Advantages Of Strategic Alliance With IKEA
|✅ Paper Type: Free Essay||✅ Subject: Marketing|
|✅ Wordcount: 4165 words||✅ Published: 2nd May 2017|
Damro is among the world’s largest furniture manufacturers offering a diverse range of modern and traditional furniture. Since Damro was established in 1987 it has achieved rapid success and has expanded to over 90 Showrooms globally, which now having 46 showrooms island wide, 35 show rooms in India, 05 Show rooms in Australia and recently entered to the UAE market. Damro’s success has grown from its ability to produce High quality furniture at affordable prices with outstanding customer service. Damro is able to do this by selling directly to you therefore cutting out the middle man. (profile.html, 2010)
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The company’s main business is home and office furniture manufacturing. But they have succeeded their operations in diversified areas such as Safes, Mattress, Plastic Chairs, Partitions, Washing Machines and Sherline Doors in the domestic market. But still they have introduced Home (Sofas) furniture, office furniture and mattress to the international market. Damro currently entered only to the India, Australia and UAE markets. These markets not making better global presence and it is necessary to enter to the Europe market to gain higher margins and to be an internationally accepted brand.
1.2 Requirement of Strategic Alliance
Due to the uncertainty in the global markets over last three decades Damro could not entered to the Europe market. There are lots of bad impressions taken to the country due to the ethnic problem and political instability. From the May 2009 the country has released from this unfortunate era and started new part way of the success. Through this release there are many business opportunities created in globally and reduced restrictions in the international trade. The government has invested money in infrastructures and creating favorable business environment to investor.
As per the above situation the Damro has decided to enter to the Europe market to expand the business. As the first step they have selected the United Kingdom and operations will start from the January 2010 (assumption). Europe’s furniture market is very competitive and dominating by well established global brands such as IKEA, DFS Furniture Company Ltd, Galiform PLc and etc. Also Sri Lanka is in the process of losing the GSP + benefits and should face the direct price competition in the open market in Europe. Therefore it is necessary to develop an effective international marketing strategy.
As an entry strategy the company has decided to manufacture domestic furniture’s on behalf of IKEA Company (assumption). IKEA has agreed to outsource their economical scale to Damro and ready to start strategic alliance from January 2011 onwards. As a well established brand name, IKEA will get the maximum gaining from this agreement. Damro should be careful in the business entry as they are a very small player and will have to manufacture OEM products without using the “Damro” brand.
1.3 Advantages of Strategic Alliance with IKEA
Favorable business expansion opportunities in globally for furniture developed with design and functionality in mind.
Get the technical consultancy with modern technology.
High competitive power through low cost in logistics.
Low bargaining power of suppliers.
Economic recession gives opportunity to attract new customers from price skimming.
Advancements in technology lead to lower production costs.
New technology makes it easier to maintain good CRM and to target customers.
Ability to offer lower prices than competition.
Growth in population boosts demand for furniture as more homes are built in Europe.
Circumstances of the Strategic Alliance
When entering to a new international market there are lot of issues will be raised. These issues mainly because of lack of knowledge about the market activities, competition from the established competitors, different customer requirements, changes of the culture and practical expose of the strategic alliance partner, currency and exchanges loss, language, recruiting new sales staff, government regulations and etc.
2.1 Key Issues in Strategic Alliance
Partnership provisions – the agreement between two parties should be clearly specified with requirements of each party. If not there will be some issues will arise during the business starts. It is necessary to have legal as well as mutual understanding with both parties and discuss each and every minor issues and add them in to the legal documents when sign to the agreement.
Confidential Information – both parties should protect important details of each other. If fails to maintain the trust and disclose internal information to other parties will damage the relationship. Such as profit margins, production tactics, special technological knowledge and etc should not go to third party.
Contribution from each party – the alliance agreement should specifically mention the contribution of each party such as financial and non financial support to each other. If any party agreed to pump capital in to the manufacturer, give technology, approval to use intellectual proprieties (brand, trade mark), personnel and other transferable properties should act on the agreement.
Minimize internal confusion – sometimes trade unions and employees will make voice and ready have strikes due to the change. They will afraid about their job security. Therefore it is necessary to explain the perfect requirement of this alliance and advantages to internal factor clearly. If there are some valuable suggestions can implement.
Goals and Objectives – there are two or more parties will comes in to a strategic alliance. Any party cannot drive the organization in to their personal goals. All parties should agree to maintain joint objectives to get maximum result.
