IKEA's Marketing and Expansion Strategy Analysis

This report is a follow on from the in class IKEA presentation based on the IKEA case study ‘IKEA-Managing global expansion’. Being a multinational successful organisation there would be various corners to look at in order to analyse IKEA however this report will focus on the analysis of IKEA’s globalization and internationalization models, as well as key opportunities and threats faced by IKEA and their cultural web and how it supports their current strategies.

Overview of the furniture market

Based on Mintel research database, the sales of furnishings and houseware in the top 25 global economies generate annual revenues of more than $270 billion. However the sales of furniture were hit hard in 2008 and 2009 by a combination of fewer housing transactions and the recession. With the exception of IKEA, US companies (Furniture Village, Homebase, DFS etc) dominate the global home furnishings landscape, yet the world’s most lucrative regional market is still Europe.

Buying furniture nowadays is not as simply organised as in the past where you just had to take what was available from the few retailers and wait weeks before it was delivered. Today competition is all about offering the right product, for the right money, in the right way. Just under half of adults (25 million) look for lasting quality when buying furniture. Retailers need to prove their quality with customer reviews and demonstrating how items can stand up to heavy usage especially in households with kids. Service is important and four in ten adults are influenced by the presence of knowledgeable and helpful staff when choosing between stores. The role of staff has shifted from one of a sales person to be one of consultant. Further visiting showrooms is a key part of the buying process for furniture as it gives the customer an idea about their wanted environment however focus remains on price.

Overview of the company

IKEA Group is a global and privately-held retailer of Scandinavian (Swedish) designed home furniture and accessories and now retailer of its own food label. Their products range focuses on good design, good quality and function at a low price. In the mid-2000s the company was leader in the ‘flat-pack’ furniture business generating annual sales of 21.5 billion euros. The company has the biggest market share in the UK. It operates about 301 stores overall in 36 countries most of them in Europe, North America, Asia and Australia. The company was founded by Mr. Ingvar Kamprad in 1943 and although partly controlled by the Kamprad family, it is under the ownership of the Stichting INKGA group, a charitable foundation registered in the Netherlands. IKEA’s main UK competitors include Asda, Argos, Debenhams, Next, Tesco, John Lewis etc.

The Difference between Internationalisation and globalization

Globalisation entails all the operations undertaken by an organisation that envisions itself present in many countries worldwide. IKEA’s past globalisation strategy was based on ‘one design fits all’ which meant that initially they did not adapt to the local markets. However as they expanded in Japan and the US they soon realised that they had to tailor made their products to fit the country’s specifications and requirements if they wanted to succeed. For instance, the US customer preferred big and ample furniture and houseware while in Japan they looked for small and simple items to fit their small living environments.

In opposition internationalization is at the other end of the globalization as it takes into consideration what each particular market has to offer and not what the company has to offer to the market. IKEA’s strategy has adapted over the years in a way that they ‘think globally and act locally’.

IKEA’S INTERNATIONALIZATION STRATEGY

Key Opportunities

IKEA’s main strength is its international brand recognition built up on low product prices and design. Its product portfolio caters for most lifestyles and budgets. The implementation of cost leadership strategy in order to penetrate new markets is a definite strength and opportunity – IKEA’s costs were/are approximately 30%-50% below competition prices. The costs of transportation were cut by 80% by providing furniture in flat packs. By offering simple and modern designs and by introducing cash and carry and self service concepts, IKEA’s stores were guaranteed a success. After investigating the German market IKEA took advantage of the poor organisational strategy of the existing furniture dealers in the country and changed its operations by providing customers immediate delivery of quality goods at low prices when they opened their Munich store.

Their West German market has expanded through aggressive advertising despite the challenges encountered by the law suits initiated by its competitors and trade associations. In the UK, IKEA provided unique products, low prices and cash&carry service. In this way the firm achieved competitive advantage over its existing competitors that were taking as long as 3 months to deliver the goods. Opposed to their competition, IKEA demonstrated efficiency and skill.

As mentioned previously, in their US placement IKEA had to adapt their product range to suit the requirements of the American market. They redesigned the store layout to provide more directions and shortcuts for customers who opposed to the idea of wandering through the store. They also increased the size of their beds, bed linens, sofas, armchairs etc., as the European sizes were too small for the American customer. In addition they also offered a customization of their products. Further their US expansion IKEA made a bold move by opening a mega store in Chicago with a new layout (double the size of a normal IKEA store). It had 3 levels that included a self service warehouse, customer service and cafe’ on the first floor as well as a showroom and a market place on the other floors. From there on the stored were designed to improve the direction and flow of customers. IKEA also offered home delivery and assembly for an extra charge. The US expansion was a success due to these measures and strategy adaptation despite their competition continuously replicating IKEA’s products.

Threats

The organisation’s main weakness is that they are very much reliant on the European market where 82% of its stores are located. The threat here is represented by the competition as IKEA’s methods have been copied by other retailers that have introduced similar product ranges at low prices. Market saturation is another threat as with the development of e-commerce in each European country customers can compare prices, reviews and switch to alternative suppliers if necessary.

Further threats are represented by the recession in Europe as well as the adverse effect of a weak dollar on sales in the US. Political and economical instability of the Chinese and Russian markets are also a potential threat since IKEA is planning on expanding in these two markets. However IKEA is successfully counteracting its main weakness (over reliance in Europe) with its key opportunity – expansion in the emerging markets in Asia and Eastern Europe.

