Ikea Hotel: Business Environment and Position

The hotel industry can be viewed as a varied and oftentimes maligned business sector, mandating innovation in pursuit of enhanced consumer participation. Ikea, a multinational home furnishing corporation has enjoyed over sixty-five years of enduring success through diversifying public offerings and strategically expanding into previously un-charted market sectors. A foray into the hotel industry demonstrates a radical departure from more traditional brick and mortar and online operations. Allowing guests to experience the Ikea product line firsthand thorough overnight stays in a rich cultural community represents yet another integration of the Ikea vision to “better the everyday life for the many people” (Ikea, 2008). The following sections investigate the unforeseen and predictable variables which currently influence Berlin hotel operations. Through deeper strategic analysis and competitive survey, future operations will be much more successful and the market transition, much more fluid. Given that long term operations within the hotel community offer a uniquely segmented potential for Ikea to intimately connect with patrons, the success of this endeavour will be directly accredited to comprehensive understanding of market conditions and variables.

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Ikea, a household goods producer founded in the 1940’s in Smaland Norway, has grown from a mail order catalogue into a multinational furniture and home furnishings retailer. Known for a unique yet affordable design, commendable quality, and exemplary functionality, Ikea products have developed a singular consumer following across its global marketplaces. This foray into the hotel industry is both trial and opportunity, expanding revisionist concept of an interactive showroom to allow consumers to enjoy affordable accommodations while considering long term purchases of their room’s product line.

Germany’s competitive advantages within the European travel market continue to expand as it diversifies the variation of hospitality offerings throughout its unique city centres. Recognised by the World Economic Forum, specific categories that differentiate Germany from other nations include foreign ownership, property rights, environmental regulation, police and crime rate, health and hygiene, transport infrastructure, and cultural resources among others. Yet within this segmentation there is one sphere which is considered a substantial disadvantage, government involvement in tourism. Government support and expenditure on tourism in Germany is considered within the lowest categories in the EU, demonstrating an innate misconception that tourists will simply flock to historic sites without encouragement.

Blanke and Chiesa challenge that an expansive travel and tourism business directly contributes to employment rates, improved national income, and restoration of a balance of payments, thereby driving national growth and prosperity (2008). In that same report, Blanke and Chiesa recognise the top tourism competitors across the globe, with Germany claiming a proud third place. Evidence demonstrates that travellers throughout Europe are much more sensitive to the overall cost of travel at this temporal juncture, thereby reducing their proclivity to travel inter-regionally due to shorter distances when fares are higher (Pearce, 2008). Yet industry data shows that cultural merits and a safe and well apportioned infrastructure can directly encourage leisure and business travel regardless of cost or distance (Blanke and Chiesa, 2008). Considering that nations continue to evaluate the social, economic and environmental costs of multinational tourism, Germany remains a frontrunner at internalisation of Kyoto principles, as developments such as the emission zone in Berlin and reliance on alternative and public transportation continue to define the relationship between traveller and local environment (Nelson, 2008).

The following sections will highlight the unique business environment of the Berlin marketplace by extrapolating the segmented strategic concerns for major hotel corporations. Through the identification of key variables from which to launch tactical operations, the Ikea Hotel Berlin will find positioning intimately linked to the community it wishes to explore. Recognising that the geographical and ideological differences between multinational operations will determine fundamental success of this business model, it becomes essential to categorize structural dissonance in terms of political, economic, technological, environmental, and legislative categories.

PESTEL Aanalysis

(P)olitical

The political climate within the many city-states of Germany is considered peaceful and competitive with neighbouring EU participants. Berlin, the capital city of Germany, is recognised as an independent city state forming a coalition of 16 federal states (lander). Within the city, the 3,405,469 inhabitants are subdivided into 12 bezirke (boroughs), a culmination of 23 historical regions that took place in 2001 (“Politics,” 2008). According to census results, Berlin is the EU’s 2^nd largest capital city, falling behind London and just edging out Madrid (“Berlin in Figures—2008,” 2008). Given the current status of international relations, political challenges face Germany as a whole in the coming decade as trade relations and international conflict continue to be strained by multinational alliances. Providing Iran with its largest share of Western products and importing one third of its energy supply from Russia, Germany maintains trade relations with two of the most volatile forces in the international community (“The Berlin Stonewall,” 2008). Continuing positive trade relations with localised EU nations as well as the USA, Germany is seated solidly yet precariously given the implications of further turmoil within Middle Eastern or Asian countries.

