Current Marketing Strategies of IKEA - Features, Crucial aspects and Benefits

A Sample Report On Strategic Management

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TABLE OF CONTENTS INTRODUCTION ............................................................................................................. 1 TASK 1 ............................................................................................................................ 1 Evaluating the strategic capability of IKEA .............................................................. 1 Evaluating the environment facing IKEA ................................................................. 3 Identifying the major issues relating to ethics and social responsibility which IKEA is facing ...................................................................................................................... 5 TASK 2 ............................................................................................................................ 6 Proposing a range of alternative future strategies for IKEA .................................... 6 Justifying the above strategies ................................................................................ 8 TASK 3 ............................................................................................................................ 9 Intended and emergent approaches to strategy formation in IKEA ......................... 9 CONCLUSION .............................................................................................................. 10 REFERENCES .............................................................................................................. 11 APPENDIX ................................................................................................................... 13 Appendix 1: Value chain analysis ......................................................................... 13 Appendix 2 Porter five forces model .................................................................... 13 Appendix 3 Major ethical and social issues .......................................................... 14 Appendix 4 Porter generic matrix ......................................................................... 15 Appendix 5: Justifying the strategies .................................................................... 15

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Introduction In the present era of hyper competition and information technology, it becomes a mandatory aspect for every business organization to systematically and effectively maintain its entire business activities. For this, companies nowadays are laying their significant concern over analysing its external as well as internal environment in order to establish appropriate strategies in the light of achieving leading heights of organization's success (Kim, 2004). Companies are focusing on the concept of strategic management in a significant way. Strategic management refers to the formulation and execution of vital goals taken by the top management of company based on their critical assessment of external as well as internal environment in which the firm operates its business. With this context, present report highlights the crucial aspects of strategic management in IKEA that is a well established and leading furniture based company in Sweden.

The study throws light on evaluating the current strategies of IKEA and proposing alternative strategies for the firm to maintain winning edge in the international market.

Task 1 Evaluating The Strategic Capability Of Ikea In order to evaluate the strategic capability of IKEA, it is important to focus attention over its mission, vision, objectives and major goals.

Apart from this, the strategic capability of IKEA can be analyzed by applying the concept of value chain analysis in an effective way. The value chain analysis of company's strategic capability is explained as follows-

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Illustration 1: Porter's value chain analysis (Source: Rosen, 2006) Using the value chain analysis, IKEA categorizes its set of business activities in two segments which are as followsPRIMARY ACTIVITIES Activity Inbound Logistics

Implementation by IKEA 

Distributes the product from around 42 distribution centres to the retail stores.



Around 1000 suppliers manufacture 10,000 items of product line.

Outbound Logistics



Appropriate method for target consumers to transport their furniture items by themselves.

Operations



Operates its business in more than 50 countries and has 208 operated stores in 25 countries.

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Marketing and Sales



Target market consists of middle and upper middle class with low level of income.

Services



Reasonable prices.



Information served through displays and catalogues.



Lower sales assistants in retail stores.



Online services also available.

SUPPORT ACTIVITIES Activity Firm Infrastructure

Implementation by IKEA



Organizational structure adopted by IKEA is Hierarchical and have large scale business stores across the globe (Elbanna, 2010).

Human Resource Management



High commitment towards HR norms and practices.



Effective

employee

training

programmes.

Technology development



R&D activities started in Sweden which helped

the

entity

to

render

cost

effective furniture items.



Effective use of technologies to attain customer satisfaction.

Procurement



Does not require raw materials as company produces its own brand furniture items.



Long and positive relationships with its suppliers.

See appendix 1

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Evaluating the environment facing IKEA With a view to evaluate the environment in which IKEA is operating its business activities, it is essential to lay significant concern over effectively examining its internal, external as well as competitive environment in a significant way (Carr and Hancock, 2006). Evaluation of its business environment is explained as followsExternal Analysis of IKEA

Illustration 2: Porter's five force model (Source: Pollard and Hotho, 2006) In order to evaluate the external factors in which company operates its business activities, IKEA lays its attention over using Porter's Five Forces Model in a significant way. By using Porter's five forces model, company evaluates five major forces which create a significant impact on the overall functioning of organization's performance and productivity. These forces are explained as follows

Threat of new entrants- It is weak in the said industry. Reason behind this is that the current market is highly volatile and saturated and huge financial investments are required to enter in the discounted furniture industry as that of IKEA. In addition to this,

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with an aim to open venture in a given sector, firm will have to go through number of legal formalities. This is the reason because of which many firms step out themselves from the given sector. But, herein, it is examined that IKEA is a financially stable company and hence, it has the capability to combat all the difficulties which occur in front of it. 

