Analysis of the market position of Ikea

Introduction

Every industry tries to use an unparalleled, efficient, and effective business strategy that will allow them to remain at a progressive position in the competitive market, especially in the global market. With respect to this, the aim of this report is to present a position analysis for the furniture company IKEA. The position analysis will apply a pestle analysis, capabilities analysis, resource based view analysis, swot analysis and porters five forces along with IKEA’s strategic issues and solutions to these issues.

Company Overview

IKEA was established in Sweden over 50 years ago back in 1943. Its founder Ingvar Kamprad still plays an important role in the company affairs today. IKEA is certainly one of the top furniture retailers in the world. Its core aspects are affordably, functionality and quality. Since their commencement, IKEA has persistently developed as a company throughout the years and are currently seen as a distinguished successful worldwide business entity in the furniture industry today. In 2010, IKEA opened 12 new stores in 7 countries which presently give them an overall record of 318 stores in over 38 countries. IKEA has certainly met their strategic goals by executing diverse strategic marketing tools that has made them the success that they are.

Methodology

IKEA’s SWOT Analysis

In this report, the analysis of the present situation of IKEA will be carried out by using different marketing tools. With this, IKEA will be examined via the use of SWOT Analysis. The basis of external and internal analysis is to construe factors that can affect the said business to situate itself to take advantage of opportunities, and manage threats discovered via an analysis of external environments. Particularly, it also aids in spotting present weaknesses and strengths that may affect the organizations’ capabilities.

Strengths (Internal factors)

A strong worldwide brand that attracts key consumer groups.

A Clear Vision – ‘to create a better everyday life for many people’

A strong concept. IKEA offers a wide range of well-designed products at a price, everyone can afford.

Good product image. IKEA has an ideal balance between function, quality, design and price

Weaknesses (Internal factors)

Large global business. This makes quality control difficult to control and it signifies a weak link in the chain of supply.

The necessity of low cost products. Although products are at a low price, consumers still need to feel that they are getting value for their money.

Cultural differences. diversified markets Japan, China and the USA

Restricted manufacturing capabilities. IKEA relies on subcontracted manufacturers.

Opportunities (External factors)

An increased demand for low cost merchandise. Due to trends in the present financial state of the global economy, consumers opt for less expensive goods rather than shopping at expensive stores.

The rapidly emergent Asian countries with wealthy middle-class population represent opportunities to enter and market the concept of affordable modern furniture to fit a particular lifestyle.

Opportunity to enhance levels of customer service through E- Commerce as the added business capability.

Threats (External factors)

Social trends – decelerate amount of first time buyers coming into the housing market.

Market forces – more competitors entering the low price household and furnishings markets.

Imitated Concept -Within growing competitive retail markets mainstream retailers are beginning to mirror the model

Economic factors – the global financial crisis reduced disposable income and customer spending. We can see this from the table below. IKEA’s turnover was the same in 2009 as it was in 2008.

Source: www.ikea.com (2010)

Porter’s Five Forces

Market Entry

Seeing that IKEA has such a unique concept and brand name it will be difficult to copy the IKEA way. However, another furniture company can enter the furniture industry with a low- cost strategy inclusive of home delivery, opposing to IKEA non-home delivery method. IKEA’s stores are not very much located in small towns with small outlets so this is an opportunity for new competitors to enter small towns with another low cost strategy with smaller outlets. This may attract a new sector of consumers.

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Supplier Power

According to IKEA’s welcome inside yearly summary , IKEA had 1,074 suppliers in 55 countries in 2010 Most of the suppliers operate in the IKEA group and compete with other suppliers, and they have a modest bargaining power. Because of low pricing, IKEA’s profit margin also affects the prices in raw materials than by prices in labour. The bargaining power of a supplier could be a threat for the profit of the company, and both IKEA is very much aware of it.  In light of this IKEA endeavours to maintain good relationships with its suppliers, in this IKEA ensure that the IKEA group benefits in the said contract while suppliers benefit from the mutual agreement.

