IKEA: Introduction Essay
IKEA is a company based in Sweden, which operates in 42 countries and has over 70000 employees among these 59000 works in European countries. It is one of the major retailers of furniture and house wares in the world (Richard & Paul, 2005).
It manufactures its own furniture and sells them in stores that are spread throughout the world. It also distributes its large catalog in areas, which are near its stores across the globe. It is known by offering high quality furniture at a low price.
The company purchases items in bulk and store them unassembled which enables the customer to assemble many items at home. This is known as flat packaging, which reduces transportation cost. This Company was developed in order to provide a variety of well-designed furnishing products at a low price, for the majority of people to afford.
It is the most successful company in selling Scandinavian style furnishing products. The company came up with an idea to lower the cost of its furniture by an average of between 2% and 3% every year (Nugent, 2008).
Entrepreneur Ingvar Kamprad initiated IKEA in 1943, and he is still the majority shareholder. He was born in Smaland in Southern Sweden; he started selling matches at low price but making a profit, when he was only 5 years of age. Later on, he expanded his business to selling fish, vegetable seeds, magazines and pens, which were a strange phenomenon in the year 1935.
He used to transport his goods by a bicycle, and later started using a milk delivery vehicle to transport commodities. The company name is an acronym representing the initials of the founder Ingvar Kamprad, the farm that he was born, Elmtaryd and the village, known as Agunnaryd. In 1947, it manufactured the first range of furnishing products, which was positively received by customers.
In 1951, the founder started focusing on furniture only, and he removed all the other products from the product range. IKEA published the first catalog of its furniture in the same year. This enabled many people to be aware of its products. In 1952, Kamprad attracted many customers by selling high quality, low priced furniture at St. Eric’s fair in Stockholm.
In this time, the company was merely a retail business as it purchased items from other suppliers and then sells them. In 1953, it opened its first showroom in the village of Almuilt to curb increasing competition. This competition made other furniture dealers put pressure on suppliers to boycott from supplying furniture to IKEA.
This resulted to IKEA making a crucial decision, to design its own furniture by the year 1955. Komprad decided to buy a small factory to manufacture furniture. He also opened a small show room for displaying the manufactured furniture. He moved IKEA headquarters to Amult from the village of Agunnaryd. Manufacturing furniture for their stores enabled them to sell at a cheap price, which improved the company position in the market.
In 1956, the company started designing flat pack, which allowed a person to remove legs of a table, and fit it in the vehicle to prevent it from being damaged during transportation. The idea of flat pack furniture led to reduction of transportation expenses and reduction of storage space, this eventually led to the overall cost reduction.
In 1958, the company opened its first furniture store of 13,000 square meters in Almult, and this was the biggest furniture display in Scandinavia. The following year the company opened a restaurant near the store, which helped in accommodating customers who were traveling from long distances.
The first outlet outside Sweden was opened in1963 at Oslo in Norway. This was followed by another store opened in Stockholm in 1965. This store had a very large space, and consisted of two buildings, which are joined together. The building was the main display area for furniture.
This store faced a serious challenge in customer service because of its small capacity. This problem caused the development of an open warehouse in order to serve many customers. The open warehouse idea is the key to the modern structure of IKEA stores.
The company decided to open outlets outside Scandinavia in order to increase its customer base. It opened a furniture store in Zurich, Switzerland. Later on, the company opened several outlets in Germany starting with IKEA Munich in 1974. The company penetrated Australian market in the year 1975.
It also opened stores in Canada in 1976, which made the company spread its furniture store around two new continents within a period of two years. IKEA expanded its stores into different countries across the globe. It opened outlets in United States, United Kingdom, France and Italy.
In 1985, it opened its first store in the United States and 1987; the first furniture store was opened in United Kingdom. It increased the number of furnishing products offered; products such as KLIPPAN and MOMENT were added. In 1990, children’s IKEA was launched; the focus was to catering families with children. In 2000, more retail outlets were opened in Russia and Japan. IKEA had opened 285 stores in 36 countries by the year 2008.
IKEA Executive Summary
The aim of this document is to provide information about IKEA furnishing company. It involves the previous study done about IKEA and its marketing strategy. IKEA is a Swedish Company, which is one of the largest furniture retailers. It sells high quality furniture at a low price, and which are designed in Scandinavian style.
The company operates in several countries, and it has a work force of around 76000. It provides about 12000 items to the home furnish market worldwide. It offers a wide range of products including furniture, accessories and kitchen items at its stores.
The company has penetrated several countries across Europe, Asia, Middle East, North America and Australia. It has attracted many customers across the world. This is because of its unique concept of selling products at a low price, wide range of products and flat pack packaging.
