responsibility. INGKA Holding is a private Dutch company which is owned by Stichtting INGKA Foundation which was founded in 1982 in Netherland as a taxes exempt non earnings foundation. The design and production of its furniture, purchasing and supply functions are overseen by INGKA. In 36 countries 2, 235 stores are run by INGKA Keeping, the others 30 stores are run by franchises. The INGKA Base is controlled by way of a five-member executive committee that is chaired by Kamprad and includes his wife and lawyer.
The IKEA hallmark and idea is managed by Inter IKEA Systems, registered in Luxembourg, which can be an exclusive Dutch company and its own ownership is very complicated and uncertain but imagine to be possessed by Kampard Members of the family. All IKEA stores including ones run by the INGKA Positioning pays a cost of 3% of the full total earnings to Inter IKEA systems.
All the stores are controlled by Inter IKEA Systems under a franchise arrangement. In Australia however IKEA is controlled by two companies: Eastern Coast Stores including Queensland, New South Wales and Victoria are under the dog owner ship of INGKA Keeping. Stores in the South and American Australia are owned or operated by CEBAS Pvt. Ltd.
The suppliers get a long term agreement with IKEA transferring technological advice and leased equipment from the company. IKEA continues the rights of exclusion and also for low prices.
Vision and Mission
"To generate a better everyday activity for the countless people. "
This vision provides the structure of an Marketing message to all or any IKEA businesses worldwide. This subject matter reflects the working and idea behind IKEA's smartly designed and practical products of home ware. Also keeping the product affordable for encompassing as many folks possible to get subsequently providing a remarkable profit.
Compromising the purchase price doesn't include bargain in the quality of the product or of the company's principles. As the saying goes "Good deal however, not at any price".
This guarantee is the key factor for their sustainable and flourishing business. IKEA's way was positively valued worldwide as the nice and the services are beneficial for both the costumers and the surroundings.
The business idea is "To offer an array of well designed, efficient home furnishing products at prices so low that as many people as possible will be able to manage them. "
The market positioning statement is "Your partner in better living. We do our part, you do yours. Alongside one another we cut costs. "
The product range varies in home furniture and accessories and includes 9500 items. The items are available in big warehouse type display stores or specifically on IKEA website on the internet making purchases easier for the consumer.
In UK IKEA has opened 18 stores so far. The first one was exposed in Warrington in 1987. Gleam new store opened up in Dublin in '09 2009 which is the first one in Ireland.
In August 2008 the IKEA stores were went to by 565 million visitors in a calendar year and 450 million people used the web site. The sales proceeded to go up to 21. 2 billion Euros ($30 Billion) with a rise of 7%. The biggest consumer countries were Germany, USA, France, UK and Sweden. Only 11% of the sales were produced in Sweden in 1997. Germany added 29. 6%, European Europe deal was 42. 5% and 14. 4% from North America. IKEA is now starting stores in Asia and China.
The growth strategy includes the checking of new stores in different locations to appeal to more customers. Their company objectives enable their strategy for the customer another where they weaken the competitors market and increase their share.
Instead of acquiring the regional and national trends and tastes IKEA adopted its vision which was"typically Swedish". This is a major global strike and the primary reason for the success.
Their market research was minimal with no intention learning consumer hobbies, instead the Swedish management made a decision what to present to the global general public, which was simply good quality functional furnishers in affordable prices. The business also illustrates the Swedish culture and root base from putting shops and cafes offering Swedish legacies from meatballs to jams in their stores to the blue and precious metal color scheme of the display products.
They have a tendency to sell the same product worldwide and also to spend less of the products by 30% in price from the competition keeping the after duty return.
Despite breaking the guidelines of international retailing, the formulation of advertising Swedish designed products worked well in Europe but it took a while for this business to capture off in THE UNITED STATES. In early on 90 s most of the IKEA stores were regarded as in trouble as a result of adverse movement of the exchange rates.
Moreover the IKEAs beds were too small and all of the measurements were in the Western european scales. The kitchen cabinetry were also too slim in a nutshell the furnishers and accessories weren't appropriate for Us citizens. Finally the company decided that in order to succeed in US market they have to personalize and redesign their product range. The redesigning of the furnisher provided a 30-40% boost in sales in bedroom furniture and 15% in kitchen furniture instantly. By 1997 about 1/3 of IKEA furnishers were created for US market.
The company is creating huge income from American market but Western european market has a greater talk about in this earnings.
IKEA is among the best example of a company, successful in both Scandinavian and global market. The politics condition in Sweden is secure and the environment eases condition for many markets. Following the 1978 reforms and start insurance plan in china IKEA was also one of the european retailer who required this opportunity and enter the Chinese market.
Global recession is of the biggest challenges facing by multinational companies all around the globe. IKEA timely type in Chinese language and Indian market which was least affected by global recession. In the united kingdom, Checking of Southampton store in 2009 2009 helped hold up sales otherwise struck by recession, but functioning margin have declined from 11% in 2005 to 3. 3% in 2009 2009.
IKEA has added much in the contemporary society as they provide opportunities in customers and the its employees are entitled in several benefits and bonuses such as insurance and pensions. However, the company has attempted to provide more high quality furniture that also adhere to their original concept stylish furniture at lower prices. IKEA is turn out to be an effective global brand getting similar social band of customer with different civilizations and societies in every the big market segments on the globe.
IKEA is building online help you to guide customers to a far more lasting life. It helps customers with tips as well as ideas on its website to lessen their effect on the environment. This may also save them money. Staffs are trained on sustainability, both on what IKEA does and exactly how they can take responsibility to become sustainable for themselves.
The IKEA used quality technology and modern systems to market faster flow of queues and proper arranging, tracking and trading, and staffing design. IKEA is aiming to be more beneficial and has generated employee preferences. The system IKEA has create able to ensure the right range of staff for the right store and in a right time to complement the unique trading style at each site of IKEA.
Porter Five forces
Michael porter has motivated five forces to analysed a industry.
Power of the Buyers
There is not much bargaining power because of the IkEA's exiting low-price options. Furniture as well as other items comes with an substitute, consumers have not a lot of alternative selections in getting high quality in low price that market IKEA has unique among its challengers. The strategy of affordable price is another way of the business to response in customers' needs.
