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IKEA`s

Strategic

Management

June 29

2011 [Type the abstract of the document here. The abstract is typically a short

summary of the contents of the document. Type the abstract of the document

here. The abstract is typically a short summary of the contents of the document.]

Jobeer Dahman

Mohamed THIERNO

Amr Adel

Sally Sameer

Yasmin Dahman

G1018935

G0925035

G 1010877

G0928430

G1010892

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Table of content

Acknowledgement 3

Abstract 4

1. Introduction 5

1.1. Furniture industry trends 5

2. 2. Ikea 6

2.1. Ikea background 6

2.2. Current mission 8

2.3. Goals 8

2.4. Core competence 9

2.5. Environment and corporate culture: 9

2.6. Organization culture 9

2.7. Ikea corporate social responsibilities 10

3. 3. Organizational structure and management 11

3.1. Ikea business strategy 12

3.1.1. Operations strategies 12

3.1.2. Ikea communication strategy 14

3.1.3. Ikea –organizing strategies 14

3.2. Managing supply chain 15

4. 4. Marketing strategy 16

5. 5. Ikea group strong financial growth for fiscal year 2010 17

5.1. Liquidity ratios 18

5.2. Assets management ratios 18

5.3. Debt management ratios 18

5.4. Profitability ratios 18

6. 6. Analysis 21

6.1. Ikea-internal factor analysis 21

6.1.1. Strengths 21

6.1.2. Weaknesses 21

6.2. Ikea-internal factor analysis summery (IFAS) 22

6.3. Ikea - external factor analysis 23

6.3.1. Opportunities 23

6.3.2. Threats 24

6.4. External factor analysis summery (EFAS) 26

6.5. Strategic factors analysis summery (SFAS) 27

6.6. Tows- metrics analysis 28

6.7. Porter‘s six forces model analysis for Ikea 30

7. 7. Recommendations 32

8. 8. Conclusion 33

9. 9. References 34

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ACKNOWLEDGEMENT

We would like to extend our sincerest appreciation

to our helpful Professor Dr. Siong-Choy CHONG,

for giving us the opportunity to analyze IKEA

deeply according to the basic knowledge which we

got during the class. The supervision and support

that he gave truly help the progression and

smoothness of our analysis is much indeed

appreciated. We would also like to thank the

various individuals who have contributed in any

way possible; we would also like to thank the

various individuals who have contributed in any

way possible, thereby allowing us to create as

accurate a representation as possible within our

given constraints.

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Abstract

IKEA is a well-known global brand with hundreds of stores

across the world. Its strategy is providing good quality

furniture with low cost to many people. IKEA has strong

relationship with suppliers which help them to be cost leader

in the furniture industry as well as a strong social and

environmental policy. Their image of quality and

affordability is an asset and their unique decision to go to flat

packs provided portability and greater storage capacity.

IKEA has weaknesses greatest of which is a resistance to

change. They also lack transparency between divisions, have

high staff turnover, and have difficulty forecasting demand.

They have opportunities in the trends toward streamlined

customs, increases in e-commerce, popularity of franchising

and the current popularity of minimalist styles. The threats

come from strong competition from superstores, government

regulations and, because of their snail like pace of change,

advances in technology and dramatic style changes pose large

threats.

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1. INTRODUCTION

1.1. FURNITURE INDUSTRY TRENDS

As the world economy is developing fast in the past 10 years, the furniture markets have

opened up more and the world furniture industry has been growing fast. Over 70% of the

global market has been taken up by the traditional furniture making countries. This is

possible because of their long established production capacity, advancement in science and

technology, solid funds and rich management experiences. Meanwhile, developing countries

and regions like China, Southeast Asia, Poland and Mexico, with China taking the lead, have

built upon their respective competitive advantages and gradually have covered almost 30% of

the world market. The furniture industry in such countries is developing strongly and

showing great potentials. The European Union furniture industry accounts for about half of

the world's furniture production. The production value of this industry in this region is around

€ 82 billion. Considered to be a labor-intensive industry it provides employment for around 1

million people. Among the European countries, Germany takes the lead as the largest

furniture producing country, accounting for about 27% of total EU production. This is

followed by Italy (21.6%), France (13.5%) and the UK (10.4%).The Canadian Furniture

Industry is the 5th largest exporter of furniture in the world. The major furniture producing

countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore, Thailand,

Korea, Taiwan and India. In the context of global furniture trade, Asia shows healthy signs of

growth with respect to its other international competitors. Asian furniture has always been

popular in developed countries like USA, Europe and Australia.

Over 20 years of fast growth, China has been able to bring unlimited business opportunities

and vitality to the global furniture industry. Now, China has today emerged as a furniture

production center, a circulation center as well as an exhibition center in the world. The rise of

China's furniture industry has brought about a new round of restructuring of the global

furniture industry and trade pattern. According to a recent estimate, the Indian furniture

industry is estimated at around 350 billion. Eighty-five per cent of this falls into the

unorganized sector. According to a study by the World Bank, the organized furniture industry

is expected to grow by 20 per cent a year and India, Brazil and Russia will witness a boom.

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2. IKEA

2.1. IKEA BACKGROUND

IKEA was founded by Ingvar Kamprad (Kamprad) in 1943 in Agunnaryd, Sweden, when he

was 17 years old. Kamprad started by selling goods like pencils, wallets, jewelry, picture

frames, and watches. Kamprad tried to keep costs low by purchasing goods in large quantities

and passed on a part of this benefit to his customers. In 1947, Kamprad introduced furniture

in his product line and found that there was a good demand for it. He sourced furniture from

manufacturers in local forests so that he could keep the costs low. As the scale of business

grew, Kamprad found it difficult to make individual sales calls and so started advertising in

the newspapers. In 1951, he designed a product catalogue and distributed it to potential

customers who lived near his store.

