The selected company for discussion is IKEA group where company is renowned for their D.I.Y concept which makes them the sovereign furniture retailer in the industry. In this report, the first scope of the discussion will be accentuating on the segmentations and target market segments on how IKEA is based according to their company standards with different approaches and ways of adopting the concepts.
The second scope will be on IKEA’s 5 positioning strategies where IKEA’s channel of distribution to propagate their products, differentiation of products and services being offered, and the advantages of trained personnel within the company and how the reputation of the company being upholds. Thirdly, the customer value on IKEAs and will also focus on the three strategies that they have adopted and the way they create. As they have become popular over the years through having quality and affordability products.
Lastly, the marketing mix and strategies adopted by IKEA on how they make use of their 4Ps’ to determine the Product strategy for space-saving furniture and unique designs, Place strategy that lacking of presence in a particular country of IKEA, Price strategy that features in organizing promotional sales discount to induce customer to clear old stocks and the last P refers to the Promotion strategy of how IKEA create the awareness of promoting their product through the media channels.
2.0 IKEA COMPANY PROFILE
In the south of Sweden, IKEA founder Ingvar Kamprad was born and grew up on the farm Elmtaryd, parish of Agunnaryd in Smaland. He had always wanted start off his own business whereby having a strong determination within himself to construct his own management resources of being independent during his upbringing in various events. He first started off as a young entrepreneur by propagating and selling goods at a distinctively reasonable price at the age of 17. [Inter IKEA B.V., 2011-2013]
IKEA was established in Sweden in 1943, starting off with the first commercial business name IKEA, Selling pencils, postcards, and other merchandise which was initially a mail-order business. By deriving the initial letters of Ingvar Kamprad and of Elmtaryd and Agunnaryd is how it was name. In 1948, Ingvar Kamprad starts exploring innovative solutions such as self-assembly, furniture design and advertising. The expansions of their business were so successful and popular was mainly due to their unique creations with affordable priced furniture. IKEA published their first annual catalogue in Sweden. The first showcase was open in 1953 at Kronoberg County, Sweden. Customers can assess and experience the quality of products before ordering.
It covered 6,700 meters and became the largest furniture display in Scandinavia. The coincidence of the Swedish Root that IKEA logo adopted is designed with the colours of blue and yellow where the colours are representing the Swedish flag. IKEA’s philosophy, ‘quality at a low price’, shaped their business concept and growth continued during the 1960’s. Following their flagship store in Stockholm, Sweden, this covers the radius of 45,800 square metres. Beginning with Munich in 1974, IKEA expanded into other parts of Europe. It has grown to a global reach company and is world’s most prominent retailer.
IKEA outlets normally feature caretakers and playrooms for children while their parents can shop freely to their comfort and a Swedish cuisine cafeteria to meet the customers hunger needs. IKEA will also mail out approximately two hundred million of catalogues quarterly per year and provide online shopping for customer’s convenience. An estimation of 10,000 products which includes of housing reserve series and children’s products series, sales also include bedroom series, office supplies, sofas, kitchen series, lighting textiles and cooking utensils. On the facts, the best method to signify the home furnishing style in Sweden is to describe the nature in which IKEA adopted in due of representing the furnishing standards with radiant while containing the modest approach in their product. Source: Marketline Report (IKEA Group)
3.0.IKEA’S Segmentations & Target Market Segments
In this segment of discussion, there are 4 segmentation themes in the target market: (1) Geographical, (2) Demographic, (3) Psychographic and (4) Behavioral segmentations. The first theme will be discussed on the location statistics where customers are based. The second theme is an objective attribute based on the customer’s income level, individual racial and their occupation. The third theme will be on the subjective attribute based on their traits and individual lifestyle and demands. The fourth theme is focused primarily on the attitudes of customers of what beneficial purpose they make their purchases, how often they tend to buy and why they had choose to buy the products.
3.1 GEOGRAPHIC SEGMENTATION
In Kerin Hartley & Rudelius , the different regions have different accustomed backgrounds, with market segmentation, depending on the geographical units operating activities can be done in accommodated to their own local conditions. IKEA mainly divided into geographical segmentation of the European market and the Asian market.
