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IKEA’s Vision –
“To create a better everyday life for the many people”
IKEA Business Idea
“We shall 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 group is one of the top furniture retailers in the world. With its unique combination of form, function and affordability, IKEA distinguished itself from other furniture retailers. With its success in US, Europe, IKEA entered the Gulf market with the hope of continuing its success. Even if it was not very successful initially, it improved through its market research and advertisements. Nowadays, IKEA captured major market share in the Gulf market and also the reputation of being the fastest-growing furniture retailer in the Gulf.
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This report focuses on our competitor Home Centre how they are trying to make profits and gain market share and what IKEA Dubai is doing to conquer their space. Looking at different factors which have become issues to be resolved for IKEA. Some internal issues needs like POS terminals and security of money needs to be the aim to achieve.
These analyses are basically done to understand your competition which gives you an edge. It helps you in giving you an indication of their past, present and future strategies. It helps you to clarify your own competitive advantage and it helps you develop strategies to outmaneuver them
Identifying IKEA’s competitors and understanding them would help IKEA a lot in their strategies. Home Centre is one of their competitors but looking at the past sales and profit figures IKEA has done better than Home Centre. Home Centre has been very brave in their marketing strategies. Their promotions and advertising has been one of their strengths but IKEA on the other hand has different activities going on in the store. For example last month they had Lighting Activity and this month they have Dining Activity which means they introduce new products in these lines and display them in the most best and strategic places where most customers can see and buy them.
As per home centre they have been pushing customers towards them by their new promotion of giving out gift vouchers on a purchase of 200Dhs. This has been some kind of successful. IKEA has its eyes on them and monitor their each and every move and even them. IKEA has a big Marketing team which comes up with a lot of solutions and ideas but they still face completion from home centre. So what they did after home centre’s promotion they distributed 200,000 coupons all over Dubai for free for people to fill and come to IKEA Dubai or Abu Dhabi stores and drop it in raffle boxes. The prize is 5 winners will be winning 2000Dhs of IKEA products each of their choice. The draw is still due on April 18th 2010.
Other competitor for IKEA is Pan Emirates and many other furniture retail stores in Dubai.
Market analysis are basically done to determine the market and its attractiveness because it’s related to the firms strengths and weaknesses
Market size can be evaluated with the present sales of the firm compared with the past sales or expansion of certain range of products. Market size and growth for IKEA has increased as compares to last year where IKEA Dubai was affected with recession and not much profit were made. But in as per now in March 2010 they have achieved what they had budgeted.
Figures show that as per march 2010 there has been a growth in total sales by 7.3% making sales in the month of March to 42MillionDHS. It shows how much total sales were made by furniture items and market-hall items. The market has grown this year as the recession has gone down. The target customers are upper and middle class families. The sales has grown not just because of IKEA’s furniture and market-hall items but because of their excellent customer’s restaurant and exit café also.
Distribution channels – the products come shipped from Sweden to gulf region where they are received at the ports and then transferred to their warehouse in Rashidiya -Dubai. From there the products come to stock in IKEA and then they are sold directly to customers. Their aim is to reduce distribution costs, reduced manufacturing costs and selling costs. How can this be achieved, Through a rational product range development and by adapting product design to production conditions, Through a rational distribution idea in combination with a caring meeting with the many people and through a strict cost-consciousness in all areas.
The IKEA concept aims to make the distance between the supplier and the customer as short as possible by combining the possibilities of the supplier with the needs of the customer.
Key success factors and strategic strength for IKEA here are reducing distribution costs by producing products in flat packaging, cost effective distribution system, direct deliveries, and transit deliveries with minimum handling.
At this level the environmental factors IKEA is facing is technological and product innovation. They need to come up with new ways of producing their furniture items which they say are at lesser price at the same time are not that strong. At customer service IKEA Dubai they receive a lot of returns of damaged goods or poor quality products which after some weeks break or get damaged very easily. The expensive products like mattresses and sofas they all have guarantees on them they get replaced but not these small items which get damaged so easily. They need to think of something new to improve their production of certain products like lack coffee tables and TV benches.
The most important of them at present are the economic factor, employment and culture factors. They are meant to change a lot in coming years.
