IKEA Marketing Analysis Final Version Essay
3907 WordsMay 3rd, 201516 Pages
Delivering the Value Case Study Analysis
Marketing Management – MKTG – 522-2776
DeVry University, Keller Graduate School of Management
February 8, 2015
Table of contents
Delivering the Value Case Study Analysis 1
1.0 Introduction 3
2.0 Brief Description of IKEA 4
3.0 Industry Analysis & Industry Trends 5
3.1 Environmental Impact 7
3.1.1. Economic 7
3.1.2. Social 7
3.1.3. Technological 7
3.1.4. Legal 8
3.1.5. Political 8
3.1.6. Environmental 8
3.1.7. SWOT ANALYSIS 9
4.0 Target Market 10
4.1 IKEA in China 10
4.2 IKEA in India 11
5. Challenges 11
5.1 Cultural Environment 12
5.2 Underdeveloped distribution systems in emerging markets 12
6.0 Alternative Solutions 13
6.1 China 14
6.2 India 14
7.0…show more content…
We believe what is good for society is good for IKEA. We are passionate about creating a successful business where we act in a responsible way through small and large actions. It is a way of being. This is why sustainability is a cornerstone in the IKEA strategic direction – it is highly prioritized and serves as a driver of further innovation and development. Economizing with resource, finding new ways of doing things and developing our knowledge and expertise are important parts of our business idea and heritage. A low price company must be a low cost company, and this includes being careful with earth’s limited resources. IKEA has unique capabilities and tremendous enthusiasm to make a positive contribution across the world – from the forests of Siberia to the cotton fields of India and all the way into people’s homes in New York, Lisbon and Shanghai. Our customers rightly expect us to not only to make our products in a responsible way, but also to help them live more sustainable
3.0 Industry Analysis & Industry Trends The Furniture Store industry in China accounts for about 34.0% of total revenue from China’s furniture sector. The remaining sales are generated by other industries, such as furniture wholesalers, department stores and direct sales from furniture manufacturing industries. In the five years through 2014, the furniture Store industry has been growing at an annualized rate of 22.2% to
Global Marketing: An Analysis of IKEA and Ashley Furniture Industries’ Marketing Activities in the Furniture Market
rodrigo | March 12, 2015
WritePass - Essay Writing - Dissertation Topics [TOC]
For most ambitious companies in today’s complex business environment, gaining competitive advantage and achieving expansion in capacity often requires internationalizing operations and entering new markets with the goal of building a broader and more diversified customer base. However, internationalization typically presents the problem of how to establish the company’s business or brand in a foreign market, considering the cultural and contextual differences in global markets (De Mooij, 1998). Due to the spread of globalization and the convergence of markets and economies, it has been increasingly acknowledged that a broad range of products and services can potentially have a global appeal and generate considerable revenues across the world. As long as the marketing activities designed to promote products and services are tailored to suit respective markets in line with the prevailing cultural and environmental realities, there is every possibility of achieving commercial success (Kandampully and Duddy, 1999).
Accordingly, global marketing requires a flexible framework or structure that enables companies to respond dynamically to observed differences in the respective markets in which they do business (Philip et al., 1994). This makes it possible to organize, plan, and control global marketing activities effectively and efficiently (Keegan, 1989). This report therefore focuses on the marketing activities of the furniture market, specifically on two leading international furniture manufacturing and retailing companies: IKEA and Ashley Furniture Industries, with a view to establishing the kinds of marketing activities they have adopted to establish their presence in specific countries.
IKEA in Russia
As the largest furniture retailer in the world with extensive operations in several markets across the world (Armitstead, 2010), IKEA’s entry into the Russian furniture market was in line with its sustained global expansion driven by strong product development and differentiation, attention to operational detail, and emphasis on consistent cost control (Thomas White, 2011). In spite of the relative strengths that IKEA have accumulated with its long history of international retail business, it is widely argued that internationalization of retailers is a decidedly challenging and complex proposition. This is because, in contrast with, for instance, manufacturing, international retailers often do not have the benefit of using a traditional export strategy because they need to develop and manage several stores located in their new markets (Dawson, 1994). For IKEA therefore, it was imperative to devise knowledgeable strategies that would not only ensure efficient development and management of its stores in Russia, but also effective marketing activities that would give it competitive advantage in the tough Russian market. Consequently, the company found it necessary to adapt its promotion and communication strategies for Russia in order to present its product range to the Russian public in a manner that paid due attention to local characteristics and cultural realities of the market. However, this requires a strategic balance in line with the interactive approach to global marketing suggested by Gillespie (2004) that companies operating in foreign markets need to determine how best to maintain their traditional values and brand ideals, while also adapting their brand image to suit the requirements of the foreign markets. As such, IKEA’s marketing activities in Russia attempt to preserve the company’s Swedish heritage whilst adapting its strategies to suit local circumstances.
