IKEA was established in 1943 by Ingvar Kampard in Sweden. The name itself is an acronym, which comes from the initials of his name and also the name of the neighborhood when he grew up.
The structure of IKEA organization is quite complicated for the reason of tax avoidance. The privately-held IKEA by Ingvar Kampard is controlled by INGKA Holding. INGKA Holding owned by INGKA Foundation which is a non-profit organization. Moreover between INGKA Holding and Inter IKEA Systems BV a franchising relationship exists.
The IKEA operating in four continents all around the word as well as Europe, Asia, Australia, America.
World Map showing locations of IKEA stores in 2007. Green represents countries with stores in operation and blue shows proposed locations.
IKEA now has 301 stores in 37 countries
In (1958) Sweden, Norway (1963) and Denmark (1969)
In Switzerland (1973) and Germany (1974), Japan (1974), Australia and Hong Kong (1975), Canada (1976), and Singapore (1978).
France (1981), the Canary Islands (1981), Belgium (1984)
In United States of America (1985)
In United Kingdom (1987), and Italy (1989).
The biggest market in Germany with 44 stores
The first IKEA store in Latin America is set to open in early 2010 in Dominican Republic.
The biggest store in Abu Dhabi (2009)
Performance of IKEA
Thanks to the affordability and persistent geographical expansion graph shows strong growth. Of course the global economic crisis has had a bad effect on customer spending and declining house prices in several markets. It is noticeable on the performance of many home and garden specialist retailers. Despite the fact IKEA has maintained grows of revenue by 9% in the year of ended 2008.
One of the most important and also very helpful marketing tool is the SWOT analysis. It is a strategic planning method using the company’s strengths, weaknesses, opportunities and threats. Identification of these elements is substantial because subsequent steps in the process of planning for achievement of the selected goals can be derived from the SWOTs.
Strong brand image: IKEA has a very easily recognisable almost iconic brand image. IKEA means affordable price, high quality and Scandinavian simplicity. The advertising follows also the same way. Relativly protected from the currently running global economic downturn because it has a massive consumer base.
Huge range of geographic reach: The company has stores in 37 countries in 4 continents. They already overbore the difficulties of getting new markets and they have a significant potential of getting bigger particulary in emerging market sas well as China and Russia.
Enormous influences from centralised market: The 87% of the IKEA stores are located in Western Europe. This market recently suffering in a considerable economic problems hence it has a bad effect on the performance of sales.
In some cases the advantage of the strong brand image could be disadvantage. The IKEA has developed a particular image and design aesthetic of its service and products. It could be catastrophic if these consumer trends turn against IKEA’s specific ones.
Emerging markets: Ongoing urbanisation and increasing household numbers in emerging markets can help to boost purchasing power in IKEA’s large scale stores in these markets. Operating existing stores and also extending the number of the stores before other competitors. Building strong brand image and doing massive marketing activities in the same time.
Expansion of internet retailing: IKEA company already having a lot of stores all over the world but particularly in Europe. Take advantage from this and the well organized and detailed IKEA’s official website they should make effort to make it more popular.
Harsh economic conditions: the currently running unfavourable circumstances as well as waning consumer confidence, low spending power and poorly performing house markets have made the situation more difficult and generated unsolvable problems even though IKEA is market leader.
The latest news says that the biggest grocery retailers like the American Wal-Mart and the English Tesco want to expand their furniture and furnishing offer. As we know the above mentioned companies are working with low prices. Also one of the biggest advantages of IKEA is a low-price positioning.
Geographic Positioning, Opportunities
As it was mentioned before IKEA is a global company. Being different countries is a big challenge because every country has own habits, culture, influences, customer taste and behaviour. The task is to find out which is the best marketing strategy for each country. The first step must be a profound market search. It has to be before to entering to the market. Also very important to do it persistently when the store or stores is/are already existing because the trend and consumer demand may change. The marketing strategy has to follow these changes or even better when marketing strategy leads the changes.
IKEA’s 10 biggest markets made 75% of the total retailing sales. 8 markets out of 10 located in Europe.
IKEA entered to the French market in 1981. France offers relatively big opportunities in growth of its furniture and furnishing market. The currently running TV-shows are encouraging people to decorating their home with inexpensive materials and sensible furniture. The French kitchen is well-known all around the world. IKEA takes advantage of that and opened the largest dedicated kitchen store in France. Cooking in France is a part of the culture. That is why, and of course the impact of economic crisis, they prefer to cook at home rather than eat in a restaurant.
IKEA announced in October 2008 the new logistics centre in South France and also the 3 new stores opening in the same area and the same year. The total cost of the investment is EUR250 million which is a competitive assault on market leader Conforama.
