IKEA Case Study Analysis PDF

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IKEA Case Study AnalysisViewpoint Taken: Top ManagementTime Context: 1990 USA ExpansionI. Statement of the Problem:  How could IKEA sustain and build competitive advantage to improve its profit margin and to expand its marketing coverage in Non-Western Countries? II. Objectives: A. Short Term Objec...

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IKEA Case Study Analysis

Viewpoint Taken: Top Management Time Context: 1990 USA Expansion I.

II.

III.

Statement of the Problem:  How could IKEA sustain and build competitive advantage to improve its profit margin and to expand its marketing coverage in Non-Western Countries? Objectives: A. Short Term Objectives:  To build positive brand awareness and goodwill especially in new international markets in the span of 1 year.  To identify the proactive market driven strategy of IKEA to deliver superior value to new and existing customers in 2 months  To conduct extensive market research or customer feedback research in potential international markets in the span of 6 months  To increase profit margin by 20% in a year by satisfying customer in unique design, quality and accessible product. B. Long Term Objectives:  To build and sustain market leadership in furniture retail industry globally.

Areas of Consideration: A. External Environment:

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Demographic: Demographic segmentation consists of the individual age group, gender orientation, based on family life-cycle, occupations, income level of a single customer and the society interaction level in conjunction with the economic factors. Lately the company’s target is to young couples whom own apartment; a survey has been done which includes the number of young married adults, working professionals and first-time furniture shoppers.

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Industry Profile: It was established by Ingvar Kamprad in Sweden in 1943. One of the world’s most successful global retailers. With 300 home furnishing stores in 35 countries and was visited by 583 million shoppers. Ikea’s target market is the young, upwardly mobile global middle class who are looking for low priced but attractively designed furniture and household items.

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Economic Situation: Macroeconomic situation and consumer spending power is one of the most significant economic factors that affect IKEA performance, as well as, the performance of any business entity. Fluctuations of costs of raw materials such as wood and metals IKEA uses a major economic factor that also impacts the business significantly. IKEA revenues are directly affected by exchange rate fluctuations between EUR and USD and other major currencies due to the global scale of business operations.

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Socio Cultural Background: Social and cultural factors have deep impact on operation of the business. different countries have different cultures, what is good in one country could be a sin in another country. so, it becomes very important for IKEA to take care of the values and culture hold by people of the country in which it is operating.

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Political/Government/ Peace and Order: Foreign trade policies, trade restrictions, bureaucracy, government policies are some elements that affect the operation management of a firm politically. Technology: 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

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chain is also optimizing and managing the workforce to create an efficient store environment and keep customers happy. Threats    

Decline in demand due to increase in consumer income Intensifying competition Increasing costs of raw materials Global economic and financial crisis

Opportunities   

Increasing presence in developing countries Adding premium range of products into portfolio Strengthening cost leadership competitive advantage through technological innovation

B. Internal Environment: Porter’s Five Forces Analysis Competitive Rivalry There is intense rivalry in the furniture industry. At IKEA’s level, there are other big firms constantly competing with IKEA. Firms like Walmart, Amazon, Target, Wayfair are all competing with IKEA. The threat of Rivalry for Ikea is quite high. The Threat of Entry Although there are many furniture companies out there offering so many choices, it is clear that IKEA stands out because of how unique it is and the low prices it offers. For new entrants to compete at that level, the cost of entry would be high therefore affording IKEA a cost advantage over them since they have already achieved production economies of scale. The threat of entry for IKEA competitors is low to medium. The Threat of Substitutes Furniture cannot really be substituted. People will always need furniture and IKEA being an innovator in modern furniture is actually at the fore front of this race constantly offering new designs and looks. The threat of substitutes is very low. Buyer Power Buyer power has significant impact on the producing industry. The buyer power is perceived to be strong enough if they are in the minority in numbers and there are numerous producers or furnishing manufactures. The various products

from Ikea that has advantages of high quality and low-price become one particular features in which buyer has less options since in some developed countries usually the furnishing companies are priced high. Supplier Power Supplier power is typically low within the specialized furnishingmanufacturing industry because furnishing companies have various amounts of different components and there are a large number of suppliers available to cater for this. The supplier power is low in case of Ikea since there are less worldwide furnishing retailers that would accept their low-cost products in global markets. Weaknesses 

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Ikea standardized products. Its main focus is to provide standardized quality products and services at low prices to cater its customer. Limited Promotional Expenditures, the company depends on word of mouth and catalogs to generate a buzz among customers. Decreasing quality Negative publicity

Strengths     

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IV.

Strong brand reputation and market presence. Wide range of products and styles Competency in cost-cutting through product and process innovation i.e. (Self-assembly furniture idea) Corporate culture, IKEA values antibureaucracy in its operations, and strongly follows worker and environmental protection rules. Not Traditional furniture store, it added several amenities such as child care services, car racks, restaurants to encourage customers. Strong Focus on Sustainability. IKEA considers the environmental impact of every step in its business processes by making products that are environmentally conscientious and cost-effective.

Alternative Courses of Actions: ACA #1: Massive advertising campaign to educate customers to embrace dominant design. Promotion campaign must consistently implemented and regulated. Promotion of Ikea will be likely attention grabber, creating store traffic, more sales and customer loyalty. ACA #2: Product modification (design and quality). Create a marketing campaign or a product line that will suit the cultural demand of a certain target country.

ACA #3: Developing the research and development programs. Investment in research will give Ikea better ideas and guidelines for the current trends, behavior and needs of the entire market, thus will provide superior customer value. ACA #4: Merging with other respectable local companies to strengthen its financial capacity and can easily penetrate the market.

V.

Recommendation A. State your recommended solution ACA #4: Merging with other respectable local companies to strengthen its financial capacity and can easily penetrate the market. Local companies could help IKEA to understand better the customer’s behaviors in the Nonwestern Markets. The psychic distance would be reduced and consequently IKEA could adapt its products, its stores layout following its local partner advices. Traditionally IKEA used to push Swedish design into the new markets without considering the local needs. If they could find a local joint venture understanding well the local needs, they could provide more suitable products. The centralized system suppresses creativity and freedom for franchisees. Joint ventures and strategic alliances are more flexible and less “controllable” by central headquarters. So, creativity and freedom could make progress thanks to local partners with new ideas and new eyes on IKEA activities. Finding new local alliances could allow IKEA to diversify and to put in place on new market segments. By finding good partner IKEA could expand into other market segments in which an IKEA competitor has established well.

VI. ACTIVITIES

Discussion of new international expansion which includes evaluation of target country and analysis of micro level, economic situation and suitability of business,

Plans/Programs for Implementation PERSON/ DEPARTMENT RESPONSIBLE

TIME FRAME RESOURCES NEEDED

Manpower Top management

1 week

KEY PERFORMANCE INDICATOR

Business Strategy Idea

Search for Local companies for perfect for joint venture

Top management,

1 month

Manpower

List of qualified/ suitable local companies

Prepare joint venture agreement

Top management

1 week

Manpower

Agreement

Legal

Manpower

Gather data in the market

Marketing Researcher

1 month

Technology

Manpower

Analyze and review the data gathered

Marketing department

2 weeks

Product development team

Facilities

9 to 12 months

Top management

5 years

Facilities and Equipment

Technology

Manpower Evaluation of all activities performed

Top management

1 month

Productivity

Technology

Manpower

Market positioning and implementation of the new strategy

Consumer Perception

Technology

Manpower

Creating a product line that suits the market, creation of new promotions for consumer activation, pricing strategy,.

Consumer Perception

Target revenue and actual sales

Revenue...