A Study On Analyzing Ikea Business Essay

Introduction

Ingvar Kamprad “IKEA” came into existence in 1943, when he was just 17 in the small village of Agunnaryd in Sweden (IKEA History, n.d.). IKEA started selling furniture product in 1947. After receiving positive response IKEA opens their first store in Almhult, Sweden in 1958. At present IKEA grand total of 301 stores in 37 countries among that IKEA itself owns 267 stores in 25 countries. Estimated sales revenue in 2009 financial year was 21.5 billion euro’s with the help of 123,000 co-workers in 25 countries (IKEA group stores, n.d.). The current global economic downturn has turned many businesses around and forcing them to close down the business. IKEA was one of the businesses which got affected by the global downturn and it resulted in many job losses in the company. IKEA managed this environmental situation very well by coming up with more strong business strategy for healthy future of the organization. IKEA is planning to open about 15 new stores in 2010 in china, Italy, Spain, Poland and many other places (Coming store openings, n.d.). IKEAs vision is to “create a better everyday life for the many people”. There business plan supports their vision by providing well designed furniture at low price so everyone can afford it (Our business idea, n.d.). IKEA came in to existence in Keeping on mind this vision and ideas of selling furniture at low cost.

Macro Environment (PESTEL)

The macro environmental factors which affect to the organization are political, economical, social, technological, environmental and legal. These are the important factors as per the present time. The PESTEL analysis is the tool which helps in determining the future of IKEA.

Political/Legal:-

Political environment includes Government funding, policies, grants and initiatives where as legal environment includes rules, regulations, legislations, regulatory business and trading policies. Every country has different political and legal factors. IKEA operates around the world and have to follow different political and legal factors in different country for e.g. IKEA has to adopt a complete new policy to make business working in China (“IKEA’s Globalization Strategies and its Foray in China”, n.d.). IKEA has to compromise in some countries where there is less political stability whereas due to lot of legal factors IKEA cannot compromise its policies in India. In India the current policy holds IKEA to own and establish a business with 100% Foreign Direct Investment (FDI) and dismantles its plans to open a store in India (“IKEA dismantles plans for stores in India, 2009“).

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Economical:-

Economical environment consists of factors that affect the consumer buying power and spending pattern. IKEA adopts different strategies in different countries around the world by providing wide range of products which are well known for the quality at the price which can be afforded by most of the people.h3 As per (Scherrer, 2003) growth of the country reflects by its economic climate which influences expectation. IKEA is established around the world but its major source of business is from Europe. Due to strong economy in Europe people with lower incomes can also afford products available from IKEA, whereas due to strong and cheap local market it was very hard for IKEA to sell its products in China (“Facts and figures”, n.d.).

Social Culture:-

Social culture environment includes taste, behavior, basic beliefs and consumers lifestyle. According to Scherrer, 2003 consumer preference, purchasing pattern and condition under which the product can be sold are affected by the social culture changes.

The period after 1990’s is said to be the booming period. Many countries around the world have changed or modified their county policies for international companies to boost their own economy (“Pan”, 2007). Among all the developing countries china was one of the fastest and strongest economy and IKEA took that advantage and opened the first store in Shanghai. But IKEA’s policy of do-it-yourself did not work due to social differences in different countries (Anonymous, 2009). IKEA changed it policies and used the cheap labor available in China and provided its product with a free delivery and fully assembled product. After the changes in their own policy IKEA became successful in China and is now planning to open 2 more store and bringing their total to 10 in 2010.

Technology:-

In current competitive world Technology is a very important factor for every organization. Using innovative technology company can reduce cost, develop new and revolutionary products and save time by developing these new technologies (“Business Environments”, n.d.). IKEA’s flat pack furniture system proves how IKEA is keeping up to date with the present technology. The flat pack furniture system is well known by customers around the world as it is very quick and easy to assemble IKEA’s products. IKEA has introduced online shopping for its customers so that they can easily browse through their product range and purchase any product at any time and any place. Many recent adoption of technologies like IKEA catalogue for iPhone app has helped IKEA to attract more customers (“InteractiveIKEA Catalog iPhone App Launched“, n.d.).