2.2 Internal Analysis of the Organization
Each organization should identify internal factors of their own companies as well as about the other partner.
Damro’s shared values represent their product range and shines
Straight through the organizational structure such as Togetherness, Cost consciousness, Respect and Simplicity
The global expansion forced to increase the number of staff base resulting in a small workforce having to cover several skill bases. Specially the company is having HR policies to recruit and maintain their thousands of employees.
Recession – cost of maintaining internal systems and processes.
Environmental groups – environmental and ethical methods of the system
Pandemics – need to ensure the continuous smooth running of systems.
New management structure in order to full fill the roles of the individuals that got made new recruitments
Economic Climate – Short term strategies cannot be used in the international market. Having separate approaches different from each territory.
Damro is welcoming style is of simplicity, practicality and informality.
This has resulted in the enhancement of skilled staff due to increases as well as organizations staff development budgets becoming expansion.
2.3 Stake holders and their values
Growing partnerships with contractors – Prevents suppliers from offering good rates to all other contractors.
Going into Expansion – Companies need to find alternative suppliers instantly to continue production.
Growth of Green Environmental Groups
Importance of CSR
Competitive tendering – several contractors tendering for the same project.
Framework agreements with contractors – Intermediaries will have their preferred contractors and will only use them.
More Choice in the Market – Several manufacturers in the market
Attitudes towards sustainability and the environment – Customers are growingly concerned about these opportunities
Budget constraints – Increase the global promotional budget.
Recession – Cannot be seen to be spending money.
New Entrants – More competition in the market.
Merging of contractors with architectural practices – Multi disciplined companies causing a threat to traditional contractors.
Low cost alternatives – Manufacturers instead of fitting out or moving office.
Reasons to Fail the Strategic Alliance
The main reason is either party should have clear idea about the market and the industry completion in addition to the mutual understanding. If they fails to match the market requirement and clearly understand the market environment will have lot of confusions and will lose the objectives of the alliance. Therefore it is necessary to understand the macro environment as well as the competitive environment.
3.1 Macro Audit – PESTEL
The PESTEL analysis is a tool used to break down and analyze the macro environment.
The macro environment is made up of different forces that the company has no impact on. When the PESTEL forces change the company must adapt to those changes.
â€¢ UK government is planning to makes it hinders expanding of new stores and city-centre outlets (uk-supermarket-business-analysis, 2010)
â€¢ Taxes increased to almost 50% for middle-income earners. These represent a big part of Damro’s future customer base decreasing their disposable income.
â€¢ Credit Crunch results in less disposable income.
â€¢ Decrease in house sales has a negative effect on furniture sales.
â€¢ Times of recession can give opportunities for targeting new customer segments that might buy cheaper furniture. (getdocument.aspx?docnum=35304227, 2010)
â€¢ Urbanization and small apartments open opportunities for more modern, stackable and foldable furniture, which will be a big part of Damro’s’s product portfolio.
â€¢ Growth in population and single-person apartments demands new housing and therefore new furniture. (KeyNote, Household Furniture, page 40, June 2008) (DocumentsTravail/CIRRELT-2008-03.pdf, 2010)
â€¢ Damro is willing to enter to the market as fashionable and affordable brand.
â€¢ Damro is not considered to be a status symbol, which has a negative impact in customers’ buying decision.
â€¢ Increasing number of people working from home opens new opportunities for furniture sales (KeyNote, Household Furniture, page 16 June 2008.)
â€¢ Growth of home-entertainment systems opens increases demand for furniture
(KeyNote, Household Furniture, page 40, June 2008)
â€¢ Advancements in forestry and acquiring raw materials are making furniture production cheaper.
â€¢ IT advancements making better CRM, website and communication/promotion available. This opens up opportunities for more direct targeting and marketing of customers and making it easier to listen to customer needs and trends.
â€¢ T-Mobile expanding its mobile network has made it possible for Damro to launch Family Mobile.
â€¢ The demand for environmentally friendly products is increasing. Caring for the environment lies deep within Damro’s culture and is something that is an increasing opportunity as these trends are becoming stronger.
â€¢ Globalization and expansion of the EU makes both imports and international trading easier, which can lower costs for Damro importing from suppliers / logistic cost controls.
