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IKEA - Case Study
Marketing Management (2020)
Hebron University
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Warning: TT: undefined function: 32 Hebron University
MBA Program
Marketing Management.
To-Prof: Samir Abuznaid.
From: Shireen Al-Qawasmeh.
Subject-
IKEA Case Study
Chapter 4
Concluding Marketing Research & Forecasting Demand.
2
nd 2019- 2020.
subject Page NO
- History
- IKEA Highlights
- Vision
- The IKEA business idea
- The 8 IKEA Key Values
- IKEA Value Chain
- IKEA SWOT Analysis
- PESTLE Analysis
- Porter’s Five Forces Analysis
- IKEA Culture
Questions
opportunities are remain untouched which they are planning to avail them. Todays, IKEA Changing lives together with social entrepreneurs To include and support marginalized and vulnerable groups, IKEA works with social entrepreneurs. for example IKEA working to provide Brazilian families with adequate housing. IKEA wants to create a better everyday life for as many people as possible – including the millions who are vulnerable and marginalized. Improving lives means enabling a more inclusive society, where people have the opportunities to provide for themselves and their families. IKEA Social Entrepreneurship is one way of making this a reality. In addition, the biggest IKEA franchisee the INGKA Group, is aiming for zero emissions from home deliveries by 2025. As of January 2019, INGKA has already achieved zero emissions target for Shanghai, a year ahead of schedule. Currently, 60% of the materials IKEA uses are renewable and 10% are recycled. The ambition is to reach a combined total of 100% by 2030. a new innovative technology developed in collaboration with partners such as the H&M group: it’s based on cellulose from wood that they call Tree To Textile. Textile developments using cellulose are thought to have great potential to replace or complement both cotton and oil-based fabrics like nylon or polyester. The project is still in its research phase, but IKEA are now taking the first steps to industrializing the technology.”
IKEA Highlights
Many companies, organizations and people – together – shape the IKEA brand. Each and every person, idea and solution helps IKEA become more accessible, affordable and sustainable. Here is a selection of facts and figures about IKEA Financial year Sep 2018 - Aug 2019 (FY19).
IKEA sales grew 6% in FY19, reaching total retail sales of EUR 41. billion.
The IKEA business idea
While the IKEA vision expresses why we exist, the IKEA business idea says how they realize the vision. they want “to offer a wide range of well- designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. IKEA love these words because they capture the very essence of the IKEA brand. To live up to them, IKEA applies five dimensions: low price, function, form, quality and sustainability. Together, these dimensions make up what IKEA call Democratic Design. Democratic Design helps them create products they can stand behind and realize their business idea. IKEA Sustainability Healthy and sustainable living. A world without waste. Becoming climate positive. Responsible sourcing. Fair and equal. Learning as we go - the challenges of entering a new market Whenever IKEA enter a new market, the decision is backed up by research and careful analysis, as well as gut feeling. When IKEA enter in new markets the managers share their experiences and describe the lessons learnt along the way.
The 8 IKEA Key Values
Togetherness Togetherness is at the heart of the IKEA culture. they are strongest when they trust each other, pull in the same direction and have fun together.
Caring for people and planet IKEA want to be a force for positive change. they have the possibility to make a significant and lasting impact — today and for the generations to come.
Cost-consciousness As many people as possible should be able to afford a beautiful and functional home. IKEA constantly challenge theirselves and others to make more from less without compromising on quality.
Simplicity IKEA is informal, and see bureaucracy as a biggest enemy.
Renew and improve IKEA are constantly looking for new and better ways forward. Whatever they are doing today, they can do better tomorrow. Finding solutions to almost impossible challenges is part of our success and a source of inspiration to move on to the next challenge.
Different with a meaning IKEA like to question existing solutions, think in unconventional ways, experiment and dare to make mistakes - always for a good reason.
Give and take responsibility Giving and taking responsibility are ways to grow and develop as individuals. Trusting each other, being positive and forward-looking inspires everyone to contribute to development.
Lead by example IKEA team see leadership as an action, not a position.
IKEA Value Chain
- What does “climate positive” mean? IKEA are committed to becoming climate positive. That means IKEA will strive to eliminate greenhouse gas emissions wherever possible across their entire value chain: sourcing and extracting raw materials, manufacturing and transporting products, stores, customer travel to stores, product use in customers’ homes and product end-of-life. IKEA will reduce emissions in absolute terms, while continuing to grow the its business. they will store carbon in land, plants and IKEA products and not rely on carbon offsetting. By taking a scientific approach and working together with their partners, suppliers and customers around the world, they will make this happen by 2030.