Power of Supplier
IKEA has its more then 1000 of suppliers from Africa, Asia and other parts of the world that placed standards in providing the materials. . Usually, the suppliers improve IKEA and compete with other suppliers that helps the company to reduce the energy of its company and result of they have little bargaining electricity. Due to the low-pricing strategy,
The IKEA's furniture competitors' offers somewhat different styles and operation. In the Western european market IKEA has an extremely strong market imagine for low price products with a good quality, in america market Conrin focuses on a new low priced in conditions of furniture; Cratel & Barrel offering a furniture in a container which is relatively on higher prices; Ethan Allen focusing on at a far more higher market. IKEA is the most successful in supplying a complete deal for the clients.
There is not a really specific product that may be an alternate for the furniture however IKEA will need to have to follow up with the latest trends on the market, to avoid becoming out of style.
All the big furniture supplier and merchant have their vast range have in big town. Another furniture company is rolling on the strategy of low cost and should have the ability to be competitive IKEA as the excellent company in providing the furniture. IKEA stores plus some of other competition do not reach many small cities and this offers an chance of the new competition to go into small locations with smaller stores or less selection. However, not easier in big city because new entrants have to establish a large amount supply chain and create a unique brand on as low prices.
IKEA clearly stated in its mission assertion its strategy; IKEA has generated its cost leadership position, and furnish the client with a superior quality product with components produced from worldwide utilizing competitive advantages, low priced logistics, and large shops in suburban areas. Furthermore, cost leadership has been effectively incorporated into the IKEA's culture through symbols and efficient processes.
The value chain
The value string approach implies two major activities, such as major and secondary.
Primary actives which include logistics, development, marketing, and after deal functions.
Secondary activities, that are determined as a support processes to principal activities. These include, firm's infrastructure, HR Management. Technology development and the areas.
The way from supplier to customer must be as shortest, cost-effective and environmentally nice as possible. Even packs are a very essential aspect of this work. Since useful distribution plays a key role in creating the reduced price, goods routing and logistics are a focus for constant development.
IKEA is built upon the viewpoint completely from design teams to suppliers also to customer. A continuous contention for development in every the regions of the value string is a powerful way to form the industry to better fit IKEA's future strategies. Due to the distinctiveness of IKEA's proper market setting, being the major competitor on the market, it has the advantage of setting up the stage of the complete industry.
IKEA has developed the value string way by integrate the client along the way and expose a two way value system. In order to provide customer with high quality products at less price, IKEA should be looking suppliers who is able to deliver high quality items at low priced. The headquarters provide suppliers with technological assistance, leased equipment and the necessary skills had a need to produce good quality items.
IKEA's goals of sustainability and environmental design are central to its business strategy.
It has launched a fresh sustainability arrange for the company for taking it to 2015. This can incorporate socially, environmental and financial issues.
- Global Brand which entice the main element customer group which promises same quality worldwide.
- A strong concept - predicated on offering a wide range of smartly designed, practical products at affordable prices.
- Increasing use of green materials - IKEA superior its overall use from 71% in 2007 to 75% in 2009 2009.
- Volume commitments: IKEA feels in having long-term partnerships with its suppliers.
- Economies of size.
- By using new solutions: Like IKEA's OGLA seat has been around its range since 1980.
- A growing demand for reasonably priced and greener products. Fads in today's financial environment may lead to consumers trading down from more expensive stores.
- Growth of middle class in china and India
- Demand for reduced water usage and lower carbon footprints.
- Reducing carbon footprint. IKEA aspires to tone down energy usage
- Developing social responsibility. IKEA's policy which includes support for charities like WW Account, UNICEF and Save the Children.
- IKEA has to acknowledge and identify its weaknesses to be able to improve. This can play a key role not only in helping it to set objectives but also to develop new strategies. IKEA's weaknesses includes:
- The size and scale of its global business is very challenging to standardize its products. This can symbolize a weaker marriage in IKEA's offering, impacting consumer views of IKEA's products.
- Keep balance between low cost products and good quality. IKEA also wishes to differentiate itself from rivals. IKEA believes there is no concession between having the ability to offer good quality products and low prices.
- IKEA must improve communication with customer and other stakeholders about its environmental activities. IKEA produces magazines in print media as well as online and use different channels to enable the business enterprise to communicate with different target followers.
- If a corporation is aware of all possible hazards, it can intend to neutralize them. By taking actions, IKEA can use some strength to get over against external hazards in the market.
- Significant decrease in first-time buyer in housing market.
- More competitors coming into in the reduced price furniture and household market segments. IKEA must fortify its distinctive characteristics to contend with these
- Recession ignore consumer spending and disposable income reduces.
IKEA's one of the key strength flat load up and high quality furniture on an extremely good deal compare to its all competition all around the globe. IKEA's supply chain strategy where warehouses are divided into different zones and properly located to get a better control. With this strategy, the IKEA can assess the handling time and cost better, and resource utilization, and queue times and lengths for the many functions. The resources are applied and detailed in relevant working schedules, sorted and simulated at a higher-level
There is an enterprise prospect of IKEA in providing solutions and services that permit customers to reside a more ecological life at home. IKEA is developing effective solutions for customers to be able to aid them recycling or reusing used products, and aiming at no products finding yourself at landfill and the recycled materials used in producing new IKEA products.
For a successful global strategy IKEA must maximise its strength, minimise its weakness and by firmly taking market chance to bolster its market share image by keeping away from all the exterior threats.
Social tendencies: IKEA is building online help to guide customers to a more ecological life. The advantages of online business will reduce administration cost and it'll give more info to customer of product and IKEA can go away its corporate goal to target its customer more effectively
Market forces: IKEA is large enough to take pleasure from economies of range and also aim for the biggest section of the market. i. e. middle class. This helps to reduce average costs over time through, for example, better use of technology or employing specialized professionals. Economies of range also provide a business a competitive edge if cost savings are then offered to customers by means of lower prices. This puts up high obstacles to entry for smaller companies joining the marketplace.