3.1.1TARGET MARKET SEGMENTS The wide ranges of sales sets majority in the Scandinavian region are accounted at 80%, followed by North America region which accounts for 15% and the remaining leftover of 5% sets in the Asian continent and Australia. Therefore, by looking at the statistics shown that IKEA’s target market based on Europe, American and lastly Asian region. FOUR ELEMENTS OF IKEA CONCEPT
The wide ranges of sales sets majority in the Scandinavian region are accounted at 80%, followed by North America region which accounts for 15% and the remaining leftover of 5% sets in the Asian continent and Australia. Therefore, by looking at the statistics shown that IKEA’s target market based on Europe, American and lastly Asian region. FOUR ELEMENTS OF IKEA CONCEPT
3.2. DEMOGRAPHIC SEGMENTATION
IKEA apply demographic bases for its market. Demographic segmentation consists of the individual age group, gender orientation, based on family life-cycle, occupations, income level of a single customer and the society interaction level in conjunction with the economic factors. Females of average age of 38 visited IKEA the most. Lately the company’s target is to young couples whom own apartment; a survey has been done which includes the number of young married adults, working professionals and first time furniture shoppers.
3.2.1TARGET MARKET SEGMENTS: Salaried workers have shown high spending ability and higher acceptance of new products and new ideas. Whereas for the segment that includes shoppers that shop IKEA for the first time and students, these consumer segments are more price conscious due to limited budget spending and value for money products. The table below illustrates the four different target market segments in accordance to the Demographical Approach: Table 1 Target Market Categories Action taken by CustomersYoung adults and Middle-aged group
Manageable financial capabilities, acceptance of new products and innovative concepts Office workers
Budget limitations and sensitivity in price being offered
Furniture shoppers (First-Timers)
Parents pay more attention to their child physical and cognitive response.
3.3 PSYCHOGRAPHIC SEGMENTATION
In this segment, this primarily emphasizes on the customer’s behavior, common activities, personal well-beings and their beliefs. In Europe and North America, the customers would rather choose their products simple and natural in design but when furniture durability started to wear-out, the furniture can be substitute at any point of time in accordance to their own preference along with their lifestyle trends and demands. However in Asia, customers have chosen of home decoration pursuit of the luxury lifestyle, in particular in the decision to purchasing bulky furniture.
3.4 BEHAVIORAL SEGMENTATION
Certain products are based on the substantive purchasing behavior of the consumers. The impact of consumer buying behavior, customers’ demand, range of income groups, commodity prices, and consumer attitudes. The income ranges from the low income, middle income group and the high income category that IKEA divided into.
3.4.1 TARGET MARKET SEGMENTS
IKEA will contemplate the status of the national economic development. They ascertain that in Europe and the United States, the strategic market are mainly focused on for the lower income category and the middle income families in these region, of their affordable pursuit. IKEA’s goal is to go for the Asian booming sector.
3.5 IKEA’S POSITIONING STRATEGIES
Positioning strategy is used to create and maintain a company’s product philosophy, decisions and activities in the minds of the customers. Occupy a clear market positioning of products or services, the unique and desirable place relative to competing products in the minds of targeted customers. Positioning mechanism is to distinguish the product along such dimensions, characteristics, or consumer’s value from the competitors of the company or product. Positioning strategy helps customers to evaluate the product’s attributes is of great significance to them. The positioning strategy of IKEA is “Differentiation”.
4.0 Customer value provided by IKEA
IKEA have always been accentuating on their three value strategies, which includes their signature products, best price and good services provided by the staffs. IKEA’s customers does more than minimal requisite purchase to IKEA’s products; the customers are able to identify not just with their culture but the ‘style’ of legitimacy where IKEA has propose for their products to induce the attraction of more consumers. According to Kerin, Hartley and Rudelius , they mentioned to IKEA Management and cited that “It’s not what you say about your IKEA furnishings that matters, it’s what IKEA furnishings says about you”. Customer value and satisfaction are very important parts to the success. Consumers tend to make purchases from the firm that they choose believe in comparison of the offers made to their desired value.