IKEA Value Chain
TABLE 1
Raw materials 36,4%
Designing products to enable repurpose, repair, reuse, recycle Using renewable and recycled materials Storing carbon through forest management Food ingredients 3,9%
Sourcing food ingredients sustainably Introducing more plant based food options Cutting food waste Production 11,9%
Generating and using renewable energy Increasing energy efficiency
Product transport 3,9%
Reducing shipments Replacing fossil fuels Using new low-emission transport options Retail & other own operations 2,7%
Improving energy efficiency Using and generating renewable energy
Customer travel & home deliveries 15,5%
Enabling low-carbon customer travel and home deliveries
Product use at home 22,2%
Designing our products to be as energy- efficient as possible
Product end-of-life 3,5%
Designing our products to be as energy- efficient as possible
The IKEA FY18 Sustainability report (PDF, 9 MB)
IKEA SWOT Analysis
TABLE 2
Opportunities 1. Developing for Sustainability. 2. The refreshing scent of ideation for students. 3. The search for local pattern and colors. 4. using Geometric and a simple shapes for furniture 5. the biggest IKEA franchisee the INGKA Group, is aiming for zero emissions from home deliveries by 2025. 6. Ensuring supplier safety and compliance 7. increasing awareness among co-workers, consumers and partners.
Threat 1. challenges of unsustainable consumption 2. climate change 3. growing inequality. 4. a challenge to convince the talented craftsmen that the bamboo waste as something authentic and beautiful. 5. exposure to potentially harmful chemicals is vital. 6. finding enough clean recycled materials. 7. Fast competition 8. the world’s cotton supply , e3 Cotton Program in the USA. Towards Better Cotton. 9. Social inclination such as the hold ups in first time purchasers entering the housing market. IKEA has made it as a core marketing section for its products. 10. Market forces Household and Furnishing market is becoming a challenging place as new competitors are entering with the low prices products. If IKEA want to compete with them then it has to use its unique qualities to get into the competition and retain the major shares of the market. 11. Economic factors Economic factors are also playing good role these days. Because of the recession spending power of the customer is badly affected. Customer has slowed down expenses and disposable income has reduced.
Weakness 1. IKEA has had a few run-ins with bad press. Employees have complained about poor treatment. The brand has faced ridicule for advertising techniques in non-western countries. And the worst offense: children being hurt or killed in relation to IKEA furniture. IKEA has also had to recall dangerous products because they’ve led to injuries. 2. Law quality 3. Needs for countless design 4. Needs for Maintaining that same level of cost- effectiveness 5. The big scale and great geographical size of business can causes some concerns about the quality of the IKEA products and the standards being used during the development process of these products
PESTLE Analysis
Political If we consider the national and global development of the industry, IKEA is a really good example of the organizations those are flourishing in both local and international business. A furniture retailer from the Sweden has combined both the furniture of Scandinavian style with the furniture of “do-it-yourself” style (flat packaging style) to get the popularity throughout the world and to set a worldwide trendy brand.
Economic Keeping in view the need of the customer’s demands and brand loyalty, IKEA has been adopting special kind of plans, due to the cost- effective changes and developments. IKEA has transferred its ownership to the Stitching Ingka, and this has given it more strength in financial terms. This switch has forced the IKEA to take up other style of furniture as well, such as lightings, dinnerware and even rugs. Although, IKEA has taken all these steps but the recession has affected the IKEA badly and its progress has been slowed down due to the lacking in planning. If IKEA wants to make its performance high, it has to re think and re consider its business strategy accordingly.
Social IKEA’s contribution towards charity is worth noting and they are also contributing a lot about the environment friendly products. It has also been providing a lot of opportunities to the people and its employees are also entitled for various benefits such as cover and retirement funds. Furthermore, IKEA is trying to produce the furniture that is a mixture of their typical style and new trends at a very low price.
Technological The IKEA has been using their technology and other quality systems to encourage the shorter wait in line, appropriate arrangement, tracking and deal models and recruitment. IKEA’s objective is to give preference to its employees and to become more productive. This system has enabled IKEA to manage the right number of staff in a proper place at the right time and to fulfill its unique trading models at each stores of IKEA. IKEA is trying to optimize the supply chain process and also to supervise the personnel in order to generate an efficient and successful store atmosphere to keep customers pleased.
Legal The legal conformity of IKEA is firmly applied with the appropriate and pertinent rules and regulations that relate to the atmosphere, community and working circumstances. The organization also planned the most challenging necessities to be precise in preserving the list of rules and regulations and according to the proper procedures.
Environmental As far as the environmental factors (such as the air, noise, and water) are considered, assessments are put into operation to ensure the organization offers counteractive measures within the specific time frame. The environmental assessment is the part of the legal documents and ecological establishments as the industry functions are on-goings and preserves the competence.
Porter’s Five Forces Analysis
Porter’s Five Model 1. Power of the Buyers This is categorized as a little power, since the open low-price choices. The alternatives for the furniture and other small items are available and customers have inadequate alternative options that give the individuality to the IKEA as compared its competitors. Besides this,
- The IKEA values were shaped during a time in Sweden when the living conditions where harsh. People had to get by with what they had. This fostered a culture of entrepreneurship and hard work, and made people more pragmatic and mindful of resources. A lot has changed since the early days of the IKEA brand. Today IKEA have grown into a global business with the size and reach to create positive change, not only for people but also for the planet. But on the inside, not a lot has changed.