Economic factors: Global recession and significant decrease in first-time buyer has influenced the demand in future industry. IKEA's low prices create charm amidst its customers in troublesome financial times. It is essential to keep prices as low as possible when the retail sector is frustrated. IKEA's pricing strategy targets consumers with limited money. Its products will also entice to those with higher income through good quality and design. IKEA must ensure that it's always recognized as getting the lowest prices on the market in the future
IKEA got has been quite successful using its 'one-design-suits-all' global expansion strategy in many markets. However, skillfully developed were doubtful as to whether this plan would translate well into some of the Asian and south Asian, culturally diverse and riskier markets. It is vital for IKEA to acquire higher amount of localization to reach your goals in diverse market segments.
The Asian markets, where India and china has most effective growing middle class can be very attractive market. In far eastern marketplaces, IKEA is facing lots of obstacles in terms of varied social, demographic and market specific needs IKEA will need to have more ethnic promotional method of the marketplace.
IKEA must adjust two very important aspects of its time - analyzed and proven global strategy when it arrived to China and Midsection East; while somewhere else in the world, IKEA got always located its stores in less expensive areas and sold its furniture on the do-it-yourself (DIY) theory, these elements needed to be changed in China and Middle East. IKEA must decentralized the majority of its functions including Human being source of information and stores management in China, in the past, there is some criticism that IKEA was too bureaucratic with a lot of its procedures being globally manipulated and systematized.
IKEA is increasing to hold in the US market, it has the best growth prospect of IKEA. The current hold of IKEA is the forex market is very limited. Thus, it permits IKEA to keep its progress rate while basically keeping its low-cost strategy in the close to and medium future.
The primary goal is obtaining this goal, is an adjustment of the company's products to the US market needs. IKEA's stores in the US must change into less internationally standardized products and more products changed to the necessity folks market, increasing the variance of the product line of IKEA. This might result a low cost products to the high income society that might well include innovative design motives that characterizes the existing products.
Globalization of IKEA and way forward
More emphasis must be given on understanding of various markets all over the world for an improved strategy planning, decreasing the reliance on the current management. These steps should better taken before Mr. Kamprad's director retires from the business for absorbing a lot of their spirit in to the future international management.
With continued growth effort underway worldwide, IKEA make an effort to enforce its USA development support the company's vision and business design to offer its products on affordable prices. For your long term proper planning IKEA must evaluate in more detailed All of us market and build more stores where it can perform economy of scale. IKEA should have clusters of stores within market or different region of USA permit company to successfully streamline and manage its distribution services, training, recruitment initiatives and development marketing work.
On a broad bases strategy IKEA must penetrate into its existing market to gain more share by promoting its product in existing market. On the other hand more stores should most probably in various part of USA market.
Ansoff's Matrix - Product-Market Expansion Matrix
In the far Eastern and Midsection Eastern marketplaces where Ikea must develop its marketplaces in forseeable future. In the emerging current economic climate like China, India and Brazil where engineering industry is growing. IKEA must utilize its market imagine of offering cheap products with and high quality.
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Could Ikea’s new sustainable shops make it the guardian of the UK high street?
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By Ruby Gurdon | Sustainability director
November 21, 2023 | 7 min read
Listen to article 4 min
Ruby Gurdon and Helen Hughes, sustainability directors at Design Bridge and Partners, explore how Ikea can crack its new high street presence using green products.
Ikea is a cultural icon beloved by consumers across the globe. The brand’s flat-pack furniture (and cryptic assembly instructions) are at the heart of many-a-home - and that’s just the start of the experience. The brand seamlessly embeds sustainability within its backroom through to its consumer-facing offering.
This is reflected in Ikea’s recently acquired shopping center in Brighton, following one in west London last year.
It is truly exciting to see a brand that inspires such consumer affection, signaling that its future is on the fabled British high street. It has a real opportunity to revolutionize what consumers expect from a trip to the high street, blending its flare for creating unique shopping experiences while ensuring sustainability is always at its core.
Taking the pressure off consumers
Offering useful and practical solutions that consumers can easily adopt has generated its credibility in the sustainability space. Ikea doesn’t exhaust energy gushing about initiatives that seem distant or entirely irrelevant to consumer needs or its brand.
The Ikea innovation team works to deliver useful, affordable and sustainable products, making it easier for consumers to make sustainable choices, be it low-energy LED bulbs or water-saving shower heads.
This addresses both a me (saving the individual’s money and time) and a we (contributing to reducing water waste and carbon emissions) problem. The solution requires little thought or a significant behavioral change for the consumer to make a more sustainable purchase choice. Ikea does the heavy lifting, right down to the last detail.
Meanwhile, the store layout isn’t a whimsical add-on to the experience. The strategic open-plan blueprint allows consumers to visualize how they’ll use products in their homes, offering numerous behavioral nudges towards more sustainable habits.
Visualizing an Ikea shopping center
An Ikea shopping center that stays true to the brand’s ethos will retain the focus on making it easier for consumers to make sustainable choices.
So far, the brand has given little away about its shopping center design. But a glance at the transformation of the Grade II listed former Topshop Oxford Street building into a reusable store has sent expectations soaring. The unmissable, almost foreboding presence of Ikea’s beacon of sustainability - the blue reusable shopper - on Europe’s busiest shopping street confirms that the brand plans to keep sustainability at its core.
This is not Ikea’s first foray on to the high street, with previous smaller outlets delivering modest results. However, they did provide a successful litmus test, arming the brand with crucial insights into consumer behaviors on the high street. This intel is a powerful asset for Ikea to leverage. It gives it tangible direction when it creates a shopping center that accommodates consumer habits as they are now, with behavioral nudges embedded within the experience.
Inspiration beyond its sector
Ikea’s new role as guardian of the UK’s shopping centers gives the brand a unique opportunity to inspire significant change across the wider retail sector. While the brand was isolated on its own sites, its sustainability initiatives captured headlines and wider public interest.
Its #BringBackFriday campaign encouraged consumers to return old furniture to be repaired, upcycled or exchanged for a voucher (where Ikea would take responsibility for recycling the material). This highly visible and timely program set a blueprint for other brands to follow to make a real impact with any sustainable initiatives. It’s a simple two-step plan: identify your biggest environmental impact and subsequently provide a solution that keeps the consumer engaging with the brand.
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As Ikea takes on the landlord mantle, it can advocate for the brands within its shopping centers to take a similar approach to their own environmental impact. We’ll see brands more widely create activations that physically manifest their sustainability credentials, the knock-on effect being that consumers have more opportunities to engage with (and understand) what a brand’s wider sustainable ambitions actually are.