IKEA opened its first furniture showroom in Almhult, Sweden, in 1953 where customers

could see, touch, and feel IKEA‘s furniture before they placed orders. As IKEA was selling

furniture at very low costs compared to its competitors, the competitors forced their suppliers

to boycott supplying to IKEA. That led IKEA to design and engineer its furniture and then

outsource the manufacturing to Eastern European countries, particularly to Poland, from

1955. IKEA designed its furniture to cost less, look stylish and also be functional. In the same

year, one of IKEA‟s co- workers decided to remove the legs of a table so that he could fit it

in his car and minimize any damage in transit. That idea led IKEA to test flat packing in

1956. IKEA realized that flat packing could bring down the costs of transportation and

storage drastically. The company started designing its furniture to support flat packaging. In

1958, IKEA opened its first store in Almhult. The store, spanning 6,700 square meters, was

then the largest furniture retail store in Scandinavia. IKEA saw an opportunity to cut costs by

letting the customers transport and assemble the products themselves. The company was thus

able to sell furniture at around a 30% lower cost than other furniture retailers.

In 1963, IKEA opened a store in Oslo, Norway, its first store outside Sweden. In 1965, it

opened a store in Stockholm, Sweden. This was then the largest IKEA store and covered

33,000 square meters. The company introduced the self-serve concept in the store. Customers

were provided with information about the products on display through written material and

information desks. They were invited to check out the products and select them but there

were no sales staff. That enhanced the customers‘ shopping experience at the store as there

were no salespersons who were constantly urging customers to make purchases. Customers

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were given tickets for the goods they purchased and were asked to collect the goods at the

delivery docks. There was no door delivery service available and the customers were asked to

provide for their own transportation. Car racks could be bought and self-driven vans could be

rented. IKEA expanded into more European countries and by 1974; it had 10 IKEA stores in

five European countries. IKEA shifted its headquarters from Almhult to Copenhagen,

Denmark, as it felt Copenhagen‘s central location made it a better choice to support its

European expansion plans

IKEA became highly successful in Germany where it opened its first store in 1974. The

company realized the huge growth potential it had in Germany and expanded aggressively.

By 1980, it opened 10 more stores in Germany. In 1975, IKEA entered Australia by opening

a store in Sydney. It continued to expand globally by opening stores in Vancouver, Canada,

in 1976, Singapore in 1978, Canary Islands in 1980, Iceland and France in 1981, Saudi

Arabia in 1983, and Kuwait in 1984. In 1982, a family controlled charitable foundation

named Stitchting INGKA Foundation (SIF) was formed in the Netherlands and ownership of

IKEA was transferred to that foundation. This was done to ensure the continuation of

business, maintain the family control on it, and minimize taxes as trusts and foundations had

tax benefits.

IKEA entered the US in 1985 by opening a store in Philadelphia, Pennsylvania. As the

company followed the same products assortment and specifications in all of its stores

globally, it decided to follow the same in the US. However, this did not work because of the

difference in the lifestyles of American and Europeans. For instance, the size of beds used in

the US was larger than the size of beds used in Europe. IKEA realized that it had to modify

its products to suit the local needs and hence made certain modifications to products like beds

and kitchenware. Though the products were modified, the Scandinavian touch was

maintained in the style and design. In 1986, Kamprad stepped down from the post of CEO

and made B.V. Anders Moberg (Moberg) the President and CEO of IKEA. Kamprad became

the advisor of SIF.

By the year 1990, IKEA had 89 stores in 21 countries. Along with global expansion through

its stores, IKEA also expanded the sources of supply to include countries like China. In its

early days, IKEA sourced most of its products from Eastern Europe but as it expanded its

business, its dependence on Eastern Europe came down to a certain extent. In the 1970s,

around 25% of its supplies were from Eastern Europe. This came down to 15% by 1990. In

the same way, IKEA‘s revenue dependence on Scandinavian markets also came down from

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85% in 1975 to 26% in 1990. In 1991, IKEA started a furniture manufacturing subsidiary,

Swedwood, to manufacture wooden furniture and components.

In the 1990s, IKEA further expanded into countries like Taiwan, Malaysia, Spain, and China.

In 1997, IKEA launched its website www.IKEA.com where it provided its customers with an

online product catalogue. In the mid-1990s, IKEA launched a separate line of products

specially designed for children. In 1999, Anders Dahlving replaced Moberg. On October 09,

1999, IKEA celebrated a „Big Thank You‟ event to recognize its co-workers. It distributed

IKEA‟s global sales of that day amounting to € 84.85 million, among all its co-workers.

2.2. CURRENT MISSION:

IKEA has a clear mission: selling a wide range of furniture and accessories at a reasonable

price so that most people can buy them. By offering a wide range of assortment the key word

is functionality, consumers can find everything under one roof. That‘s why you can find

everything at IKEA. (IKEA, 2011)

2.3. GOALS:

The business philosophy of IKEA can be best described by four goals.

To create a highly efficient sales department.

Providing ideas for home furnishing.

To serve the costumers as well as they are served by a home furnishing shop.

Giving people the idea that shopping at IKEA is a day out for the whole family.

Since it was founded IKEA has always had concern for people and the environment. The

IKEA vision ‗to create a better everyday life for the many people‘ puts this concern at the

heart of the business. IKEA has responded to the public‘s rising concern for sustainability in

its choice of product range, suppliers, stores and communication. It has also spotted business

potential in providing sustainable solutions. IKEA‘s concern for people and the environment

encourages it to make better use of both raw materials and energy. This keeps costs down and

helps the company to reach its green targets and have an overall positive impact on the

environment

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2.4. CORE COMPETENCE

IKEA has an original approach to deal with customers: it employs the self-serving method.

Customers chose their products, take them out of the shelves and assemble them at home on

their own. Although this approach is quite unusual in the furniture business the customers are

willing to do that because of the low prices, the easy to handle and storable flat packages and

simple constructible furniture. With this limited customer service IKEA safes sales staff and

customers don‘t have to wait long to be served.

2.5. ENVIRONMENT AND CORPORATE CULTURE:

As most customers follow the ―green‖-trend IKEA is keen on protecting the environment and

trying to minimize any possible damaging effects on it. Therefore IKEA‘s suppliers have to

follow some rules: they have to reduce the produced waste polluting the air, water and

ground, they have to use recycled or recyclable materials and they have to use wood from

known areas.