4.1 Strategy of Best product values offered by IKEA
IKEA have become well-known over the years for their product’s quality, in terms of concepts, affordable price range, modern-based on space-saving and high durability of products. IKEA engaged their own designers from different countries and culture to design their products. By having their own team of designers, they are able to deliver a range of products that are able to ensemble with the other designs available to improvise on to customers’ requisition. According to Kotler & Armstrong , the bundle of products being offered can be found in the catalogues as a sense of a form utility to their customers.
The design and every product produce are based on market research. For example, different countries have different culture with different preferences. IKEA have met the needs of 3 different price ranges as well as 4 basic styles. IKEA products are classify in different types of extent in various way,The first extent is described as wide in function; by interpreting that IKEA has everything that they have to offer to consumer’s needs by furnishing their homes, from kitchens, bathroom, foliages and decorative arts furnishing to toys. The second scope would explain the range of product is vast in their functionality and different concepts adopted at all times.
Regardless of which individual style that suits according to consumer preferences, there is bound to have suitability products for every households. In the market, any retailer are able to produce a better quality product for a competitive price in the market compared to a poor-quality product for a low price. However, in order to produce excellent quality being offered, the necessity of developing methods that are offered in both cost-efficiency and innovative aspects which leads to why IKEA approach their own strategy in a different way that restricts competitors from competing against them.
4.2 Best Price value strategies offered by IKEA
The combination of IKEA D.I.Y furniture and flat packaging serves as a pre-requisite for IKEA to maintain their furniture’s price affordable. The D.I.Y furniture that IKEA adopts allows them to save costs on assembly and storage spaces in their outlet where they can store more furniture efficiently; this results price being lowered for consumers to purchase at the reasonable price. Flat packaging defines IKEA of their huge storage space and made convenience to their customers to transfer their furniture with ease from the store to their homes of creating the possession utility. IKEA tries to make price affordable for the most people base on the precondition of good quality. Low prices are the ‘bedrock’ of the IKEA visionary mission, innovative and business concept.
The notion behind all IKEA products allows them to offer low prices to make designed, home furnishings made available to every households. After all, their mission is to create a modern and dynamic lifestyle for the individual consumers. It is submitted that IKEA has the tendency to do everything simpler according to their way of presenting the products, invoking their better services to provide a more efficient and cost-effective approach by offering low prices to customers. This approach allows IKEA to get raw materials from distributors and suppliers from various regions so that the prices are made affordability to customer at the same time.
4.3 Best Service Value Strategies offered by IKEA
In Kotler & Armstrong , customers of IKEA would patronize their cafeteria for food, this approach greatly enhance the convenience utility while shopping in IKEA. IKEA utilizes in the time and place and provide to their customers and by acquiring every items they put up in any outlets for customers to feel a sense of time-saving and ‘worry-free’ in the event of stock shortages. IKEA would distribute their catalogues every quarterly to every household for their perusal of IKEA products whilst making decision and foresight of purchasing the products in the near future. By shopping in IKEA, they would provide measuring tapes, catalogues, pens and notepaper for the customer’s convenience to measure the requisite furniture they desire. IKEA outlets run their own integrated playroom and childcare centre; providing parents with a peace of mind to shop for their products where their children will be taken care of and being occupied in the playroom.
5.0 MARKETING PROPOSAL PROGRAM
(Derived from segmentation process):
From the analysis in prior sections, the marketing team of IKEA proposes to target new market segments. The prospective customers are primarily situated in Asian countries such as Indonesia and India. The team believes the new market segments consist of highly educated adults, higher income level and IT savvy young adults. This segment seems more profitable and is able to enhance the sales and profits made more presentable to the new market segments.
A lot of IKEA furniture is designed to be “Do ItYourself” DIY rather than be pre-assembled by the consumers. This will allow consumer to get the product at a lower cost and use of packaging. This is also a practice point for many of the chain in the Asian countries where public transportation is being utilized in everyday’s life. However, the flat-pack distribution channel allows the consumers for an easier access of public transportation from the store to their homes for the assembly of their purchase. IKEA Group had also identified the product by a single name. Most names are Swedish in origin. Giving an example, a product named “DUKTIG”, meaning good and well behaved is a direct translation to the kids toy, “EFFEKTIV” which means efficient and “SKARPT” being translate into sharp or clever.
