IKEA Competitive Positioning

IKEA competitory PositioningThis subject atomic number 18a critically analyses the competitive position of IKEA which has led to its success and failures over the past fiver decades. IKEA has been well cognise for its low price concept and wide range of furnitures. IKEA has grown enormously and now operates in 55 countries.This report analyses the external environment of IKEA by development the PESTEL Analysis. The analysis shows that policy-making factor plays approximately of bit role while former(a) external factors such as scotch, socio-cultural, legal, environmental and technological contribute to somewhat extent in de nameining the intricacy and success of IKEA.The resource and capability of IKEA is analysed by using the Michael Porters five force analysis. The study shows that IKEA has to dominate in all the five atomic number 18as to succeed in future. The report to a fault studies that target areaeting mix used by IKEA in different countries which perplex had a major go bad in IKEAs success.IKEA is committed to satisfy its customers. For customer satisfaction IKEA has worked hard to understand the needs of their customers. This report in addition examines the customer perception and the IKEA philosophy leading to happy and satisfies customers.The strengths and weaknesses of IKEA as well as opportunities for expansion and threats from competitors are revealed by conducting the SWOT analysis.Finally the causes that could lead to the demise of IKEA are discussed along with its future.T equal of contents rogue no.Introduction 4PESTEL Analysis 4 imaginativeness and Capabilities 6Marketing conflate 8Customer Perceived sets 10SWOT Analysis 12IKEAs Future 13 deduction 14References 15IntroductionThe stinting slowdown has had a negative impact on most military controles world over. Despite the slowdown IKEA plans to open stores in china and world over. The business was started by entrepreneur Ingvar Kampard who had the idea of marketing t hings cheaper than the market price. so IKEA came into existence in 1943, when he was just 17 in the small village of Agunnaryd in Sweden. Furniture was introduced in the IKEA crop range in 1947 and there later onward IKEA designed its own furniture. After opening its first store in Almhult in 1958(IKEA, 2009), Ikea has dramatiseed its business worldwide and now operates in 36 countries around the world. Its sales agreements for 2008-09 were 21.2 billion euros and had 127,800 employees. IKEAs success in the retail industry is ascribable to its vast experience which spans over five decades in the retail market. Ikea likewise achieves product differentiation and cost leadership by its unique concept of selling furnitures in kits that are assembled by customers at home .IKEAs vision is to create a better every day life for some people (IKEAs Annual report 2009).Macro Analysis (PESTEL Analysis)Political/LegalAccording to Scherrer (2003), changes in political and legal environme nt adversely affect the market place as well as the sale and distribution of a product. The political factors take on the nature, level of corruption and stability of the disposal. While the legal factors include import laws, taxation, employment law, emulation law, health and safety laws. atomic number 63 accounts for large region of IKEAs business with 82% of its sales coming from there (IKEA, 2009). This is because the governments in europium are been st subject, encourage foreign trade and sociable taxation policies. IKEA relocated its Group management, finance and treasury de fall apartments to Leiden in the Netherlands from Denmark. This move trick be attributed to the booming government policies in Netherlands that benefited the troupe over and above any other country in europium and even Sweden. Globalization influenced IKEA to enter the Chinese furniture market much later after the import control rules were relaxed and government opened up property markets. Accordi ng to Miller (2004), heavy import taxes encounter hit IKEA thus IKEA has been having difficulty in setting a price which good for the customers and the company. IKEA plans to relocate business of many items in china. One the other hand IKEA has no plans of entering Indian markets due to its inflexible licensing laws for the foreign owned companies.EconomicAccording to Scherrer (2003), economic growth of any country is reflected by its economic climate which influences its plans for expansion. IKEA has no plans on expansion into underdeveloped and developing countries like India. The economic conditions do not favor its business strategy as the buying power of the customers is low. Thus IKEAs main market is Europe where every ordinary person including students can afford to buy an IKEA product. IKEA faced massive problem in china due to its economic condition as it became a luxury furniture brand in the Chinese mind and not many could afford its products.Socio culturalScherrer (20 03) states that consumer preference purchasing patterns and conditions under which products can be sold are affected by the socio cultural changes. IKEA had to adapt to the cultural environment to expand its business in china. It had to get the Chinese customers to adapt to the do-it-yourself (DIY) concept. As labor is cheap in china, the DIY notion has not taken hold in china as in the western countries where customers get by they save money by assembling the furnitureTechnologicalIKEA uses technology to stay ahead of the competition by producing furniture cheap and quality furniture. IKEA in any case uses technology by marketing and selling its products online. Thus IKEA is able to market its products to far many homes and increase its sales considerably. According to Rowley and Slack (2003), a refreshful technology known as kiosk is used by IKEAs customers to view their choice of sofa cover in various fabrics available in that range.EnvironmentIKEA is committed in using resour ces in an economic and careful way. (IKEA 2009, social and environmental responsibility). IKEA has been offering compact florescent light bulbs (CFLs) which can last up to 10 times longer and use 80 percent less energy than incandescent. IKEA is also committed in reduction the use of plastic bags and there by has introduced the Blue Bag which is cheap, reusable and durable.Resource and capabilitiesResource and capability is illustrated by Porters Five Force ModelSupplier PowerBuyer power disceptationSubstituteThreat ofEntryMichael Porters Five Forces ModelPower of Suppliers Power of Customer/BuyerIKEA does not enter into actual merchandise but has taken further steps thus keeping the suppliers in an even tighter grip. These suppliers are not only dependent on orders from IKEA but are also in direct financial debt to IKEA, because IKEA has paid for the assembly of their machinery. Hence IKEA has the buyers power to pressurize its suppliers to tailor manufacturing costs anyhow. To tame the supplier power, IKEA has to a greater extent than 1300 suppliers in 53 countries with majority of its products from Europe (64%), followed by Asia (33%) and North America (3%) (IKEA, 2009).Competitive RivalryAccording to Hopkins (2008) there is more competitive pressure if there are more rivals in the industry. The number of rivals for IKEA is limited in Europe which is where major revenue is generated, as they are able to curtail competition due to their cost leadership and product differentiation. Apart from the competition IKEA faces from UK based BQ (the largest DIY retailer in Europe and third largest in the world) in china its biggest worry is that it is facing competition from many foreign and Chinese chains who are copying its products. Many stores in china have IKEAs catalogue in their stores and they tell customers that they can reproduce the same furniture at a lower price. IKEAs online catalogue makes it light(a) to view and copy.Threat of SubstituteFurnitu re made with wood can only be substituted by furniture made with plastic. But wood is bio degradable which is the reason wood is preferred over plastic.Threat of brisk(a) EntrantsPass, Sturgess and Wilson (1994) state that it is difficult for entrants with unknown products to win viable market share as customer subjection exists with the existing firm. IKEA enjoys loyalty from its customers which has been built up by huge and continuous investment in making its products better and cheaper. There is high barrier for entry set by IKEA which makes it almost impossible for a new entrant with unknown and untitled products to win a viable share of the market.Marketing MixAccording to Armstrong and Kotler (2006), modern marketing consists of a major concept know as marketing mix. A firm needs get its marketing mix which includes product, price, place and promotion (the 4PS) right to get the answer it wants from the target market.Marketing MixIntended positioning/Target Customers procee dsVarietyQuality ruleFeaturesBrand namePackagingServicesPriceList priceDiscountsAllowancesPayment period quotation limitPlaceChannelsCoverageAssortmentsLocationsInventoryTransportationLogisticsPromotionAdvertisingPersonal sellingSales promotionPublic relationsSource Armstrong and Kotler (2006) Marketing an introduction. New Jersey Pearson Education, IncProductProduct strategy forms the first of the 4PS of modern marketing strategy. Product includes goods as well as aids the company wants to sell. IKEA has large range of products for almost everything that is needed at home. IKEA is positioned itself as a company which sells quality goods at affordable price. In terms of service, IKEA encourages the concept of DIY but makes technical help available for its customers when needed. This makes IKEAs products different from other products available in the market.PriceAccording to Myers, Caustic and Diamantopoulos (2002) it is difficult to price products in the international markets as th e competition increases. IKEAs adopts low price strategy which is achieved by keeping the costs low between so manufacturers and customers. IKEA can also sell its products cheap because it makes bulk orders. IKEA plans to lower its prices in china by 27% to increase its sales. This is possible as china produces 30% of its products. Also large proportion of its raw materials also comes from china. IKEA also offers payment and credit options for its customers.PlaceIKEA has been able to reduce its costs by locating its shops in the suburbs of the cities. In china it has opened its store in shanghai city knowing that only 20 percent of visitors in shanghai have their own cars.PromotionIKEA promotes its products by advertising on TV and newspapers. It also markets and sells its products online. Broachers and catalog are printed which have the latest offers and the new products for convenience of customers. IKEA is also involved in helping NGOs like UNICEF. This creates a good company im age in the customers mind.Customer Perceived ValueAccording to Eggert and Ulaga (2002), customer comprehend value (CPA) comprises of three elements,the multiple components of value,the subjectivity of value perceived andthe grandeur of competition.The difference between benefits and costs of an offering perceived by the customers can be stated as customer perceived value.According to Heinonen (2004), organisations cannot only focus on process and outcome of service spoken language which are elementary to manipulate. Managers have to put in effort to consider the temporal and spatial elements in