Additionally, suppliers may not use components that are on the list of chemical ‗Compounds

and Substances‘ and they may not use the woods from national parks or nature reserves or

areas with high conservation values. They may only use the woods if they are certified for

their use.

IKEA also operates with a few companies such as trade unions, NGOs and it has partnerships

with UNICEF, Save the Children and WWF (the global conservation organization).

IKEA and these partners are focusing on improving children‘s rights and they are promoting

responsible forestry, better cotton cultivation and reduction of CO2 emissions. (IKEA, 2011)

2.6. ORGANIZATION CULTURE

IKEAS founder Kamprad had once written in a manifest that ‗the true IKEA spirit is still

founded under enthusiasm, on our constant will to renew, on our willingness to assume

responsibility and to help, on our humbleness before the task and on the simplicity in our

behavior‘. (Daft, 2010) Page 74

IKEA tries to give employees a family friendly feeling. There is no to the outside noticeable

hierarchy among workers, so e.g. managers also have to stock shelves and all design team

enjoy complete autonomy in their work but are expected to design new appealing products

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regularly.. This corporate culture of IKEA is built upon the philosophy of sustainable

development and a continuous strive for improvement in all areas of the value chain which is

an effective way to shape the industry to better fit IKEA‘s future strategies. Due to the

uniqueness of IKEA's strategic positioning, being the largest competitor in its field, the firm

has the advantage of setting the phase of the industry.

Cost is another part of corporate culture; the culture emphasizes efficiency and low cost

which is not to be achieved on the expense of quality or service.

2.7. IKEA CORPORATE SOCIAL RESPONSIBILITIES

IKEA believe that it is possible to make traditional business objectives and social and

environmental responsibility work together for the benefit of the many people. IKEA wants

to take a leading role towards a low carbon society, and significantly reduce the carbon

footprint from all aspects of its operation, while also helping to reduce coz emission in

society. IKEA CSR activity involves in three main areas Children, better living and

environment project.

The IKEA foundation extended its support for UNICEF‘s water and sanitation program in

some countries like India, in totally, the IKEA foundation projects together with NICEF, save

the children around the world.

IKEA wants its products to have the minimum impact on the environment and for these

products to be manufactured in a socially responsible way such as lowering price but not at

any price

In addition, IKEA stores and national retailers are also active in many social responsibility

projects to maximize society well-being and produce product which has minimum impact on

the environments.

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3. ORGANIZATIONAL STRUCTURE AND MANAGEMENT

The present organizational structure can be defined as highly functional with a global market

strategy. On that account IKEA is able to maintain centralized control over functional

activities and at the same time take advantage of low cost and enhanced quality from

international suppliers. On top of that, control over strategic direction is improved and

functional lay-offs are minimized. In order to ensure efficiency in the logistics process, the

organization has integrated purchasing and distribution processes under one umbrella

function.

As IKEA continues to expand overseas, the importance of centralized strategic direction will

increase. The rapid internationalization triggers a range of challenges imposed on the

headquarters in Sweden e.g. increasing difficulty of responding to national needs and cultural

nuances, impact of emerging demographic trends forcing IKEA to broaden its focus strategy

to respond to varying nation-level consumer groups etc.

These changes can influence the maintaining of IKEA‘s global organizational structure. The

solution for the problem is to find the proper balance between country level autonomy and

centralized intervention through increasing subsidiaries and franchisee autonomy. With

logistics complications and long lead times, IKEA is forced to maintain high control levels

over its suppliers. The long-term relationship with suppliers guarantees high quality,

technology transfers and economies of scale and prevents potential suppliers from trying to

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integrate forward and produce competitive products for IKEA's local competitors. Without

IKEA's centralized logistics system it could lead to severe store shortages and

3.1. IKEA BUSINESS STRATEGY:

IKEA is cost leader in the home furnishing market. To hold on to this position IKEA is

forced to make the internal production as efficient as possible. Otherwise, competitors will

take over the cost leader position of IKEA.

The suppliers of IKEA are usually situated in low-cost countries. The suppliers can easily

access the raw-materials needed for the production and they are capable to reach the

distribution channel. The products that the suppliers sell on the market are standard furniture.

Because IKEA is such a big company it can buy thousands of pieces of furniture at the same

time. With these hug orders it usually gets big discounts, this is called economies of scale.

IKEA doesn‘t only provide low cost furniture but also a certain quality. IKEA has become

such a strong brand because they create a good mix of low cost furniture with high quality.

Besides, IKEA is also a precursor on innovations.

Also the brand IKEA is really strong, IKEA stands for low prices and high quality. But also

the more expensive furniture has a certain target group. The combination of low cost

furniture and more expensive furniture provides that everybody can find what they want at

IKEA.

To keep this position it‘s necessary for IKEA to keep on refreshing and renewing their

service model. But also innovations and new techniques are important to IKEA if they want

to sustain their position. ―The global expansion of IKEA gives some more opportunities, not

only to expand their brand but also to cut cost even more‖. (The times, 2011)

3.1.1. OPERATIONS STRATEGIES

IKEA's success is based on the relatively simple idea of keeping the cost between

manufacturers and customers down. IKEA doesn‘t have its own manufacturing facilities.

Instead, it is using subcontracted manufacturers all over the world for supplies (Swedwood).

On top of that, in order to maintain low cost, IKEA customers have to assemble the bought

products themselves. That creates innovation upstream, which help suppliers to save costs,

and downstream, as self-assembly became a large cost saver for customers. On the other hand

all R&D activities are centralized in Sweden – IKEA follows the international business

strategy.

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IKEA follows all of Porters generic strategies. Its mission statement indicates a cost

leadership strategy. However, the company is also applying an indirect differentiation

strategy due to its unique way of incorporating the customer in the value chain. This

combination indicates a focus strategy.

At a high level, IKEA designs distinctive products that are also designed for low-cost

manufacturing. Most furniture is designed for the customer to assemble, and they are also

designed to fit into an efficient packaging cube for low-cost transport, which benefits both the

customer and IKEA. Because the company is a very high volume retailer, it gets good prices

on what it procures.

