IKEA is a Swedish-owned global business founded in 1943. The business generates
ID: 459644 • Letter: I
Question
IKEA is a Swedish-owned global business founded in 1943. The business generates annual revenues of 27 billion euros and employs 139,000 people in 298 stores and 26 countries. The values and design philosophy of the founder continue to underpin the brand. These values might be summed up as frugal, democratic, environmentally aware, and design oriented. IKEA has become synonymous with Swedish lifestyle. The stores are virtually identical across the globe and sell a range of globally sourced flat-packed furniture products as well as a range of related furnishings for the home—the stores offer customers a Swedish experience by incorporating restaurants and a variety of customer services intended to simplify the shopping process (e.g., childcare). What is interesting about IKEA is that customers have become a significant part of the value creating process—customers play a key role in terms of logistics and in production. By performing the assembly of the flat-packed furniture, customers complete the final stages in the production process. In terms of logistics, the customer “moves” goods from warehouse-style storage through the checkout, and then transports the goods home. The trade-off for the consumer is lower prices and immediate gratification—furniture is typically sold using just in time (JIT) inventory management, which means that once a customer has placed an order, the furniture then goes into production and is delivered to the customer’s home some 3–4 months later.
IKEA’s senior management has in the past pursued an aggressive expansion policy, but management is currently changing direction, adopting a slower rate of expansion and investing in existing stores. The company plans to increase sales by 10% a year to 2020, thereby doubling annual sales revenues. Management is concerned about how expansion in the BRIC countries, particularly India and China, is pursued. There are fears about preserving the company’s culture in these huge markets (Milne, 2013).
What do you think? What would you do? What problems do you foresee and how will this impact IKEA’s Swedish concept? Please recommend a marketing solution that will help IKEA achieve growth in either India or China based on your understanding of the place P and how delivering the value is evolving.
Please use the case study guidelines below to perform a brief analysis, identify the problem, suggest alternative solutions, and make recommendations for the implementation of the solution that you believe is the best fit.
Case Study Guidelines
1. Analysis of the Current Situation—The proper context must be established for the case analysis. Please provide a SWOT analysis in a SWOT box.
· Research: Identify the key environmental factors such as industry trends, level of competitiveness, customer perceptions, legal considerations, and evolving technology at the outset of the analysis.
· Summarize the key aspects of the internal environment of the firm in terms of strengths and weaknesses and the external environment in terms of opportunities and threats to the firm in your SWOT box.
2. The Target Market—Identify your target market: Who is your target customer? In terms of demographics and lifestyle, what aspects of consumer behavior provide insights into this group of customers?
3. The Problem—Identification of key problem(s). It is easy to identify symptoms of problems while failing to identify the real problems. For example, declining sales may be identified as a problem, when the decline is only symptomatic of more complex problems that are harder to observe. Make a clear distinction between what is identified as the problem and the symptoms of the problems.
4. Alternative Solutions—Identify and evaluate alternatives. Develop reasonable alternatives and evaluate them in terms of feasibility, projected costs advantages, disadvantages, and potential short-term and long-term consequences.
5. Recommended Course of Action—Select a course of action and provide the appropriate strategies and tactics to accomplish the chosen course. Justify your choice in terms of your analysis. As most practitioners know, charting a course of action can be a difficult job, but implementation is the true challenge. Produce a workable action plan that would have a reasonable probability of success in the implementation phase.
Explanation / Answer
1. SWOT analysis: Strengths: Ikea has a good knowledge and understanding of the consumers and its designs has always helped the company establish trends in the industry. Secondly, Ikea has used innovative methods and techniques to drive down the costs. They offer self assembling and innovative packaging solutions.
Weaknesses: The company may be plagued with the low cost perception for some of the target consumer who prefer furniture that is more customized.
Opportunities: Ikea has the opportunity to expand in new markets in the globe where it does not have presence. The company can also exploit the opportunity of online sales.
Threats: Competition on the low price front has intensified in recent years with big players like Wal-Mart offering value furniture items as well. Economic slowdown is another serious threat.
2. BRIC countries are developing countries and the consumers here are very value conscious. The target market consists of value conscious buyers who are looking to buy well designed and functional furniture at low price points. The target buyers are aware of the strong brand equity of Ikea. In terms of demographics and lifestyle, the buyers are the middle class consumers. In developing countries, the middle class consumers are witnessing higher disposable incomes due to economic progress. The key aspect of consumer behavior for this group is that they want the optimal combination of good quality and design and low prices.
3. In terms of problems, the developed economies across the world are growing at a slow rate. This is causing sales of Ikea to grow at a slow place. To address this company wants to expand in BRIC countries where the growth rate of the economy is substantially higher when compared to developed countries.
4. Alternative solutions for Ikea is to focus on the developing countries like China and India for its expansion plans. This will help the company to take advantage of the high growth rates in these markets. Expanding in developed economies where the growth rate and economic expansion is slowing down will serve no purpose.
5. The recommended course of action is that Ikea should, for expansion purpose, focus on developing countries and BRIC countries (Brazil, Russia, India and China).
However, expanding in these economies will bring its own share of difficulties for Ikea. Countries like India and China are not very familiar with Swedish lifestyle and as such will have little appreciation for the lifestyle, values and attributes that Ikea brings to table. For marketing solution, Ikea should focus on the attributes of good designs, low price points and efficient customer services. The customers will not care much for Swedish experience through restaurants at Ikea's stores.
In terms of problems, the company might face local policy regulatory hurdles in the developed economies. For instance in India, Ikea has to satisfy the local sourcing norms which states that 30 percent of total sourcing done by Ikea has to be done locally in India. In China, Ikea had to face several problems. The low price points for USA and Europe was still considered high in China. Ikea had to lower its prices in China.
Based on the above analysis, I suggest that Ikea should seek future expansion in developing countries which will help it to rapidly expand its sales. It will have to adapt its strategies as per the needs and requirements of these countries, but should develop base and expand in these countries in an aggressive manner.
Sources: http://www.businesstoday.in/magazine/lbs-case-study/how-ikea-adapted-its-strategies-to-expand-in-china/story/196322.html
http://www.ikea.com/cn/en/
http://www.chinabusinessreview.com/ikea-with-chinese-characteristics/