Transcript IKEA

IKEA Case Study
Matt McInerney, Colin Reed, Bryce Doubrava, Andrew Graczyk, & Mark Wylie
Marketing Strategy
MKTG 476
3.17.15
Problem Statement with Evidence
•Problem Tree
Problem Tree
Position Statement
IKEA locations more readily accessible to the target
market could
 Increase market share
 Increase sales /profitability
 Decrease number of competitors entering the market
Case Alternatives:
• Satellite stores
• Push Online Sales
Situation Analysis
• Company
• Industry
• Value chain
• Porter’s Five Forces
Situation Analysis
Company
• Mission
• Corporate Culture
• Growth Rate of Industry
• Relative Market Share
Situation Analysis
Company - Mission
• Mission
• To create a better everyday life for many
people by providing a wide range of welldesigned, functional home furnishing
products at prices so low that as many people
as possible will be able to afford them.
Situation Analysis
Company – Corporate Culture
Based on shared values
• Togetherness – first name basis
• Cost-consciousness – no flying first class
• Respect – respect employee’s ideas, needs,
ambitions, and capabilities
• Diversity – diverse work force
Situation Analysis
Company – Company Analysis
• Low cost defender
• Produces products at low cost to sell at low prices
• Sells tasteful and cleverly designed products to the masses
• Selling high volume of furniture products at low prices
• Flat packaging – products assembled at home and low transportation costs
• No significant investment in research and development
• Little customer service
• Backward vertical integration – manufactures some of own products
• Many suppliers – good bargaining power with suppliers/lower cost
Situation Analysis
Company – Industry Growth Rate
Furniture Industry Growth Rate (MarketLine, 2014)
• 3.2% global industry growth rate
Situation Analysis
Company – IKEA Market Share
IKEA Global Market Share of Furniture Industry
• 8.0 % global industry market share
(B. Stone, MarketLine Communication, 2/12/15)
Situation Analysis
How the Industry Works
Situation Analysis
Value Chain
Michael Porter
• Introduced value chain concept
• Identifies activities through which firms can
create value and a competitive edge
• Primary Activities and Support Activities
Situation Analysis
IKEA Value Chain
IKEA Value Chain Primary Activities – Inbound Logistics
• Distribution of products to stores from 32
distribution centers located in 16 countries
(Annual Report, 2013)
• 11 customer distribution centers (MarketLine,
2014)
• IKEA has 1046 home furnishing suppliers
located in 52 countries.(MarketLine, 2014)
Situation Analysis
IKEA Value Chain
IKEA Value Chain Primary Activities – Operations
• Operations are conducted in four divisions
Franchise, retail, property, and finance
• Operations in more than 38 countries; 208 company operated
stores in 26 countries, remaining stores are franchises
• IKEA through vertical integration manufactures goods through
its wholly owned manufacturing subsidiary, Swedwood
(Marketline, 2013).
• 44 production units globally manufacture products for IKEA
(Annual Report, 2013)
• Flat packaging
Situation Analysis
IKEA Value Chain
IKEA Value Chain Primary Activities – Outbound Logistics
• Transportation of products is done by
customers
• 211 million copies of IKEA catalogues were
printed in 29 languages in 2013 (Statista,
2013).
• Catalogue app was downloaded 9.7 million
times in 2013 (Statista, 2013)
Situation Analysis
IKEA Value Chain
IKEA Value Chain Primary Activities – Marketing & Sales
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Selling products in 303 IKEA Group stores located in 26 countries (Annual Report, 2013)
Target market is focused on families, students, and singles with middle to lower incomes
Low cost defender marketing strategy
Family friendly store environments
Integrated marketing communication message focuses on cost advantage competitive
edge
• IKEA Corporate Social Responsibility programs include 100% paper pallet use, operation
of wind turbines and regular donations to Save the Children and UNISEF charities
(Dudovskiy, 2014); IKEA currently has investments in wind projects in eight countries
(with a total of 206 turbines) as well as 550,0000 solar panels (Kelly-Detwiler, 2014)
Situation Analysis
IKEA Value Chain
IKEA Value Chain Primary Activities – Services
• Very limited level of customer service is provided
• Information to customers through use of catalogues
and displays
• Low number of sales associates in stores
• Restaurants and child care provided at retail outlets
• Kitchen planning, office planning, bedroom, and
living room planning through free 3D software
(IKEA, 2015a)
• Offers customers interest free financing (IKEA, 2015)
Situation Analysis
IKEA Value Chain
IKEA Value Chain Secondary Activities – Firm Infrastructure
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Hierarchical organizational structure
Public Affairs – Press Releases, Product Recalls
IKEA Supplier Quality Assurance
IKEA of Sweden Älmhult, Test laboratory
• Product testing during product development to assure safe
and healthy IKEA products (Jobett, 2015)
• Finance Division to manage financial assets and group liquidity
(Inter-IKEA, 2012)
Situation Analysis
IKEA Value Chain
Secondary Activities - Human Resources Management
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High level of commitment to HR practices
Effective staff training and development programs
Concerned with gender balance in leadership positions
Bonus incentives for employees to reach goals
Recruitment in every country where IKEA has markets
Situation Analysis
IKEA Value Chain
Secondary Activities – Technology Development
• Research and development activities are initiated in
Sweden
• Extensive use of information technology in business
processes
Situation Analysis
IKEA Value Chain
Secondary Activities – Procurement
• Wholly owned subsidiaries procure raw materials primarily for the
manufacture of wood furniture (MarketLine, 2014).