3.1.1.1. CATALOGUE

To make shopping to easy and comfortable experience, IKEA provides catalogues,

tape measures, shopping lists and pencils for writing notes and measurements. The

stores‘ main aim is to gather everything for the home under one roof. There are IKEA

pick-up cars/bikes available for rental depending on the market customs; also car roof

racks are available for purchase at cost. Costs are kept under control starting at the

design level of the value-added chain. IKEA also keeps costs down by packing items

compactly in flat standardized package and stacking as much as possible to reduce

storage space during and after distribution in the logistics process

3.1.1.2. STORES DESIGN

KEA chose its store location on the city outskirts as the company‘s stores were large

and required huge parking spaces. IKEA realized that its customers were visiting

stores in their cars and that resulted in higher carbon emissions. Hence, the company

made sure that the store location chosen was well connected through public transport

so that environment conscious customers could visit IKEA stores using public

transport. The stores are designed as very large blue buildings with yellow accents

and innovative layout inside. The stores were designed in such a way that furniture

was displayed in a real room setup, along with the details of each displayed product.

Customers were given pencils and papers at the store entrance to list down product

details like item code and respective aisle number in the store‘s warehouse. IKEA‘s

intention was to take customers through all of its products so that even a customer

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who entered the store with a planned shopping list would check out other products

which might interest him/her. However, shortcuts were also provided at a few places

and these were mentioned on the floor maps that were made available to the

customers.

3.1.2. IKEA COMMUNICATION STRATEGY

IKEA tries to standardize its products to people. Therefore the role of the communication is

to make people change their attitude and style and to show them, that IKEA is not what they

have thought. It is achieved by a radical change of the tone of communication provocation.

The communication of IKEA towards consumers takes place in four types of major media the

catalogue and other booklets, websites of the group, another advertising media such as

newspaper industry, radio, television, cinema and posting, and the communication in the

stores. Promotion and advertising are in important part of strategies used by IKEA .All

catalogues and promotional advertising is the responsibility of the headquarters

3.1.3. IKEA –ORGANIZING STRATEGIES

Because IKEA‘s operations are spread worldwide, the management organized the company

in four different areas.

The first area is product range and development. The second one is purchasing, followed by

the Distribution Service and the last area is retailing. All the IKEA stores have the same retail

concept. That means that all the methods and services are the same in all IKEA stores.

Further Information about the areas can be found in the functional analysis on page 7

3.1.3.1. Leading and controlling

IKEA is controlled by Ingka Holding BV located in the Netherlands. It controls the

operations of most IKEA stores. The foundation is chaired by Kamprad who still has

tight control over the operations.

3.1.3.2. Product and service

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IKEA has a wide variety of product range. You can find everything for your home

from plants and living room furniture to toys and kitchen appliances.

IKEA is known for the splendid service it is providing. The service is one of the

reasons why IKEA was able to expand so much. The self service is a big part of

IKEA‘s service model. It is a different concept then what the consumers are used to.

If consumers buy furniture at IKEA, they don‘t buy a fixed couch or bed but they

have to assemble the furniture themselves at home. Although most customers do not

mind the self-service, IKEA offers help with the transport and assemblage

additionally. (IKEA, 2011)[

3.1.4. VALUE CHAIN ANALYSIS OF IKEA

IKEA has quickly evolved from a local Swedish home furnishing manufacturer into

the Largest home furnishing company in the world; partly by convincing their

customer to Perform the transport and assembly processes of the furniture

manufacturing value chain. They have executed their strategy by building a

worldwide sourcing network of high quality global manufacturers to support their

growth.

3.1.4.1. IKEA Modified Value Chain

Ikea's role in the value chain is to mobilize suppliers and customer to help them

Further add value to the system. Customers are clearly informed in the catalogs of the

firm's business systems provides, and what they are expected to add to the final

process. In order to furnish the customer with good quality products at a low cost, the

firm must be able to find suppliers that can deliver high quality items at low cost per

unit. The headquarters provides carefully selected suppliers with technical assistance,

leased equipment and the necessary skills needed to produce high quality items.

3.1.4.2. This long-term supplier relationship

IKEA does not only produce superior products, but also add internal value to the

suppliers. In addition, this value-chain modification differentiates Ikea from its

competition IKEA‘s supply chain is global with sales in more than 250 own stores in

24 countries and 32 external franchisees in 16 countries. The stores are supplied

through 31 distribution centers, or directly from the 1,350 suppliers in more than 50

countries. IKEA‘s supply chain consequently has a global spread with both sales and

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purchasing in all major regions of the world. IKEAs growth has been tremendous and

sales are still growing. Currently IKEA plans to open 10-20 new stores every year

with a goal to double sales within the coming five year. Considering the pace of

growth in sales, the many stores and warehouses, and the fact that some business

areas change up to 30% of its assortment every year, supply chain planning is a real

challenge. The supply chain needs tight control and high levels of visibility to keep

costs down and avoid obsolete inventory and/or stock outs. The IKEA supply chain is

mainly make -to-stock (MTS) and only a few Products are made to customer orders.

Consequently, the entire supply chain is heavily dependent on forecasts. The regions

and the stores have traditionally had a strong power and a high degree of local

freedom in terms of planning and placing replenishment requests. This has led to a

fragmented supply chain planning with local optimization and a lot of manual

intervention with plans throughout the supply chain. Furthermore, due to frequent

shortage situations.

4. MARKETING STRATEGY

Marketing, among all business functions, is most down-to-earth in terms of dealing with

customers. As ordinary customers, every one of us already knows about marketing. After all,

it is all around us. Many people may be under the impression that marketing is only selling

and advertising, i.e. what we can see. However, Armstrong and Kotler (2006) argue that

selling and advertising is only the tip of the marketing iceberg. There exists a massive

network of people and activities, competing for customers‘ attention and purchases. In

today‘s marketplace, marketing must be understood in the new sense of satisfying customer

needs. They define marketing as the process by which companies create value for customers

and build strong customer relationships in order to capture value from customers in return.