Threat of substitutes- It is weak as there exists large range of products and services that can strongly substitute the overall demand for home appliances, furniture and other varieties of products provided by IKEA. But, this is not the major issue for firm because of its compliance with customization type of approach. The given approach gives opportunity to buyers to make the production of furniture as per their own needs and demands. Hence, it is through this way only, firm attracts large number of buyers even though the presence of substitutes of product in the market. For further information, see appendix 2.

Identifying the major issues relating to ethics and social responsibility which IKEA is facing Besides gaining immense market share along with exotic global exposure and taking various initiatives in conducting ethical services, the organization has faced tremendous ethical and social responsibility challenges in the last few years. All these challenges exist because of the negligence of ethical activities that IKEA has made in the course of dealing with its crucial stakeholders. With a view to identify the major issues relating to ethics and social responsibility which IKEA is facing, it becomes essential to take into consideration the political, economical, social, technological, legal and environmental factors in which the business performs its operations. For this, the company makes use of PESTEL analysis which is explained as follows

Political factors- IKEA posses a significant impact from the political factors of Europe.

The company is highly dependent on the political stability or instability within the country.

Since Europe have high stability of politics and government rules and regulations, the said organization is capable enough to expand its business venture across the globe.

The government rules allows the cited entity to develop its market with innovations and creativity which highly satisfies the consumer's needs and demands. Furthermore, the profits of IKEA are subject to the corporate tax structure of Europe (Eccles and Krzus, 2010). Apart from this, the tariffs and trade barriers possess no impact on the company's profit as it has high dependency on its local manufacturers rather than the imported products.

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

Economic factors- Considering the economic situations of Europe that is the inflation rate, growth rate and population rate, IKEA's strategy to keep low price for its wide range of furniture products attracts the consumers from across the globe (Richardson, 2008).

All such economic factors of Europe, forces the company to target the consumers which possess limited financial resources. This helps the concerned organization to gain widespread popularity in an impressive and significant way.



Social factors- IKEA is planning to design the furniture products according to the tastes and preferences of its target market that is the younger population impressively. The company lays its concern over the social factors of the economy that is the interest and income level of the country and designs its product to gain the highest customer satisfaction. As Europe have maximum contribution of middle and upper middle class people, the company designs the product which satisfies the needs of such group of people and keeps the range of products affordable for them.



Technological factors- IKEA very crucially complies with all the technological incentives which help it to achieve higher economies of scale thereby gaining exotic global exposure in a tremendous way. The company lays its concern over installing updated and cost effective technologies in order to provide the premium services to its target market.



Environmental factors- IKEA highly contribute its efforts towards reducing carbon emission and focuses towards supplier’s behaviour and recycling in a significant way.

This benefits the company to maintain sustainable business activities thereby gaining high level of customer satisfaction and popularity (Hoejmose, Brammer and Millington, 2013).



Legal factors- The concerned company lays its significant concern over acquiring total compliance with the legal and regulatory framework of the country in which it is operating its business activities. It reflects that IKEA strictly adheres to the rules and policies of consumer law, discrimination law, employment law along with health and safety law in an appropriate and systematic way. For further details, see appendix 3.

Task 2 Proposing a Range Of Alternative Future Strategies For Ikea With a view to maintain a competitive and winning edge in the vast international economies, it becomes mandatory for IKEA to develop wide range of strategic measures in a

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significant way. Doing this would benefit the company to beat its core line of competitors and gain monopolistic market share across the globe. Also, developing future strategies will assist the said corporation to plan its activities and functioning accordingly, which will thereby help IKEA to closely accomplish the desired targets within the pre determined time frame (Zhou and Wu, 2010). With this context, the study focuses on introducing wide range of alternative future strategies which will allow the concerned entity to expand and develop its business operations in an appropriate and systematic way. IKEA lays its significant concern over applying Ansoff's matrix in order to propose a range of alternatives for future strategies.

Ansoff matrix Ansoff's matrix focuses on providing an organization with four alternatives to expand its business either in the exuisting market or in the new market with an exoisting product or an innovative product. The four alternatives are

Market penetration- Here IKEA seeks to attain its overall growth and development by expanding its existing market share with its existing range of furniture items.



Product development- By adopting this strategy, the stated firm focuses to expand and enhance its existing market share by launching a new and innovative range of furniture items with affordable prices to catch the eyes of prospective and potential consumers.