IKEA already has Home Centre as their primary competitor and IKEA is doing better than them as IKEA has a greater market share. Threats of substitutes and new entrants are always there and there are many furniture shops and stores in Karama, Satwa, Deira that sell furniture and mattresses at lesser price. Homes R Us is also one substitute which has already entered the market many years ago. They sell all the products that one needs at home. IKEA has more than 7200 products which is a plus point.
Consumer behavior changes a lot with their life style and standard of living. Once their needs change they change their choices, buying behavior and buying power. An eye has to be kept on our customers to check what other options they have once their behavior is changes.
Customers are divided into different segments like different demographics or geographical location. IKEA has customers from upper class and lower class but from all nationalities. Each has their own buying power and behavior.
Physical resources of IKEA like machines which are used to fill the stock in self serve and full serve areas are checked and charged daily. The machines, building and production capacity are all well maintained to survive in retail business. They need to improve on POS terminal at exchange and returns where there have been cases of money laundering. Employees have stolen money and caught after many days. So these things need to be taken care of from the management and finance department. This leads to decrease in profits.
IKEA Dubai has more than 300 employees from different nationalities and regularly they are given training in their training centre. Expert professors and managers give them training to increase employee knowledge of products and increase skills at their work.
- IKEA has maintained a long-term partnerships with its suppliers. This ensures they have high quality products and materials at a reasonable price.
- IKEA’s catalogue the 2nd most read book after The Holy Quran in the world. The best marketing strategy they have for many years.
- Home planning and contract sales services
- Their customer service at IKEA Dubai has been the best so far. Even people from Sweden came to visit IKEA Dubai and they were shocked to see our customer service on our peak days. Customer service includes Operators, Information Desk, Play rooms for kids, Exchange and Returns, Merchandise Pick-up and Home delivery services which also include assembly services.
- IKEA is a global company, so product standards may be difficult to maintain.
- Production faults decreases product quality.
- IKEA can further capitalize on the “green” movement and IKEA’s customers’ desire to have less of an impact on the environment.
- IKEA’s new store in Abu Dhabi will be a great opportunity to cater a different segment of people.
- The regulatory environments across the globe vary and can affect how IKEA does business and their product costs, especially the use of natural resources.
- Competitors like Home Centre and Pan Emirates bring in a lot of promotions and sales in their stores; Whereas IKEA has store sales only in June and July.
- Key issues IKEA faces are internally like production fault or poor quality products. Need to reduce faulty products or totally stop selling them because of complain form customers. They need Improvements in the POS terminals, reducing accepting open packages and sales errors.
CONTEMPORORY MARKETING STRATEGIES
MARKETING PLAN PHASE 2
Aim of this report is to understand IKEA’s concept more thoroughly and maintain /increase the current market share. It is one the objectives of this report to increase sales and quality of production of certain products in which they receive a lot of complain. Improve POS terminals by installing new software and making it much more secure. Making the most use of the June and July sales to increase sales to 10% compared to 7.3% in March.
The methods and recommendations I have chosen to increase market share is to introduce IKEA Family here in Dubai as well. This will let us increase our customer base and target new segments. The sales will also increase and we will have new members who will benefit from our exclusive services and new products. IKEA family has its own products which will be brought in from Sweden for the members. Sales to be increased to 10% we will have to improve our services and products in June and July. The new range of products will be brought in from Sweden and this new IKEA family will be promoted all over IKEA stores in Dubai and Abu Dhabi and our websites. We can introduce this anytime in this year.
- To maintain the current market share
- To increase the current increase in sales from 7.3% to 10% by July 2010
- To improve POS terminals and safety
- To improve quality of certain products if not discontinue them and bring in new products which are selling well in Sweden or in other stores of IKEA in the world.
Targeting and Positioning
IKEA has traditionally targeted homeowners but as the housing market weakens the IKEA is going after a new group of buyers to grow future sales: Small business owners and new families entering the gulf market
In the past 12 months, IKEA has started creating interior designs and products for entrepreneurs and these families such as kitchen designs and contract sales for small business owners. In April the company is also expected to launch a new website, ikeabusiness.com, where small business owners can discover new ideas for designing their offices and share them with other entrepreneurs. Families can design their kitchens at IKEA Home planning service where once they design their kitchen they have to pay 500Dhs kitchen charges which is refundable once the customer buys the kitchen.