â€¢ The UK furniture imports tripled during 2007 resulting in a trade deficit of £3.44bn. This gives customers opportunities to import furniture instead of buying locally which is a threat to IKEA. (KeyNote, Household Furniture, page 17, June 2008)
3.2 Porter’s Five Forces
Porter’s Five Forces analysis is used to find and assess threats and opportunities in the microenvironment. The microenvironment is closer to the company and they affect each other, even though company does not have full control.
3.3 Marketing Objectives (for the UK market entrance – from Damro’s side)
“Marketing objectives must be definable and quantifiable so that there is an achievable target to aim towards. They should be defined in such a way that, when your marketing plan is implemented, actual performance can be compared with the objective. They should be expressed in terms of values or market shares, and vague terms such as increase, improve or maximize should not be used.” (how-to-write-a-marketing-plan-0749445548, 2010)
The marketing objectives, part of the functional objectives, should be means to achieve the corporate goals. These should be based on what key issues found when doing the audit and how to bridge the gap between the DCs and the CSFs , in regards to marketing activities only.
Enter in to the UK market on 2011 through OEM production.
Introduce two seat leather sofa to the UK market and achieve sales of £100,000 for the first year
Gain 10% awareness of the product in the UK market, within one year from the initial launch (cross branding strategies).
Inform target audience about benefits of the product and its value for money and get the advantages of IKEA’s positioning strategy.
Increasing sales of 50% from 3 months of launch to the first year
Marketing Strategy through the Strategic Alliance
4.1 Select the Correct Market
As not all products satisfy everyone’s needs, it is impossible to target everyone with the same marketing plan. Therefore it is important to break the market into segments to find the consumer groups that are most likely to respond to the product.
The geographical segmentation is based on the location of the consumer. For marketing purpose the market is broken down into areas. It can be towns, cities, regions, or even on a global basis.
The selected product portfolio (home Sofas & office furniture), which is a more exclusive item within the Damro range, is more suitable to be targeted within the bigger, more modern UK cities in range of an Damro outlet:
â€¢ London – The England’s capital and one of the biggest cities in the world
â€¢ Cardiff – Being the capital and financial centre of Wales
â€¢ Edinburgh – The strongest UK economy after London
â€¢ Manchester – Most offices in the UK after London
â€¢ Leeds – Second biggest UK city
Demographic segmentation is often done through social class. Through the JICNAR social grade definitions we can segment certain suitable groups for the Damro (specially for home furniture sector):
Upper middle class
Senior Managerial, Administrative or Professional
Intermediate Managerial, Administrative or Professional
â‚¤35 – 50k
Lower Middle Class
Supervisory or clerical, junior managerial,
Administrative or professional
â‚¤25 – 35k
Skilled Working Class
Skilled manual workers
â‚¤15 – 25k
Semi and unskilled manual workers
â‚¤7 – 15k
Those at lowest level of subsistence
State pensioners or widows (no other earner) casual or lowest grade workers
â‚¤5 – 7k
Not included in the JICNAR chart are age groups and gender, which can also be important factors to consider.
The psychographic segmentation is based on lifestyle traits such as social activities, interests and opinions:
â€¢ Busy life with modern, apartment lifestyle that is up to date with new products and technology
â€¢ More conservative villa lifestyle with traditional values, not prioritizing work
After segmenting the market we need to target potential customers within the developed segments most suitable for our new product and our set objectives:
â€¢ Damro’s target customer will be from social grade A to C1 and lives in London, Cardiff or Edinburgh. Also should be targeting men and women, 25-45 years old, living a modern lifestyle. He or she is up to date with technology and interested in new products.
It is important to position the product in a way that goes hand-in-hand with both set objectives and targeted customers. The positioning is how the Damro to be perceived:
â€¢ Affordable luxury
â€¢ High quality
â€¢ Youthful but still sophisticated
The Damro two-seat leather sofa is positioned as being an affordable and modern piece of furniture of high quality that will add luxurious vibe to apartments.
4.2 Market Strategy Analysis
After conducting a gap analysis three months into the financial year it can be noticed that the Damro’s sofa group has oppertunity in sales in the UK market. Hence, the objectives of increasing sales with 20% within the year will not be reached.
After these new findings Damro must evaluate where they are now, and then draw out new objectives deciding where they reasonably can be at the end of the financial year. This will result in changes in the planning chart, introducing a New Strategic Gap and an Operational Gap. These gaps need to be filled through both Strategic and Operational decisions.