IKEA Research
IKEA is among the best companies in the contemporary history of business. This has made many researchers develop interest on IKEA. Some are interested in knowing about Ingvar Kamprad the founder of IKEA (Business strategy review 2004, Daniels 2004).
Kippenberger 1997 argues that IKEA’s unique business and corporate culture is the key to its success in the business world. Study has been done on performance of IKEA in different countries. Most researchers concentrate on its performance in European countries and United States (the economist 1994, Howell 2006, marketing week 2007).
Some scholars have done the research on performance of IKEA in China, although China is relatively a small market (Moller, 2006). The previous study about IKEA in China has not focused on cultural influences on marketing strategies. Marketing is a fundamental aspect in a company for it to survive in the competitive world.
Many people think that marketing is just selling and advertising. According to Armstrong and Kotler (2006), “selling and advertising is only the tip of the marketing iceberg”. Marketing is the process by which, businesses create value for customers and develop strong customer relationship.
According to Armstrong and kotler (2006), for a company to have an effective strategy, it must understand the market place and customers needs and wants. After identifying the customer needs and wants, the company will select the target customers. It will also decide on the value proposition through differentiation and positioning.
Then the company will develop a marketing programme, which transforms strategies into value for customers. The marketing programme or the marketing mix consists of product, price, place and Promotion. The Company should develop a strong relationship with other marketing partners.
Finally, the company should develop strong customer relationship through focusing on the value of products to customers. This will enable the company to achieve customer satisfaction that will lead to increase in market share. Today, the market place is extremely dynamic; it is filled with many competitors. Issues such as globalization and technology should be considered to enhance survival of a company in the competitive business world (Armstrong and Kottler, 2005).
IKEA has transformed the challenges faced in the dynamic market place into opportunities. It has also turned weaknesses to strengths for the company to survive in the turbulent market. Armstrong and Kittler argue that a proper marketing strategy is necessary.
Marketing strategy is the marketing plan by which a business expects to achieve its marketing goals (Armstrong and Kottler, 2005). IKEA based its marketing strategy from the production concept. This concept holds that customers are attracted to products, which are available and cheap.
IKEA uses efficient marketing strategies to attract customers. It started selling its products in bulk, which the founder thought that it would attract customers from Stockholm. These products were transported by a milk van to the train station and then to the buyers.
The goods were available to customers and were sold at a low price. IKEA faced a stiff competition from other companies, which caused it to develop its own product, and looked for cheaper suppliers from Poland. The product concept holds that customers will buy products that are of high quality and low price.
Today, IKEA is concentrating on improving the quality of its furnishing items, even if the price will remain low. Improvement of product quality remains one of the company’s main concerns (IKEA Facts and Figures, 2006). IKEA was unable to follow the selling concept for a long period.
This was because of boycott by its competitors and suppliers in Sweden. The selling concept is different from marketing concept; it starts with the factory, goods, and focuses on selling and promotion. Marketing concept, on the other hand, focuses on customer needs, which leads, to customer satisfaction through integrated marketing (Armstrong and Kotler, 2006).
Societal marketing concept is another fundamental concept in marketing strategy. Companies, which are not concerned with ethical issues and social responsibilities, may not succeed in the modern business world.
IKEA Company plays a significant role in corporate social responsibility. For instance, it collaborated with the United Nations Children’s Fund (UNICEF), to develop a project known as UNICEF-IKEA. This project was designed to fight against child labor. This project received recognition as an example of how a private company can play an important role in corporate social responsibility (UNICEF, 2005).
Its marketing strategy.It developed marketing mix, which comprises of, four components, guides IKEA’s marketing concept: product, price, place and promotion. This marketing mix is also known as the 4Ps. Armstrong and Kotler (2006), argues that marketing mix is one of the key concepts in marketing.
The company blends the four components of the marketing mix in order to identify the target market to penetrate. The marketing mix is a framework for developing marketing programs in a systematic manner. It does not ignore other marketing activities, which do not start with the letter p. instead; these activities are subsumed in one of the 4Ps (Torekull, 2008).
The marketing mix starts with the product. The product involves the goods and services offered by the company to the target market. IKEA offers a broad range of furnishing products to its customers. It also designs similar products with different features.
For instance, Sofas designed by IKEA, are provided together with various covers customers. The company sells its products at a low price that, and offers high quality products. This leads to reduction in the cost of its products (Elen, 2005).
The fact that IKEA wraps its product in a simple and environmental friendly material shows that it does not ignore the societal marketing concept. IKEA also provides services to its customers by providing unassembled products. It advices its customers to-do-it yourself and provide technical assistance if required.