• Long-term strategic relationships with suppliers (MarketLine, 2014)
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis
• One way to assess and explain long-term attractiveness and profitability of an
industry
• Five Forces
• Threat of New Entrants
• Bargaining Power of Suppliers
• Bargaining Power of Buyers
• Threat of Substitute Products
• Rivalry Among Existing Competitors
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis - Threat of New Entrants
Suppliers
• IKEA has long term relationship with suppliers
• IKEA has competitive edge over new entrants due to
economies of scale
Low Cost Switching
• Buyers are likely to stay with IKEA in spite of low cost
switching
• IKEA has 8% of the global market share
• Strong brand image
Overall Threat of New Entrants
• Industry is moderate
• IKEA - the threat of new entrants is likely to be less
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis- Bargaining Power of Suppliers
• Backward integration reduces power of suppliers because supplier is owned by
manufacturer or retailer
• Large number of suppliers decreases supplier bargaining power
• Long term supplier relationship decreases supplier bargaining power
Bargaining power of suppliers
• Furniture Industry – Moderate
• IKEA – backward integration, 1046 suppliers, long term supplier relationships
• less than moderate bargaining power of suppliers for IKEA
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis- Bargaining Power of Buyers
• Large number of buyers makes buyer’s bargaining power less
• Low cost switching of buyers strengthens the bargaining power of the buyer
Bargaining power of buyers
• Furniture Industry – Moderate
• IKEA – large customer base; brand loyalty; low cost
• less than moderate bargaining power of buyers for IKEA
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis- Threat of Substitute Products
Threat of Substitute Products
• Cheap Alternatives
• Low Cost Switching
IKEA
• Brand image, size, and low cost/price make threat of substitute products less
• Price of IKEA products are in line with cheap alternatives making threat of
substitute products less
Furniture Industry – Moderate threat of substitute products
IKEA – less than moderate threat of substitute products
Situation Analysis
Porter’s Five Forces
Porter’s Five Forces Analysis- Rivalry Among Existing Competitors
• Competitor Size – large competitors benefit from economies of scale
• Low market growth – makes competition intense as firms compete for the
same share of the market
IKEA
• Large company – benefits from economies of scale and less supplier bargaining
power making it more competitive
Furniture Industry – Moderate threat of rivalry
IKEA – moderate to less moderate threat of rivalry
Designing Marketing
Strategy
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Customer targeting strategies
Customer positioning strategies
Market research
Customer Relationship Management
Designing Marketing Strategy
Market Segmentation
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Low/middle income young singles, college students, or young couples
Suburban dwellers
Important subgroups
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80 million Baby boomers
GenX & Millennials
Persona
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18 to 34 year olds and 35 to 49 year olds
Unisex approach targeting both genders
Young low/middle income singles, college students, couples
$15,000 to $50,000 annual salary
Uses computers, smart phones, other electronic devices
Eco- friendly
Designing Marketing Strategy
Customer Targeting Strategies
• Requires knowledge of
• Customer needs
• Decision making process
• How customer searches for information on a
product
Designing Marketing Strategy
Customer Needs Analysis for the IKEA customer
• Low priced functional products
• Wide range of product choices
• Products easy to transport and assemble
• Positive shopping experience
• Average quality products
• Products that create a positive social environment and
reflect their tastes and personality
Designing Marketing Strategy
Customer Decision Making Process
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Problem Recognition
Information Search
• Internal Search – information from memory
• External Search- information from outside sources
• Important for IKEA to be near target market so that when they are
conducting a search IKEA products are close at hand.
Problem Resolution
• Evaluate alternatives to solve the problem
• Select best alternative
Designing Marketing Strategy
IKEA Customer Positioning Strategy
• Customer positioning map
• Value association map
• Typologies
Designing Marketing Strategy
IKEA Customer Positioning Strategy
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Customer positioning map
Designing Marketing Strategy
IKEA Customer Positioning Strategy
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Value Association Map
Designing Marketing Strategy
IKEA Customer Positioning Strategy
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IKEA Typologies
• Neilson Prizm
• Examines segment groups based on demographics and
behaviors that will help IKEA identify, reach, and retain their
most profitable customers.