The Cultural Web and the Organisational Culture

‘The organizational culture describes the psychology, attitudes, experiences, beliefs and values (personal and cultural values) of an organization which define its environment’ or it can simply describe’…how things are done around here…’

To analyse IKEA’s cultural web we need to use the Cultural Web model. The Cultural Web identifies six elements that help to make up the “paradigm” – the pattern or model – of the work environment.

By analyzing the factors in each, we can see: what is working, what isn’t working, and what needs to be changed.

Stories

The hero in the company is Ingvar Kamprad seen by the employees as a visionary who worked hard, lived simply and gave an example to all. In fact IKEA is all about the ‘Swedishness’ a simple culture with simple values such as humbleness, simplicity, teamwork etc. The brand image varies in different countries depending on the country’s culture. eg: in Sweden (low priced, low quality brand), UK (poor service) etc’.

Rituals and Routines

The Company strongly believes in staying close to its customers. In fact every store is a parent-friendly environment – people come first. However IKEA is also focused on its people and their working way. Employees dress informally and work in a relaxed office environment with open plan floors. On their website IKEA remarks that ‘A career in IKEA is not a ladder, is what and where you make it.’ They expect teamwork and mistakes as long as the employee learns from them. However IKEA is also about making the impossible in cost cutting. In fact, staff travelled economy and took buses or stayed in hostels. There are wall stickers to turn off lights, taps and computers after each use. Stores that cut costs the most receive a reward from the management.

Symbols

It is normal to find the same features in every IKEA store. For instance, all shop floor staff dress in uniform (yellow & blue) for the Swedish flag colours. There is a restaurant, a food hall & a children’s corner as well as little shopping helps such as pencil, paper, shopping bag, and tape measure. As mentioned previously, IKEA is all about ‘Swedishness’ and focus on a minimalistic and simple design delivered in their custom flat packs. Their main symbol is the brand name and the brand colours all significative of Sweden and their Swedish founder Kamprad.

Organisational Structure

Typical of IKEA’s organisation is their informal management which is presented in a non-hierarchical and caring manner. There is typically only 3 hierarchical levels of responsibility between the store manager and the employee. Every month there is the so called ‘Anti-bureaucrat’ week where management spend a whole week in the warehouses and stockrooms. Appropriate training programmes are given to all company management. However as always on IKEA’ s organisational structure is their focus on cost cutting and as such they incite all designers and material buyers on cost reductions.

Control Systems

At the centre of the IKEA’s control systems is quality control. Emphasis is put on delivering good quality, sturdy furniture that passes their standards. Further way to control their operations is by making sure that the management works closely with the staff making also sure that their warehouses are correctly labelled in their products. Rewards are given to the stores that generate more profit and that cut more costs considering that one of the principles of IKEA’s strategy is cost cutting.

Power Structures

Senior management was predominantly Scandinavian and only in the last 5 years the strategy of only forwarding employees who were Scandinavian or Swedish speaking into management has changed. However all employees are involved the individual store operations and encouraged in their work thanks to their friendly management strategy. Employees are in fact egged on to take responsibilities in order to assess their performance; their ideal is that every employee is important to IKEA’s success.

The Paradigm

IKEA’s cultural web supports its current strategy. In the past IKEA favoured the Sweds for managerial programmes but in the last 5 years international career management is now seen essential to sustaining international growth but more steps and measures need to be taken to ensure that other backgrounds are fitted into the managerial programmes. The organizational career culture supports the corporate strategy with suitable structure and rewards. IKEA’s cultural values are things like informality, cost consciousness and a very humble and “down to earth” approach as passed down by Kamprad along with responsibility and teamwork and ensuring that their employees are highly motivated and committed.

Cultural and Corporate Strategy Changes

Put more emphasis and work on employees of other nationalities/backgrounds in order to create a multicultural environment by having a diverse management and strengthen IKEA’s corporate view being a multinational group.

Since all IKEA’s stores are out of the city centres many customers in the big metropolis do now own a car or have suitable transportation in order to be able to shop in IKEA therefore a possible strategy change could entail IKEA to have smaller retail outlets near city centres perhaps selling furniture on catalogue but definitely having stock in-store for houseware and smaller items.

Many IKEA competitors offer free delivery on orders above a certain amount; as we have previously shown competition is fierce in Europe therefore this measure could ensure that the profit is taken by putting a minimum spending limit in order to qualify for free delivery (e.g. free delivery on orders above 150 GBP or more) and would therefore open IKEA to more budget oriented customers.

Another suggestion to attract more customers would be to have quick assembly tips/class in store for the non-diy oriented customers. IKEA is all about self service but not many customers are skilled to deal with DIY and assembly. This measure would make sure that their products are opened to every type of customer. Self service warehouse and furniture pick up places all contain some long numbers in regards to the desired item. Perhaps IKEA could implement a new system where warehouses havelabels, not numbers making it easier on customers. (e.g. Section: Chairs. Aisle-3, Type: Victa)

Conclusions

IKEA’s main strategies remain the same; success is ensured by adopting aggressive price strategies and aggressive advertising as well as a wide product range unlike any competitor at the moment. Service however needs to come to focus to improve customer purchasing and still maintain their market position as other cheaper players are entering the market such as the supermarkets.

Is getting any bigger better?