service. IKEAs warehouses are open for customers to test and select the furnitures. Thus IKEA has been able to create value by providing an cranial orbit where customers can perform services at their own convenience.IKEA PhilosophyIKEA philosophy is to increase customer perceived value by delivering extraordinary customer service. IKEA reduces perceived sacrifice for its customers by off ering them a peculiar experience through their new designs, high quality and low cost furnitures.IKEA maintains its low prices by reducing its shipping costs, inventory costs and also by their DIY concept.IKEA PHILOSOPHYSource Bernhard Schindlholzer, the Customer Experience Labs (2008)IKEA is able to maintain its focus on being easier, cheaper and faster. It is also able to provide excellent customer service by its cost cutting and process optimization techniques.SWOT AnalysisStrengthAccording to lee and Ko (2000), the internal as well external customers should be considered while determining the strength of an organisation. IKEA is able to maximize productivity and minimize waste generation as maintains complete control over production process. All the steps in the production process from forestry saw milling and board manufacturing to furniture is handled by the industrial gathering of IKEA which is called Swedwood.IKEAs own design group makes sure that their products match the trend of the market. The design group also co-ordinates with the industrial group and vise versa to effectively convert the design into furnitures.IKEA has been a long term partner of UNICEF supporting UNICEFs programs benefiting children and their opportunities for learning and development in Asia, Africa and Central and Eastern Europe. IKEA has also been working with UN to suppress child labor. By fulfilling its corporate social responsibility and repeated customer satisfaction, IKEA has been able to build a strong brand image and thus enjoys enhances customer loyalty all over the world. IKEA was ranked forty-first among the best global brands around the world in 2006.WeaknessIKEA has to depend on sub assure manufacturers as it has limited manufacturing capabilities, which makes it difficult for IKEA to coordinate and control quality standards in some regions. IKEA may also face competition from the subcontractors as they may manufacture their own line of products.IKEA products are also easy to replicate which the reason it is facing competition in china from the local suppliers. These suppliers in china are able to copy the IKEA products and sell at a cheaper cost.OpportunityLee and Ko (2000) state that opportunities are present every where such as changes in government policies, social patterns and even technology. Asia accounts for small part of IKEAs business with only 3% of its sales generated from there. IKEA senses an opportunity to make its mark in Asia. IKEA plans to cut prices in china considerably and open new stores. IKEA can also expand by using e-commerce to its advantage. By using innovative technology IKEA can reach customers in parts of the world where it does not have a store.ThreatThe major threat to IKEA is distinct demand in different regions. In a vast country as china, IKEA has to adjust to the living style and culture which differ from one part to the other. IKEA plans to expand despite the business being hit by the global recessio n. IKEA ordain have to be cautious of the decisions it takes for its future in these difficult times.IKEAs FutureIKEA success can be attributed to its ability of play problems into opportunities. IKEA has been able to globalize and compete with local products in diverse markets due to its vision and business idea.IKEA is finding out ways to reduce costs in china and also plans to open 10 more outlets by 2010. IKEA expects china to be the second largest furniture consumption market by 2014 only after USA. Therefore, IKEA has streamlining its resources in Asia-Pacific and will moved its purchasing, financial, operation, security and other functional departments from Singapore to Shanghai.Rowley and Slack (2003), a new technology known as kiosk is used by IKEAs for customer convenience. Thus by using better technology like kiosk, IKEA will be able to satisfy more and more customers and will keep growing.IKEA has to constantly look out for new and innovative ways to reduce costs and cleanse quality to stay ahead of the competition. IKEA has to be in control of the huge expansion it has planned. Inability to reduce costs and inability to be in control of expansion could lead to the demise of IKEA.ConclusionAnalyzing IKEA by PESTEL analysis reflects the external factors that IKEA has to counter to achieve its goals. IKEA has to deal with different external factors like taxation policies, government rules and regulations, exchange rate in different countries. IKEA product prices vary from country to country largely due to the external factors.IKEA has adopted a unique marketing mix which has resulted in the enormous growth of the company. IKEA has been so successful because it has been able to change its marketing strategy to suit the culture of the country. Most of IKEAs business comes from Europe but now its expanding in Asia. To be successful in the highly competitive Asian and oddly Chinese markets, IKEA will have to adopt new strategies which suit the cultu res of these markets which is different from the western culture.IKEAs plan of expansion in China could be quite risks as they have not been able to make their mark in the Chinese markets as they have been able to make in Europe. Moreover, IKEAs business has been hit by the financial crisis world wide it could be strategic for IKEA to focus on increasing their sales in the existing stores than expansion in China.