(E)conomic

The economic outlook for Germany in the coming decade is bright with a positive import/export surplus generating potential for expanded international investment and material goods import. According to World Bank Statistics, Germany’s GDP in 2007 was $3,297.23 billion, an increase over 2006 of 12% and an increase over 2000 by 42% (World Bank, 2008). Within such as successful economy, however, Berlin currently retains a 15.5% unemployment rate where primary employment industries include financial, renting activities, and other services (65.7%); trade, hotels, and restaurants (16.1%); and industry (14.9%) (“Berlin in Figures—2008,” 2008). Yet critics recognise that Berlin’s unemployment rate is substantially higher than the other major cities throughout Germany’s many states, many of which boast a comparative 6-7 percent (Bidlake, 2008).

Considering the financial implications of integrating an Ikea hotel into the broad Berlin hotel economy, realised wages will play an important, yet comparable part in hiring a comprehensive staff. The 2006 average annual employee wage in the hotel sector was just under 25,000 euros, whereas industrial occupations garner substantially more at 51,000 euros (Amt Fur Statistik, 2007). Comparatively, median annual wage in the UK was recently calculated at £24,908, thereby highlighting a minimal reduction in payout to German employees in a cross-market comparison (National Statistics, 2008). Supplementing the underlying wage protocol, financial issues have remained a challenge amidst efforts by a proactive national German government. A 2007 increase of 3% VAT in response to economic turmoil and increasing oil prices was considered the highest increase of EU nations, and while functioning as a hedge mechanism for balancing government funding, the effects of this policy were less than successful. The IMF noted a monetary trend through which consumer purchases were unnaturally elevated in 2006 to overcompensate for the increase in VAT that would later be implemented in 2007 (IMF, 2008). Recognising such economic factors is essential in appropriately pricing the hotel rooms, amenities, and luxuries, thereby encouraging additional local participation.

(S)ocial

During the time period between 1965 and 2006, over 33 million people immigrated to Germany; however, during that same period, over 24 million people emigrated, causing a deficit in available workers throughout German industries (Gundel and Peters, 2008). Social demographics demonstrate that over 83 % of Berlin’s population is over the age of 20 with only 5% under the age of 5 (See Figure 1). Considering the continued emigration of German nationals, an ageing population, and a reduced incidence of birth, the long-term outlook for Berlin employability continues to be reduced. Within the youth of Berlin, demographic study determines that there are approximately 426,712 nationals currently enrolled in pre-graduate education, while only 31% as many students are currently enrolled in graduate studies and beyond. Such data demonstrates a prevalent deficiency in skilled labour, thereby offering employment prospects which considering growth within the hospitality industry. However, management candidate availability will be reduced, and given regional localisation, it will be essential for Ikea to consider external candidates for these positions.

(T)echnological

Perhaps one of the greatest concerns within the current Berlin architectural community is a well-recognised excess of unused apartment and office buildings. A residual of a post-cold-war master-plan, the construction of the city centre known as Potsdamer Platz and surrounding establishments were designed to re-establish German heritage within its capital and offer a broader array of resources for a demanding European community (Copeland, 2004). Considering that the majority of industrial operations are located outside of Berlin in the expansive surrounding communities of Hapsburg and Munich and a rampant dissociation among inhabitants with areas outside of their unique boroughs, researchers posit that there has been little impetus to rekindle the expansive constructed area in central Berlin (Copeland, 2004).

Supplementing Germany’s commitment to sustainable resources, Berlin is working towards becoming a premier alternative energy educator. Opening in the coming months, the Energy University Berlin is scheduled to open to a host of 15 professors teaching upwards of 500 graduate level students (Invest in Germany, 2008). Committed to pursuing renewable resources and alternative energies, this establishment will further define Berlin’s legacy as an active participant in the Kyoto greenhouse reduction scheme. Considering the Ikea position on sustainable materials and environmentally friendly compositions, the Berlin efforts offer strategic collaboration with limited external investment.

(E)nvironmental

As the EU has adopted strict legislative guidelines in accordance with the Kyoto principles and an agreed upon carbon trading system, Germany remains a staunch support of such fundamental guidelines. Amidst Germany’s current commitment to the EU Emissions Trading Scheme, (ETS) substantial growth has been achieved within the field of sustainable technologies and alternative energy sources. Strand (2008) noted that renewables now make up over 6.4 percent of all German energy consumption, and enhanced incentive mechanisms continue to expand commitment to such alternative resources. Figure 2 demonstrates the actual percentage of renewable energy usage in comparison to other global renewable leaders. While considered competitive in terms of a tourist driven focus, Ringbeck and Gross (2008) recognise that German sustainables are heavily subsidized by the state and new builds including the restoration of existing structures are tightly controlled to prevent additional carbon expansion. While within the Ikea business model such sustainable operations are fundamental, the rigid German expectations offer tangible potential for expanded standard operating procedures. Acquiescing to current Berlin governance, the hotel structure could become a pinnacle of renewable and sustainable construction, highlighted by energy saving systems and carbon footprint reductions.