It will be an interesting development to watch, because their targeting strategy is diversity in buyer’s preferences and they are meeting it by providing more than 7200 products with the best of customer services. Many small business owners are price conscious and would welcome IKEA’s products as an economic alternative to other suppliers. In addition, despite not having a strong existing selection of business furniture and accessories, entrepreneurs are already going to the stores to buy chairs, tables, storage solutions, and other products. Wide range of products helps them improve sales
Differentiated marketing is their strategy. They have different marketing mix plans for different segments. Now they should have a new target segment in this which is the disabled people. They do have this in IKEA UK and other stores in the world. They should start this in IKEA Dubai as well. It’s called IKEA Family. You need to become a member of this family and then avail different benefits like discounts on certain IKEA Family products. Offers on their food products and free IKEA magazines. This will let them target a new segment and increase sales and customer flow in their store. It will build a emotional relationship with these special family members.
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Marketing positioning statement: “We do our part, you do yours. Together we save money.” This line is originated from IKEA Sweden where it started first. Their flat packed products are easy to take home and assemble by the customers because they provide all the instructions and fittings inside the box. If there is any issue in assembly we can always do it for them by proving our assembly services. Quality services will always win customers for the store. Our exchange and refund policy of exchanging and refunding the money back to the customer within 30days is not followed anywhere. Not even In our competitors Home Centre’s store. We refund the money to customers because “It’s ok to change your mind”. This is what it says at all the 22 check outs we go through and at the customer service department.
Generic strategies like priced based, IKEA has prices of their products which are affordable that is why they are making profits and has a good market chare. But out objective is to increase the sales percentage from 7.3 to 10% by July. This can only be done if they differentiate and highlight their services and products more than their competitors. Home Centre has recently opened a new store at Mirdiff City Centre which has not affected IKEA at all till now. IKEA can grow their sales if they bring in the service they provide in IKEA UK that is IKEA Familk and with it its new products. IKEA Family has its own products with fewer prices. Many of our upper class segment customers would love to avail these benefits because they are IKEA’s regular customers. 70% of the shoppers are women and they would love to become a member of this Family. This would lead to alternative directions and IKEA will penetrate into a new market.
Product development is another alternate for IKEA to grow and change perception of their certain consumers. Certain IKEA products are not reliable for long or get damaged very quickly. They need to look in to their production department in Sweden and produce products like Lack coffee tables and TV benches much stronger. They can either discontinues these items and bring in new stock from Sweden because not all the products are sold here in IKEA Dubai. Expedit Book shelves comes in flat pack boxes and they are shipped from Sweden and when customers buy them from here, once they open it some parts are either missing or damaged. So the quality of production has to improve form IKEA Sweden or they have to double check it once they reach in their Rashidiya warehouse in Dubai. Customers complain about the hassle of buying and then realizing its damaged or some parts or fittings are missing and coming back to replace at exchange and returns counters.
Other alternatives for them to improve are to upgrade or have new POS terminals with much security. They need to improve the systems and traind the staff with the new changes made. There have been cases where co-workers have been stealing money from their tills. If we have a secure and improved system this won’t happen again.
Joint development – IKEA in gulf is expanding and opening a new store in Abu Dhabi UAE.
“The present Ikea store in Marina Mall, which continues to serve thousands of our Abu Dhabi patrons, will be relocated to Yas Island where it will be transformed into a full-fledged concept store,” he added. Under the agreement, Aldar will provide the structure for the Ikea store under a renewable, 10-year lease agreement with Al-Futtaim
The Ikea store on Yas Island will have a total floor area of 32,000 square metres and a sales area of 19,150 square metres.
It will have a restaurant of 2,100 square metres with a seating capacity of 550, as well as 1,500 parking places. Franicevic said the Yas Island store will provide a strong impetus for the Swedish furniture and Furnishings Company to push ahead with plans to expand in the region.
“We expect to serve nearly 1.3 million visitors in the first year of operations,” said James McGowan, Ikea manager for Abu Dhabi. [Himendra Mohan Kumar, Al Nisr Publishing LLC 2009]
Selection of Competitive Advantage
IKEA has a competitive advantage over its competitors and has sustained it for a while. This advantage can mainly be attributed to its resources and capabilities namely human resources, brand and IKEA concept.