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Market development- Undertaking this strategy will require the entity to explore new market segments like India, Bangladesh with its existing products to attain high market share (Richardson, 2008). It should focus on such countries where it gets immense and exotic business opportunities with cost effective measures.



Diversification- This is the most costly and risky strategy which forces the company to expand its business in new market with new and innovative product. IKEA therefore, focuses to expand its business in various corners of the country which may lead the organization to meet failure to some extent as the company will require gaining a deep understanding about various factors of that country.

Porter's generic matrix Also, company uses porter's generic strategy to propose a wide range of alternatives for future strategies. Using such a strategy helps company to maintain a competitive and winning edge in the vast international economies by differentiating its major services and products from its rivalry firms and by applying considerable low cost. This strategy focuses on targeting a particular product and then expanding and promoting that product across the world. As per this model, there exist three main strategies which help the concerned entity to accomplish its competitive edge.

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These strategies are discussed as follows

Differentiation strategy- According to this strategy, an organization seeks to differentiate its core products by charging a premium and standard price from its customers. Some examples of differentiation strategy include rendering excellent services to its customers, outstanding performance of product etc. With this perspective, IKEA should lay its concern over adopting differentiation strategy with the simultaneous use of low-cost strategy. This will allow the company to render furniture at low and affordable prices to its target niche market who posses high demand of good quality furniture at reasonable prices. This strategy will force the said business group to target its audience from among the upper middle class and middle class which were not its core target market before. For further detail, see appendix 4.

Justifying the above strategies The above strategies used by IKEA in order to plan for its future growth and expansion is justifiable on the following grounds

Focus Differentiation strategy- The strategy is justifiable in the manner that it provides the company to focus on its segmented and target market share rather than to the total market. This benefits IKEA to maintain its overall cost of production and reduce its expenses in adopting the techniques for its entire market proportion (Strategic management, 2014). Furthermore, the strategy is justifiable because it helps the company to impressively attain the needs and requirements of its target market in a significant way thereby benefiting IKEA to gain immense market popularity.



Promotion strategy- By undertaking such strategy, IKEA is able to retain its existing customers thereby gaining the eyes of its new audience in an impressive and systematic way. Also, such strategy will assist the organization to attain a winning and strategic edge in the new international market thereby gaining an exotic global exposure in the global recessionary market (Bharadwaj and et.al., 2013). In the present scenario of globalisation and information technologies, the company should work on using promotional strategy as it will assist IKEA to gain a huge crowd of masses thereby resulting in acquiring a dominant and monopolistic market share in a significant and appropriate way.



Outsourcing/Off-shoring- This strategy helps the company to make the potential benefit of low labour cost which results in reducing the overall cost of company's

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production activities in a significant way (Grant, 2010). Furthermore, the strategy is justifiable as it will allow IKEA to effectively explore the new market economies which will result the company to make strategic advantage of the economies in an effective and significant way.



Maintaining customer lifetime value- Implementing this strategic measure will allow the organization to gain a strong sense of customer's trust, loyalty, commitment and confidence towards its brand. For further information, see appendix 5.

Task 3 Intended and emergent approaches to strategy formation in IKEA Intended strategy reflects the planned strategy which an organization wishes to implement in the light of achieving the leading heights of company's success. Such strategies are usually explained in detail under the company's strategic plan. When the organization plans the strategies in order to establish its new venture, it is referred to as business plan. Emergent strategy, on the other hand, reflects the strategies that are developed by the company in unexpected challenges and opportunities (Al-turki, 2011). These strategies also plays a significant role in the strategic planning of an organization but may result in giving hazardous results as the strategies are developed on a sudden basis and that there exist no planning and controlling of such strategic measures. However, such strategies may also result in giving tremendous success because of the sudden opportunities which the company can avail to closely accomplish its desired set of targets in an effective and significant way.

With regard to the present case scenario, IKEA lays its concern over effectively planning the strategies to survive long in the tough trading business environment. Its long term strategy reflects the intended approach of strategy formation which undoubtedly is driven by the company's vision and mission statements (Sanchez, 2016). Furthermore, it significantly makes use of applying the cost leadership strategy within its organizational structure. However, it also implements the use of differentiation strategy because of its exotic way of involving its core customers in the value chain. Considering this fact, it can be said that, IKEA effectively and appropriately plans its future strategies to maintain a competitive edge in the vast international market. It adheres to the intended approach of strategy formation by predicting the future and taking appropriate decisions towards the direction of company's success. To use such approach, the said company starts by analysing its external environment along with the internal strengths and weakness of the organization. Apart from this, the concerned business group also lays its significant attention over its human resources, financial resources and physical

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resources to propose an effective, realistic and achievable strategy. Also, in order to follow the intended approach in the formation of strategies, IKEA is required to emphasise its concern over the international market, its core competitors along with its sustainable business activities which will help the company to achieve the desired set of target within the standard time frame.