IKEA is a multi-global company situated in different regions and countries with different languages. According to Founder Mr. Ingvar Kamprad, he realized that by remembering names rather than a particular product code which is lengthy and difficult to remember. In linguistic aspects, the interpretation of the words presents a whole new different level of the product where recently they have released a new product named “LYCKHEM” which bears the meaning of bliss. IKEA has a list of product strategies, such as doing product that are multi-purpose, simple to use or fix, worth the price and durability. Different kinds of goods are based on consumers’ needs and demands. This shows that IKEA is concern about the requirement of what an individual consumer needs and trying to fulfil the demands for all customers. For example, product that meets the market criteria such as beds and kitchenware’s that is convertible into different functions.
The imperative of an individual product Pricing serves as an essential feature of the marketing mix. The products are usually charged according to the balance of affordability by consumers for them to make their purchases and by determining the amount of sales achieved by IKEA will obtain a profitability target to their ultimate objective. Theoretically, there are a set of strategies concerning pricing has been adopted by IKEA: The Long-Term Aspiration of IKEA An analysis has been conducted by IKEA on how the company positions per se in the marketing place with three proposals and determining how the ‘furniture-giant’ is being properly financed.
Below are the following examples of the three proposals: · Profitability achievement for the forthcoming investments · Pricing to be kept at reasonable range to ‘shut out’ competitors · Capabilities of maximizing sales target through contemplation of PricingAfter contemplation of the three elements, the decision made has to be firm as once the selected proposal is in progress, the difficulty of changing the proposal would seems too far-fetched.
Reducing a lower price in several ways:
Economics of Scales
IKEA adopted a system that using large-scaled economies to contract for long-term producers for their goods, so as to set its price cheaper. Minimal Packaging IKEA is concern about their packaging of products. The packaging is created in cardboard brown. In addition to the low cost incurred, cardboard are easy to recycle and that makes it able to reduce spending in order to sell goods cheaper. The Short-term Aspiration of IKEA The tactics adopted by IKEA in terms of promotional offers and sales of goods includes the following pricing aspects: Penetration in Pricing – Setting a reasonable price to encroach the industry. Destruction of Pricing – A mechanism referred as “Price Wars”, the term explains reduction in prices to an extent of eliminating competitors in the relevant market industry. Promotional Pricing – Sales pricing placed to an extent of the complacency of the individual consumer through their special offers so to allow them to make the purchase within their budget expectations.
5.3PROMOTION STRATEGIES ADVERTISING
In every advertisement from different countries they created, they always display slogans related to the goods and IKEA. Each country’s IKEA has different slogans and advertising methods which adapted to the countries culture itself. IKEA have shown high profile of the high profile of the advertisement campaigns which also includes the online advertisements.
IKEA can provide sponsorship for the events functions.
Example: dinner and dance, wedding functions and also the fashion shows. IKEA provides the furniture (e.g. seats, tables and the stage table) CONDUCT SURVEYS Retention in Customers uprising : Customer surveys being done periodically allows an organization to obtain customers feedback with their point of view towards the company which would tremendously improve the customer retention. Performance feedback: Customers are the best ‘judiciary’ function of an individual product and services offered by the company. A customer suggestion can help the company to make any adjustments on their products and services accordingly.
