| Subject | Essay Writing | Pages | 9 | Style | APA |
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Question
Case studies are an important learning strategy in business classes as they provide an opportunity for you to critically analyze events that have taken place in real-life businesses. This develops your critical thinking and research skills as you research the competition and industry in which your business resides with an end goal of formulating a recommendation for the challenges faced by the company.
Evaluate the case study and respond to each of the questions below using both theory and practical managerial thinking as well as supporting research.
Option 3: IKEA (pp.185–186)
- Evaluate IKEA’s business model concept and how it has evolved through the years. It has been stated that they have essentially changed the way people shop for furniture. What are the pros and cons of this type of strategy for IKEA?
- Through the application of a PEST analysis, what are the current environmental factors impacting IKEA?
- Who are the top three competitors of IKEA, and what are their advantages/disadvantages with respect to satisfying the value proposition of their customers?
- As IKEA looks to maintain markets in the United States as well as expand to areas such as Asia and India, what would you recommend to maintain customer value, satisfaction, and loyalty?
In formatting your case analysis, do not use the question-and-answer format; instead, use an essay format with subheadings. Your APA-formatted case study should be a minimum of 500 words in length (not counting the title and reference pages). You are required to use a minimum of three peer-reviewed, academic sources that are no more than 5 years old (one may be your textbook). All sources used, including the textbook, must be referenced; paraphrased material must have accompanying in-text citations
Marketing Excellence IKEA
IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad who sold pens, Christmas cards, and seeds out of a shed on his family’s farm. The name IKEA was derived from Kamprad’s initials (IK) and the first letters of the Elmtaryd farm and the village of Agunnaryd where he grew up (EA). Over the years, the company grew into a retail titan in home furnishings and a global cultural phenomenon, inspiring BusinessWeek to call it a “one-stop sanctuary for coolness” and “the quintessential cult brand.”
IKEA inspires remarkable levels of interest and devotion from its customers. Each year more than 650 million visitors walk through its stores all over the world. Most need to drive 50 miles round-trip but happily make the effort in order to experience IKEA’s unique value proposition: leading-edge design and functional home furnishings at extremely low prices.
IKEA’s Scandinavian-designed products are well made and appeal to the masses. To stay relevant and fashionable, the company replaces approximately one-third of its product lines each year. Most have Swedish names, such as HEKTAR lamps, BILLY bookcases, and LACK side tables. Kamprad, who was dyslexic, believed it was easier to remember product names rather than codes or numbers.
Besides featuring fashionable and good-quality products, IKEA stands out in the industry because of its bargain prices. The company’s vision is and always has been “to create a better everyday life for the many people.” As Kamprad said, “People have very thin wallets. We should take care of their interests.” A high percentage of its customers are college students and families with children.
IKEA continuously seeks out new ways to run its businesses more efficiently and pass those cost savings on to the customer. In fact, it reduces prices across its products by 1 percent to 3 percent annually. How can it do so? For starters, IKEA engages the consumer on many levels, including having the customer do all the shopping, shipping, and assembly.
IKEA’s floor plan is designed in a winding, one-way format featuring different inspirational room settings, so consumers experience the entire store. Next, they can grab a shopping cart, pay for the items, visit the warehouse, and pick up their purchases in flat boxes. Consumers load the items in their car, take them home, and completely assemble the products themselves. This strategy makes storage and transportation easier and cheaper for the store.
IKEA has also implemented several company-wide strategies to keep operational costs low. The company buys in bulk, controls the supply chain, uses lighter packaging materials, and saves on electricity through solar panels, low-wattage light bulbs, and energy from its own wind farms in six different countries. Its stores are located a good distance from most city centers, which helps keep land costs down and taxes low.
When IKEA develops new products, its designers and product developers start with a low price tag first and then work with one of their 1,350 suppliers around the world to develop the product within that price range. Designs are efficient, and waste is kept to a minimum. Most stores resemble a large box with few windows and doors and are painted bright yellow and blue—Sweden’s national colors.
