OKIN ADEIFE

M00271585

MGT 4010
MARKETING STRATEGY FOR MANAGEMENT

A CASE STUDY OF IKEA

SUBMISSION DATE: 10th JANUARY 2010

WORD COUNT: 1467

1. Develop a profile of the typical IKEA customer. To what extent does the
profile vary across countries?

In order to develop a profile of a consumer, it is essential to view consumers in

certain segments such as geographic and demographics (Jobber, 2004).
According to Guardian newspaper in the U.K, a typical Ikea customer is a young,
single or married man or woman with an average age of 42 and a low-medium
income.

The profile of Ikea consumers are different and similar in terms of their
geographic and demographics. Ikea consumers are in four different geographic
regions namely; Europe, North America, Middle East and Asia. They are also in
various cities in 38 countries (Ikea, 2003). The middle class of IKEA customers
has similar spending habits. In Russia, a consumer spends an average of $85
per store visit, which is exactly the same in Sweden (Capell, 2005). A typical Ikea
customer in China is from 20-45 years old. Most of these customers have
families with children, while some are well-educated couples with double income
and no children (The Chinese Business Review, 2009).

1. Discuss Ikea’s strategy in terms of:

• Positioning the brand in the eyes and minds of their customers.

• The drive for building a strong global brand

• It’s pricing (strategy) and whether it is sustainable?

A strategic position is the face of a business strategy, it specifies how a

business aspires to be viewed by its customers, employees and partners in
relation to its market and competitors (Aaker & McLoughlin, 2007).

Overtime, Ikea has been able to device various strategic avenues or options to
help position its brand and ensure that it is highly valued in the eyes and minds
of its customers. Some of these strategic positioning avenues include value,
quality, contemporary, innovation, emotional and self-expressive benefits,
experience, being global and so on (ibid, p235). In the eyes and minds of Ikea
customers, they see Ikea brand as a means to derive emotional and self-
expressive benefits. This is because Ikea has been able to develop a strategy
to become more than a furniture merchant by selling a lifestyle that consumers
around the world view as a means to express their personality and an indication
that they have arrived, have a good taste and can recognize quality and value.
Different emotional and self-expressive benefits by consumers can be seen in
the case study. Examples include; “Ikea makes me free to become what I want
to be” or this: “Half my house is from Ikea and the nearest store is six hours
away” (Capell, 2005).

Customers also see Ikea brand as been contemporary and innovative. The
company has been in existence for long, yet they constantly come up with
modern designs to suit the changing taste and expectations of customers,
hence Ikea regularly accelerates the creation of new stores in order to serve its
growing market.

Ikea customers see the brand as an experience. All over the world, Ikea stores
are designed in such a way that consumers think of visiting the store as an
outing or relaxing activity rather than a task because there are facilities within
the stores to cater for children while parents are shopping, there are also
restuarants and ample parking spaces. The settings of the stores are usually
designed in circles to ensure that the consumers can see almost everything in
the store as long as they walk in one direction (ibid).

The customers of Ikea perceive the brand as beign global. Ikea has utilized the
services of the Internet to enable customers all over the world have access and
buy its products. It has also been able to open various outlets all over the world,
this is an evidence that it is has the business capabilities to compete and
operate successfully in different countries (ibid).
 The pricing strategy of Ikea is based on its mission to provide a wide range of
home furnishing items of good designs, quality, function and durability at low
process to enable majority of people afford them (Ikea 2003). To fulfill their
mission and gain competitive advantage, Ikea adopted Porter’s generic
strategies that enable companies differentiate their products and services from
those of their competitors by offering greater value at low costs (Porter 1985). It
is illustrated in the diagram below.

Competitive Advantage
Low Cost High
1.cost

leadership 2.
differentiation
3a

Cost focus 3b.

Differentiation
focus
Broad
target
Competitive
Scope
Narrow
target

Fig1-Generic Strategies

The objective of the cost leadership is to become the lowest cost producer in
the industry (ibid). Ikea has been able to attain the position of being cost
leaders by giving their suppliers mandates every year to cut prices but deliver
products with great value and quality. To achieve this, the company ensures
that designers and in-house production teams work together to identify suitable
materials and least costly suppliers (Capell, 2005). To sustain being cost
leaders, Ikea should examine some suppliers in countries and make them major
suppliers of finished products such as Russia, Canada and United States which
are top timber producing countries (Maps of The World, 2006). Where possible,
Ikea could make each country produce some materials like plastic and glass.