Stoking a green revival
Ikea is tackling the ‘death of the high street’ head-on. It has identified an opportunity to revive our high streets by leaning heavily into its principle of delivering unique and engaging in-store shopping experiences in a welcoming and community-centric environment.
Sustainability for Ikea has become so intrinsic to the brand’s identity its shopping centers will likely become hubs for this purpose. Housing retailers where sustainable initiatives underpin all other brand drivers. Recreating the high street experience, where consumers can easily make choices that are better for the environment.
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- 1. Table of Content 1 Introduction.....................................................................................................................2 PART 1 – Recent past strategic development history of IKEA and its outcomes .............3 2 Strategic development history an overview....................................................................3 3 Pattern of strategy development in IKEA.......................................................................3 4 Anders Moberg’s era, low cost high quality strategy .....................................................4 5 International expansion strategy of IKEA ......................................................................4 6 IKEA’s corporate culture a way to its sustainability ......................................................5 7 IKEA’s product differentiation strategy that attracts the customers...............................6 8 Summary of IKEA’s recent past strategic development.................................................6 PART 2 – Current strategic situation of IKEA.....................................................................7 9 PESTEL analysis on furniture industry ..........................................................................7 10 Porter’s five forces for IKEA in furniture industry ........................................................8 11 SWOT Analysis for IKEA............................................................................................10 PART 3: Strategic directions for the future........................................................................13 12 Strategic clock to develop competitive strategy options...............................................13 13 Strategic direction using Ansoff Matrix .......................................................................14 14 Evaluating the strategic choice .....................................................................................15 15 Conclusion and Recommendation ................................................................................16 16 Bibliography .................................................................................................................17
- 2. 2 1 Introduction This paper consists of three major parts that leads to the strategic development process for IKEA. Part one evaluates the recent past strategies that IKEA pursued and its outcomes. It identifies the strategic development process involved in its past and its consequences. Part two evaluates the current strategic position of IKEA, current strategic position is been identified by analysing the macro and micro environmental factors that influence the performance of the organizations and identifying the strengths, weakness, opportunities and threats of IKEA. Based on the above results, Part three deals with developing future strategic choices that suits IKEA’s goal and mission and those choices are been evaluated to identify the suitability, sustainability and acceptability in its context. Finally a strong recommendation is been given to IKEA about its future strategic choice.
- 3. 3 PART 1 – Recent past strategic development history of IKEA and its outcomes 2 Strategic development history an overview IKEA is a leading furniture retailer that operates globally. The company was founded by Kamprad in 1943, at that time he started selling pens, Christmas cards and seeds from a shed on his family in Southern Sweden. In 1951, First catalogue is been realised, Kamparad penned all the text himself. The company is been transformed into a huge company that generates 23 billion Euros per annum. IKEA emerged one of the most successful companies in retail business. Retail commentators and business analysts said that the success is based on its well established long-term strategy that has clear focus on its customers and the skill in implementing the strategies successfully (Economist, 2011, pp. 67-68). IKEA pursued many strategies in the past to obtain the current top position. Some of those were long-term changes and far-ranging implications for organisational structure and control. IKEA had an understandable purpose and structured value in both business achievements and both customers and employees relationship. Moreover, IKEA had focused on young furniture buyers and also it targeted them to market its products. While looking into IKEA’s growth it was organic growth, the company gradually expanded to a giant retailer. In the beginning the stores were built in Scaninavia and it’s been expanded wherever it got opportunities. Kamparad used the same retailing concept in all countries (Norman & Ramirez, 1993). 3 Pattern of strategy development in IKEA Strategic development process of organisations is better to describe and understood typically in terms of continuity. There is a tendency towards momentum of strategy (Miller & Friesen, 1980). Once an organization has adopted a particular strategy, it tends to develop from and within that strategy, rather than fundamentally changing direction (Johnson & Scholes, 1997). However, it depends upon the successfulness of the adopted strategy. For example, Company like Burton Group transformed from manufacturing to retailing, which is a major change. In IKEA’s case the company transformed itself from a small corner shop to a giant retailer. However, the growth of the company was incremental and it adopted a particular strategy “To offer a wide range of well designed, functional home furnishing products at cheap price”
- 4. 4 and stick to it by improving its resources and capabilities to meet its strategic requirement. The company’s incremental strategy is been detailed in the following sections. 4 Anders Moberg’s era, low cost high quality strategy In 1980’s IKEA remained economical in its spending, it relocated to Denmark to save Swedish taxation. Anders Moberg became the CEO, his simplicity and business tactics of understanding the customers and fulfilling their expectations encouraged the customers. Anders Moberg dressed informally, he used to clock in just like other employees, he used to stay in economically class hotels in international trips, and he used to travel on economy class air-tickets and expected his executives to do likewise (Norman & Ramirez, 1993). IKEA planned to deliver low-cost and high-quality products by redefining its relationship with its suppliers by establishing 30 buying offices around the world. IKEA chosen most economical suppliers over traditional suppliers, it made the shirt manufacturer to be employed to produce seat covers. It is an impractical practice however, once suppliers join into the IKEA network they got access to global markets and received technical assistance. Suppliers leased equipments and they were trained to bring the quality up to world-class standards. IKEA managed to procure 12,000 items from 1,800 suppliers in 45 countries at approximate 20 to 40 percent lower cost compared to its competitors. Thus, IKEA developed its core competence with good quality and cheap price. Through the above strategy the company attracted most of the cost sensitive customers and obtained a significant market share. The company attained its break-even and started offering the best designs in low price that attracted most of the population. Now, it is time for the company to expand its market. So Anders Moberg started looking opportunities in international markets for expansion. The following section details the expansion strategy of IKEA. 5 International expansion strategy of IKEA Sweden is a very small country and it is logical, in a country like this if a business is very strong and successful then it is reasonable to expand into international markets at some point. IKEA found much bigger growth potential outside Sweden. IKEA was one of the leading companies to become a global player. IKEA built its brand through its uniqueness on its products and its low cost high quality strategy. The company believed that the brand
