Final Assignment Strategic Marketing IKEA

Design a Strategic Marketing Plan for IKEA who are focusing on greater growth and development of the ‘middle class market’ in India. Conduct a ‘Situation Analysis’ using elements of the marketing mix and the 3 V’s business model. Your paper should include a market audit covering research of the market, target marketing and a competitor analysis. Please use models covered on the course such as Value Chain Analysis, the Ansoff Matrix and Porters Five Forces

India is a country with a population of about 1.3 billion and an area of approximately 1.300.000 square miles. The variety of cultural, ethnic and religious aspects make this country full of resources and of potential consumers for every kind of businesses. This is a land full of opportunities and a complex market to integrate.

The population of India is divided into a caste system, with rights and places, the most favored being Brahmins caste, and the less fortunate are outcasts, or "untouchable".

Those inequalities made the country really complex and improve the difficulties for company to integrate the market and perform into the consumer’s behaviors. The marketing in the Indian market is also complex, there is a real difficulty in choosing a message to transmit, and it is important to know that the messages will be sent by the company in India will be perceived differently, between the different castes for example.

But in the last decade, a new emerging class grown, the middle class. This class represents a real opportunity for foreign companies because it is close to the average "standard" classes in the world, which represents a perfect target for companies.

To be able to effectively implement the Indian market, it is important to properly understand all the aspects of the market and at the same time of the population. Consumption in India is really different than in Europe or in the emerging countries. The aim is to know what to do, how to do, and when.

1. The indian market

1.1 A Pestel Analysis

Political: India is the largest democratic republic in the world, the president has little power over the state, and the real executive power comes from the prim minister and he is helped by the councils of ministers over him. There are two houses, each have their council of states: the upper house, or senate, the Rajya Sabha, and the lower house, house of the people, the Lok Sabha. Concerning the taxes, India has a 3-tier federal structure, comporting the urban and local rural bodies, the federal government and the state governments.

Economical: India’s economical freedom score is 55.2, placing it at the 119th position in terms of economical freedom. This situation is getting better, with the management of public finances and the freedom of money and a decline in corruption. According to heritage.com:” The top income tax rate is 30.9 percent (30 percent plus an education tax of 3 percent), and the top corporate tax rate is 33.99 percent with a 7.5 percent surcharge and a 3 percent education tax. The overall tax burden equals 7.4 percent of GDP. Government spending amounts to 27.1 percent of total domestic output, and the budget remains in deficit. Public debt has grown to 68.1 percent of GDP.” The GDP is around $4.761 trillion, and its growth rate is 6.5% in 2012. The labor force is of 486.6 million people, and the unemployment rate is 8.5%. The population below the poverty line rate is 29.8%. The inflation rate if 8.6% and the FDI inflow is 31.6 billion $.

Social: The population is 1.236.686.732 in the late 2013 with the largest part, 29.2% being situated between 0 and 14 years old, and the median age in the country is 26.7 years old. The population growth rate is 1.28%. The expenditure in terms of GDP percentage is 3.3% and the literacy rate is of 74.04%. The expenditures in health is 3.9% of the GDP. There are more then 13 official languages, Hindi being the main one (41%), and the two main religions are Hinduism (80.5%) and Islam (13.4%). The society works in a caste system, which is unique to India, each cast has its role, the Brahmins being the most privileged ones, and the Pariahs, or “untouchables” being the least favored ones. The social structure of the Indian population looks like the schema below.

Technological: India had deep expansion in technology, notably in the Information and Communication technologies. Many engineers are trained in India, and this sector has known a real boom in the last decades. This sector is a massively growing one, and “230.000 jobs were expected in 2012, creating 2.8 million direct employment, and 8.9 indirect employment.” The major city in this sector is Mumbai, capital of the technology. Environmental: India is a vast a hot climaxed land; it has a coast on the Indian sea, placing it at a good position for imports and exports, and trade in general. The country is composed of plains, few mountains and deserts. Natural hazards go from floods to thunderstorms and earthquakes, floods being the main ones, with the rise of the Ganges. Deforestation, air pollution and soil pollution from pesticide because of a real important agriculture, are an actual problem.

Legal: India is a federal republic, composed of 28 states and 7 union territories. The common law system is based on the English one, the head of the government is the prime minister, the president acting more as a figure than an executive power.

1.2 The customers

The caste system gives a special opportunity for consumption, including the consumer’s tastes, and buying habits. The consumption habits in India are a lot different between all the different castes: Indians will try to save the money they earned, even in the lower castes. At the same time, all studies shows that current consumption goods are used sparingly and often-in everyday use. For example the shampoo and soap market are very particular because most lower classes buy one product per day or at least a very light dosage allowing them only one use. In many cases a single use products is very popular and so are great for company who produce it. Concerning the lifestyle, the Indian population usually have strong belief about recycling in the upper classes, it is far more important than in the western countries, even though ecological awareness is rising. For example: “a local vendor would give you food wrapped in newspapers”, like in England.