Intended approach Besides using intended approach, the cited firm should also focus on applying emergent approach in the formation of its strategies (Strategic Management Journal, 2014). Using such an approach will allow the organization to plan short term strategy to examine the customers taste, preferences and habits in a significant way. Emergent approach of strategic formation is more experimental and will require IKEA to develop short term tactics in the light of achieving the company's success. This approach will serve the organization with a fascinating opportunity to maintain its competitive edge in the vast global and corporate world. Also, it will allow the company to impressively and effectively expand its business operations across the globe thereby gaining the global exposure in tremendous manner.

Thus, from the above discussion it can be said, that IKEA is highly recommended maintaining an appropriate balance between its intended and emergent approach in course of formulating suitable strategies for its overall growth and development (Campbell, Edgar and Stonehouse, 2011). This would benefit the firm to make the best and potential use of its competencies which in turn will provide the concerned business to attain the success effectively.

Conclusion From the above report, it can be concluded that IKEA effectively follows the crucial aspect of strategic management in the light of gaining success and popularity. The report helped to gain insight understanding about the strategic capabilities of IKEA along with its alternative strategies for future growth and expansion. Also, the report focuses on understanding the crucial aspects of intended and emergent approaches of strategic decision making to attain the heights of success impressively. Furthermore, it has helped to gain deep learning about company's internal capability by using value chain analysis and the external capabilities by implementing porter's five force models. In addition, the report has also enabled to acquire insight understanding about various ethical issues which IKEA is facing in the current market economy. Furthermore, by making use of number of models, manager of firm can get information about both external and internal environment. Thus, through this way, firm can make effective decision which leads corporation to increased profit and sale.

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References 

Kim, K. S., 2004. “Strategic planning for value-based management”: An empirical examination. Management Decision. 42(8). pp.938–948.

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Larsen, P., Tonge, R., and Lewis, A., 2007. “Strategic planning and design in the service sector”. Management Decision. 45(2). pp.180–195

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Allen, S. R. and et.al., 2008. Porter's business strategies in Japan. Business Strategy Series. 9(1). pp.37–44.

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Carr, A. N. and Hancock, P., 2006. “Space and time in organizational change management”. Journal of Organizational Change Management. 19(5). pp.545–557.

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Pollard, D. and Hotho, S., 2006. “Crises, scenarios and the strategic management process”.

Management Decision. 44(6). pp.721 – 736.

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Richardson, J., 2008. “The business model: an integrative framework for strategy execution”. Strategic Change.17(5‐ 6). pp.133-144.

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Hoejmose, S., Brammer, S. and Millington, A., 2013. An empirical examination of the relationship between business strategy and socially responsible supply chain management.

International Journal of Operations & Production Management. 33(5). pp.589-621.

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Mahoney, J. T. and Qian, L., 2013. Market frictions as building blocks of an organizational economics approach to strategic management. Strategic Management Journal. 34(9). pp.1019-1041.

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APPENDIX Appendix 1: Value chain analysis From the above value chain analysis of IKEA, the strategic capability of the concerned entity can be effectively analysed. It can be said that IKEA posses an exotic and effective inbound and outbound logistics which helps the company to expand its business operations in more than 50 countries across the globe. Also, the company posses fascinating measures to expand its business which includes online services, information through catalogues etc. Apart from this, the strategic capability of IKEA's support activities are also strong. The hierarchical structure adopted by the said organisation helps the business to run large scale business operations. Also, its HR practices are effective which retains the best and eligible candidate within the company that in turn contributes towards the performance and production of IKEA in the vast international economy. Furthermore, the company's pace with the technological development assist it in gaining maximum customer satisfaction. Lastly, the strategic capability of IKEA's to maintain a strong and positive relationship with its suppliers helps it in maintaining cost effective business operations.

Appendix 2 Porter five forces model 

Rivalry among existing competitors- It is strong in the increasingly competitive furniture market. Key players in the said industry include Galiform plc, Euromarket Designs Inc, Argos, Wal-Mart and others (Richardson, 2008). However, IKEA is currently in the discounted furniture industry with a wide global perspective. This is providing benefit to the company in terms of marking an effective presence in market which is highly competitive.



Bargaining power of suppliers- It is weak as IKEA can form strong and strategic relationships with wide range of suppliers across the world. Furthermore, company has developed strong relationship with suppliers and thus it is using the benefit of given relationship in a task of providing high quality services to customers.