On the basis of the above definition, we can describe the marketing process in detail and

divide it into 5 steps. The first 4 steps create value for customers and build customer

relationships. At first, the company has to understand the marketplace and customer needs

and wants. Therefore, the company needs to research its customers and the market place in

order to collect and manage marketing information and customer data. The second step,

designing a customer driven marketing strategy, takes place once the market place and

customers are fully understood. The company will select which customers to serve through

market segmentation and targeting. A value proposition will also be decided through

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differentiation and positioning. After deciding on its overall marketing strategy, in the third

step, the company is ready to construct a marketing program, which transforms abstract

strategies into real value for customers. The program is also known as the marketing mix

which consists of 4 elements (the 4Ps)—product, price, place and promotion. The fourth step,

which is actually throughout the whole marketing process, is to build profitable relationships

and create customer delight. To achieve the goal, the company must establish strong

relationships with marketing partners as well. The fifth step is when the company can finally

reap the fruits of its strong customer relationships by capturing value from customers in

return. Once the company has created satisfied and loyal customers, it can capture customer

lifetime value with a result of increased share of market and customer. However, in order to

succeed in today‘s changing marketplace filled with competitors, the company also has to

take into consideration the new features of the marketing landscape: advanced technology,

globalization and social responsibility.

International companies like IKEA have to transform challenges posed by the new marketing

environment into opportunities, which echoes Armstrong and Kotler‘s earlier argument—a

good marketing strategy is a must.

4.1 Designing a marketing strategy

Marketing strategies should be made in the second step of the marketing process

based on a thorough understanding of the market and customers. Only when this

condition is fulfilled, one may expect a winning marketing strategy from marketing

management. Marketing strategy is the marketing logic by which the business unit

hopes to achieve its marketing objectives. Marketing strategies are decided by

marketing management, which is the art and science of choosing target markets and

building profitable relationships with them. This kind of art and science follows

certain orientations, namely, the production, product, selling, marketing, and societal

marketing concepts. The evolvement of the above concepts can be traced in the

development of IKEA‘s global marketing concepts.

IKEA‘s business actually started from the production concept, which holds that

consumers will favor products that are available and highly affordable. In its earliest

days, IKEA was selling products which Kamprad thought would be popular and

bought in bulk from Stockholm. The goods were delivered by the local milk van to

the train station and then the buyers. In this way, the products were easily available to

his customers and at low prices. Because of its competitors‘ jealousy and hostility,

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IKEA had to design its own products and search cheaper suppliers in Poland, when

the product concept was proved worth trying. The product concept holds that

consumers will favor products that offer the most in quality, performance, and

innovative features. Nowadays, in order not to impress its customers as it is

sacrificing quality when charging low prices, the company has been working on

quality assurance even at low prices. The work remains one of the company‘s focuses

in 2007 (IKEA Facts and Figures 2006).

The other by-product of being boycotted by its rivals and suppliers in Sweden resulted

in IKEA‘s inability to follow the selling concept for long. Instead, it found the

marketing concept more useful. The selling concept contrasts with the marketing

concept that the former starts with the factory, the existing goods and focuses on

selling and promotion to make a profit; the latter starts with a well-researched market,

focuses on customer needs and gains profits by satisfying customer needs through

integrated marketing. In recent years, the world sees a rising trend calling for more

ethics and social responsibility. Hence, the rise of the societal marketing concept, i.e.

a principle of enlightened marketing that holds that a company should make good

marketing decisions by considering consumers‘ wants, the company‘s requirements,

consumers‘ long-run interests, and society‘s long run interests. Companies, which

ignore ethical issues and social responsibilities, may not be well received in

international business. IKEA has realized that and taken actions. The company joined

forces with The United Nations Children‘s Fund (UNICEF) to implement the

UNICEF-IKEA Project to combat child labor and was praised as an example of how

the private sector can do business in developing countries in a socially responsible

manner (UNICEF 2005). As one can see in the development of IKEA‘s global

marketing concepts, marketing strategies must suit the marketing environment and

most importantly always center on customers. Hence, customer-centered marketing

strategy has been chosen as the company‘s overall strategic plan. Guided by the

marketing strategy, the company designs a marketing mix made up of factors under its

control—product, price, place and promotion (the 4Ps).

4.2 The Marketing Mix (the 4Ps)

A marketing strategy remains only on paper without detailed planning of the

marketing mix. The marketing mix is one of the major concepts in modern marketing.

It is the set of controllable tactical marketing tools—product, price, place, and

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promotion (the 4Ps)—that the firm blends to produce the response it wants in the

target market. One should notice that the 4Ps model is a framework under which

marketers can design marketing programs more systematically. It does not overlook

those marketing activities whose names do not start with P. Instead, the non-Ps can

usually be subsumed under one of the 4Ps. As one can see in Figure 4.1 there are

various marketing tools under each P.

Figure 4.1: marketing mix (the four Ps)

The marketing mix starts with product strategy. Product covers more than the

physical goods the company wants to sell. It is the goods-and-service combination the

company offers to the target market. Thus, IKEA offers a whole range of products,

almost everything you need for your home. The same category of products, for

example, sofas, IKEA designs models with different features. Some sofa models are

even provided with different covers to choose from. IKEA is positioned as selling at

affordable price and offering reasonable quality. In order to cut down the costs, IKEA

does not wrap its products fancily but with simple and environmental friendly

material. Here we see again the societal marketing concept takes into effect.

Concerning services, IKEA encourages its customers to do-it-yourself (DIY) but it

also provides technical help if needed.

Price is the amount of money charged for a product or service, or the sum of all the

values that customers give up in order to gain the benefits of having or using a

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product or service. As shown in Figure 4.1, in terms of pricing, changing list price is

complemented by offering discounts or allowances and altering the payment period or

credit terms. Every now and then, IKEA reduces the price of certain products because

if they are popular among customers then IKEA can make a bigger order, which

leaves the profit margin wider so suppliers can quote lower offers. The company also

offers various payment options and credit terms to choose from for the customers.

Hence, IKEA handles pricing quite well that its pricing policy emphasizes customer

values and integrates with the other 3Ps.