Another important aspect is the traffic. Traffic in India is one of the consequent in the world, and therefore, the population tends to by small cars, or motorcycles, and the public transportation system is not fitted to welcome the numerous populations of each city anymore. The Indian population is also affected by the economic crisis, indeed, according to a survey directed by the credit Suisse: “The decline in Indian consumer optimism observed in 2011 intensified on the back of continued adverse macro conditions. Compared to 2011, more people expect lower salary increases and expect personal finances to worsen, making it a bad time for large ticket purchases. Only 5% of consumers we surveyed expect inflation to fall. Confidence in the government is also waning.”

Another aspect is that the consumer profile varies depending on rural and urban groups. Rural region usually have a much lower income and quality of life, and do not follow the urban standards, higher because of the concentration of industries for example. This results in a difference between developments in various regions. Although disparities are still strong, in the recent years, the tendency seems to have changed, indeed, a study directed by the credit de Suisse says: “While the mean household income of urban India declined 3%, It increased 6% in rural India.” Another very important aspect of the Indian consumers is that the middle-class, following the Western standard of middle-class of course, is rising.

This class is a new trend in the country as usually the caste system, attributing in some sort the future of each, separated the population in upper and lower classes naturally, favoring the upper class-born in comparison to the lower class-born. This emerging middle-class is detaching itself from the caste system, as it is becoming more attractive to people, indeed, the favored casts are less numerous than the lower ones, and as the income per capita is increasing in the country, people are becoming to gain access to new goods, to a certain comfort that wasn’t available to them before. An article stipulates that: “Becoming a member of the English-speaking middle class is becoming more important in India than caste. Money is beginning to supplant the old Indian order based on castes and family lines.

Society has become more consumer focused.” Päivi Mattila, director of the Finnish league of Human Rights, says that: “In order to promote economic equality and break the circle of poverty affecting millions of people, India should look to its families. The powerful culture of dowries should be banished”. This emerging middle-class, according to an article:” The next two groups—seekers, earning between 200,000 and 500,000 rupees ($4,376- $10,941), and strivers, with incomes of between 500,000 and 1 million rupees ($10,941-$21,882)—will become India's huge new middle class.”b And this trend may expand even faster considering the fact that consumer can more and more buy goods like cellphones, TVs and computers with an internet connection, this tendency will accelerate the middle-class growing process as being connected to the rest of the world will transmit the western countries middle-class standards, and give the Indian population an image of comfort, especially the lower classes, often located in lower castes.

Although this middle-class expansion is in march, a study specifies that: “India’s middle class constitutes less than 100 million people and is crowded into the top decade along with the much smaller number of rich households. In that sense India does not yet look much like the middle class societies of Latin America, let alone the mature western democracies.” Clearly this rising class is an interesting one for a group such as IKEA, will certainly represent the core target of their strategy. But as IKEA isn’t implemented in India yet, it is important to first assess IKEA’s marketing mix, to then be able to better determine the strategy to implement after realizing a SWOT analysis.

1.3 The competition Porter’s five forces:

The bargaining power of customers: The use in the Indian market is to shop their furniture in little shops, artisan than personalize and adapt the product to their consumers. The problem is that it is sure that Ikea is going to adapt furniture to the Indian culture but not one to one customer. At the same time, Ikea ‘s furniture are going to be less expensive and with a large choice of different furniture. So the opportunity is to diversify colors and shape to please Indian’s market, and forecast on a great development of the Indian’s way of choosing its furniture.

The bargaining power of suppliers: Ikea's suppliers are already aware of the location of the mark on the Indian market. There will be corrections in demand and an increase in certain product to others, highlighting the producers of some wood Ikea On the other hand could use some Indian suppliers, enabling it to reduce its cost and logistic by the same time.

The threat of new entrants: The entry of IKEA in the Indian market is recent. In the entire world Ikea is one of the first furniture retailer from a foreign country (at least of the major groups of the low cost furniture category), this is the same for India. In this case the group is entering a new market, Ikea did the difficult work and competitors have the opportunity to follow the path. Competitors will only have to adapt, and correct the eventual mistakes done by IKEA while implementing the Indian market.

The threat of substitute products: IKEA is one of the if not the first store of its category so there is no real threat of substitute products, except the lowest Indian furniture shop, but has we said, furniture kit are very rare and ease of access of an Ikea products permettras entered the market all in amazement and amusement.

