The purpose of this research essay is to update IKEA’s company status for the last six years, i.
e. 2003 to 2009/2010. The IKEA vision “to create a better everyday life for the many people” is at the heart of its business, in collaboration with the IKEA business Idea “to offer a wide range of well designed, functional products at low prices. ” IKEA, a Swedish home furnishings retailer, is known today as the world’s largest designer and retailer of inexpensive, functional furniture.The company’s core competence involves manufacture and distribution wherein they sell their products, through catalogues and websites in addition to in-store retailing.
It is important to note that IKEA ensures the development of proper strategies to ensure its survival in the industry. Figure 2 below shows IKEA’s business has shown a gradual increase in annual sales from 1999 to 2010. In 2005, sales accelerated due to their new strategy to expand its edge to kitchen solutions, when compared to the previous years.In 2006, their strategies for expansion into the Japanese market lead to an acceleration in their sales value into 2006, after its previous exploration in the 1970’s. Figure 1 below shows in 2008, IKEA’s annual value sales reached 21.
2 billion showing an increase of 7% compared to 2009’s 1% and 23. 1 billion in 2010 which showed an increase of 8%, because of their pricing strategy, long opening hours, and ability to globally source supplies and reduce cost of sales leading to enhanced profits.The largest sales countries were Europe with 79%, North American with 15%, and Asia and Australia both with 6%. Figure 3 below shows IKEA also experienced fluctuations in its sales growth since 2005. Sales grew by 7.
7% - 8% in Financial Year 2010 compared to Financial Year 2009, to reach a value of 23. 1 Billion Euro. (IKEA,2010a). In 2010, IKEA opened 12 new stores in 7 countries as part of its strategy for sales and company growth.
By 1999, the IKEA brand was now in 158 stores in 29 countries. Profitability improved significantly in 2005 as a result of IKEA’s strategy to give priority to markets delivering margin opportunity over volume expansion. IKEA’s high sales growth in business is expected to continue through 2010 into 2011. Especially, by IKEA’s continuation to develop its market share in North America which continues to grow, whilst also further strengthening its global penetration of deliveries to homes especially in Europe where its sales value is the highest.Normean and Ramirez (1993), states that IKEA is more than a link on a value chain; it is the centre of consolation of services, goods and design. IKEA sets out to reinvent value and the business system that it delivers.
IKEA has proven to have a sound value chain to achieve a competitive advantage. For example, services offered those activities to enhance or maintain the value of their products and transportation to name a few. (Griffith et al, 2005:606) quotes that an external analysis highlight’s the general environment influences that an organisation must cope with, which is known as a PESTEL analysis.This analysis must be conducted examining the external influences that can affect and that are currently affecting IKEA.
Consumer spending may fluctuate in different countries due to the global financial crisis; it is of IKEA’s best interest to keep their prices low when the economy is depressed for consumers with limited financial resources. IKEA has the competitive advantage because of their high barriers to entry for smaller firms new to the market. IKEA improved its service by allowing consumers to conveniently use their website to search and purchase online from the comfort of their homes.On the other hand, a SWOT analysis involves monitoring the external and internal marketing environment. (Kotler et al, 2006:52) views a SWOT analysis as the overall evaluation of the company’s Strength, Weaknesses, Opportunity and Threats.
Today IKEA’s strength is its vision – “to create a better everyday life for many people,” and being a low cost operator, allows the company to not only beat the competition by producing low cost products, but by also edging ahead with operating costs. These strengths contribute to the company being able to retain its customers.To the contrary, once IKEA identifies its weaknesses it can improve and manage by developing new strategies and setting objectives to help ease the severity of its weaknesses on its image, products and growth. The firm’s main weakness is its high dependence on the European market over the American market. IKEA’s lack of American adaptation has prevented them from being as successful as they are in other countries, which has somewhat hindered its growth. IKEA uses its strength to take advantage of opportunities that arise; moving from international to global status through the development of Asia and Europe.
The present growth in the market may result in market saturation, through competition. This competition could emerge from a variety of given sources including: established mass-market companies', development of new lines, and vertical integration, so as to be totally in control of supplies and products being sold on the respective markets. IKEA‘s marketing mix is its recipe for success and consist of Product, Price, Place, Promotion, also known as the Four P’s. Research has shown that IKEA’s product meets the customer’s needs, supplies all the required benefit and creates a feeling of total satisfaction.
IKEA has extended its product base to include flat-packed furniture, in an effort to reduce cost. One of IKEA’s Product Developer uses a door as a table top. This construction option is cost-effective and innovative. For example, the PS collection; encourages kids to play and enjoy physical activity. (IKEA, 2010b) Today, IKEA operates with more than 220 stores in 33 countries and 12000 articles, with a flawless supply chain creating a differential advantage. IKEA now has 18 distribution centres in 33 countries which enable them to develop close relationship with 1800 suppliers in 55 countries and ensure lower supply and distribution costs.
Offering a low price is one of IKEA’s cornerstones with products being sold at a very low price in an effort to capture market share. IKEA adopts every possible strategy to keep the price down, even in terms of the customer collecting the products themselves, taking it home, and assembling them. According to White (2004), IKEA used the hub-and-spoke distribution system, in which a central distribution warehouse served a cluster of stores. This is the key to reducing inventory cost while ensuring immediate access to stock; and a Just-in-time (JIT) inventory system is one aspect of achieving minimised storage and insurance cost.
It is claimed that promotion is the largest element in IKEA’s marketing mix and its catalogue is the best tool used in getting the message to the customer. It focuses on how customers get to know their products, its attractive features and benefits before entering the store. In 2002, there was a minor difference from 110 million copies in 34 languages compared to 2010’s 197 million copies in 29 languages and 61 copies. (IKEA, 2010c) Another important marketing strategy IKEA developed is its advertising.
It has been seeking an advertising agency to promote its products, but today, IKEA has adopted all aspects of advertising for example, Radio, Television, and Magazine promotion. This helps in brand awareness, store openings, and themes. This is a deliberate strategy that IKEA uses to push its products into the distribution chain. Conclusion Prahalad and Hamel (1990) states that the corporation is like a tree, grows from is roots. Core products are nourished by competencies and engender business units, whose fruits are end products.
Kamprad founder of IKEA tries to instil this in the business. In any organisation it is suggested that the strategic issues are best seen from a variety of perspectives, by the four strategic lenses. IKEA is a well-known global brand, having started very simple in 1943 and with determination and sacrifice been able to receive large scale dividend returns by 2010. IKEA’s global brand needed no new introduction; and in a market that is seemingly on the decline, IKEA is provided with the perfect tools to offer affordable products for the middle class, who are ideally IKEA’s target market.Families are being kept comfortable at an affordable price, and the governments are creating employment by introducing and endorsing the IKEA brand.
The barriers that once stood between countries are being broken down with the simple contribution of IKEA’s main advertising tool, its catalogue. Whilst there are several stores attempting to cut cost by retrenching and down-sizing, IKEA is at the other end of the spectrum seeking ways to expand its business on a global scale.