(L)egislative

Germany offers a free form business environment which is summarily protective of intellectual rights in accordance with patent specifications. Encouraging of foreign direct investment (FDI), German regulation remains limited in scope pursuant to the Foreign Trade and Payments Act (Aubenwirtschaftsgesetz) (Invest in Germany, 2008). Such considerations are extended to both import and export trade and given the broad definition of German approved participants, integrated throughout a comprehensive global community. Approximate costs for real estate procurement as outlined by standard German expenses run between EUR 13,800 and 17,500 (Invest in Germany, 2008). Given the low level of government legislation and broad range of incentives and opportunities for foreign entrepreneurs, Berlin function under the German political structure would offer Ikea an exemplary zone of investment.

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Berlin, the most visited city in Germany, boasts a well developed transport infrastructure, which, through traditional mechanisms, enables rapid transit throughout the city. There are currently over 2,555,439 arrivals in Germany on an annual basis of which 75% of travellers originate within the EU (“Berlin in Figures—2008,” 2008). Presented as the city centre, the Potzdamer Platz offers a unique shopping experience, catering to both pedestrian and automobile travel. Junctions for trains, trams, or taxis allow visitors to travel seamlessly through this region and witness the history and legacy of post WWII Germany. The city infrastructure is a planned and regulated community through which the division of Berlin’s geographic regions into 12 boroughs has simplified travel throughout the city. Regional travel to nearby Germanic cities is also readily accessible through the network of high speed trains and bus system. The following sections highlight in more detail the specific transportation methods throughout the Berlin territory.

Infrastructure and Transportation

Airports

Currently 75 different airlines operate flights to Berlin through three different airports (one under construction) from 112 destinations in 44 countries (“Transport Links,” 2008).

Tegel Airport (TXL) 5 km NW of City West and 8 km NW of City East

Schonefeld Airport (SXF): 22 km South of City West and 18 km South of City East

Tempelhof Airport (THF): 6km to the South from city centre (Flights will be re-routed from this airport to Schonefeld beginning November ’08 due to the much disputed closing of this facility (Logistics Today, 2008).

Berlin-Brandenburg International Airport (BBI): Currently Under Construction

Trains

Rapid transit to the city from other regions of Germany or exterior EU nations can be accomplished through a broad network of train operations. The central stations, Hauptbahnhof and Ostbahnof are approximately 6 hours from Amsterdam, 10 hours from London, and 9 hours from Paris (“Transport Links,” 2008). Interior train transport is also a popular method of navigation considering the network of stations and comprehensive passes which allow for smooth transitions. The trains travel amidst key points in the city via elevated railway (S-Bahn) and underground railway (U-Bahn.)

Automobile/Bus/Taxi

A network of roads and byways connects Berlin’s infrastructure allowing for personal vehicle transport or use of the public transportation systems. Busses and trams operate frequently along main boulevards and there is a network of over 7,000 taxis which allow for rapid transition between key city centres (“Transport Links,” 2008). The central area of Berlin has undergone a unique evolution in 2008, requiring automobiles functioning within a predetermined green zone (Umweltzone) to be emissions qualified and boast appropriate stickers (See Figure 3). Stickers can be obtained prior to travel or upon arrival, thereby enabling visitors to easily transition into the automotive cycle.

Identifying the underlying trends throughout the scope of typical Berlin travellers is a difficult yet achievable task given unique facets of this community. Numerically, Berlin enjoyed over 17,285,837 overnight stays in 2007, accommodating a broad range of travellers with 89,836 beds throughout 584 different hotels or accommodation establishments (“Berlin in Figures—2008,” 2008). This is a remarkable number of overnights, considering that in 1998, there were 48% less overnights than in 2007. In 2006, 85% of all overnight stays were in a hotel primarily defined by business/leisure accommodations (Amt Fur Statistik, 2007). Considering that Berlin retains a cultural heritage and yet well seeded business clientele, Ikea’s ideal demographics will fall within a middle-class, combined purpose organisation, and through long term metering additional groupings can be courted.

Based on market research, Germany currently ranks 47^th in terms of a global comparison of airfare and travel costs; however the overall infrastructure ranks 3^rd on the same global scale (WEF, 2008). Representative of a growing European trend, as previously discussed, the cost basis of airfare will effectively regulate such travel mechanisms, thereby adhering significance to the rail travel systems and connectivity which are boasted throughout Germany yet highlighted in Berlin. In terms of cultural resources, a substantial driving factor for German visitors, the nation ranks 3^rd on the World Economic Forum 2008 report; however in terms of natural resources, Germany currently ranks 39^th. This disparity evidences the import of cultural connectivity and highlights the underlying factor on which German tourism must continue to focus. Considering that Berlin currently boasts one of the most overarching cultural connections due to a substantive historical legacy and the longstanding disarray that war had left the city in until recent decades, the cultural import to future travellers in this city is of the utmost import.