A new growth strategy needs to be chosen to largely bridge the existing gaps. Out of Ansoff’s four growth strategies Damro should choose to adopt market penetration and market development.
Damro will try to attract new market segments, such as customers usually shopping at more exclusive furniture stores. Due to the credit crunch, a lot of peoples’ disposable income has decreased, and this opens up for opportunities to attract people from higher social status.
Through penetrating deeper into the market Damro will be able to increase sales. Relying on the strong Damro brand competitors’ customers can be attracted in times of economic distress, as people are less willing to take risks.
Now the operational decisions need to be taken to close the operational gaps. These decisions will be based on making alterations within the different elements from the marketing mix.
4.3 Marketing Mix
As product development is not chosen to close the gap, no big alterations will be made to the existing products. Rather, spending on new product research and development will be decreased to allow for investments within other areas during this time of financial crisis.
The Unique Selling Proposition of the domestic sofa is affordable luxury. Although not a premium product, you get a quality type product that will add a sophisticated vibe to apartments without having to spend thousands of pounds.
It is beneficial for this product that it stays under the Damro product line brand, to help promote add-on sales and retain the exclusive feel.
To undercut the competition a close eye will be kept on competitors’ prices, to stay lower at as often as possible. During the credit crunch price cuts will be offered as well payment plans.
The price tag for the Domestic sofa is around £499, which holds it in the more exclusive range of Damro living room furniture. However, compared to sofas of equal quality and design from competitors the price tag is much lower. Therefore the Intermediate pricing strategy works well as it will maintain a touch of exclusiveness but still attract a broad audience through being affordable.
Damro is looking for market expansion, hence looking for new locations to open new stores. Two new stores are planned to open by 2011. However, distribution channels will not change, and Damro stores and the Damro website will stay as the only way to but Damro furniture.
Damro is currently only distributes its products through direct and selective distribution in Sri Lanka and few other countries. This supports the pricing strategy and will help Damro take advantage of the strong brand and can help adding value to other products.
During economic recession it is important to keep advertising Damro’s brand and value for money. Also sales promotions will be implemented to provoke sales. The marketing spend is however should be limited and effective in the initial stage.
It is necessary to put some effort into the push strategy to get the Damro brand into the customer’s mindset. I would focus on Pull strategies to attract and inform customers and Profile strategies to sell the product through the Damro brand. Both the Damro website and catalogue are very strong promotional tools that should be used to promote the initial launch too. I also recommend the use of above the line media such as print advertisements in more exclusive magazines to convey the USP. (please refer the communication mix details given below)
The Damro staff should be trained to focus on informing customers about the benefits of their products, and help conveying its high value and quality together with other products from the Damro range. I would like to suggest that Sales staff should be recruited from the UK as their qualities, pronunciation and arrogant necessary for the UK market.
The process strategy is not as important as the other elements of the mix when it comes to the Damro. However, I would recommend package deals with discounted or free home delivery, as it is a more expensive and bulky piece of furniture.
The physical evidence surrounding the Damro sofa needs to follow the one of the reputed brand, as most Damro products are sold and differentiated through the brand. However, I would recommend developing a more exclusive branch of the atmosphere to fit with the Damro range.
4.4 Evaluation and Controls
Through four key activities are the monitoring and control achieved:
1. The joint marketing objectives need to be developed or adjusted
2. Performance standards are set
3. Performance is evaluated
4. Corrective actions are undertaken
The control process can be seen as a backwards-planning process, backtracking each step to see what has happened so far and to see if the plan has reached its target. (Adapted from Beamish & Ashford, 2008)
There is a number of ways to evaluate and control the marketing plan and budget. For this situation I would recommend to use the following:
Matching the target sales or profit versus the actual number you get a negative or positive variance, depending if you are below or above target. If variance differs a lot from target there might a need to revise the target objectives. However, there is always variance within the budget and so the reasons for the variance should be assessed before revising the objectives.
“A systematic and ongoing process of measuring and comparing an organization’s business processes and achievements against acknowledged process leaders and/or key competitors, to facilitate improved performance.”
(Drummond & Ensor, 2005)
To show a commitment to continuous improvement a company uses benchmarking. To develop an approach to best business practices it is done in three categories:
Competitive analysis – To learn from their success, competitors are reviewed on an ongoing basis.
Best practice – In this step the organization reviews itself to find the best ways of undertaking activities throughout the entire organization.
Performance standards – During this process the set targets are ensured to be either met or improved on.
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