IKEA SWOT Analysis

IKEA

Introduction

Swedish company IKEA was the world's largest furniture retailer since the early 1990's. It sold inexpensive furniture of Scandinavian design. The company operated in 55 countries with a workforce of 76000. IKEA offered nearly 12000 items to the home furnishings market worldwide. It sold a wide range of products including furniture, accessories, bathrooms and kitchens at 186 retail stores in 30 countries across Europe, North America, Southeast Asia, Middle East and Australia. IKEA is well known for its exclusive model, low price, wide range of product and flat packing. The Sweden-based Inter IKEA Systems (IKEA) was ranked 42 by Business Week magazine in its list of Top 100 global brands for the year 2005. In January 2005, IKEA was placed third in BrandChannel's fourth annual Reader's Choice Awards for the global brand with the most impact in 2004. According to the Brand Channel rankings, IKEA was the #1 brand in Europe and Africa. IKEA was the world's largest furniture retailer that specialized in stylish but inexpensive Scandinavian designed furniture.IKEA's success was recognized to its vast experience in the furniture retail market, its product differentiation and cost leadership. The company sold its furniture in kits, to be assembled by the customers at home. In addition to furniture, IKEA also sold utility items such as utensils, hooks, clips, stands, etc. IKEA's founder Ingvar Kamprad (Kamprad) had built an international furniture chain of 226 stores in Europe, Africa, Asia and the US. For fiscal year 2004-05, the company generated revenues of US$ 17.9 billion, a 15% increase over the previous fiscal year. IKEA sales reached 21.2billion Euros in 2008 showing an increase of 7%. The biggest sales countries are Germany, USA, France, UK and Sweden. In 2008 IKEA opened 21 new stores in11 countries and expects to open around 20 more in 2009 as part of its strategy for growth. IKEA held a market share of not more than 10% in the markets in which it operated. In spite of this, it had been successful in almost all countries, because of public awareness of the IKEA brand.

IKEA is a global company that has invested and is present in many countries; it promotes its products and services using the same brand in all markets coordinated from its one main corporate office in Sweden which is responsible for a global strategy that concentrates on cost management, efficiency and quality. Globalisation, political-economical and social-demographical factors, like: economic growth, deregulation, more disposable income, rising housing market led to the demand and opportunity for growth, which IKEA exploited.

This company has a online shopping site is which is updated to allow for shopping and they have kept some of the best of what they already offered there.We can still view their catalog online but we cannot zoom or look at individual items, that's done through the e-shopping. It would have been nice to click on an item in the room and see the details ala-Pottery Barn. The full catalog of items is not available online, but many pieces in each category are. There are 17 current categories to shop—kitchen, bedroom, living room, bathroom, office, storage furniture, accents and decorations, chairs and stools, children's furniture, cookware and tableware, dining furniture, seasonal, rugs and flooring and many more. The categories are accessed from a drop-down menu on the main shopping page. Select the type of item you're looking for and you're taken to full-color photos of the various items with pricing. Several items are shown on each page and from there you can look at the details of an individual item.

This individual item page gives details including sizing, finish, care instructions, package measurements, and composition. It also gives you special features of the product and suggestions on use.

The items range from huge entertainment cabinets to kitchen tools—thousands of dollars to just a few cents. If it fits in a room, they probably sell it. Couches, bedding,

curtains, rugs, potatopeelers, plantstands, etc.

ALTERNATE WAYS TO SHOP

Although they use a secure server to accept their orders, some people still don't like the idea of shopping online. For them, there's a toll-free number (800-434-4532)

Which is open 7 days a week.

RETURNS/CANCELLATIONS

All returns are required within 45 days of purchase with the receipt and the original packaging. Be warned that if the carrier is unable to deliver you'll still be liable for the delivery charges. They don't refund delivery fees unless the item is defective. You can return them to a store.

Localization in Global Markets

IKEA targeted middle class customers worldwide. IKEA made shopping easy for customers. For example, right at the entrance of the store, customers could drop their kids at the playroom which had many types of safe play equipment, and then shop on their own in a leisurely manner. The stores were constructed in the form of a circle, to allow shoppers to view all sections of the store According to IKEA; the company's target market was the global middle class which shared buying habits. IKEA's Billy bookcase, Lack side table and Ivar storage system were best-sellers worldwide. The customer spending pattern was also similar across countries. Despite these similarities, IKEA realized that to strengthen its presence in the global market, it was necessary to localize. For instance in China, IKEA produced 250,000 plastic placemats in 2005 to honor the year of rooster.

