Ikea Case Study Questions

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

Ikea has managed to create an unbeatable atmosphere throughout each and every store they have opened world-wide. Paying attention to every little detail from beddings to photo frames, it gives visitors a sense of being at home regardless of their cultural or ethnic background. Every single display at Ikea instigates the feeling to push forward and see more, this is because the company focuses completely on the customer. A person can walk into the store without the intent of spending and walks out buying something at the end. The customers that shop from Ikea can be divided into many categories, and this can be based on a lot of different typologies too. There can be casual customers, who decide to do some small accessory shopping, there can be people who visit the store to eat at the restaurant, The typical Ikea customer can range from low to upper-middleclass, usually young couples or families.

They can be first time home owners or movers. And they can be of diverse cultures, in places such as Dubai, where population is vastly diversified, you can find a lot of different people having the same buying behavior at Ikea. This profile can differ across different countries in a variety of ways, there can be economical factors, or demographic factor and it can also depend on the level of disposable income the middleclass people have. For example, China is the Largest supplier of Ikea products in the world, and a typical Chinese Ikea customer earns about Yen 3,300($399)per month the national average is Yen 1,000($121) and buys Yen 300($36) of merchandise per visit. Most of these customers are 20 to 35 years old but the store has repositioned itself to reach the target age of 45 as well, In general Ikea customers are better educated, earn higher incomes, and travel more than the average Chinese, and as true as it is, roughly 70 % of Ikea customers world wide are women. (Miller, P. M.)

Question 2

Discuss ikea’S STRATEGY in terms of: Brand positioning, brand globalisation, pricing strategies, and sustainability

Ikea has positioned itself as a budget brand and has done it very brilliantly, they strive to make each and every customer’s visit a unique and memorable one. They have achieved this in so many ways such as encouraging customer interaction, they store their products with the least amount of packaging material to save on costs, the store has huge pictures explaining their philosophy, and even the free pencils and measuring tapes help in keeping the customers happy. According to their UK website, their vision is “To create a better life for many people” and their Market positioning statement reads “your partner in better living. We do our part, you do yours and together we save money”. (http://www.ikea.com/gb/en/). Ikea recently has 301 stores across 37 countries, and plans are underway to open more, but regardless of the background, culture or traditions of the country, most of the stores have similar structures.

They have standardized the brand and at the same time making different people believe that their products are worth it. For example, they have never gone astray from the color scheme of the stores as all of them are blue and yellow which derived from the Swedish flag. Ikea defines its target customer as the global middle class people that share buying habits. The company is consistent in following their perceived image as a value brand, and they maintain the Swedish influence at each and every store. They use different strategies for different countries for example, they have advertisement campaigns in France, they have a winter sale in USA. Even though they standardize on the major aspects of the stores, they tend to localize on some of them. One of the features that they standardize throughout the world is their pricing strategy, and with the help of colorful useful tips and ideas they have on large displays at the stores. It is in fact the Ikea theory to create simple and eye-catching yet solid furniture at a very affordable price, and the way they achieve this is by creating the price tag first, then accordingly using limited materials, they make the furniture.

Many factors help Ikea to maintain this low pricing strategy, such as packaging, all the furniture is flat packed which means more items can fit into the crate lowering the number of delivery journeys, and customers are encouraged to take the furniture home themselves and fix it to save costs, and even at the store’s restaurant, customers are encouraged to clear out their own table, which results in cutting costs of cleaning staff which in turn results in having low prices. Low price, however is not appealing unless it provides value for money. Sustainability is also a major part of Ikea’s operations, as the company has always had concern for people and the environment. Ikea makes better use of both raw materials and energy which helps to keep costs down and helps the company reach green targets and have an overall impact on the environment.

They keep on generating new ideas for how to make their business more sustainable, and came up with solutions such as the smart packaging and recycling of used materials and turning them into ready-to-use furniture. All the stores have recycling points set up where consumers can take part in recycling old light bulbs, papers, plastics etc. Ikea has undertaken many projects to promote its social responsibility and most of these projects were based on children, for example Ikea worked with UNICEF to initiate the child rights program in India to prevent child labor. In 1990, Ikea adopted The Natural Step (TNS) Framework as the basic structure for its environmental policy and plan. This framework involved a series of responsibilities that Ikea has implemented and the six implementation areas were, management and personnel, which includes training and individual contribution to understand environmental policy.