Many of IKEA’s products are sold uniformly throughout the world, but the company also caters to local and regional tastes. For example, stores in China stock specific items for each New Year. During the Chinese Year of the Rooster, IKEA stocked 250,000 plastic placemats with rooster themes, which quickly sold out. When employees realized U.S. shoppers were buying vases as drinking glasses because they considered IKEA’s regular glasses too small, the company developed larger glasses for the U.S. market. After IKEA managers visited European and U.S. consumers in their homes, they learned that Europeans generally hang their clothes, whereas U.S. shoppers prefer to store them folded. As a result, IKEA designed wardrobes for the U.S. market with deeper drawers.
Showrooms in each country or region vary as well. For example, managers learned that many U.S. consumers thought IKEA sold only European-size beds. Beds are very important to U.S. consumers, so IKEA quickly changed its U.S. showrooms to feature king beds and a wide range of styles. After visiting Hispanic households in California, IKEA added more seating and dining space to its California stores, as well as brighter color palettes and more picture frames on the showroom walls. In China, IKEA set up its showrooms in small spaces to accurately reflect the small size of apartments in that country.
As the company expands globally, it is learning that attitudes towards its core DIY (do it yourself) delivery and assembly business model vary. In China, for example, consumers do not want to assemble products themselves and will pay a significant amount for home delivery and assembly. As a result, IKEA has added these services, and sales in Asia have taken off. The company plans to implement the same strategy in India, where DIY is also less common.
IKEA is known for its quirky marketing campaigns, which help generate excitement and awareness of its stores and brand. It ran a campaign inviting customers to be the “Ambassador of Kul” (Swedish for “fun”), but in order to collect the prize, the contestants had to live in an IKEA store for three full days before it opened, which they happily did.
Thousands of people will line up for a chance to win prizes and IKEA furniture. In Sweden, IKEA launched a Facebook page for the manager of a new store. Anyone who could tag his or her name to an IKEA product on the profile page won that item. The promotion generated thousands of tags.
IKEA has evolved into the largest furniture retailer in the world, with approximately 350 stores in 43 countries and revenues topping €27.9 billion, or $36 billion, in 2013. The majority of sales still come from Europe, but the company has aggressive plans to expand the $11 billion brand further into Asia, India, and the United States.
Sources: Kerry Capell, “IKEA: How the Swedish Retailer Became a Global Cult Brand,” BusinessWeek, November 14, 2005, p. 96; “Need a Home to Go with That Sofa?,” BusinessWeek, November 14, 2005, p. 106; Ellen Ruppel Shell, “Buy to Last,” Atlantic, July/August 2009; Jon Henley, “Do You Speak IKEA?,” Guardian, February 4, 2008; “Innovative Retailers: IKEA,” Retailinsider.com/PCMS, March 29, 2012; Jenna Goudreau, “How IKEA Leveraged the Art of Listening to Global Dominance,” Forbes, January 30, 2013; IKEA, www.ikea.com.
Answer
IKEA Case Study
IKEA is an international company specialized in designing and selling ready-to-assemble furniture, home accessories, and kitchen appliances. The company also offers occasional home services. Because of strategic leadership and its quirky marketing campaigns, the brand has been consistently ranked as the largest retailer of furniture globally since 2008 (Edvardsson & Enquist, 2015). It is upon this background understanding of IKEA that this paper evaluates the firm’s business model, conducts a PEST analysis of the furniture industry, analyzes three competitors of IKEA and makes recommendations on how the brand can maintain customer loyalty, satisfaction and value.
IKEA’s Business Model
According to the case study, IKEA applies the do it yourself (DIY) delivery and assembly business model. Nonetheless, global expansion has forced it to introduce variations to the model. This explains why the model has evolved over the years, as the firm seeks to improve its value proposition and satisfy customer needs across different markets with varied cultures. For instance, IKEA has customized its model to suit Chinese consumers who prefer already assembled products delivered to their homes. These customers are willing to pay the additional cost of assembly and delivery. In response to these variations, IKEA introduced these services to meet customer’s desires. The main advantage of modifying the IKEA business model is that it enhances the flexibility of the organization in meeting diverse consumer wants across the global market place. As a result, it heightens their satisfaction and creates brand loyalty. On the contrary, varying the model could be confusing to the company as it will have to venture into delivery and assembling services which are not its core competence. In addition, these services introduce additional costs, which were previously eliminated through the adoption of the DIY business model.