IKEA stores were usually located outside urban areas, isolated from other shops. This was done intentionally so that IKEA could create a complete shopping experience for customers. The IKEA products were themselves beautifully crafted and appealing, and even their stores were so constructed as to enthral shoppers. The blue-and-yellow building was generally 300,000 square feet in size and each store stocked about 7,000 items, from kitchen cabinets to candlesticks.

SWOT of IKEA

Strength

IKEA is a highly known brand attracting key demographic customer groups.The IKEA business model is unique in its construction and execution with little direct competition on a like for like basis.Success has been driven from the price architecture offering value to the customer in innovative but functional products. Despite the large shed operations IKEA operate there is a degree of specialist knowledge within key product areas where purchases are more considered and require assistance such as kitchen installations.

Weakness

Whilst an international brand there is a level of reliance on European markets with 90% of the stores based in Europe and the balance across America, Middle East and Asia. Although the model promotes low prices it has been identified there is an associated low level of customer service which couples this suggesting there is a need to work on service to ensure a complete shopping experience and ensure repeat business within the existing customer base. Because of marketplace movement the development of Ecommerce has been necessary to compete in a modern technological world however there is also a consideration this movement into multi channel retailing moves away from the fundamental vision of the customer being able to see and touch the product.

Opportunities

IKEA are moving from International to global status through the development of Asia and Eastern European models. There is a new and emerging market in China as the country undergoes a huge industrial revolution IKEA's traditional product value is low price high volume product but the movement into mid and higher price points will see an opportunity to move the demographic base and increase the average basket value with less confidence on a limited demographic collection. At a time of recession in the global economy, it may appear that some companies will reduce take up of services that Ikea's offers. However, in tough times clients tend to focus upon cost reduction and outsourcing - with are strategies that Ikea's offers. So hard times could be profitable for Infosys Although there are negative associations within the development of the IKEA Ecommerce site there is an associated opportunity to get growth and increase levels of customer service as the additional transactional ability will reduce pressure from stores to a certain degree.

Threats

Within growing competitive retail markets normal retailers are beginning to copy the model of low cost value flat packed furniture which will impact on the enthusiasm of IKEA.With economic concerns over rising living costs and depleting disposable income there is an overall threat to the performance of the business in UK and American markets specifically.

Pestel of IKIA

INDUSTRY ANALYSIS: PESTELFRAMEWORK

1.Political Factors

Ikea is working a globalized background with stores around the world. This company's performance is highly influenced by the political and legislative conditions of many countries, including the European Union (EU). For employment legislations, the government encourages companies to provide a mix of job opportunities from flexible, lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs. Also to meet the demand from population categories such as students, working parents and senior citizens. Ikea understands that retailing this company has a great impact on jobs and people factors being a naturally local and labour-intensive sector. IKEA employs large numbers of; student, disabled and elderly workers, often paying them lower rates.

2. Economical Factors

Economic factors are of concern to IKEA, because they are likely to influence demand, costs, prices and profits. One of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods. These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be profound. Although international business is still growing and is expected to contribute greater amounts to Ikea's profits over the next few years, the company is still highly dependent on the UK market. Hence, Ikea would be badly affected by any slowdown in the UK furniture market and are exposed to market concentration risks.

3. Social/Cultural Factors

Current trends indicate that British customers have moved towards ‘one-stop' and ‘bulk' shopping, which is due to a variety of social changes. IKEA have, therefore, increased the amount of such items available for sale. Demographic changes such as the aging population, an increase in female workers and a decline in home meal preparation mean that UK retailers are also focusing on added-value products and services. In addition, the focus is now towards; the own-label share of the business mix, the supply chain and other operational improvements, which can drive costs out of the business. National retailers are increasingly reticent to take on new suppliers. The type of products demanded by customer is a function of their social conditioning and their consequent attitudes and beliefs. Customers are becoming more and more aware of health issues, and their attitudes.