Products and materials, this category recognizes that products must convey a sign of environmental commitment. Customers, this category influences customers to incorporate environmental considerations into their buying decisions. Suppliers, need to be encouraged to adopt environmentally responsible production methods. Buildings, equipments and consumable materials, this category aim to encourage a better working environment in all of their operations such as properties, waste management and appropriate use of equipment and materials. Transport. this category encourages the need for environmentally-sound distribution methods. (Owens, H. http://www.naturalstep.org/en/usa/ikea).

Question 3

Describe and evaluate ikea’s value chain strategy

The value chain is basically a series of value-generating activities or and organization through which it develops competitive advantage. Michael Porter introduced the generic value chain model in his book ‘competitive advantage’, which consisted of primary and support activities found to be common amongst most firms. The primary activities include: Inbound logistics, Operations, Outbound logistics, Marketing and Sales and Service. And these are supported by the firm’s infrastructure, HR management, Technology Development and Procurement. The main objective of these activities is to offer the customer a level of value that exceeds the cost of the activities thereby resulting in a profit margin. Inbound logistics is receiving and warehousing of raw materials and distributing them to manufacturing as required. Ikea has about 1,500 suppliers in 50 different countries. China is the biggest supplier of Ikea products, at least 15 percent of all home furniture sold by Ikea is made from materials purchased in China.

Operations is the process of transforming inputs into finished products and services, Ikea makes sure all the material they use is environmentally acceptable and this process involves them to complete the product and use what is known as smart packaging to save further costs. Outbound logistics is the warehousing and distribution of finished goods, half of the journey, these goods are transported by rail and the other half by road. And a typical Ikea store has a huge warehouse where all the products are organized and the customer is given the initiative to pick out what they liked from the displays, this cuts down on further labor costs. Marketing and sales is the identification of customer needs and generation of sales, Ikea focuses primarily on printed media, which has proven its values and success to the company over the years. Their marketing mix consists of four different areas of focus, which is the Ikea product range, the store, the Ikea catalogue and the Ikea advertising, PR and other types of communications.

Ikea is a major employment provider in the world and each and every employee at Ikea gets the same type of training to ensure a standardized customer service system. Service is the support of customers after the products and service are sold to them, Ikea has a huge customer service area, where customers can look for after sales services, such as returns and exchange and home delivery services. And customers can even ask for assistance to assemble the furniture. All these activities are supported by Ikea’s infrastructure which is the organizational structure, control systems etc. Human Resources management which is in charge of hiring and training new staff, the role of the HR department in large multinational companies such as Ikea is to make sure employees are trained on a regular basis and motivated to serve the customers, Ikea usually has in house training and covers a broad range of responsibilities which include employer-employee relationships, payrolls, and learning and development.

Technology is used to support value creating activities, Ikea uses a lot of new technology in terms of its operations, for instance throughout the store, customers can find automated customer feed back kiosks where they can chat with a virtual employee and leave their comments and feed backs. And procurements are the purchasing of inputs such as materials, supplies and equipment. Ikea purchases its materials and equipment from suppliers at a lower cost and from the suppliers perspective, they say that the margins that are earned from the products sold to Ikea was lower than that of other customers, but the level of support that they got was very impressive and far outweighed the disadvantages.

References:

Miller, M.P. (2004). _IKEA with Chinese Characteristics._ Available: http://www.chinabusinessreview.com/public/0407/company_profile.html. Last accessed 12/18/2009.

Owens, H. _Ikea: the natural step case study._ Available: http://www.naturalstep.org/en/usa/ikea. Last accessed 12/18/2009.

Porter, M.E. (1985) Competitive Advantage, Free Press, New York, 1985.

Website:

http://en.wikipedia.org/wiki/IKEA

Salman Maqsood Shiekh M00122796