The rivalry amongst current competitors: There are approximately 8 major furniture suppliers in India that share the large furniture retailers market. They are already used to the Indian market, to its customers and their tastes, and especially way of consumes furniture. They already have an adapted range of product that correspond to the different customer castes. This could be the best disadvantage of Ikea. Moreover, local furniture stores are Indian, and therefore already know how to communicate and sell a new product.

2. IKEA

2.1 Situation analysis: The 3Vs model

Valued customers (Who to serve): Every part of the population is a potential target for IKEA, as it offers housing furniture for people of any age, and practical products that suit everybody. IKEA should also focus on opening stores in rural zones as well as urban zones, as the urban zones aren’t doing as well as the urban ones nowadays. IKEA should also use the rising middle-class as its vanguard to show a new lifestyle to the Indian population, and present it as the new class that is not affected by the caste system. Value Proposition (What to offer): The goal is to offer products that suit to everyone, of any caste, and offer products that suit the Indian style and taste. Instead of implementing directly a new style, more Western, IKEA could create collections that fit to this style, and should also hire Indian designers, instead of Swedish ones only.

Hiring Indians in the staff will be a true asset to better understand and implement the Indian market. Value Network (how to deliver): In order to deliver efficiently, Ikea should improve the home delivery system, at a cheap price, as Indian consumers often have small vehicles. IKEA should also adapt its advertising strategy to be able to transmit the message that everybody form any middle can find what he/she wants at IKEA.

2.2 The 4P’s Analysis

Product: IKEA has a very wide selection of products that includes all types of housing furniture, such as office, kitchen, living room, bathroom and even storage rooms or garages. Not only does IKEA sell furniture, but also cutlery, carpets, plants, plates, glasses, lights… One can basically totally furnish his/her house with IKEA furniture, from A to Z. The product quality standard is very high with IKEA products, and a lot of these products are designed by renowned designers, mostly Swedish, and have their own name, which is a sort of ”label” as it is unique to IKEA. Products also concern every age, and not only sells furniture for adults. There is also a wide selection of furniture designed specially for children bedrooms. Products are simple, easy to use, very functional, and are for the most part sold as kits, very easy to mount, and that allow the customer to familiarize with the object.

Price: IKEA’s strategy concerning the price is to stay competitive, by being one of the if not the cheapest furniture dealer in the area, in order to penetrate the market by dominating the prices. Juggling between the aspects of uniqueness, as each product is labeled, combined with low prices, IKEA aims at the middle-class, that seeks comfort, but still at an affordable price. More luxurious product ranges are also available in the store, even though the image of IKEA is not a luxurious one. In short, the price range varies, but the core pricing aims at the middle class population. Reducing the costs is partly possible because of the fact that the furniture in IKEA isn’t assembled, as the customers mount them by themselves. And the few objects that have to be assembled are mostly assembles by IKEA itself.

Place: There are 330 IKEA stores over 38 countries, the distribution of products is exclusive to IKEA, indeed, there are no retailers, or parallel suppliers, an IKEA product, at least a genuine one, will always come from an IKEA store. In store, the classification of the products is categorized according to the part of the house, office, kitchen, living room, etc. Moreover, IKEA is one of the few if not the only store to guide the customer’s visit. A path which can be followed with arrows marked on the ground creates a real visit of various house atmospheres, as the store is displayed as a show room, there are several examples of different rooms composing a house. So the customer will often see a representation of a living room or kitchen model, created with IKEA furniture only. The customer is able to stop and take a look, even try out the reproduced room, and note down the reference of the furniture that interests him/her, to then retrieve it in the storage room situated in the store, or at least very near of it. The store also offers other services such as a kindergarten and a cafeteria.

Promotion: IKEA uses all the medias, TV, radio, Internet, newspaper ads, etc. The tone employed in these advertisements is usually turned on a humoristic plan, the ads are colorful, funny. Their ads are directed to everybody, but are often represented by young active couples, and families, in a joyful and sharing atmosphere, the goal being to make the consumer feel “at home”. A large part of their promotion is the IKEA catalogue, which is traduced in 32 languages, and offers every product in the store, with the available promotions, collections, and pricing for every of them. The catalogue is free, and available in every store, and often delivered in the consumer’s mailboxes. IKEA has also created a group called Social Initiative, the goal being to strengthen the relationship between the customers and IKEA. The group works with UNICEF and Save The Children, with the purpose of improving the life of all children.

Conclusion. Telecommunications and information technology, transportation and hospitality, real estate and financial services, education services, power generation, transmission and distribution, machinery and equipment, water and clean energy, franchising and retail .

Some Indian consumers are aware of the quality differences and insist to buy world-class products , but many consumers may sacrifice quality concerns in favor of a price reduction. Quality after -sales salesperson service plays an important role in the purchase decision .