Ingvar Kamprad the founder of IKEA though retired is still a cheerleader for the practices/concepts that define IKEA culture. Cutting prices is one of the competitive advantages IKEA has over its competitors and this is another message that comes across loud and clear among IKEA operations. IKEA aims to lower prices across its entire offering by an average of 2 percent to 3 percent each year.
Targeting middle class customers who shares buying habits and providing similar shopping experience the world over has made IKEA a unique shopping experience. More than 7200 products ranging from kitchen cabinets to candles and textiles; making store visit more of an outing than a chore; seducing the customers with one touch after another within the shop; offering other services like restaurant, kids area and the like; flat-packed nearly all big items to save shipping cost and allow shoppers to haul their own stuff and many more, makes IKEA concept of its own kind and as a results boost its image (brand).
These resources are valuable (enables the firm to respond to environmental threats and opportunities) but each on its own is not rare and hard to imitate. IKEA’s ability to combine these resources in the way it has done (creating IKEA world), makes the whole experience rare and non-imitable. As a result IKEA enjoys and sustain a competitive advantage over its competitors. [Jay Barney’s framework on Gaining and Sustaining Competitive Advantage, 2006]
IKEA’s strategy is based on cost leadership. Across markets where it has current presence, products are sold at low prices. Prices are 20 to 30% lower than competing products. Price varies only in a result of fluctuations in exchange rates. This pricing enables IKEA to gain significant market share. Low prices are a result of large-quantity purchasing, low-cost logistics, store location in suburban areas and a Do it yourself approach to marketing.
IKEA also benefits from economies of scale and healthy supplier-firm relationships. IKEA enters into long-term contracts, provides leased equipment and technical support in exchange for exclusive, low-cost manufacturing from suppliers. For new markets, IKEA should retain its price-image to maintain the brand’s positioning.
IKEA’s value chain is unique in that customers are also suppliers and suppliers are also customers. The transactions between the supplier and IKEA and on to the customer have a value adding step in each stage.
Product differentiation exists in the value-added dimension. IKEA’s consumers know the concept of IKEA of Do it yourself with most of its products requiring assembly after purchase. But although assistance in this aspect is limited, IKEA offers customer service and home delivery services which includes transporting and assembling furniture.
While this is well accepted in areas where IKEA now operates, it may be a point of consideration when entering new markets. Should IKEA encounter a market where DIY is not favored, IKEA may include the cost of the service to the product’s price. It does encounter such market where they face customers in Dubai who don’t like picking products from self serve area. They just give the list to sales person n tell them to bring the products which is not the concept of IKEA but still sometimes we have to do this for the customers to keepo them satisfied with the service we provide.
IKEA store is located in Dubai Shopping Festival. Which is a good location one of the Middle East’s largest mixed use real estate projects, that covers over 1,200 acres. Spread over 25,400 square meters This is a factor in the achievement of IKEA’s low pricing. While it may appear as a disadvantage, this fits IKEA’s target market of customers willing to transport their own purchases and requiring less assistance in assembly.
IKEA’s promotion is centered on the IKEA catalogue which they launch every September of the year. There catalogue of 2010 has been distributed all around the world in millions. This is their best marketing and promotional strategy. This catalogue is said to be the 2nd most read book after The Holy Quran. It includes all the different range of products but not all.
Secondly advertising is done every month in newspapers like Gulf News and Al Arabia news papers whenever they have a new activity going on in the store for example they have dining activity currently going on so they have printed 2 different adds in these newspapers with different products and prices. They even advertise on radio 101.6 and one Arabic radio channel.
Proposed strategic choices will improve sales and market share by bringing new products and introducing IKEA Family in Dubai. This will increase their market share in Dubai because study shows that IKEA customers want something more from IKEA and disabled people can benefit from IKEA Family with special discounts and services.
http://pathfinder01.blogspot.com/ [Understanding IKEA : How a Swedish Company Turned Into a Global Obsession (II), 2006]
[Himendra Mohan Kumar, Al Nisr Publishing LLC 2009, Aldar and Ikea UAE break ground for Yas Island store.]
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