IKEA – Foundations of

Marketing
A company’s marketing strategy and competitive strategy is important to
make sure that your products are marketed correctly, not only for profit
maximisation but also to create awareness of your brand name. An
effective marketing or competitive strategy makes sure that you are always
one step ahead of your competitors. You may be achieving maximum sales
at the current moment but an effective strategy would look in to the long-
term and plan for the future so that the success is not short lived.

IKEA the Swedish furniture retailer has global brand recognition and
enjoys great success all over the world as the low cost producer of stylish
and functional furniture products. This report highlights IKEA’s marketing
strategy and how they place themselves against its competitors in order to
gain market share and achieve overall success.

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IKEA’s main aim is to be the low cost producer in the market it operates in
and therefore has introduced innovative and cost efficient methods of
manufacturing products. Components for products are bought from
around the world and wastage of raw materials is seen as another
invention to make another product. These cost conscious methods are
employed at every stage in the production, manufacturing and distribution
process so that the products that reach the customer are affordable for as
many people as possible.

“Your partner in better living. We do are part, you do yours. Together we

save money” (IKEA 2005) is IKEA’s market positioning statement. This
means that in order to save money the customers are implemented in the
IKEA process and thus they have to pick up the furniture and assemble it
themselves. This differentiation strategy gives IKEA a competitive
advantage and is a marketing tool that sets it apart from its competitors
like Argos.

IKEA growth strategy is to expand with opening more stores all around the
world. However its main competitor Argos is also implementing a similar
strategy within the UK market and has taken over IKEA.IKEA must
therefore re-establish themselves through short term strategies like
promotional offers. However they must try to focus on long term strategies
like the IKEA store card which develops a long term relationship with its
loyal customers. By focusing on the long term they reduce the risk of losing
anymore market share.

Overall IKEA is achieving great success with some short-term down falls
but there strategies will try to overcome these short coming. However
IKEA must focus on trying to provide low cost items of high quality while
marketing IKEA as a shopping experience rather than just a furniture store
as this differentiate itself from its competitors like Ilva a Danish furniture
firm trying to expand in to the UK market.

With profits totalling to 14.8 billion euros(IKEA 2005) IKEA can be classed
as a global and local success in many countries. However they must
become confident as they are target to local and international competition.
To overcome this they can use the environmental friendly processes as a
marketing tool to attract new customers. They can also try and find new
innovative practices of producing and distributing goods in the most cost
effective ways to ensure that they remain the producers of high quality and
cheap products.

Introduction

IKEA, a Swedish furniture retailer is known for its cheap prices and high
quality products. IKEA is a global success with over 200 stores in countries
around the world with profits increasing rapidly (IKEA 2005) . IKEA has
effectively implemented a marketing strategy and placed themselves in a
position to overcome its competitors. Its marketing and competitive
strategy of high quality products at cheaper prices which is embedded in
the culture starts at the design process and continues through all
manufacturing, production and distribution stages until it is received by
the customers so that they can achieve their promise to produce products
which are affordable for as many people as possible.

The Company

IKEA began in the early 1940’s, when Ingvar Kamprad the founder of IKEA
sold general household products which people demanded. Due to his
success he opened up a showroom and began designing his own furniture
range which led to innovation and low costs. The real success came when
they realised they could flat pack the furniture so transporting goods to
IKEA and for the customer would be easier. This differentiation was their
marketing tool which made them a household name on global scale.

IKEA a Swedish retailer offers a large range of stylishly designed,

functional home furnishing products at low prices. This is the single idea at
the heart of everything IKEA does, including the way they produce, buy
products and the way they sell them in IKEA stores around the world. They
produce high quality products at low prices and this is done by cost-
efficient and innovative methods.

Sales and Profit Trends

This graph shows that between 1995 and 2001, IKEA had major success
because there is an increase of 6.4 billion in profits. This might due to all
the heavy promotion but also because of new stores opening around the
world. The profits have increases from 2001 onwards it has not been a very
substantial increases compared to 1995 and 2001 but it just shows that
between a space of ten years IKEA has achieved great success.

The Market Environment

IKEA operates on a global level with 231 stores in 33 countries. The top
five countries with the most sales are Germany 19%, USA 11%, UK 11%,
France 9%, and Sweden 8 %.

(IKEA 2005). This shows that IKEA products have an international appeal
and are targeted at many markets. The main objective of IKEA is to
produce low priced products of high quality. Its products are produced
from resources from all around the world which gives them a competitive
cost advantage. The large, yet simple retail stores on the outskirts towns
makes them easily accessible for customers and distribution. Trying to
achieve the lowest costs in production and distribution means that they
have incorporated a cost-leadership strategy this has been embedded into
the IKEA’s culture through efficient processes. IKEA works on the idea
“pile them high, sell them cheap” idea (Marcous� et al 1999 pp164). The
profits may initially be low but with high turnover it makes a healthy
profit. The reduction in price does not mean that the quality must be
compromised.