Place includes company activities that make the products available to target

customers. Related activities are listed in Figure 4.1, such as channels, coverage,

assortments, locations, inventory, transportation and logistics. Over the years, IKEA

has established an efficient network of delivering its products from the suppliers to its

customers. Several logistics hubs around the world are now transporting the products

to different countries and territories. IKEA‘s flat packs play an important role in

transportation to keep the costs low. Locating the shops in the suburbs of cities also

helps to cut down the costs.

Like the marketing mix, promotion is a mix of tools as well. It is also called

marketing communication mix, consisting of the specific blend of advertising, sales

promotion, public relations, personal selling, and direct-marketing tools that the

company uses to persuasively communicate customer value and build customer

relationships. Ideally, the company integrates the above tools to communicate well

with its customers. Apart from advertising on TV, newspaper and delivering

brochures with the latest offers to people‘s home, IKEA pays a lot of attention to

environmental and ethical issues. IKEA‘s cooperation with NGOs such as UNICEF

and World Wide Fund for Nature (WWF) contributes a lot to building a favorable

corporation image and good public relations. In a word, an effective marketing

program blends all of the marketing mix elements into a coordinated program

designed to achieve the company‘s marketing objectives by delivering value to

consumers.

However, multinational companies, such as IKEA, operate in various markets facing

customers from different cultural backgrounds. Hence, to blend the 4Ps into a coordinated

program in each of its world markets, companies must understand how culture affects

consumer reactions; understand local traditions, cultural preferences, and behaviors.

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5. IKEA Group Strong Financial Growth for Fiscal Year 2010

According to HELSINGBORG, Sweden--(BUSINESS WIRE)--IKEA, the world‘s largest

home furnishings retailer, is growing and financially strong with sales up 7.7% to €23.1

billion (approximately $29.3 billion). The IKEA Group net profit for Fiscal year 2010*

increased by 6.1 % to €2.7 billion, compared to the previous fiscal year. IKEA Group states

these strong results were due to increasing sales, higher gross margin and improvements in

the cost structure of running the business.

"Fiscal year 2010 was a good year financially; sales grew despite tough market conditions in

many countries. Profits give us the resources to grow and reach more people on existing and

new markets as well as lowering our prices. The main part of the profit was re-invested in

existing as well as twelve new stores in order to become even more inspiring and accessible.

In times like this, even more people appreciate value for money in terms of good design

And functional home furnishing products at affordable prices, and we are committed to

continuing that journey,‖ says IKEA Group President and CEO Mikael Ohlsson.

Maintaining its commitment to long-term sustainability programs, IKEA continued to invest

in renewable energy sources during FY10, nearly doubling the amount of solar panels

installed on IKEA locations around the world and purchasing 52 wind turbines in parts of

Europe. Also in 2010, the IKEA Foundation donated €45 million to charitable projects to

help fund programs designed to improve the rights of children and youth in the developing

world. This effort will have benefited 100 million children by 2015, enabling them to create a

better future for themselves and their families.

During FY10 in the US, IKEA comparable store sales were up 5% with aggressive strategies

in lowering prices on many top selling IKEA products. Also, US investments during this time

included installing solar panels atop the Tempe, AZ store and initiating 10 more solar energy

programs for the next fiscal year. Additionally, IKEA US also announced in June 2010 the

phase out of all incandescent bulbs for January 2011. In terms of expansion, construction

began on the IKEA store slated to open later this year in Centennial, CO. This location will

also be the first to have a geothermal component as part of its HVAC system.

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5.1. Liquidity ratios

These ratios measure the short term liquidity and indicate that IKEA has high liquidity and able to meet

short term debt as well as the unexpected demands.

5.2. Assets management ratios

, This ratio shows that IKEA manages its inventory effectively

, this ratio measures the efficiency of the usage of the fixed assets in sales

, this one measures the effectiveness of IKEA in in using its

assets

5.3. Debt management ratios

. Measures the percentage of assets which is provided by the creditors

5.4. Profitability ratios

. This measures the overall ability of IKEA

to utilize the assets in which it has invested to earn profit

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. . This represents a fundamental indication

of the overall profitability of IKEA

Income statement 2010 % 2009 %

Revenue 23539 100 21846 100

Cost of good sale 12,454 52.9 13,878 54.4

Gross profit 17,085 47 9,968 45.6

Operating cost 7,888 34 7,202 32.9

Operating income 3,197 14 2,766 12.6

Total financial income and expense 76 0.3 145 0.65

Income before minority interests and taxes 3,273 13.9 2,909 13.3

Tax 577 2.5 384 1.75

Income before minority interest 2,696 11.5 2,525 11.5

Minority interest -8 -0.03 9 0.04

Net income 2,688 11.4 2,534 11.5

Balance sheet – Asset 2010 % 2009 %

Property, plant and equipment 15982 38.7 14206 38.2

Other fixed asset 2683 6.5 2652 7.1

Total fixed asset 18665 45.2 16858 45.4

Inventory 3415 8.27 3116 8.4

Receivable 2238 5.42 2797 7.5

Cash and securities 16955 41 14334 38.6

Total current asset 22608 54.8 20247 54.5

Total asset 41273 100 37105 100

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Balance sheet – Equity and liabilities 2010 % 2009 %

Equity 22,841 56.5 19,775 53.3

Long-term liabilities 4,296 10.4 4,509 12.2

Other non-current liabilities 1,325 1,325 1,395 3.8

Total other non-current liabilities 5,621 5,621 5,904 15.9

Short –term liabilities 7,724 18.7 7,251 19.5

Other payable 5,087 12.3 4,175 11.3

Total current liabilities 12,811 31 11,426 30.8

Total equity and liabilities 41,273 100 37,105 100

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6. ANALYSIS

6.1. External general and industry environment

6.1.1. Political Factors:

Increasing globalization and protectionism, presents a challenge as well as an

opportunity to IKEA. The challenge will be to compete against unknown forces and to

source the best quality/financially viable products from world over. IKEA can enter

the markets of emerging companies through joint ventures or partnerships to explore

these new markets. At the same time, however, the company has to be wary of

protectionist policies of many host countries it operates in since there is a real risk that

countries may impose high tariffs on goods imported in an attempt to spur domestic

production.

However, IKEA may stand to lower its costs as governments begin to lower taxes

or provide subsidies to help businesses stay afloat in this economic crisis.