- IKEA constantly trying to find better ways to get things done and to bring out the best in their teams and others.
- IKEA has had a few run-ins with bad press. Employees have complained about poor treatment. The brand has faced ridicule for advertising techniques in non-western countries. And the worst offense: children being hurt or killed in relation to IKEA furniture.
- IKEA has also had to recall dangerous products because they’ve led to injuries.
- Law quality
- Needs for countless design
- Needs for Maintaining that same level of cost-effectiveness
- The big scale and great geographical size of business can causes some concerns about the quality of the IKEA products and the standards being used during the development process of these products
- IKEA has had a few run-ins with bad press. Employees have complained about poor treatment. The brand has faced ridicule for advertising techniques in non-western countries. And the worst offense: children being hurt or killed in relation to IKEA furniture. IKEA has also had to recall dangerous products because they’ve led to injuries.
- Law quality
- Needs for countless design
- Needs for Maintaining that same level of cost-effectiveness
- The big scale and great geographical size of business can causes some concerns about the quality of the IKEA products and the standards being used during the development process of these products
Questions:
Explain how Ikea has achieved cost leadership, as outlined in the case?
How has Ikea achieved differentiation from its competitors?
Explain Ikea’s approach to global expansion. How did it vary in China?
Answers:
- Explain how Ikea has achieved cost leadership, as outlined in the case? IKEA has achieved leadership in the cost by providing the customer with products of exceptional quality, the parts of these products are out sourced from the suppliers from around the world resulting in a competitive edge over others, reduced costs and retail outlets with easy reach. Business process excellence, manufacturing process excellence coupled with supply chain excellence enables Ikea to achieve cost leadership. Most of the company first design the product, rollup the costs and sets the price after evaluating competitor’s prices as well as keeping its margin. However, things work differently at Ikea. Ikea started with fixing the price tag of the product first and then accordingly develops the product that can match that price. Ikea product engineers and designers collaborates directly with supplier and involve supplier in earlier project design. This strategy is called early supplier involvement (Bolton, Brun, Pero, & Piaggesi, 2013) that helps Ikea to keep the cost low. Also, Ikea focuses on efficient design (Blome, 2015) without compromising on the functionality of the product to keep the cost low. As Ikea manufactures standard products, they also achieve economies of scale and there is no time wastage in changeovers of machines and equipment. They use raw materials very efficiently follow zero defects and zero wastage policy and apply the best technical innovation to keep the cost of their production processes low. Competitors may think that
products and make use of economies of scale and thus able to pass the savings to their customers. Ikea is the leader in most attractive pricing strategy. Also, their stores are usually situated outside of the city centers due to availability of land cost at attractive prices as their stores are big in size.
- Explain Ikea’s approach to global expansion. How did it vary in China?
IKEA has developed a cost leadership strategy but it still presents aspects of its business model that differentiates itself from its competitors, resulting in a “Hybrid” strategy. The main factor to this substantial “hybrid” strategy is explained by the former CEO instead of adapting the company’s product range to the markets the company is operating in, IKEA has shifted the market’s preferences towards their own range and style. Consequently, IKEA is able to maintain a unique and distinct profile (Johnson et al. 2013). The main competitive advantage for IKEA is their low-cost yet high quality and well-designed products. While having prices 5 to 10 percent lower than competitors in most industries is highly reputable, In the past, IKEA has successfully opened new and profitable stores by imitating its cost leadership strategy, business model, and products from one market to another (Wei and Zou, 2007). However, the cultural differences in the Chinese market presented a significant flaw in IKEA’s standard business model. These included IKEA’s pricing to be higher than average in China due to local manufacturers having a lower cost structure (Wei and Zou, 2007) and high duty rates, as Miller (2004) pointed out, confusion amongst Chinese consumers as IKEA’s global branding of providing low-cost furniture didn’t align with the Chinese people’s aspiration of western products, according to (Chu, Girdhar and Sood (2013)), and local Chinese culture clashing with IKEA’s existing value propositions; such as the Chinese being averse to DIY assembly, according to ( Kornienko (2016)), and the differences in Chinese accommodation and housing styles as (Wang (2011)) stated.
(Hofstede’s (1980)) cultural conditioning concept plays a significant role in understanding these cultural differences. The concept is relevant to IKEA due to its multinational presence; IKEA applies cultural conditioning in their move to China by conducting comprehensive research and testing there. As such, IKEA’s experiences of expanding into China has taught them that expanding into markets, especially emerging markets such as India and China, requires extensive market research in order to understand the local market from multiple perspectives; economic, legal, political, and cultural. The research conducted will allow the multinational to adapt its strategies and products to properly meet the wants and needs of the market it intends to expand into, therefore allowing for a profitable expansion.
Note: we can use the SWOT analysis to answer the questions.
Shireen .I TiGer
IKEA - Case Study
Course: Marketing Management (2020)
University: Hebron University
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