Bargaining power of buyers- It is strong for the concerned group of industry as the competition is strong and consumers possess a wide range of alternative choices rendered by global retailers of furniture across the world. This is also due to the availability of large number of competitors in given field.

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From the above analysis, it can be said that IKEA posses a strong bargaining power of buyers and has a strong threat from its existing competitors. In order to mitigate this, the company should adopt innovation in its furniture items which catches the eyes of its core customers impressively. Also, it should adopt an appropriate pricing strategy different from its competitors and should provide maximum value to its customers to reduce the bargaining power of its buyers. Furthermore, to overcome the threat of its existing competitors, IKEA should focus on developing a strategic alliance with any leading company to beat its line of competitors and gain worldwide brand recognition in a very significant way.

Appendix 3 Major ethical and social issues By analysing all the above factors, it can be said that the major ethical or CSR issues which IKEA is facing reflects the social and environmental factors. As per the social factors, the company is not able to manufacture customised furniture items and fails to consider their demands and requirements. The social issues are major because these are directly connected with tastes and preferences of buyers. In this context, it is examined that in order to survive in competitive market manager of firm will have to give consideration to tastes and preferences of buyers. This is because, it is through this way only manager of firm can maintain satisfaction level of its customers. Thus, by complying with given type of activity only firm cam mark an effectual presence in market which is highly competitive.

Furthermore, the environmental

issues arises out of its unsustainable business activities by immensely using the natural resources for its furniture items tends to draw major ethical and CSR issues in IKEA. This is because, nowadays buyers are making efforts with regard to purchase goods and services from that firm which takes measures for saving natural environment of country. Thus, it is essential for corporation that it should take measures with this regard. But, if not taken then it might hamper brand image of firm in customer mind.

Apart from this, the essential ethical and CSR issues which the concerned company is facing currently includes the following

Human Rights- Despite gaining significant commitment and loyalty towards the human rights, a study reveals the fact that, IKEA along with wide range of retailers were using child labour to source its rugs from India (Mahoney and Qian, 2013). However, the concerned company claimed that it used to source the rugs from India from only three suppliers who were in strict compliance with the IWAY standards.



Spying on Employees- The said company was allegedly investigating its employees in France, which was an illegal and unethical act in the said country followed by US.

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Although, IKEA had not responded to this act, the government of the said country launched an internal investigation which resulted in terminating the key executives of the organization and imposed the penalty of 5000,000 euros (Rosen, 2006). 

Product quality- In 2013, IKEA was accused of rendering its customers meatballs which contained horse meat in huge quantity. Considering this fact, the company conducted certain test and launched an investigation which revealed that the problem arises because of one Swedish supplier. After recognising the issue, the organization apologized to its core customers.

Appendix 4 Porter generic matrix



Cost leadership strategy- As per this strategy, company prefers to keep low price for its wide range of innovative products in order to gain higher profits and to maximize its overall sales. With a view to maintain a strategic and competitive edge in the hyper competitive corporate market, IKEA can lay its attention over outsourcing and often offshoring its primary and support activities to India where there exist cheap labour cost as compared to Europe and USA. This strategy will allow the cited firm to effectively capture and enter the new international market segments in which it was not able to make its entry before (Wheelen and Hunger, 2011). This results in reducing the overall production cost making the furniture price more reasonable to its audiences. Also, IKEA can emphasise on improving and enhancing the product quality thereby minimizing the risk of losing the prominent market share.



Focus strategy- As per this strategy, companies focus to expand its business in the areas where existence of competition is low and firms have the power to gain immense market share. IKEA should focus on developing a lifetime relationship with its customers rather than focusing on individual transaction with its buyers. To do this, the company needs to maintain a strong contact with its masses in addition with acquiring the knowledge of their vital needs and requirements in a significant way. This will benefit the organization to acquire immense market share by gaining the highest level of customer satisfaction impressively.

Appendix 5: Justifying the strategies 

Also, such a strategy will benefit IKEA to attain a strong brand recognition which will result in generating huge profits for the company. The strategy is appropriate for the company in the manner that it will effectively and impressively allow the concerned

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group of business unit to survive long in the vital and hyper competitive environment (Elbanna, 2010).

From the above justification of various strategies, it can be said that IKEA should lay its considerable concern over implementing promotional strategies in order to beat its core line of competitors and gain huge customer satisfaction. Also, the strategy is suitable for the said organization because since it inherits the major weakness of product publicity, promotional strategy will allow the company to overcome its weakness and gain tremendous and vital global exposure impressively .

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