- 5. 5 awareness has always been higher than the company’s actual size and sales volume (Kling & Goteman, 2003). He planned to expand the company using its internal funding itself, 15 percent of the turnover is being reinvested in expansion (Norman & Ramirez, 1993). IKEA re-organized its supply chain as it was supposed to cope up with the widely dispersed sources of components and high-volume orders made it imperative for the company to have an efficient logistics system for ordering parts, integrating them into products and delivering them to the stores with less cost of inventory management. IKEA has achieved this through its world network of 14 warehouses. These provided storage facilities, acted as logistical control points, consolidation centres and transit hubs and aided integration of supply and demand, reducing the need to store production runs for long periods, holding unit costs down and helping stores to anticipate needs and eliminate shortages (Baraldi, 2008). 6 IKEA’s corporate culture a way to its sustainability In 1996, IKEA split into three groups, comprising the retailing operations, an organisation holding the franchise and trademarks, and third one in banking and finance. The new structure meant that the Kamprad’s family would not access to the capital of the business or the right to inherit it. However, it would continue to have influence-rich roles in the governance of IKEA. Kamprad believed that IKEA will survive, preserving both its profitability and egalitarian culture. In 1999, Andres Dahlvig became a new president and CEO for IKEA group of retail stores. In October 9, 1999, total sales profit of that special day form the worldwide stores was divided equally amongst all co-workers and hard working employees which was €84.85 million. This was one of the key strategies to improve the working ability of the employees towards the organisation goal. IKEA shopping online was introduced in the year 2000 which made easier way to buy the products from home itself. It produced the furniture in fibreboard and particleboard for the first time in same year. IKEA recovery was launched in 100 stores in Europe in 2003 by which repaired and recycled instead of waste the materials. In 2005, IKEA made all type of home products available under a roof. The next, IKEA labelled foods were launched about 150 foods with high quality in 2006. These new products launched every year shows that the IKEA recognized the environment needs and made the valuable strategy. IKEA catalogue- it was considered the major marketing medium tool. Catalogue was spent 70% of the annual marketing budget. It was printed in 38 various editions in 17 languages of 28 countries. In
- 6. 6 2008, 110 million copies of catalogues were distributed which was three time higher than bible prints available in United Kingdom (IKEA, 2011). 7 IKEA’s product differentiation strategy that attracts the customers IKEA’s product range is developed to be extensive enough to have something that appeals to everyone and to cover all functions in the home. The products are modern not trendy so they are practical enough for everyday use. IKEA is the home furnishing specialist. IKEA products are functional and appealing, and enable many people to improve their home life through practical solutions to everyday problems. IKEA’s concept of marketing is that “We do our part” by focusing on our part by designing consumer valuable products through inexpensive materials in a novel way ad minimising production, distribution and retail costs to benefit its customers through low price (Norman & Ramirez, 1993). IKEA believes that products don’t appeal unless it represents good value for money. So, the company is committed to have a good relationship with its suppliers to purchase good quality products, economically. IKEA’s products are based on a functional approach to design. Its designs products those are attractive, practical and easy to use. They don’t have unnecessary features and they give genuine solutions for specific home furnishing needs and are made of the most suitable materials for their purpose. IKEA makes sure that the quality of the product must be appropriate for the intended use (IKEA, 2011). 8 Summary of IKEA’s recent past strategic development IKEA identified its customer’s expectations and developed an inimitable core competency through low cost high quality strategy to fulfil its customer needs. The company organized its resources and capabilities to support its core competency. The company developed good relationship with its suppliers to get cheap products. Its unique corporate culture and diversity in management roles enable the company to compete more flexibly. Its diversified products and unique presentation played an important role in its success. Its international expansion strategy supported the company to create global brand awareness and to increase its market share.
- 7. 7 PART 2 – Current strategic situation of IKEA It is essential to understand the strategic position of an organization before choosing strategic direction for future. There are two basic views to identify the strategic position of an organization, one is external factors of the organization and the second is internal factors. The external factors of an organization matters most to the success of a strategy, strategy development is the process of seeking attractive opportunities in the market. Attractive opportunities are those favours the internal capabilities on an organization. So, understanding about external environment matters a lot in formulating future strategies. Internal environment of an organization should be evaluated to identify the internal strength and weakness of an organization. It also helps to identify the resource availability to pursue a new strategy. It weights the internal capability of an organization. It also interrelated with the external environment as if the environment changes the internal capabilities and resources need to develop in order to match the external environment (Johnson, Scholes, & Whittington, 2008). There are several tools that could be used to analysis the external and internal environment of an organization, they are PESTEL analysis which is used to analyse the macro-environment, Porter’s five forces is used to analysis the micro-environment. SWOT analysis can be used to analysis the internal strengths, weakness and external opportunities, threats of an organization (Johnson, Scholes, & Whittington, 2008). 9 PESTEL analysis on furniture industry PESTEL stands for political, economical, social, technological, environmental and legal elements of a macro-environment. It provides a broad list of influences on the possible success or failure of the strategies. In these elements Politics refer to the influence of government policies upon the strategy, Economy refers to the macro-economic factors such as business cycle, exchange rates and differential economic growth rates around the world. Social refers to the factors such as demographics, ageing population and changing cultures that influence the strategy. Technology refers to the elements such as automobiles, aeronautics, internet that influences the strategy. Environmental stands for pollutions control and policies related to green issues that may influence the strategy. Legal refers to the legislative constraints, restrictions upon a company that may influence the strategy (Thomas, 2007).