Over the 2004-2008 period, IKEA got closer to the market leader Conforama, which is owned by PPR SA, from 6.4 percentage points to 4.1 percentage points. The low-price strategy, the Scandinavian design, the simplicity and practicality led to success. The problem is that that rivals started to adopt the same strategies as an imitation. Conforama doesn’t want to lose its market leader position hence makes a lot of effort to maintain that 4.1 percentage of difference.
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IKEA is in Western Europe since the 1970’s. They are market leader there with huge amount of stores and logistics centres. It is very difficult to improve their performance of sales in this area. The market is already saturated. But there is an excellent opportunity to expanding towards the neighbouring areas. The big advantage in the emerging market in Eastern Europe is the similarity of culture and habits and consumer behaviour.
No doubt, the biggest opportunity which is one of the largest markets in the word is Russia. IKEA is absolute market leader with 14% of value sales. Moreover, IKEA is the only one non-local furniture retailer over there.
The long-term plans are opening 30 new outlets and build up stores in cities where the population more than half a million.
Only problem may occur which is the difficulties of selling oil and gas not on the contracted price. It might be a negative impact on Russia’s economic.
Although, the countries like Hungary, Czech Republic, Slovakia are not in the IKEA’s 10 biggest market but even tough it is market leader. Also stores are existing in Poland and Romania and IKEA is ranked on the 3rd position in terms of market share holder.
The manufacture activity in Poland has already played an important rule in IKEA’s life. The cheap labour-cost and the particularly good geographical (near to Western Europe and plenty of wood are available) position make Poland the 2nd largest supplier country behind China. Currently the company is investing heavily in building new stores, factories and shopping centres. This is also a long-term plan, during 8 years investing PLN6 billion, supported by Polish government.
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Entering new markets
There is a quite big are between Europe and Russia, called Ukraine. The company said that it may set up the first shop in the capital by 2011 believing that the success will come like in the neighbouring Russia. If it comes true, they will set up 25 stores more across the country. I have to add that the considerations haven’t started yet.
There are several small emerging markets in South East Europe as well as Croatia, Serbia and Slovenia. Inasmuch as there are not big cities IKEA’s leadership are considering just to open one stores in each capital. Further stores in this area are depending on the result of existing ones.
Asia is huge market including developed and developing areas. Hence IKEA has to focus on expand its selling activity there. It is quite tough because the culture, the habits and the consumer behaviour are completely different than in Europe or even in United States. IKEA’s leadership can not use the same outlook of showrooms, in few cases the same products and even the same catalogue. According to the popularity China and India look to be carrying the biggest opportunities.
India and South Korea
There are new areas for the company but IKEA is not new for the people who are living in India and South Korea. It shows the copies of IKEA’s products which may be advantage in terms of brand recognition.
India’s population is the second largest behind China’s. It means roughly one sixth of the Earth’s population live there. More people are there than in all Europe. IKEA can not afford the miss this opportunity. According the forecasting the company expected an 11% of compound annual growth rate (CAGR) over the 2008-2013 period, which is better with 2% than the IKEA’s 2008’s result.
The big question is South Korea. It is not a potential market with approximately 48 million people but its geographical position is very good. South Korea is located between two very important markets; China and Japan. I think that is the reason why the IKEA wants to entering to its market, even tough the prognosis says CAGR of -1%.
The absolute number one, the largest market in the word is China. Hence, no doubt the key market has to be China for IKEA. The company entered to the market in Shanghai in 1998. When the store stated to operate there was a very strange thing. The customers started to take photo and measuring diameters and soon the fake products are appeared in the market. The message was clear for IKEA. They had to reduce their prices in order to become affordable for Chinese. They did it over eight years by 46% using cheap labour and also inexpensive raw materials. The result came. Now IKEA is one of the market leaders in furniture and furnishing channel and it stand a fair chance to take the first position by opening outlets.
IKEA has started to invest heavily in Chinese market.
The Middle East and Latin America
IKEA reached nice successes in Middle East. It is the first European company who got entered to Israel (2001) and other Arabic countries as well as Saudi Arabia (1983) Kuwait (1984) United Arab Emirates (1991). The market is very special in these areas. These countries are relatively rich by the oil and people prefer to buy expensive and unique furniture. This thinking is against IKEA’s philosophy which is based on low-price strategy and simplicity. That is why IKEA having just a few stores in these countries. Thanks to franchising agreements IKEA doesn’t have to take a high risk.
In Dominican Republic the first store is under construction and it will be ready to open in the middle of February 2010. This IKEA shop is going to be the first one in Latin America so the company looks forward to getting feedback in form of results. The market is tough because the standard of living is low hence not that many people can afford to shop in IKEA.