Another important factor in the marketing mix is the price of a product. It represents the money charged for a good or a service. It is the value, which a customer do away with, in order to acquire the benefits of having a product or service. IKEA focuses a lot on the pricing strategy.
The company keeps on reducing the price prices of its products to attract a large number of customers. Reduction of price enables the company to make large orders, which increases its profit margin, which makes suppliers quote goods at a low price. IKEA also gives credit to its customers. The company concentrates much on its pricing policy as it emphasizes customer values and coordinates with other components of the marketing mix (Torekull, 2008).
Place, is another factor, and it involves activities that make goods and services available to the target customers. It includes transportation, channels of distribution, locations, storage and logistics. IKEA started transporting its commodities by a local milk delivery van.
Today it has established an effective transport system to transport the products from the suppliers to its customers. It has developed various logistics hub across the globe, which enables the transportation of products to different regions and countries. The company developed flat pack packaging style, which plays a significant role in reducing transportation costs. IKEA has opened several stores near cities, which has helped in reducing transportation costs.
Finally, promotion is also an important factor in the marketing mix. It is also known as the communication mix, and it involves advertising, personal selling, sales promotion and direct marketing. Promotion is used to communicate customer value, and to strengthen the customer relationship.
Companies use promotion tools such as personal selling to communicate with customers. IKEA advertises its products on television and newspapers. In 1994, it launched a T.V advert, which involved gay couple purchasing furniture in Ikea store. It also produces several brochures, which are spread across the branches in the world (Elen, 2005).
IKEA is also sensitive to ethical and environmental issues. It co-operates with Non-Governmental Organizations such as UNICEF, which helps, in creating a strong public image. According to Armstrong and Kotler an effective marketing strategy blends all the components of the marketing mix in a designed plan to achieve marketing goals.
IKEA is an international company, which faces customers from different cultural background across the world. Hence, the company should understand the impact of cultural aspects to customer reactions. Alvesson and Skoldberg (1999), argues that global marketing strategies help to design customer focused marketing strategies and marketing mix. However, they are not enough to construct a full empirical level.
IKEA’s main concept was formed because of adapting to the market situation. The crucial moments in this time were, publishing the first catalogue in 1951, launching the first showroom in Almuhult in 1953, designing flat packages in 1956 and establishing the importance of low cost of production in Poland in 1962 (Edvardsson and Edquist, 2002).
The most efficient method of promotion is the catalog, which is translated into 40 languages. According to Edvardson, IKEA faced a great expanding internationalization period. In this period, IKEA extended its business to Scandinavian countries in 1960s. By 1970s, it had entered into some European countries, Canada and Australia.
The company penetrated in United State in the year 1985. According to Torekull (1998), the process of penetrating into American market was slow but sure. IKEA staff in Almhult and North America realized the potential benefit of working together. In 1999, IKEA experienced another international expansion; it penetrated in China as well as Japan.
Anders Dahlvig, the president of IKEA said that opening a store in Japan was one of the major achievements of IKEA in 2006. He also declared expansion as one of the main target in 2007(IKEA Facts and Figures 2006). The company encountered difficult challenges in Japan. In 1986, it closed its shop in Japan after operating for 12 years through franchises.
IKEA stayed for a period of 5 years preparing to get back to Japanese market (Japan, 2008). It conducted a research in more than 100 Japanese homes to identify their way of living and their needs (Armstrong & Kotler, 2006). Therefore, it was able to make changes to fit in the Japanese market.
The president of IKEA said that “today, it is another great situation where we have a market in Asia. We have large stores and warehouses. You know it is a different IKEA today.” The company tries to balance between internationalization and local resistance. The colors of the shop are always blue and yellow, which symbolizes the colors of Swedish national flag.
Swedish meatballs and gravid lax are always sold in the restaurant near each shop. IKEA furniture is designed to Scandinavian style, which signifies simplicity and nature. Its success can be attributed to the ability to transform challenges into opportunities.
This is because of its ability to adapt to the existing situation and to focus on customer needs (Kippenberger, 1997). IKEA Shanghai in China provides a range of products that are designed to fit Chinese market (Song 2005).
The company is sensitive to the Chinese culture and provides the set of product attribute effectively (Armstrong and Kotler, 2006). IKEA developed a new marketing strategy in 2005. It used its own furniture to decorate a hotel chain. It would target customers going to hotels and the hotel chain benefits from high quality furniture at a low price.
IKEA: Essay Conclusion
IKEA Company is considered as one of the leading retail companies across the globe. It has established modern furnishing items, which are of high quality and low price. These items are developed to meet the requirements of different customers. It has a wide variety of items almost everything needed at home.
The company wraps its products with environmental friendly materials. According to its mission statement, the company endeavors to produce high quality items at a low price. It aims at reducing cost of production and achieving competitive advantage through cost efficiency and improvement of the value chain.