Environmental:-

Environmental factors which for IKEA can be a big barrier as it is a furniture making company. IKEA makes most of its furniture from wood but the image of IKEA is an environmental responsible company and takes the necessary initiatives to ensure that the operations doesn’t have any adverse affect on the environment. Most of the products made by IKEA are eco-friendly, being eco-friendly it uses wood chips and recycling plastic instead of normal wood. IKEA is offering energy saving bulbs which uses less power (IKEA’s Environmental practices, n.d.).

Summary:-

Comparing IKEA’s macro environmental factors using PESTEL analysis shows that IKEA has performed well by adopting new changes when required. IKEA shows how they have well managed during the recent economical downturn which gives a very strong image of the organization. IKEA has to face all the environmental factors before entering the Chinese market but they adopted the right policies and showed how they achieved success in China. In six decades of IKEA’s experience they have went through many challenges but the company stayed strong and focused on their policies and overcome all the hurdles which came across whether it was political, economical, social, legal, technological or environmental.

IKEA’s competitive strategy using PORTERS framework

Buyer power:-

IKEA has many competitors but the reason for them being of top is because of their low cost and durable goods. The unique and innovative products always attracted their customers (“IKEA Analysis”, 2010). This uniqueness of their product makes IKEA’s product limited amongst the rivals.

Supplier power:-

IKEA has more than 2000 suppliers in over 50 countries. IKEA have good control over it suppliers and have maintain relationship very well from a long time. IKEA’s strategy is that they give their product design to many suppliers for the same product. This does not give more space to their supplier to manipulate which gives IKEA buyers power (“FAQ”, n.d.).

Competitive rivalry:-

As per the growing demand and the competitive world market IKEA is facing very tough competition from the rivalries around the world. Many of the furniture industry are following the same path of IKEA. Rival companies like Conrin Target who only concentrates selling furniture at a very low price whereas Ethan Alan has targeted high segment market (“IKEA Analysis”, 2010). They all are engaged in selling furniture in different ways. IKEA has made a very strong image on everyone’s mind by providing its unique, stylish and durable low cost good for almost six decades which weak their competitors.

Threat of substitute:-

Substitute of wooden furniture can only be furniture made with the process wood and plastic. IKEA makes their product special is by providing new style designs as per the latest trend with the help of their technology.

Threat of new Entrants:-

Pass, Sturgess & Wilson (1994) state that it is difficult for entrants with unknown products to win viable market share as customer loyalty exists with the existing firm. IKEA adopts new technology to develop new products smarter and at a low cost which gives them loyalty from their customers. It makes it very hard for any new entrant to provide the number of products IKEA is providing. New entrant can only have to look at the market like small cities and towns where IKEA have not yet step in.

Marketing Mix

Marketing mix is a tool which organization adapt to their marketing objectives in the target market. The firm pursues marketing mix which includes 4Ps product, price, place and promotion. To see what their customer respond for that target market (Armstrong & Kotler 2006).

Product:-

According to Phhilip Kotler 2003 product is defined as anything that can be afford to satisfy a want or a need. IKEA is having a huge range of product and are well know for their poduct design as per customer need and value for money. This unique product makes them different from their competitors.

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Price:-

IKEA’s idea is based on providing well designed home furnishing product at a low cost which can be afforded by a common man. Pricing is the main reason through which IKEA have gained big market share amongst their competitors. IKEA can sale goods up to 30 % less because of their bulk purchasing power gets goods at a very low price.

Promotion:-

Promotion is the main marketing tool for promoting products. IKEA promotes its products via TV, Holdings, Radio, newspaper and online. The main tool of IKEA’s promotion is the IKEA catalogue which attracts most of their customers. IKEA is having their major market share from UK and IKEA is well known by their controversial TV advertising campaign. To let people know about their brand is different from other (“FAQ”, n.d.).

Place:-

IKEA have opened their stores in the suburbs of the city which are easily accessible to their customers. IKEA has opened its new store in Perth, Australia closer to Bus stop, Train Stop and near to entry and exit point of Freeway and by providing enough car parking bays which makes it easily accessible by their customers.

Value Chain

IKEA has a system which provides customers with a low price home furniture around the world. IKEA creates products which are good quality, durable, modern design and good functioning. IKEA is order to operate efficiently and to provide their products with high quality it stays focused on the relationship of their suppliers and customers as shown in figure 3. IKEA has such a big brand name that it gives them a competitive advantage over its rivals. By having such big buying power, IKEA can sale its products with a very competitive price which keeps their customers happy and loyal to the company.