6.1.2. Economic factors:

The fluctuating commodity and raw material prices all over the world result in rising

purchasing costs for IKEA. This will have an impact on the margins of the

organization and might lead to passing over the cost to consumers by increasing

prices of most things in the supermarket. Furthermore, fluctuating commodity and

raw material prices leading to an overall situation of increasing prices, resulting in

decreased competitiveness.

The credit crunch can impact IKEA negatively as it might decrease the purchasing

power of consumers and though they will still buy the essentials they may be more

cautious. Furthermore, furniture, unlike fast moving consumer goods, are durable and

can last for several years and in such economic uncertainty. Consumers may be

reluctant to change what they perceive to be still serviceable sets. They may also

spend less on luxury items, something that has a greater profit margin for IKEA. All

this may result in lowered sales and thus, reduced margins for the firm.

26

At the same time, leading to an overall situation of increasing prices, resulting in

decreased competitiveness - something which will appeal to cost conscious

consumers. This may cause IKEA to reduce its margins, affecting profitability.

6.1.3. Social Factors:

As Ikea forays into the lesser tap markets of China and India, social factors may also

come into play. Asian societies are generally more savers than spenders and in such

economic certainty; Asian consumers may be unwilling to spend on new furniture,

preferring to save for a rainy day. At the same time, the more affluent consumers who

are able to spend may be unwilling to buy products from Ikea which has a reputation

of requiring self-assembly.

6.1.4. Technological Factors:

RFID (Radio Frequency Identification Device) technology can be used for significant

benefits to the supply chain of IKEA. If adopted, this technology will lead to less

inventory for the supermarket firms resulting in lower cost for the company which

could translate into cheaper prices.

27

6.2. IKEA SWOT Analysis

6.2.1. STRENGTHS:

Leading retailer of home furniture & furnishings

Strong global brand image

IKEA‘s vision (create a better everyday life for the many)

Global presence of more than 35 countries

IKEA has its own industrial group

Self -assembled furniture

Not a traditional furniture

20-40 % Low cost furniture than competitors and no extra Cost included

Effective Value chain & procurement

Less time services and carried away material

Product differentiation (product range)

Single global strategy

No wastage of material

Unique business model

IKEA work environmentally friendliness

6.2.2. WEAKNESS:

Stuck in the middle

Detracting to attain organization plans.

The size and scale of its global business

28

No enough distribution channels

The problem of product recalls

Difficulties to understand different countries attitudes and tastes

IKEAs little transparency‖.

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6.2.3. OPPERTUNITIES:

Opportunity to enter in broad market such as Asian market

To sustain in long run

Online orders or E-marketing

Increasing average growth up to 11%

Opportunity to create economic designs with existing workforce and designers

To involve every contributor in value chain in optimal manner

Focus on differentiated products for the Asian market

Continuing demand for low prices

Growing demand for products which do not harm the environment

for companies to use less water when making products and reduce their carbon footprint

6.2.4. THREATS:

To sustain in long run

To follow the strategies more than one for long run

Changing social trends

Market Forces

market forces – as more competitors offer similar products

environmental issues across the global

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6.3. IKEA-Internal Factor Analysis Summery (IFAS)

Internal Factors Weigh

t Rating

Weigh

ted

score

Comments

Strengths

A strong global brand image 0.1 4 0.4 Core competencies

Leading retailer of home

furniture and furnishings. 0.1 3 0.3 Competitive advantage

IKEA has its own industrial

group 0.1 4 0.4 Competitive advantage

Product Differentiation 0.08 3 0.24 Business strategy

20-40% low cost furniture

than competitors and no extra

cost included

0.07 4 0.28 Maximizing market share

IKEA work environmentally

friendliness 0.06 3 0.18 Competitive advantage

Less time and carried away

material 0.06 2.5 0.15 Ease of delivery

Global presence of more than

35 countries 0.05 3 0.15 Wide global reach

1. Weakness

The size and scale of its

global business 0.1 4 0.4 Management Issues

Difficulties to understand

different countries attitudes

and tastes

0.08 3.5 0.28 Cultural issue

Targeting single market 0.07 4 0.28 Weak strategy

Stuck in the middle 0.06 2.5 0.15 Strategy issues conflict

No enough distribution

channels 0.07 3 0.21 Poor retail strategy

Total score 1.00 3.42

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6.4. EXTERNAL FACTOR ANALAYSISSUMMERY (EFAS)

External Factors Weight Rating

Weight

ed

score Comments

Opportunities

Focus on differentiated products

for the broad market

0.1 4 0.4 Business strategy in

broad market

To sustain in the long run 0.09 4 0.36 Critical for success

Online orders or web marketing 0.07 2 0.14 marketing strategy

Growing demand for products

which do not harm the

environment

0.06 3.5 0.21 Environmentally

friendly product

Increasing growth 0.06 2 0.12 Business expansion

Opportunity to create Economic

designs

0.06 4 0.24 Customization

Opportunity to enter in the broad

market

0.05 2.5 0.125

continuing demand for low prices 0.04 3.5 0.14 Opportunity to gain

market share

Threat

market forces – as more

competitors offer similar products

0.1 3.5 0.35 competitive edge

To sustain in the long run 0.07 4 0.28 Critical for success

keep the core values alive 0.07 3.5 0.245 Company becomes

larger and more diverse.

follow the strategies for more

than 1 year

0.07 3 0.21 Frequent change in

strategy

Dynamic global environment 0.06 4 0.24 Treat to the business

Threat of new entrants 0.05 3 0.15 Fierce competition

Environment Issue across the

globe

0.05 3.5 0.175 Monitor environmental

law very carefully

Total score 1.00

3.385

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6.5. STRATEGIC FACTORS ANALYSIS SUMMERY (SFAS)