Marketing mix is base of marketing strategy. The aim is use the combination of its elements to get the best result investing the least amount of money. The marketing mix is middle-term plan and to modify its elements is necessary in order to maintain buzz around the products.
IKEA produces 12,000 different kinds of products. The offer is more than huge. Everything is available in the stores what a household needs from the smallest stool to the largest wardrobe, beds, materials, lightings, curtains, kitchen accessories and garden furnishing.
IKEA is famous its Scandinavian design. The products are representing a high quality level combined with simplicity and practicably. The company has an own design team which is responsible not just for the products’ appearance but make them easy to package.
The products have names in order to identify them. The system is very helpful for the customer. There are several categories as well as bathroom articles, bookcase ranges which are named by different Swedish cities, lakes, islands etc.
The products are requiring final assembly. The advantages of this feature are cost efficiency because easy to store and handle them. Unfortunately it has also have disadvantage as well as the assembly might be difficult for simple user.
IKEA’s strategy based on the affordable prices which means 30-50% less than the competitors. They are selling products in large quantity all over the world hence they are able to save money on cost of logistics.
IKEA sells products on the same prices; variations are only results of fluctuations in exchange rate.
The company to get the best financial results is using the following price strategies:
Penetration pricing: the main strategy of IKEA to increase its market share as much as possible.
Psychological pricing: all of its products’ price ending with the digit of nine. It has a psychological effect on the customer
Product line pricing: it is very common strategy and recognisable amongst the same product range.
The famous “Big Blue Boxes” are located in the suburban. The reasons are simple. First of all, he IKEA stores are huge and they need a large real estate which is very expensive in the city centre. Secondly, the product transfer is huge both the side of suppliers and customers and suburban can assure nice and easy access by public transport, car and lorry.
The structure of the shops is very smart. They have one entrance and one exit, called one way layout system. The people enter on the first floor get through the showrooms where they can watch the products in their natural environment. From there they will get to the ground floor where they can pick the chosen products up from the market place and/or the store.
IKEA uses well-known yellow and blue logo. The colours are highlighted and even they have psychological meaning because people can connect with the brand.
The customers are able to watch and touch the products in the shops’ showrooms. It is very important to see the items before purchasing because they will buy them with confidence.
The company invests 70% of the total marketing budget into its catalogue. More catalogues are printed out each year than bible. They are containing all of IKEA’s products with photos and plenty of details as well as; names, diameters, codes and prices of course. There are two possibilities to get them. Firstly, pick them up in every shop or secondly, in postal way.
The company has increasing turnover year on year in terms of E-commerce. The website is based on the catalogue because the looking is exactly the same.
Also very heavy Guerrilla marketing activity is going on. Everybody knows the banned TV adverts about the slogan; Tidy up. In Japan an Russia IKEA designer team made a fantastic interior of some of the local underground. They changed the colour of the seats, floor, curtains and also put some well-recognisable IKEA’s adverts on the train’s wall. When the new store opened in Southampton the Red Osprey ferry was re-painted in blue and yellow colours with a huge IKEA logo on its both sides.
The internet access is increasing day by day all around the word. IKEA has to take advantage and encourage the customers to by products online by good return policy, discount prices, free delivery service and advertising the advantages of homeshopping. It would help to increase the market share in furniture and furnishing channel and it wouldn’t be costly because the retailer stores, the warehousing and delivery systems are already existing.
The currently running economic crisis is really a bad thing but IKEA could capitalize on this situation. The company is market leader and very strong in terms of capital. They can afford to entering new markets for instance in Latin America apart from Mexico, because the presence of Wal-Mart is very strong there, emerging European countries like Croatia, Ukraine and Serbia. I find also very important to invest money as much as possible into China, India and Russia. Those are huge markets with large population and also with plenty of opportunities. In China IKEA has worked out the right strategy, it reduced prices by 46% during 8 years, hence it hasn’t got risk factor to invest more money to extend.
The pricing strategies are not the best because IKEA doesn’t use very useful ones as well as bundle- and optional pricing.
IKEA is famous of its affordability and they don’t have premium category which is a mistake. The profit is bigger on these products, comparing with normal ones, and also have demand particularly in Arabic countries.
The company has to do better marketing activity. They don’t sponsoring any sport, even though the Swede hockey team and football team always play an important rule in the Olympics game. Advertising on the Internet and in the radio is not that costly than the TV but is very effective especially before Christmas time.
Last but not least I would recommend that all of the outlets have to be available by free shuttle buses from the nearby train station or in designated bus stops.
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