The Five Forces Model

This model helps to contrast a competitive environment. As the diagram

shows IKEA is working in a competitive environment with large and small
furniture retailers trying to gain market share as barriers to entry are very
weak. Customers are in a strong position as they have more bargaining
power and negotiate for goods which meet customer needs. A wrong move
could have a detrimental affect with your competitors moving ahead of
you.

Competitive Environment

IKEA’s strategic positioning is unique. Few furniture retailers have

engaged in long-term planning or achieved economies of scale as European
furniture retailers are smaller than IKEA. Even when companies have
joined forces as buying groups, their operations have made it difficult for
them to achieve the same degree of co-ordination as IKEA. IKEA offers
limited customer assistance but creates opportunities for customers to
choose transport and assemble units of furniture which differentiates them
from its competitors.
Porter’s Generic Strategies Model

Porter identifies three competitive positioning strategies on which the firm

can follow (Kotler et al, 2005 pp 504 213).

> Achieve overall low-cost leadership in the industry

The emphasis on efficiency at all levels within the organisation is the

central idea to a cost leadership strategy .Costs need to be monitored at all
levels to ensure that they gain benefit form economies if scale. A low cost
leadership strategy will only work if the products produced are cheaper
compared to its competitors.

> Concentrate on products that are differentiated.

A differentiation strategy requires the organisation to offer something

which is unique and valued by the customer’s .The value added by
differentiation results in the ability to charge a higher price. This is to cope
with added costs of differentiation, leading to higher profit margins. The
risk involved with this strategy is that the consumers may perceive the
product as a value added the product

IKEA supports a cost leadership strategy while adopting a differentiation

strategy by adding the customers in the value chain. The customers are
source of labour, knowledge and transportation. The customers are told
what is required of them, for example customers have the responsibility of
picking up the items from the warehouse. The suppliers are seen as
customers gaining knowledge form IKEA specialists. This value added
process makes sure that IKEA selects suppliers who provide high quality
materials at low costs. IKEA effectively employs a cost leadership strategy
while focusing on the needs of its target market segment.

The Competition

IKEA has faced competition from small local furniture retailers, large DIY
chains and supermarkets. IKEA has been placed as the fourth on the most
popular furniture list in the UK, behind MFI, Argos and DFS. Argos, has
come broadened its appeal to a variety of customers through high quality
furniture and enjoys a 5.1% market share compared to IKEA’s 4.6 %(
Business Scotsman 2004). IKEA is also faced with indirect competition
with home make-over shows and magazines which indicates unsatisfied
customers. Their new Kitchens campaign is another attempt to diversify
and satisfy customer needs.

Target Market

The typical IKEA customer is young, low to middle income family and
generally for first time home buyers. They also focus on the mature and
children’s market through some of its products. The company targets the
customer who is looking for value and are willing to do a little bit of work
themselves by transporting the items home and assembling the furniture.

PEST-G Analysis

PEST-G is used to analyse the business and economic conditions an

organisation faces and how it effects businesses decision making. The table
shows how each factor affects Ikea’s decisions and the way strategies are
implemented. Each factor affects IKEA at varying levels

Political factors

* Legislation affects IKEA on issues such as product liability and product

standard

* The political scene is stable at the moment so short-term decisions are

not affected as much as long term decisions as the political scene may
change

* New laws are likely to increases especially with more EU countries

trading in the free market means regulations are put in place so that there
is no unfair trade.

* IKEA is also influenced by different political factors in the different

countries it trades with.
Economical factors

* The interest rates are low but the rise in inflation may means that interest
rates may increase and this will affect IKEA as they are planning to invest
through opening up new stores this therefore means borrowing is going to
much more expensive

* IKEA locates on out skirts of towns and thus employment rates around
the area must be taken in to account. Employment levels for different
countries they are wishing to trade with must also be taken in to account. It
is an unwise decision to build IKEA stores where unemployment levels are
low as you will to need to offer higher wages to poach workers.

* The exchange rate will also affect IKEA as they are importing or
exporting goods with the international market.

* The GDP level is an important factor as it will show prosperous and poor
areas and therefore products will have to marketed according to people’s
abilities

Socio- Cultural factors

* These factors will vary from country to country depending on the

dominant religion, attitudes on foreign products, the population
demographics and the roles of men and women

* For example in the UK we have a multi-cultured society this will affect

IKEA in the way the products are promoted, the people they recruit and
products being offered must meet the needs of the different user.

* The increase in lone parent families means that the IKEA shopping
experience has to incorporate procedures which are child friendly, for
example playrooms for children’s and products directly aimed at young
children

* The increase in the older generation has affected IKEA and this can be
seen in the products they offer as new ranges of products are aimed
directly at that target market.

Technological factors

* Technology is an important factor as more research and development is

taking place. They need to find new and innovative ways of producing
goods quickly and cheaply. IKEA is constantly faced with not in stock
items, an effective just in time approach could resolve this problem

* New technologies offer consumers and businesses more innovative

products and services such as ordering, booking and buying products
through the internet which IKEA could introduce to gain more consumers.

* Distribution, transportation and communication, is easier and more

effective with the introduction of new technologies like EDI (Electronic
data interchange). Communication is more efficient within the
departments in IKEA but also with the customers through for example
emails, newsletters and multimedia messaging