IKEA have increased loyal customers by providing them excellent customer service. IKEA’s philosophy towards it customer is to make their product easier, cheaper and faster. This gives high satisfaction to customer this creates value and goodwill of the IKEA.

PORTER’s and Value Chain Summary:-

After exploring the PORTERS framework value chain gives knowledge of what makes IKEA market leader amongst their competitors. Their unique design and low cost of product reduces their substitute and new entrants. The main reason behind selling of their low cost quality product is due to strong relationship with the suppliers and loyal returning customers. They have been able to make value to their product by providing great customer server and also after sales service.

SWOT Analysis

Strength, weakness, opportunities and threat analyses the current and future of the organization. Strength and weakness are internal part of the organization and can be changes where as opportunities and threats are external part of organization which is hard to change.

Strength:- h3

• IKEA the name attached with strong concept of quality, latest design at low cost. That earns consumer loyalty towards brand.
• IKEA is very dedicated towards its vision “ create a better everyday life for many people”
• IKEA’s designers are always looking at customer’s needs and latest market trade.
• Their unique concept of flat-pack and do it yourself which reduce transport cost and make them different from their competitors.
• IKEA is eco friendly and uses its raw-material very smarter way. They have started using recycle or reclaimed waste product to produce energy across all stores.
• They have long term relation with suppliers. IKEA can negotiate with their prices as they are buying goods from suppliers which they have since very long time which also provides their suppliers with a security of consistent business with the company.

Weakness:-

• As IKEA is very big organization, management may find it difficult to implement any quick changes or new strategies.
• It can be issues with quality management as IKEA have number of suppliers all over world making the same product.h3
• Many Chinese suppliers offer same products as IKEA and even at cheaper price.

Opportunities:-

• Increasing the range of product.
• Manufacture their product form the developing country where they get labor at cheap price.
• Opening new stores in the place where retailer like IKEA don’t exist.h3
• Providing unique shopping experience for customers.
• Develop e-commerce.

Threat:-

• Scandinavian design and style are not accepted by everyone around the world so IKEA have to develop designs differently in individual countries.
• Decrease in the demand of Scandinavian design furniture.
• Economic downturn reduces the consumer purchasing power.

SWOT Summary:-

Study of SWOT analysis suggests that IKEA have to keep on making changes as per the market trend which could be internally or externally. Strength and weakness are considered as an internal part of the company. IKEA can increase their Strength in areas like increasing more product range and bringing new innovative concepts before their competitors. Threat and opportunities are the external factor of the company. To decrease the threat of new entrants in the market IKEA has to keep up to date with the latest technology and develop new products according to customer’s requirement. They should implement modern designs and try to increase the range of their products. IKEA can get more competitive by manufacturing its products in developing countries.

Conclusion

Analyzing IKEA’s report it shows how IKEA was able to make their strong position even after a financial storm. PESTEL analyses showed how IKEA reflected all the external factors to achieve the success in the market. IKEA has to deal with all the external factors which are different around the world.

IKEA has been able to provide its customers with a wide range of affordable products which makes them unique amongst its competitors. IKEA has adopted a unique marketing mix which has resulted in an enormous growth of the company. To be successful around the world IKEA has to change its marketing strategies around the world and have to adopt new strategies to be successful. IKEA has 80% of the business from Europe and its now trying to expand in China. IKEA is planning to open 2 new stores in China to get more customers and get more share of income from China.

PORTER’s five force analyses show how IKEA is unique and have a cutting edge on their suppliers and customers. IKEA has more buying power and it has many suppliers over the world making the same product gives them capabilities to offer their products to their customers with a very competitive price. Using this strategy it makes it harder for new entrants to get in the similar market and helps IKEA to strengthen its position globally.

SWOT analysis show that IKEA has to implement new modern design and try to get away from the old Scandinavian design which is not accepted all over the world. IKEA has implemented environmentally friendly concepts and used technology to bring new product ranges before their competitors does. IKEA has implemented technology in their business by providing their customers to see online catalogue, iPhone app and online shopping. This shows how IKEA is using its strategies in developing quality low cost products and increasing their share in the market.