Innovation Approach: Customers can be the best source to derive new innovative ideas. By looking objectively, there is a concern that has to be taken into consideration by adopting customer’s opinion; for example, the raw materials usage and cost incurred. However subjectively, the customers may suggest new proposition in order to improve a particular product or even propose a new product that would benefits the company and consumers. ORGANISING TOURS IN COMPANY IKEA can organize weekly or monthly tours to let customers understand their products. The tours will explain the products of the methods for saving space and convertible.SALES PROMOTION STRATEGY
SALES PROMOTION STRATEGY
EXAMPLES OF WAYS TO BE DONE IN THE SALES PROMOTION STRATEGY: Purchase of the first item, Free of the second same item Gift card to friends, customers (office gifts to customers) and family: the customers of IKEA can purchase this over the counter. Gift vouchers: the gift voucher can purchase over the counter. Buy one get one free: this promotion can be conducted twice a year for clearance sales, (e.g. great Singapore sale), with the cheapest item free. Purchase above a certain amount with 30% off: the customers can bought their purchase above a certain amount (e.g. $100 and above) with $30 off for their purchase. Competitions: IKEA can be the sponsorship for the variety show. The participants can grab and go items above a certain amount (e.g. $500). The team (a group of 2) of participants whom grab the items of the nearest amount to the targeted amount can take the items home. Membership: the members can apply their membership online with the NO MEMBER CARD SYSTEM. Purchase over the counter: the members just have to notify the cashier their login id (e.g. 6 digits) for accumulating of points to redeem the items in store. Monthly lucky draws: the customers may fill the receipt with the particulars and they can drop in the receipt in the lucky draw box at the counter.
Catalogues IKEA catalogue is published annually. The first catalogue was published at Sweden, the catalog is now available in 55 versions, In 36 countries, in 27 languages, are recognized for their marketing tool of the furniture giant, taking up their annual revenue of 70% of the marketing budget. The catalogues are available in the retail outlets and sending them through mails to household. DIRECT MARKETING STRATEGY IKEA website provides online shopping. IKEA catalogue is a form of direct marketing, to allow consumers to buy their products immediately. It not only can explore the potential customers, but also to enhance the corporate image. This may lead to a certain market segments prefer through catalogue shopping.
5.4 PLACE STRATEGIES
IKEA is renowned for their competitiveness approach and their innovative creation results. It produces a limited amount of products and mostly relies on its network of suppliers. Products through IKEA suppliers are able to create atmospheric unique designs featuring environmental responsibility materials and the efficiency usage of resources. IKEA expansions presents an enormous challenge for distribution, adaptions to the future necessitates regular adaptations to distribution structure. Facing future challenge of people with higher education is more computer technology. Most prefers ordering their customised design furniture online. E-shopping and receiving daily orders via telephone are continuously uprising, which requires the efficiency and flexibility distribution solutions towards each individual customer’s expectations.
SUMMARY OF THE STRATEGIES
1. PRODUCT STRATEGY
Lack of convertible, space-saving, customized designed furniture. IKEA can include more of these types of products to the new market segments.
2 or more alternative functions in the same furnitureSpace – Saving furniture
Single-space saving furniture (e.g. foldable beds), multi-storage furniture (e.g. sliding cabinets)
Customized designed furniture
Designed to made furniture. Self-customized furnishing concept that makes it custom made to order– “client-specific” furniture perspective
2. PLACE STRATEGY
Improving the features of the company’s website included the above mentioned, promotional offers and with an incremental of showrooms, road shows in the shopping mall and furniture fairs in countries that lack of the presence of IKEA. IKEA could expand the market into Indonesia, as Indonesia is one of the Asian strong economy growths and have attracted many businesses to be set up in the country. Given the advantage of the strong economic growth coupled with an absolute demographical flow are bound to benefit IKEA to establish their nature of business in Indonesia and generate profits and the incremental of sales. 3. PRICE STRATEGY Promotion fairs- reduce product prices to clear the old stock.
4. PROMOTION STRATEGY
Sales promotion and discounts- in the past, printed coupon were distributed to create awareness of promotion. Now, the online media (e.g. websites and mobile platforms- apps) I. Websites IKEA can use promote their offers and latest events (e.g. furniture fairs) online
II. Mobile platforms- apps
Social media is to advertise their promotions of products and discounts. It can be included locations of stores in shopping malls and megastores, online orders and deliveries. The apps can provide a delivery tracking system.
8 EXAMPLES OF PLACE STRATEGIES TO WORK ON:
STORE DISTRIBUTION MANAGER
The role of the Distribution Manager normally scrutinize their employer’s supply chain that brings in a company’s products and services to the store by ensuring sufficient stocks are available for sales. Example: Checking and monitoring the store every week or month for available stock. CUSTOMER DISTRIBUTION CO-ORDINATOR Responsible for receiving and put-away of supplies in warehouse, include picking and distribution of supplies to all departments. Example: Any specific event or promotion, coordinating activities with stores, dealers and warehouse personnel.TRANSPORT OPERATIONAL CO-ORDINATOR
Ensuring an efficient flow of goods from IKEA to consumer
Example: Not everybody wants to assemble their own furniture or transport big packages, IKEA offers delivery service from store to consumer house.