4. Technological Factors

Technology is a major macro-environmental changeable which has influenced the development of many of the Ikea products. The new technologies benefit both customers and the company: customer satisfaction rises because products are readily available, services can become more personalised and shopping more convenient. IKEA stores operate the following technologies:

* Wireless devices

* Intelligent scale

* Electronic shelf labelling

* Self check-out machine

5. Environmental Factors

In 2003, there has been increased pressure on many companies and managers to acknowledge their responsibility to society, and act in a way which benefits society overall (Lindgreen and Hingley, 2003). The major societal issue threatening furniture retailers has been environmental issues, a key area for companies to act in a socially responsible way. Hence, by recognizing this trend within the broad ethical stance, Ikea's corporate social responsibility is concerned with the ways in which an organization exceeds the minimum obligations to stakeholders specified through regulation and corporate governance.

6. Legal Factors

Various government legislations and policies have a direct impact on the performance of Ikea. For instance, government suggested an enforceable Code of Practice should be set up banning many of the current practices, such as demanding payments from suppliers and changing agreed prices retrospectively or without notice (Mintel Report, 2004). The presence of powerful competitors with established brands creates a threat of intense price wars and strong requirements for product differentiation. The government's policies for monopoly controls and reduction of buyers' power can limit entry to this sector with such controls as license requirements and limits on access to raw materials (Mintel Report, 2004; Myers, 2004). IKEA Marketing Mix Analysis

Marketing Mix

1. Price

The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product. The business may increase or decrease the price of product if other stores have the same product.The price of an item is clearly an important determinant of the value of sales made.

IKEA's strategy is based on cost leadership. Across markets where it presently has a presence, products are sold at low prices. Prices are 30 to 50% lower than competing products. Price variations are only a result of fluctuations in exchange rates. This penetration pricing enables IKEA to gain significant market share. Low prices are a result of large-quantity purchasing, low-cost logistics, store location in housing areas and a DIY approach to marketing. IKEA also benefits from economies of scale and healthy supplier-firm relationships. IKEA enters into long-term contracts, provides leased equipment and technical support in exchange for exclusive, low-cost manufacturing from suppliers. For new markets, IKEA should retain its price- image to maintain the brand's positioning.

2. Product

IKEA's value chain is unique in that customers are also suppliers and suppliers are also customers. The transactions between the supplier and IKEA and on to the

customer have a value adding step in each stage. Product differentiation exists in the value-added aspect. IKEA's consumers are treated as ‘presumes' with most of its products requiring assembly after purchase. But although assistance in this aspect is limited, IKEA offers options for choosing, transporting and assembling furniture.

While this is well accepted in areas where IKEA now operates, it may be a point of consideration when entering new markets. Should IKEA encounter a market where DIY is not favored, IKEA may include the cost of the service to the product's price.

3. Position/Place

'Place' is concerned with different types of transporting and storing goods, and then making them available for the customer. Getting the right product to the right place at the right time involves the distribution system.IKEA stores are located in housing areas. This is a factor in the achievement of IKEA's low pricing. While it may appear as a disadvantage, this fits IKEA's target market of customers willing to transport their own purchases and requiring less assistance in meeting.

4. Promotion

Promotion is a way to set up business of communication with customer. This will give information which helps them to take decision to purchase a product or service. Ikea's promotions were based on selected marketing conditions and cultural sensibilities of each country that divers a lot from corner to corner markets. IKEA was present in some countries like Canada, Australia and Germany for over twenty five years while in countries such as the US, Britain and Italy, it had been around for only a little more than a decade. Over the years, IKEA had worked with different advertising agencies to bring out some of the most creative and alternative television spots across the world. Because of this, an IKEA explanation was considered a choice catch as it allowed the agency the freedom to explore some interesting and unexplored ideas.

5. People

To achieve a competitive advantage through the organization, the company needs to recruit the right stuff and train them properly. Customers make judgments and deliver perceptions of the service based on the employees they interact with. Staff should have the appropriate skills, attitude, and service knowledge to provide the service that customers are paying for. Ikea aim to apply for the Investors in People accreditation, which tells consumers that staff are taken care off by the company and they are trained to certain standards.

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