Competitive Rivalry

IKEA is comfortable with its competitive position, and also trying to maintain its competitive edge among rivals. IKEA operates in a extremely competitive industry, characterized by other low priced furniture producers such as Galiform of England and retailers such as Wal-Mart of the United States. Internally, the group has seen differences of opinion regarding product offerings and positioning. Because of powerful global competition, IKEA has intelligently attempted to compete by entering the markets which typically pose the largest competition, such as China and Japan.

power of the buyers

Americans-the primary consumer base for IKEA’s debut in the American Market. The most likely IKEA shopper are those sort of people who travel abroad, like taking risks, enjoy fine food and wine, have a frequent flier plan, and are early adopters of trendy consumer technologies such as Discmans, laptops, and cell phones (Lyne, 2009). IKEA’s management ensures that their customers will be satisfied in all ways with the quality of service that they supply. Particularly, the company has focused their marketing approach on the demands and needs of the buyer for household furniture as well as food service sources that satisfies them, and heavily positioned their products in this segment.

Threats of substitutes

There is no particular furniture substitute however IKEA has to keep up with the latest trends and advances so that their quality furniture does not go out of style and become irrelevant. Wal-mart, Target, Office Depot and other low-cost suppliers are indirect competitors in the fact they do offer low-priced furniture that consumers pull together themselves. Conversely, these indirect substitutes vary in detail because these are general retailers instead of being a specific retailer as IKEA is a retailer of household furniture.

PESTEL Analysis

Political – As part of the national or global trends and changes, IKEA is just one example of firms that are successful in both domestic and international business . The Swedish furniture retailer has found the Scandinavian style of furniture that was combined with “do-it-youself” flat packaging became popular and set a global cult brand .

Economic – The Company, due to the economic changes and trends are adopting different kind of strategies that will take an appeal on their customers and aiming to own the customer loyalty . Economically, IKEA is low cost. This is a big piece of breaking into the American market. IKEA had to focus and advertising campaign directed specifically to thwart American’s unwillingness to part with their styling of furniture.

Social – The IKEA contributed much in the society as they provide opportunities in people and the employees are entitled in different benefits such as insurance and pensions ( 2005). Moreover, the company promises to provide more high quality furniture that sticks to their original concept – stylish furniture at low prices.

Technological – IKEA uses superior technology and systems to encourage shorter waiting times, accurate scheduling, tracking and trading patterns, and staffing. The system made the IKEA in a position to ensure the right number of staff in a right place and in a right time to match the unique trading pattern s at each stores of IKEA. The company view in optimizing everything from the supply chain is also optimizing and managing the workforce to create an efficient store environment and keep customers happy .

Environmental – Concerning the environmental factors such as the air, noise, and water, inspections are put in place to ensure the company provides remedial actions within a stipulated time. The environmental inspection consists of legal documents and environmental authorities as the business operations are continuing.

Legal – The legal compliance of IKEA is sternly implemented with pertinent laws and regulations that affect to the environment, social and working conditions. The company also scheduled the most demanding requirements to be specific in maintaining the list of laws and regulations and with the procedures.

Analyzing IKEA’s Capability

Based on the given synopsis of the IKEA Company it is recognized that IKEA exerts a strategic approach in order to maintain their competitive edge in the furniture industry. The management of the company is able to identify the priorities of the business and make decisions in line with the strategic direction, by placing considerations of the business and its stakeholders.

IKEA is competent as it focuses on the significance of both internal and external customers to guarantee that these customers remain satisfied and loyal.  The company also ensures that they motivate, coach, guide, and support their staff to realise the mission of the IKEA. Additionally, IKEA’s capability to identify its suppliers is another factor that maintains the company’s competitive advantage. The ability of management to differentiate and diversify their business strategy to dominate the global market can also be considered as major capabilities of IKEA

Resource Based View Analysis

IKEA selects the most feasible position when it comes to delivery of items. Their warehouse is smartly located with different sectors to have greater control of activities. This strategy analyses the deployment of resources, processing time and queue times for various actions. IKEA’s staff is rotated in order to complete customers’ orders from each picking area. Resources are simulated at higher levels and are applied and detailed in applicable working schedules.

Stakeholders’ Analysis

Other than what is already known about IKEA, it is observed that besides the management of the business, IKEA’s customers play an important role in the accomplishment of the organizational goals. The management skills and capabilities of the pioneers of the company have propelled IKEA into being a powerful entity in the furniture industry today. Furthermore, the loyalty of its customers has also greatly assisted IKEA in maintaining its competitive edge. Customers and workforce entities go hand in hand, as IKEA’s employees are the ones who work effortlessly ensuring that the company satisfies the demands of its customers. Therefore, when customers are satisfied, as they get value for their money with IKEA, they will remain loyal and hence build IKEA’s value chain. The suppliers and stakeholder s can be considered an additional factor that made IKEA the success they are at present.