It uses different strategies to achieve a sustainable competitive advantage, which is adapted to the modern situation. IKEA upholds the cultural value of the target market (Hasegawa, 2006). It designs products that suit customers, and which do not violate their cultural belief.
It plays a key role in corporate social responsibility. It works together with Non Governmental Organization to safeguard livelihood of its customers. The company uses various techniques of marketing strategy. In the marketing mix, it sells its products at a low price, which attract many customers.
IKEA has a well-structured transport network, which ensures accessibility of products to many customers. In the promotion element of the marketing mix, it advertises its products on T.V and newspaper. The company has published a catalogue, which is found in all its outlets across the world. The catalogue has several pages, and it is the most efficient method of promotion (Armstrong & Kotler, 2006).
IKEA is retailer internalization because it develops strategic objective. It also understands the nature of the local market as it uses various outlets to sell its products. The company has a large network of branches worldwide. It has many customers and suppliers, which helps the company to internationalize.
Over the years, IKEA has expanded its operations to different countries. It penetrated Chinese market because of economic constraint and asset based advantage. The success of this company is based on the establishment of new business model. It adopts Porter’s generic strategies of cost-leadership and differentiation and focus strategy to enhance its success in a hybrid strategy. INGKA Holding B.V is the controlling company of all the IKEA group companies.
The founder of IKEA Ingvar Kamprad is the senior advisor while his son is a member of the supervisory board. IKEA group companies are composed of IKEA services B.V. and IKEA services A.B, which have nine branches in Netherlands and Sweden.
Anders Dahlvig-president and CEO of IKEA Group head IKEA group management. The Company plans to improve its marketing strategies in three of its highly developing markets (Hasegawa, 2006). These markets are Russia, China and United States.
IKEA demonstrates that, strategic partnership with manufacturers and suppliers is the key to success. The company provides items, which are relatively easy to assemble. The side tables and coffee tables, which come with different style, are popular across the globe. Textiles rugs, bedding and accessories, are also provided to compliment furniture.
IKEA stores are relatively spacious to accommodate a wide range of furnishing items. While most of IKEA’s furniture is cheap, longevity is not one of its qualities. In most cases, affordability does not go hand in hand with quality. IKEA furniture does not last for many years.
Disassembling the furniture during transportation may also shorten its lifespan. IKEA Company provides attractive furniture at a low price. This is particularly attractive to somebody who is just starting out. This person will get value for his money (Torekull, 2008).
Recommendation
IKEA has a wide range of products that attract customers across the world. It has several outlets, which enables its products to be known across the globe. This has led to the success of the company. However, the company can develop a strategy to select a niche market in areas where the purchasing power is likely to increase in the future.
The company should also come up with strong marketing strategies to penetrate further in Asian, Australian, and Middle East markets. Study shows that IKEA generated only 6% of its sales from the three regions (Geert, 2001). This is a small percentage, compared to the potential of these markets.
North American and Japanese markets share their market knowledge in order to learn from each other’s experience. This has helped in building knowledge capability and improving on marketing strategies within the company.
The Middle East market, which has a lot of wealth, is an attractive potential for the company to improve its market share. Although IKEA has several outlets, it only occupies about 10% of the retail market in these countries’ outlets. This shows that there is still some potential to be exploited in these countries (Foundation, 2008).
The company should consider improving its pricing strategy. This is because it will be difficult to maintain high quality product at a low price. The company should also improve its management style because it is difficult to keep the core values as the company expands and the founder retires (IKEA, 2007).
IKEA employs people from a similar background this causes the company to produce a similar product. The company should change its policy and start hiring people from different backgrounds and personalities. This will help in developing of new ideas and innovation.
Reference List
Armstrong, G., & Kotler, P. (2006). Marketing: An introduction. New Jersey: Pearson Education.
Elen, L. (2005). Great IKEA. London: Cyan communication limited.
Foundation, S.-J. (2008, April 20). Tommy Kullberg resigns as president of IKEA Japan. Web.
Geert, H. (2001). Cultures and organizations. McGraw-Hill: Maidenhead.
Hasegawa, W. (2006, April 26). Sweden’s IKEA back in Japan. Web.
IKEA. (2007). IKEA facts and figures. London: IKEA.
Japan, I. (2008, April 28). Select IKEA stores. Retrieved from IKEA in japan website: https://www.ikea.com/jp/en/
Nugent, A. (2008). The retail internationalization process. International marketing review, 334 – 353.
Richard, C., & Paul, N. (2005). The dynamics of international competition. London: Sage.
Torekull, B. (2008). The IKEA story. New York: Harper Business.