Strategic factors SFAS Weight Rating Weighte

d score Comment

Internal factor

S1: A strong global brand image 0.08 4 0.32 Core competencies

S2: Leading retailer of home

furniture and furnishings. 0.07 3 0.21 Competitive advantage

S3: Product Differentiation 0.06 3 0.18 Business strategy

S4: 20-40% low cost furniture

than competitors and no extra

cost included

0.05 4 0.2 Competitive advantage

S5: IKEA has the own industrial

group 0.04 4 0.16 Competitive advantage

W1: The size and scale of its

global business 0.04 4 0.16 Management issues

W2: Difficulties to understand

different countries attitudes and

tastes

0.05 3.5 0.175 cultural Issues

W3: No enough distribution

channels 0.06 3 0.18 Poor retail strategy

External Factors

O1: Focus on differentiated

products for the broad market 0.05 4 0.2

Business strategy in

broad market

O2: Growing demand for

products which do not harm the

environment

0.04 3.5 0.14

Environmentally

friendly product

O3: To sustain in the long run 0.07 4 0.28 Critical for success

O4: Online orders or web

marketing 0.06 2 0.12

Marketing strategy

O5: Opportunity to create

Economic designs 0.05 4 0.2

Customization

T1: Threat of new entrants 0.07 4 0.28 Fierce competition

T2: Dynamic global environment 0.06 4 0.24 Threat to the business

T3: market forces – as more

competitors offer similar products 0.05 3.5 0.175

competitive edge

T4: Environment Issue across the

globe 0.05 3.5 0.175

Monitor environmental

law very carefully

T5: keep the core values alive

0.05 3.5 0.175

Company becomes

larger and more diverse.

Total score 1.0 3.57

33

6.6. Tows- metrics analysis

34

6.7. PORTER’S SIX FORCES MODEL ANALYSIS FOR IKEA

6.7.1. Power of the buyers

There is a little power because of the exiting low-price options. Furniture and other

small items have an alternative and consumers have limited alternative choices that

make the IKEA unique among its competitors. In addition the low price strategy is

another way of the company to response in buyer‘s need.

6.7.2. Power of supplier

IKEA has its thousands of suppliers that set standards in delivering the

material. Once in a while, for some products, the IKEA bids for the

contracts with multiple companies to craft the same products. Most of the

supplier work in IKEA and compete with other suppliers, and they have a

little bargaining power. Because of the low-pricing, IKEA‘s profit margin

also affects the price in raw material than by prices in labor.

6.7.3. Rivalry

Threat of new entrant

Threat of subsititude

product & services

Bargaining powe of suppliers

Bargaining Power of Buyers

Rivalry among

existing foms

Power of Relative

stakeholser

35

the IKEA‘s furniture competitors‘ offers different styles and

functionality corning targets a new low cost in terms of furniture line;

cratel& Barrel offers a furniture in box which is subject in higher prices

Ethan Allen aimed at a more upscale market; Wal-Mart is equipped in a

big box furniture that is categorized under the general store must have

items, but don‘t have much of a style. IKEA is the most successful in

delivering the complete package for the customers that reflects on weak

rivalries.

6.7.4. Substitutes

There is no specific product that can be a substitute for furniture but IKEA

at least, have to keep up with the latest trends, to avoid becoming out of

style. Another advantage is that through their cutting and leading

technology, IKEA could copy any new style fairly and move each the

product into its stores.

6.7.5. New Entrants

Another furniture company is rolling on low-cost strategy and should

compete with the IKEA as the excellent company in delivering the

furniture and house wares. IKEA stores do not reach many small towns

and this is an opportunity for the new competitors to move into small and

midsize cities with smaller stores and less selection. But not easier in city

because new entrants have to establish a vast supply chin and create a

unique brand name.

6.7.6. Relative power of stake holder

IKEA has being opened with all its stakeholders. This involves building

trust through good communication with consumers, co-workers, key

opinion formers and the press. Being sustainable is a central part of

IKEA's image.

36

7. Recommendations

In order to gain high market share in different country, IKEA need to

emphasize a ―pull‖ marketing strategy by launching a campaign that

promotes furniture as a fashion statement. By pull marketing strategy people

will be aware of good quality furniture.

Asia is considered as emerging market and has largest consumers‘ base with

more than three billion populations, IKEA need to build many stores in these

countries to facilitate easy access to stores without time consuming.

For IKEA to have competitive advantage, they should design a web site

which can help the customers to design their own furniture (customization),

with the dimensions and the colors they need. This will give them large

market segmentation that the customers would like to design their furniture.

IKEA is known by their stylish and affordable furniture retail business. So to

sustain in this position IKEA need to upgrade its products continually based

on costumers test and preferences.

37

8. Conclusion

IKEA is a well-known global brand with hundreds of stores

across the world. In order to improve performance, it must assess

its external and competitive environment. This will reveal the

key opportunities it can take advantage of and the threats it must

deal with. IKEA responds to both internal and external issues in

a proactive and dynamic manner by using its strengths and

reducing its weaknesses. Through this, IKEA is able to generate

the strong growth it needs to retain a strong identity in the

market.

IKEA's passion combines design, low prices, economical use of

resources, and responsibility for people and the environment.

The company's products, processes and systems all demonstrate

its environmental stance. For example, clever use of packaging

and design means more items can fit into a crate, which means

fewer delivery journeys. This in turn reduces IKEA‘s carbon

footprint.

38

9. References

Competitive Strategy: Techniques for Analyzing Industries and Competitors Michael E. Porter

Competitive Advantage: Creating and Sustaining Superior Performance Michael E. Porter

Thompson, AA Strickland AJ & Gamble J 2005. Crafting and Executing Strategy (Fourteenth Edition), McGraw-Hill,

New York, pp. C2-C32.

Anonymous ¡¥IKEA strategy targets big/bigger/best stores¡¦, DSN Retailing Today; Nov 8, 2004; 43, 21;

ABI/INFORM Global, p. 28

K. Kling and I. Goteman, 2003 ¡¥IKEA CEO Anders Dahlvig on international growth and IKEA¡¦s unique corporate

culture and brand identity¡¦, Academy of Management Executive, Feb 2003, Vol. 17,

WEB SITE:

http://www.thetimes100.co.uk/case-study--swot-analysis-sustainable-business-planning--110-368-1.php

http://www.IKEA.com/ms/en_US/about_IKEA/pdf/sustainability_Report_2010.pdf