IKEA’s Strategic Issues and Challenges

Competition

The IKEA’s furniture competitors’ offers different styles and functionality. Conrin targets a new low cost in terms of furniture line; Cratel & Barrel offers a furniture in a 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. 

Natural Resources

IKEA is the biggest furnishing company world wide, so it needs al lot of wood. This implicates, that there are confrontations with nature protecting organisations.

The IKEA Concept

The IKEA concept is easy to take up. Companies like Bush Industries in the USA have taken over the concept of cheap furniture, but they adopted their products to the American habits.

Reaching Limited Customers

The fundamental problem which IKEA is currently facing is that they are only reaching a

limited amount of customers due to their few store locations.

Event that founder retires or dies

Major challenge to keep the core values alive especially when the company becomes larger and more diverse and the founder retires from the business.

Catalogue Distribution

IKEA want to increase the return on investment for the catalogue distribution, which is a substantial investment, and remain ahead of the competition in terms of business strategy

Solutions to IKEA’s constraints

Catalouge

IKEA needs to make sure than they distribute their catalogues who can be potential IKEA customers in terms of where they are located and ther demographic attributes. IKEA can also sell its catalogue at a low price to help generate some revenue as its catalogue is its biggest marketing mechanism.

Low price

The company must ensure that it is always known for having the lowest prices on the market in the future. Communication plays an important role here. IKEA must main its low cost leadership by using the low cost leadership strategy.

Market forces

IKEA is large enough to enjoy economies of scale. This lowers average costs in the end through, for instance, better use of technology or outsoucing specialized managers. Economies of scale also gives a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This puts up high barriers to entry for smaller companies entering the market.

Communications.

IKEA needs to maintain communication with its consumers and other stakeholders about its environmental actions.

Store Locations.

IKEA needs to strategically place its outlets where it has never been before. IKEA usually has large outlets in large cities. However, a tactical approach will be to launch smaller outlets in smaller towns. This will attract a new sector of customers hence increasing IKEA’s profitably in the furniture industry.

A new organizational structure will be necessary because of moving the organization from a global perspective towards a transnational perspective. Where the global organization is designed as to increase production efficiencies using global economies of scale and scope concepts, the transnational organization combines efficiency, local responsiveness and organizational learning.

In order to assist the transition process towards such an organization, the IKEA group has to drastically transform its approach on the function of its subsidiaries. At present, IKEA’s subsidiaries are barely no more than expansions of the business head office in Sweden.

The responsibility of the subsidiaries is not to sway parent company strategies, but moderately follow instructions from home country Sweden. High localization pressures emerging due to demographic and cultural differences will compel subsidiaries to take strategic initiatives to act in response to local market requirements. The new organization would be easier to follow and pass on more accountability to subsidiaries. The centralized research and development department would have form strategic in-house networks with these subsidiaries and, in a mutual approach, develop products that are adopted to match country level requirements.

Strategic corporate direction has to be maintained, since there is a need to safeguard its market niche. The changes projected in the organizational structure will have promising impacts on the company culture, which is currently founded on the IKEA concept or the IKEA way. A reduced amount of management from Sweden will trigger the incursion of new principles, values, and measures into the IKEA way. This will boost the intricacy of the operational culture, but will improve decision-making based on a spot on international dimension.

CONCLUSION

To conclude, with this position analysis, appropriate evaluation has been considered using different marketing tools, which lead to the determination of the present position of the IKEA Company.  This analysis has revealed which parts of the IKEA business entity that requires development and altering in order to maintain the competitive edge. The IKEA strategy is unique but it works, as IKEA is a leader in the global market. IKEA places its focus on further profit creation and growth and development.

It can be said that based on the given case, IKEA strategy is something which is different but effective to achieve their goal of dominating the global market. Giving value to their stakeholders is one of the vital approaches that the company had used. In addition, their ability to innovate and diversify their products has also been identified as part of the strategy of IKEA.

In addition, because of the competitive situation of the company, there is a strong barrier to entry for a new household furniture as well as food market that would compete with IKEA.  As the company is competing in both local and large-scale market environment, IKEA’s feasibility is to achieve more customers from altered areas of the world and to provide each customers quality and resourceful household furniture products and will satisfy their needs while enjoying reasonable and reasonable prices.  The company is looking forward to give the customers more from what they are expecting via technological innovations. In addition, the strategy of the company also includes their ability to adapt to the changing needs and demands of their target market even in different parts of the world. IKEA is in a favourable position to carryon operations in the years ahead.

Bibliography

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