- 8. 8 Political factors There are fortunate political situations in European countries and Middle East countries. IKEA has successful in international and domestic business portfolio. IKEA hopes that Indian political unfavourable will be revolutionized soon to make foot prints in the country (Economist, 2011). Economical Factor Economic downturn globally hits the IKEA’s sales. However IKEA is adopting the current trends and moving towards sustainability. IKEA derived economic thoughts and strategies managing the lacking of the external economic presents. IKEA is focusing middle class and young buyers to deliver its goods in increasing economic countries such as China, UK, and Canada etc. Social Factors IKEA understands its customer’s social life and implements its design according to their needs. It considers the various cultures in world and manufacture products accordingly. The company produces low cost high quality products which is affordable by the society. Technological factors IKEA continuously adopts latest technologies and educate its suppliers to follow the same. In that way the company could able to manufacture cheap products and world-class quality within the time line. The company incrementally updates its supply networks to obtain cheapest transportation. Environmental factors Due to pressure from global environmental situations IKEA has moved towards sustainability. Today, 71% of all IKEA products are recyclable, made from recycled materials, or both. The group recycles 84% of the waste generated in its stores. 10 Porter’s five forces for IKEA in furniture industry Porter (1980) states that, “Porter’s Five Forces framework helps to identify the attractiveness of an industry or sector in terms of competitive forces”. The five competitive forces in this framework are the bargaining power of buyers, bargaining power of suppliers, threat of new
- 9. 9 entrants into an industry, threat of substitutes for the industry’s product or service and competitive rivalry in an industry. Fig 10.1 Porter’s Five Forces, IKEA Bargaining power of buyers Since there are huge competitions in the furniture industry from direct furniture manufacturers and retailers to customized designer retailers, the buyer has low of leverage in switching from one retailer to another. Switching cost between retailers are very less in this industry. Bargaining power of suppliers Since there are lot of furniture and home appliance manufactures in developing countries like China and India, IKEA has access to lot of suppliers that increases the bargaining power of IKEA. The company is well experienced in developing small suppliers into a highly competitive world class producer that increases the wide access. Competative Rivalry High ! Threat of Substitutes Low ! Threat of new Entrants Low ! Bargaining power of buyer High ! Bargaining power of Suppliers Low !
- 10. 10 Threat of substitutes Threat of substitutes in furniture and home appliance industry is very low. People look for most convenient and appropriate furniture that suits their home. Threat of new entrants Due to huge capital involved in this industry it is hard for a new company to enter a new market. To be successful in this industry, companies should establish the best supply chain and supplier relationship to become competitive. Due to huge disinvestment cost involved there is threat for new entrants. Competitive rivalry Due to lot of retailers in this industry the market is highly saturated and the rivalry through price war is high. Companies developed their own core competencies and focuses on a particular market to increase its market shares. However, the competitive rivalry is quite high in this industry. 11 SWOT Analysis for IKEA It identifies the key issues of a business atmosphere and the strategic ability of an organization that are like to influence the strategic development. The goal of SWOT analysis is to identify the degree to which the strength and weakness are relevant to or capable of dealing with the changes occur in a business environment. SWOT analyse is only effective when it is comparative in relation to its competitors (Jacobs, 1998). Identifying opportunities and threats is a valuable part when thinking about strategic choices for the future. It is used to respond strategically to the environment by reducing the identified threats and taking advantage of the best plausible opportunities (Valetin, 2001).
- 11. 11 Fig 11.1 SWOT analysis for IKEA Strengths: - Significant market presence IKEA sells more than 9,500 home furnishing products in about 301 stores in more than 36 countries. A strong presence gives the group considerable bargaining power and an advantage in terms of customer recall. The IKEA concept is based on offering home furnishing products at low prices. To help keep prices low, the group ensures maximizing production equipment, using raw materials efficiently (IKEA, 2011). Strong in customer satisfaction IKEA was ranked 9th in Datamonitor’s retail brand Consumer Satisfaction Index (CSI) which measures how satisfied customers are with the retailers they use. CSI looks at satisfaction across different aspects of the retail proposition range, convenience; price, service, facilities, ambience, quality, and layout that provide an overall satisfaction score for each of these. Focus of sustainability In response to pressures on global retailers to co-exist with the environment, IKEA has been working towards sustainability since 1999. Previously, IKEA was accused of being a landfill- waste generator because it made large volumes of products that did not last for long time. To reduce the associated poor publicity, IKEA has been pursuing sustainability in a big way since then. In 2009, IKEA invested $77 million in clean technology start-ups like solar. Strengths 1. Significant market presence 2. Strong in customer satisfaction 3. Focus on sustainability Weaknesses 1. Location disadvantage 2. Declining sale densities in the UK Opportunities 1. Diversifying sourcing base 2. Increasing online sales Threats 1. Impact of economic slowdown in major markets 2. Barriers to enter lucrative growth market 3. Unfavourable market trends SWOT IKEA
- 12. 12 Today, 71% of all IKEA products are recyclable, made from recycled materials, or both. The group recycles 84% of the waste generated in its stores (Datamonitor, 2010). Weakness – Location disadvantage Most of the IKEA stores are located outside the city. It is because of high land cost and traffic access. Since this strategy reduces the cost of operations, IKEA still struggles with convenience problems. Out-skirts stores are disadvantaged because of long travel considerations of customers (Economist, 2011). Declining sale densities in the UK Since 2005, the IKEA’s average sale density in the UK is declining so the group deviated from its previous plan and just opened 1 store instead of 32 stores planned previously. IKEA just operate 18 stores in UK. The sales density increased during 2002-04 and started declining since 2005. Opening more stores distribute the IKEA customers and decline the sales density. So, the company has to look into its growth strategy to increase its sale density in UK. Opportunities – Diversifying sourcing base IKEA sources a substantial portion of its products from low cost manufacturing centre China. In 2009, IKEA sourced 30% of its products from Asia being China (21%) as its major supplier. To reduce its overdependence on China for the first time in several years, the group intends to strengthen its sourcing relationship with India. India, which currently accounts for 3% of IKEA’s worldwide purchases, is expected to become a stronger supplying partner. A diversified supplier base will reduce IKEA’s dependence on China and increase its bargaining power (Datamonitor, 2010). Increasing online sales Online retail spending is expected to increase world-wide. Retail e-commerce revenue in the US was increased of 4.1% between 2008 and 2009. Retail e-commerce revenue is expected to grow at an annual rate of 8%, 9.5% and 9.2% in 2010, 2011 and 2012, respectively (Datamonitor, 2010). To benefit from this trend, IKEA has also started transacting on its website, www.Ikea.com. Through online sales IKEA can also overcome the issues faced by customer due to out-skirts stores and inconvenience.
- 13. 13 PART 3: Strategic directions for the future Decisions about an organization’s future and the way in which it needs to respond to the pressure and influences of external environment. There are basically three choices should be made (Johnson, Scholes, & Whittington, 2008). They are, The choice of how an organization positions itself in relation to competitors. The choice of markets and products of an organization. The choice about how the developed strategies are to be pursued. 12 Strategic clock to develop competitive strategy options If an organization to position itself in the competitive market, it has to develop core competencies that are not been inimitable by its competitors easily. The base of competitive advantage in business-level can be identifies using strategic clock tool (Browman & Faulkner, 1995). Fig 12.1 Strategic clock to develop competitive strategy options Source: Bowman C., and Faulkner D., (1995) The essence of competitive strategy, prentice hall.