IKEA’s PEST Analysis
This analysis identifies current environmental factors impacting IKEA. These factors are analyzed as follows:
- Political Factors
IKEA’s plan to expand its operations in the USA, India and Asia could be supported or hampered by government policies, and regulations on labor, market operations and competition against local brands (Frue, 2018). A critical analysis of Asian markets and India, show that the governments have embraced market liberalization as part of their commitment to globalization. As a result, they have created open markets for international brands.
- Economic Factors
IKEA is an attractive brand especially to families with children and students. This implies that the brand adopts the cost leadership strategy. Its use of low-cost pricing strategy is admirable to price sensitive customers wanting inexpensive yet stylish furniture (Frue, 2018). Since emerging economies in Asia and China are anticipating higher disposable income, it is certain that IKEA will attract more sales from Asia and India than from Britain, whose economy is suffering post-Brexit. Second, the current outbreak of Corona virus pandemic is threatening commercial operations in China, and Asia leading to stalled sales for furniture.
- Social Factors
IKEA is a customer-centered organization; thus, its marketing resonates with the social trends and cultures of their customers. On the other hand, the growth of social media reviews and electronic word of mouth could work against the brand as most customers are giving one-star reviews. This shows their dissatisfaction with IKEAs e-commerce platform which is sluggish and slow.
- Technological Factors
IKEA has transitioned from using paper catalogues to digital catalogues. This approach complements its e-commerce and website which enable access to the firm’s products through digital devices. In addition, IKEA’s use of social media sites such as Facebook to create viral marketing campaigns has helped in cost saving and reaching a wider global audience.
IKEA’s Competitors and their Advantages/Disadvantages in Satisfying Customers
IKEA’s top competitors are Amazon, Walmart and Wayfair. Walmart produces a wide range of high-quality furniture idea for the American consumers. Its disadvantage is the high price point for its products. Customers consider IKEA as an inexpensive alternative. Secondly, Walmart is not specialized in furniture but retail. As a result, it lacks the core competence enjoyed by IKEA in designing own unique products. Amazon’s value proposition is derived from its extensive range of DIY furniture (Bhasin, 2018). In addition, it benefits from controlling its supply chain which enables it to offer free scheduled delivery since it owns a dedicated e-commerce platform. Its disadvantage is the lack of specialization which reduces customers confidence in its furniture products. Third, just like Amazon, Wayfair derives its competitive advantages from its e-commerce platform designed to sell collections of home stuff. Secondly, the firm specializes in home furnishings and décor items. Targeting niche markets enables it to provide superior services and products. Its main setback is the slightly higher price point compared to IKEA.
Recommendation
Guided by this analysis, IKEA needs to change its business model to accommodate variations in consumer wants. The new business model should be customized to reflect the adaptability of the company in serving its global customers based on their personal preferences (Mishra, Raj & Karuna, 2019). This strategy will boost loyalty, satisfaction and customer value. Secondly, IKEA needs to respond to the PEST analysis by avoiding negative factors in the external environment (Gummesson, 2017). For instance, the organization should avoid negative reviews by fostering customer relationship management (CRM).
References
Bhasin, H. (2018). Ikea competitors. Available at: https://www.marketing91.com/ikea-competitors/
Edvardsson, B., & Enquist, B. (2015). The service excellence and innovation model: lessons from IKEA and other service frontiers. Total Quality Management & Business Excellence, 22(5), 535-551.
Frue, K. (2018). PESTLE Analysis of IKEA. Available at: https://pestleanalysis.com/pestle-analysis-of-ikea/
Gummesson, E. (2017). From relationship marketing to total relationship marketing and beyond. Journal of services marketing, 9(12), 88.
Mishra, R. K., Raj, A. S., & Karuna, M. (2019). IKEA, Furnishing the Indian Homes: The Challenges of Culture, Competition and Channel. IPE Journal of, 95.