Differentiation aims at delivering products and services that are different from
the product mix of their competitors at a premium cost (Porter, 1985). To attain
differentiation, Ikea has a strategy of providing items that are different from that
of their competitors. They offer products that are simple with high quality and
Scandinavian design. They source for their components globally, the deisgn of
their outlets in all countries and are unique and outstanding from their
competitor’s. Ilea’s differentiation strategy also involves efficient warehousing
and its unique customer selling service of “Do it yourself”. Hence they cut their
prices at an average of 2% to 3% each year. Where competition in some
market segment is intense, they slash the prices of their competitors and offer
the products to customers (Capell, 2005). To sustain this strategy of minimizing
cost while producing quality items, IKEA could use raw materials and other
resources economically.

Differentiation focus aims at differentiating within one or a small number of

target market segment (ibid). Ikea has been able to achieve differentiation focus
by carrying out researches on styles, cultures and unmet needs of customers in
different countries and integrating it into their strategy. Hence they offer a range
of products that is wide and versatile in several unique ways while emphasizing
simple and distinctive designs and styles at lower cost than their competitor’s.
Ikea also ensures that suppliers and designers customize some of their
products to enable more sales in local markets. To sustain the differentiation
 strategy, Ikea should keep adding functional features into various products so
as to avoid customers from buying too many complementary products and
afford them a chance to use the products with ease.

1. Describe and evaluate Ikea’s value chain strategy.

Value chain is a tool used to identify value added components of a business.

Porter developed a model that suggests that the business value chain be
grouped into two activities. Primary activities are directly concerned about
creating and delivering products, while secondary activities are not directly
involved in production process but could increase efficiency and effectiveness of
the business (Aaker & McLoughlin, 2007). The primary activities include inbound
logistics, operations, outbound logistics, marketing and sales, and services. The
secondary activities include procurement, HRM, technology development and
infrastructure (ibid). Inbound logistics involves activities concerned with receiving
and storing externally sourced materials (ibid).

Ikea collect products, components and raw materials from suppliers. The mode
of collection depends on the location of the suppliers; it could be by ship, rail or
road. Thereafter, the materials are stored in the warehouse (Tait, 2003). After the
necessary components and raw materials are available, operation regards the
finished products commences. The end products are usually made in such a way
that they could be flat packed and mapped together without screws. This saves
Ikea from cost of shipping and also enables customers to haul their products
home (Capell, 2005). Then, the outbound logistics regards sending the finished
products to consumers commence. The products are fit into covers, wraps and
are packed and loaded into lorries and trains. To detect damages, video cameras
are positioned to look straight into the containers. Thereafter the containers are
sealed and bar-coded to ensure proper computerized recording of all products
leaving the warehouse and for proper documentation for clearance by customs
(Tait, 2003). The next activity is informing consumers about the products and
prices. Communication with consumers could be via advertisement in televisions,
newspapers and on the Internet. Ikea also offer services such as delivery,
assembly and installation.

Ikea sources for suppliers with appropriate materials that could provide materials
at a low cost. Their employees enjoy autonomy, less hierarchy and family-friendly
culture.

REFERENCE
Aaker, D., & McLoughlin, D. (2007). Strategic Market Management (European Edition

ed.). John Wiley & Sons Ltd.

Capell, K. (2005). Ikea. Business Week , pp 97-106.

Guardian. (2005). Retrieved December 27th, 2009, from

http://www.guardian.co.uk/business/2005/jun/12/theobserver.observerbusiness4

Ikea. (2003). Retrieved 27th December 2009, from http://www.ikea.com/.

Jobber, D. (2004). Principles and Practice of Marketing (5th ed.). Mc Graw Hill.

Maps of The World. (2006). Retrieved from http://www.mapsofworld.com/world-top-

ten/countries-with-most-timber-producing-countries.html

Porter, M. (1985). Competive Advantage. Free Press.

Tait, P. (2003). Improving Supply Chain Management in the U.K Industry, Case Study-
Ikea Trading Area Poland. pp 1-10.

The China Business Review. (2009). Retrieved 27th December 2009, from

http://www.chinabusinessreview.com/public/0407/company_profile.html.