- 14. 14 Where the strategic clock illustrates price and product benefit relationship in eight ways. In which it is classified in to 5 major areas such as Price-based strategy, Differentiation strategies, the hybrid strategy, focused differentiation and failure strategies. Sustaining competitive advantage: Organizations that try to achieve competitive advantage may try to hold it for long time. So there are three different areas of sustaining competitive advantages they are based on the organization’s current strategic position. If an organization plans to sustain its cost leadership, it should pursue sustaining price-based advantage (Johnson, Scholes, & Whittington, 2008). IKEA’s strategic direction is towards hybrid strategy where it produces high quality products in low price. 13 Strategic direction using Ansoff Matrix Based on the current strategic position and opportunities in the future it has to develop its market through online sales. Corporate level strategies can be developed using Ansoff matrix. In this the organization could decide whether it has to concentrate on the product development or market development or diversification (Ansoff, 1988). Fig 13.1 Strategic direction using Ansoff Matrix Products Existing New Markets Existing Market Penetration Product development New Market development Diversification Source: Ansoff H., (1988) corporate strategy, penguin There are huge opportunities visible towards online shoppers and there is chance for IKEA to increase its market share by launching existing products in a new market. Alternative methods of strategy development The above Ansoff matrix concerned with strategic choices at the generic level. However, in more precise level these strategies are developed into different potential method of development to support the generic strategies. IKEA also has opportunities to develop its supplier base by expanding its global sourcing. IKEA has started pursuing into Indian
- 15. 15 markets for sourcing. It can develop its supplier relationships through strategic alliance with Indian manufacturers to increase its bargaining power. Strategic alliance enables IKEA to develop good relationship with suppliers and can produce goods at competitively cheaper and good quality. 14 Evaluating the strategic choice Evaluating the strategies is necessary to analyse whether the developed strategic choice will succeed in future. This can be analysed in three main criteria’s they are. Suitability analysis It is concerned with whether a strategic choice that is been developed is addressing the key issues related to the strategic position of an organization. To fulfil the customer needs it is necessary for IKEA to increase its online sales facilities. It also fulfils the issues related to store locations as the customers who feel inconvenient to reach outskirts stores can access online facilities. The company also have enough financial resources to adopt strategic alliance with suppliers and (Johnson et. al., 2008). Acceptability analysis It is concerned with whether the expected performance outcomes such as return or risk of a strategy and the degree to which these strategies meet the stakeholder expectation (Johnson et. al., 2008). Since IKEA is pursuing a market development strategy through online business, the risk involvement is quite low. However, there can be uncertainties in online sales upon expected return. As the company is going to invest in developing websites and online shopping facilities, the expectation for sales growth is high and the stakeholders will be happy that the company could increase its revenue with increased profitability. Feasibility analysis It is concerned with whether the company has the capabilities to deliver a strategy and whether the strategy could work in practice. Financial feasibility analysis and Resource deployment analysis are the tools used to evaluate the feasibility of a strategy (Johnson et. al., 2008). IKEA has financial capabilities and infrastructure to pursue the online market development strategy and expanding its supplier base.
- 16. 16 15 Conclusion and Recommendation Based on the above analysis IKEA could pursue market development strategy by concentrating on online business. IKEA could able expand its supplier base into other developing countries like India to obtain buyer bargaining power among its suppliers. The company has enough resources and capabilities to pursue these strategies in future. The above strategies may support the company to obtain its goal.
- 17. 17 16 Bibliography Baraldi, E. (2008). Strategy in Industrial Networks, Experience from IKEA. California management review , Vol. 50 (No. 4), pp. 99-126. Browman, C., & Faulkner, D. (1995). The essence of competitive strategy. Prentice Hall. Datamonitor. (2010). IKEA Group company profile. London: Datamonitor. Economist. (2011). The secret of IKEA's success. Economist , Vol. 398 (No. 8722), pp. 67-68. IKEA. (2011). IKEA marketing strategy. Retrieved 04 20, 2011, from IKEA Student informations: http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html Jacobs, T. (1998). SWOT Analysis: Exploring techniques of strategic analysis and evaluation. Prentice Hall. Johnson, G., & Scholes, K. (1997). Exploring corporate strategy (4th Edition ed.). Hertfordshire: Prentice Hall Europe. Johnson, G., Scholes, K., & Whittington, R. (2008). Exploring corporate strategy (8th Edition ed.). Essex: Prentice Hall. Jonsson, A. (2008). A transnational perspective on knowledge sharing: lessons learned from IKEA's entry into Russia, China and Japan. The International Review of Retail distributio and Consumer Research , Vol. 18 (No. 1), pp. 17-44. Kling, K., & Goteman, I. (2003). IKEA CEO Andres Dahlvig on international growth and IKEA's unique corporate culture and brand identity. Academy of management executives , Vol. 17 (No. 1), pp. 31-37. Miller, D., & Friesen, P. (1980). Momentum and revolution in organisational adaption. Academy of management Journal , Vol. 23 (No. 4), pp. 591-614. Norman, R., & Ramirez, R. (1993). From value chain to value constellation: designing interactive strategy. Harvard business review , Vol. 71 (No. 4), pp. 65-77. Porter, M. (1980). Techniques for analyzing industries and competitors. New York: Free Press. Thomas, H. (2007). An analysis of environment and competitive dynamics of management education. Journal of management development , Vol. 26 (No. 1), pp. 9-21.