The following examples of centralised competition are gleamed from the Frommer’s Germany 2008 travel guide and are highlighted for competing elements that may influence the design, layout, and functionality of the Ikea Hotel Berlin. Recognising that there are varied clientele who frequent these establishments, it is important that niche based marketing become a strategic effort as support for Ikea furniture remains a consumer driven business that is specifically based upon value structure and features.

Competition

High-End Competitors

The following two hotels are examples of higher end competitors who, leveraging a notorious brand and sustained luxury image, continue to offer high-end amenities and accommodations at a higher price range.

The Ritz Carlton

A 1920’s hotel with modern upgrades, this well known brand offers glamour and prestige at the Potsdamer Platz in Berlin. Featuring exclusivity, luxury, and in-hotel dining, the Ritz-Carlton is host to discerning business travellers and upper-class vacationers.

Westin Grand

Conceptualized and constructed during the Berlin Wall era, this hotel features Belle Epoque design coupled with contemporary styling. Catering to upscale business travellers or vacationers, this hotel remains a testament to upper-class Berlin style.

Middle to Low-End Competitors

Recognising that Ikea products are designed with affordability in mind, the following three hotels represent a middle to low end segmentation of the Berlin hotel market. Such hotels are founded on consistency and low cost and cater to a broad range of guests.

Ambassador Berlin

Located near to the Ku’Damm, this hotel is affordable and offers spacious yet accommodating rooms for families or budget wary vacationers. Host to groups of visitors, this hotel is oftentimes the centre for convention overnights.

Hotel Syler Hof Berlin

Built in 1966, this hotel boasts a lavish feel at a moderate price. Antiques and chandelier accents supplement classical style rooms, catering to business travellers and budgeted couples seeking a comfortable getaway.

Arco Hotel

Composite with a 1900’s Berlin apartment building, this hotel is considered affordable and functional, remaining obscured by much larger nearby competitors. Rooms are recognised as small, white or pale in colour, and clean while limited in terms of amenities or luxury. Most frequented by business travellers or local inhabitants, this hotel offers low end pricing with consistent services.

Competitive Analysis

From this list of direct competitors, the fundamentals of each hotel can be gradually excerpted and integrated into the Ikea concept. Considering the value position that Ikea Hotel Berlin seeks to implement, head to head competition with luxury magnates such as the Westin or Ritz-Carlton would not offer foreseeable benefit. However, recognising the merits of the Ambassador and the Syler Hof, consistency, and a cultural heritage are important variables when considering guest attractions in Berlin. Therefore, an amalgam of these two ideas will directly cater to a middle-lower class clientele, offering long term secondary sales potential after their Ikea stay has terminated. The Arco, while locally popular is presents a base level comparison for future benchmarking, enabling a middle ground operation to differentiate Ikea thorough a value/style positioning. Attracting middle-class travellers and business professionals, this hotel will direct efforts towards providing a unique value position due to the interactivity of Ikea products within the fundamentals of the accommodations.

Given the vast competitive scope of the Berlin tourism infrastructure, an innovative and unique Ikea hotel will be a challenging but feasible endeavour. The most positive data to demonstrate this claim evolves from the increased tourist participants over the past eight years, and predictive mechanisms idealise an even more successful coming decade. Ikea must first implement a value driven mentality through which furnishings represent a hotel figurehead yet maintain an obscured relationship with the interactive guest. If patrons are to envision such accoutrements in their domiciles or offices, they must be provided with an autonomous yet subtly guided experience which culminates in brand loyalty and long term purchase commitments. The underlying sales pitch given the nature of Berlin demographics (leisure and business travellers) cannot be an overtly driven mentality, but a somewhat subversive and intuitive approach which options sales over a much broader time frame. Given the cultural heritage which arises so richly from the city centre Potzdamer Platz, localisation in this area would offer a well situated community link, on which may encourage German residents as well as visitors to explore the downtown area.

Competitively, the sheer numbers of hotels throughout the Berlin area directly undermine any immediate installation and loyalty programme. Therefore, leveraging the longstanding branding of the Ikea namesake, it will be essential that all current clientele are directed towards the unique Berlin establishment. Given the public success in recent Oslo, Norway ‘sleep-over’ promotions, Ikea’s legacy for off-mainstream marketing will offer the perfect medium for driving traffic to this new establishment (Fouche, 2007). Establishing a middle-class tourist and business clientele through unique messaging segments will allow Ikea to further develop their product line and produce substantial opportunities for growth within the furnishing and miscellaneous supplement industry. This study has demonstrated the feasibility and the strategic approach for such an endeavour, and in spite of the dramatic departure from such standard sales techniques, Ikea’s radical positioning within an industry that thrives on competition and customer service will allow for market derived long-term success.

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