WAREHOUSE OPERATION MANAGER
Warehouse operations manager attend to the supply chain requirements that is needed and ensures efficiency within the distribution centre. Example: Remain current with latest warehouse operations technology systems, ordering new products to the store. QUALITY MANAGER The role of a Quality Manager held accountability for quality control in the warehouse and ensuring the transition effectiveness of goods delivered to customers. Example: Manage and maintain quality inspection for every process goods, establish quality requirements from external suppliers. TRANSPORT BUSINESS DEVELOPER The transport business developer shapes and maintains mutual relations between IKEA, its affiliation centres and subsidiaries. Example: Facilitate the growth of the business in the company.
GOODS FLOW CO-ORDINATOR
The role of the Goods Flow Co-ordinator normally obtains the availability of the products made to the consumers with the lowest possible supply chain costs. Example: Product quality With the same concept and offers practically same products, IKEA stores are same over the world. They are the meeting
place between the brand and its customers. Store communication is essential, as they can guide, direct and inform through turning every visitor into potential customers. Given its large capacity of storage space and a self-serve warehouse to house the products for customers to pick their desire products, IKEA showcases its voluminous kinds and different styles of products in the 2-storey stores in Singapore. Both provide consumers opportunities and ideas to build the perfect home. Some places for IKEA potential growth are: America Latin (Mexico, Austin, Texas, and Atlanta, Georgia), South Africa (Due to only a few furniture companies, IKEA will likely make profits there) India, China and Indonesia.
IKEA is the only retailer store that specializes in furniture products that would come into mind when comparing their good quality and affordable household furniture. However, IKEA doesn’t simply generate the profits and market shares, but for its achievement is to become the dominant home-furnishing retailer globally. By concluding the achievement of IKEA, the company has chosen to engage a foresight of creating a working condition in advantage of their sustainability. Eventually, it has been exercised to their existing suppliers to comprehend the nature of sustainability production is important. This approach has helped IKEA significantly to characterize itself from the market against competitors. IKEA success came from their marketing strategy, good customer service, pricing, style and functionality, store location and wide variety of products.
Their marketing strategy is really commendable as they have carefully thought about how to sell their products effectively. To the extent of their combination of product designs, low price rates, resources management and the social responsibility to the Environment, the company’s manufacturing process and systematic issues illustrate the environmental stance globally. The improvising use of packaging allows more items to be fitted into a single packaging box which consist of fewer delivery trips needed to be taken to households. Ultimately, IKEA success lies in their wide collection of creative and innovative products. Customers will surely have a lot of options to choose from and this strategy creates a demand for customers as they wander around the store, discover a wide variety of things that they want to buy. It is submitted that IKEA had uncovered their focus in sustainability in their business growth by reducing raw material wastages and attaining their social responsibility. The sustainability would focus on creating benevolence and enhancing their brand reputation and values.
http://web.ebscohost.com/ehost/pdfviewer/pdfviewer?sid=42a38053-97b4-454b-9b71-adcb8952a2e9%40sessionmgr198&vid=6&hid=127 (co. profile) http://www.slideshare.net/riddhimachopra/IKEA-case-study (promotion) http://www.slideshare.net/OsamaAlbarrak/IKEA-strategic-case-study (promotion) Case study adapted from moodle http://www.inter.IKEA.com/en/about-us/milestones/ (co. profile) http://www.IKEA.com/ms/en_US/jobs/business_types/distribution_logistics/ (place strategy) http://www.dallasfed.org/assets/documents/institute/events/2010/10micro_landry.pdf (product) http://www.slideshare.net/riddhimachopra/IKEA-case-study (product) http://ivythesis.typepad.com/term_paper_topics/2010/11/IKEA-case-study-and-.html (strategy and segment) http://www.123helpme.com/view.asp?id=140544(pricing)