• Two major Neilson segments that match IKEA’s segment
• Boomtown Singles
• City Startups.
Designing Marketing Strategy
IKEA Customer Positioning Strategy
IKEA Typology – Boomtown Singles
Boomtown Singles:
Urbanicity: Second City
Income: Lower Mid
Income Producing Assets: Below Avg.
Age Ranges: <55
Homeownership: Mix, Renters
Employment Level: WC, Service, Mix
Education Level: College Grad.
Ethnic Diversity: White, Black, Hispanic, Mix
Designing Marketing Strategy
IKEA Customer Positioning Strategy
IKEA Typology – City Startups
City Startups:
Urbanicity: Second City
Income: Lower Mid
Income Producing Assets: Low
Age Ranges: <55
Homeownership: Renters
Employment Level: WC, Service, Mix
Education Level: Some College.
Ethnic Diversity: White, Black, Hispanic, Mix
Designing Marketing Strategy
IKEA Market Research – Survey
• To gain information on two proposed IKEA sales alternatives, satellite stores
and an aggressive push towards online sales marketing research can be
• A survey could be conducted to
• collect consumer information on each alternative
• to gain insight as to consumer interest in these alternatives
• Gauge each alternative’s likelihood of success.
Designing Marketing Strategy
IKEA Market Research – Survey
Designing Marketing Strategy
Customer Relationship Management
• Monitor and assess the relationship between a business and its customers
• Develop a comprehensive view of the customer at every point of contact with
the company
• Four systems are used to track customers
• Internal recording systems
• Provide data on sales…what is selling and what is not
• Marketing databases
• Used to manage marketing campaigns
• Record demographics, detailed transactions, etc.
• Competitive intelligence systems
• Collect and analyze data about the firm’s competitors
• Client contact and sales force automation systems
• Help salespeople keep track of customer names, addresses, phone
numbers, etc.
Designing Marketing Strategy
Marketing Program Development
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Marketing mix across alternatives plus status quo
Designing Marketing Strategy
Status Quo
Satellite stores
Online Stores (More)
Product: The marketer must shape
each of the following strategies into
a coordinated plan of action in
order to be effective.
No changes – Low quality
materials with
functionality, moderate
durability, “Democratic
design” assembly required
,Flat-packaged boxes for
easy delivery
No change in design.
No change in design.
Select product type
accordingly, based on
overall style popularity,
and what type of satellite
store we are dealing with.
Offer all product types.
Easy delivery
Price: The marketer must choose
the role of price in his positioning
strategy, including the desired
positioning of the product or brand
as well as the margin necessary to
satisfy and motivate distribution
channel participants.
No changes – “Low price
with meaning.” Pragmatic,
cost cutting..
10%-15% markup from
price in IKEA store.
10%-15% markup from
IKEA store. Still low price
and very competitive.
Motivates customer to
visit.
Place: The marketer needs to
decide the type of channel
organization to use, the extent of
channel management, and the
intensity of distribution appropriate
for his product.
No changes - Self-service,
Promotion
No changes- commitmentfree approach to buying
furniture.
The marketer must choose
activities, such as advertising, sales
promotion, sales force, direct
marketing, and public relations that
perform an essential role in
communicating the strategy to
buyers.
It is just furniture, change
it.
More opportunity to
motivate participants.
Motivates consumer to
visit the real IKEA.
Child care facility,
IKEA in-store restaurant
TV commercials/
traditional advertising.
Smaller stores to cover
more area. Specific IKEA
section taking up small
section of store.
Create more online web
pages for selling products.
Social media, Blogs.
Incentives to visit real
IKEA- Coupons,
Information on locations
and what to expect from
the IKEA experience.
exposure through
satellite stores
advertising.
Advertise more towards
the electronic audience,
Facebook
advertisements, E-Mailing
lists that offer “online
only” specials.
Designing Marketing Strategy
Evaluation of Alternatives Across Critical Factors and Key Performance Indicators
Performance Measure
Shorter Time to Implement
Weight
Status Quo Score
Status Quo
Value
Online Store
Score
Online Store
Value
Satellite Store
Score
Satellite Store
Value
5%
30
1.5
50
2.5
45
2.25
30%
30
9
80
24
75
22.5
30%
50
15
40
12
45
13.5
15%
30
4.5
60
9
55
8.25
10%
40
4
20
2
30
3
10%
50
5
20
2
90
9
More Convenient Location
Higher Customer Satisfaction
Affordable Cost to Implement
Overall Risk
Cost of Return
Total Score
100%
39
51.5
58.5