IKEA strategic management process
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For the growth and expansion of any business, Michael Porter emphasizes the importance of effective strategic planning. In his discussion, Porter points out that effective strategy is vital in giving purpose to the business and defining the vision and mission statement and what particularly has to be done to accomplish the set objectives. IKEA a Swedish company that is well known in more than 28 countries for delivering affordable furniture products to the market is out for more expansion. Based on Porter’s discussion concerning the characteristics of effective strategic planning, it is evident that IKEA is out for a successful expansion in the countries that it has set out to. To ensure successful growth, IKEA has already done a SWOT analysis which has helped in understanding the different dynamics of various entities like suppliers, employees, and competitors. Looking at the company’s financial history, IKEA has been able to increase revenue to 9.2 billion Euros from the year 2015 and aims at achieving sales worth 50 billion by the year 2022. The fact that the company can track down its financial progress over the years puts it on the right track to successful growth as its goals are measurable and achievable. The vision of IKEA is “To create a better everyday life to people” while the mission is to create quality but affordable products that many can have access to. The vision and mission statement is important in effective strategy as it gives clear direction to both employer and employee thus working together to accomplish the set goal (Laudon, 2016).
The company has been able to establish its mission and vision statement which has really helped in clarifying what business they are into. They have adequately defined the kind of product offered to the market and are daily working to improve their services to the better. IKEA has identified opportunities and threats through market research which has been fundamental in truly understanding the needs of its clientele. It is through the market research that the company has been able to identify walmart and Tesco as their major competitors who are daily gaining popularity and increasing their clientele. This has in turn challenged IKEA to expand to other countries and improve on the quality of their products. The company once in a while does internal auditing in all the departments so as to identify the strengths and weaknesses of every individual (Ward, 2016). This is a process that has helped IKEA in solving internal threats that would have otherwise contributed to a major loss if left unresolved. The company has been successful in implementing and executing strategies as planned through delegation of duties. For example, Allan Dickner is in charge of packaging and shipping of goods. IKEA has set up a control system that is responsible for monitoring and following up strategy that has already been implemented. This system is able to tell what is and what is not working for the company thus helping the managerial team in the evaluation process.
IKEA’s vision and mission statement
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Michael Porter strategy
A company can only remain relevant and competitive in the industry if its profits are above average. According to Michael Porter, this is possible and achievable only when a company is keen to focus on his invented generic strategies.it is evident from IKEA’s mission statement that it prioritizes in serving its customers with the most stylish of furniture at a very affordable price compared to most of its competitors. The adoption of Michael Porter’s strategy of ‘low cost’ by IKEA has made it be one of the most successful furniture brands in the world for the last 73 years. The company has ensured the reality of its mission and vision statement by ensuring that it totally cuts unnecessary costs by putting the following in place.
The company has its own engineers who are permanently employed that are responsible for designing the company’s furniture. This helps reduce costs between the manufacturer and the consumer as they don’t depend on third party manufactures. IKEA doesn’t incur any delivery charges as it encourages customers to find their own means of transporting purchased goods to their homes or offices. The company doesn’t have sales representatives as it has a way of marketing its products to customers without much hustle. This it has achieved through creatively arranging different combinations of furniture in different rooms. For example, tables, chairs and wardrobes all have there their separate rooms which also help the customer to have an idea how different furniture setting will appear in a room. This kind of arrangement has helped the company cut down on the number of personnel thus helping to keep low costs (Richardson, 2012).
Importance of the SWOT analysis
The SWOT analysis support IKEA’s strategy as it is able to give guidance on proper implementation of the strategies through the following. It has helped the company identify its competitors -something that has prompted the need to offer improved quality products to clients at an affordable price. Offering quality and affordable products is part of IKEA’s strategic plan to ensure they remain relevant in the market. Opportunities have been identified to globally expand IKEA and for this to be achievable, SWOT analysis process need to be done to ensure that goals and objectives have been met within the scheduled time.
From this case study, it is important to note that strategic management process is as important as the results in any successful company. Without proper management and strategic skills, IKEA wouldn’t be the company it is today. It is of utmost importance that employees be included in the strategic planning process so as to ensure everyone relates to the company’s main business. This will help everyone to work together in unison with one another for the purposes of the company’s success. To remain relevant and retain market shares, most successful companies like IKEA value the importance of strategic management as it helps redefine their goals and objectives (Johnsen, 2012). This greatly impacts the urge to give and offer better services to customers through improving the quality of their product.
For the growth and expansion of any business, Michael Porter emphasizes the importance of effective strategic planning. In his discussion, Porter points out that effective strategy is vital in giving purpose to the business and defining the vision and mission statement and what particularly has to be done to accomplish the set objectives. IKEA a Swedish company that is well known in more than 28 countries for delivering affordable furniture products to the market is out for more expansion. Based on Porter’s discussion concerning the characteristics of effective strategic planning, it is evident that IKEA is out for a successful expansion in the countries that it has set out to. To ensure successful growth, IKEA has already done a SWOT analysis which has helped in understanding the different dynamics of various entities like suppliers, employees and competitors. Looking at the company’s financial history, IKEA has been able to increase revenue to 9.2 billion Euros from the year 2015 and aims at achieving sales worth 50 billion by the year 2022. The fact that the company can track down its financial progress over the years puts it on the right track to successful growth as its goals are measurable and achievable. The vision of IKEA is “To create a better everyday life to people” while the mission is to create quality but affordable products that many can have access to. The vision and mission statement is important in effective strategy as it gives clear direction to both employer and employee thus working together to accomplish the set goal (Laudon, 2016).
IKEA’s vision has been used as a mission and vision statement which shouldn’t be the case. The mission statement is very vague as it does not tell one more about the company and what it is involved in. The mission statement has only focused on customers and not addressed key issues like the kind of different products they offer and stakeholders involved in the business. IKEA should therefore revise the mission and vision statement so as to enlighten the public more on what the company is all about. In the mission statement, it should be clear about the strategic planning and roles played by different employees within the company. It should also set clear goals and objectives to be achieved within a certain amount of time.
The company has its own engineers who are permanently employed that are responsible for designing the company’s furniture. This helps reduce costs between the manufacturer and the consumer as they don’t depend on third party manufactures. IKEA doesn’t incur any delivery charges as it encourages customers to find their own means of transporting purchased goods to their homes or offices. The company doesn’t have sales representatives as it has a way of marketing its products to customers without much hustle. This it has achieved through creatively arranging different combinations of furniture in different rooms. For example, tables, chairs and wardrobes all have there their separate rooms which also help th e customer to have an idea how different furniture setting will appear in a room. This kind of arrangement has helped the company cut down on the number of personnel thus helping to keep low costs (Richardson, 2012).
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