Product Formulation and Packaging
Through its popular flat packaging and product design, Product Formulation and Packaging is a central aspect of IKEA’s marketing activities in Russia. The company mainly packages its products with the strategy of aligning the relevance of its furniture products range with the local needs of the Russian consumers, and presents the company’s offer in a manner that is compatible with Russians’ traditional home decoration styles. Although, IKEA has been criticised severally by Russian consumers that its product designs are sometimes not reflective of the Russian market as they tend to be generically designed and often reflective of designs better suited to other climes (Bloomberg July 2, 2009). IKEA denies such criticism citing that: “It is essential to note that we are a global company which strives to deliver our best in markets where we operate by adapting our designs and processes, it should be noted however that this takes a gradual and learning process which we are constantly striving towards, it should also be noted that several of our products formation have Russian orientation therefore it is not completely true that we don’t think like Russians, of course we do (Bloomberg July 2, 2009)”. Strategies used by the company to achieve this objective include extensive use of surveys and home visits, reliance on customer feedback and shop floor feedback, friendly and interactive store designs, and constantly explaining the philosophy behind the low price/high quality of products through multiple media, catalogues, and shop floor staff. These strategies collectively help IKEA to retain its traditional product design and corporate brand image however with less adaptation to the Russian market as noted by many consumers. This could be because IKEA as a global brand understands the Russian market less or deliberately adopts the strategy of not essentially adapting or standardising its products to the Russian Market but perhaps remain as a brand which offers standard furniture product which should fit into any market (See: Nytimes, Jun 22, 2009).
It is worthwhile to point out that IKEA adopts a market driving approach in Russia, and this is possibly because of the fast developing and rapidly changing demand that characterizes the market (Tarnovskaya et al, 2005). Central to its market driving approach is the use of corporate branding which entails the alignment of its internal organizational systems and external networks with its core attitudes and values in order to present the image of a strong corporate brand. The company’s unique collection of values and attitudes, which is internally known as the “IKEA Way”, represents an expression of a wide array of operational details including its product range, distribution system, history, management style and so on – all of which coincide functionally and permeate the formulation of strategy, product development, and organizational processes of the company. One major challenge to the market driving force of IKEA in Russia however is that of the business ethics in Russia which tends to be corrupt and is said to be riddled with institutional bribery and many forms of corruption (theage, March 2, 2010). In terms of promotion, Indeed, IKEA relies heavily on Television and billboard advertising in its local marketing in Russia. Apart from highlighting the high quality and relatively low costs of its products in the advertisements, the company also seeks to attract potential customers by using humour and attention catching devises. One of the most important elements in IKEA’s corporate branding that has underpinned its marketing activities in Russia is its “cost consciousness” value, which is a well advertised testimony to the affordability of the company’s product range. Although while IKEA has consistently positioned itself as an affordable brand, it is believed by many Russians that IKEA’s products are above the market average (theage, March 2, 2010).
Another of the strong market driving approaches of IKEA in Russia is that it has found it important to develop a network of local suppliers in the Russian wood industry in order to help sustain its low product price strategy and preserve high standards that are consistent with its corporate brand values. IKEA strives to achieve this difficult task by increasing the competitiveness and competencies of Russian suppliers in order to create the conditions that could lead to their integration into the company’s global supply network. Supply chain and distribution channel issues are at the heart of IKEA’s marketing considerations in Russia, especially because the company’s competitiveness and unique selling proposition relies substantially on comparatively low product prices (Sanders, 2010).
Distribution Network & Pricing
One of the key marketing activities that IKEA considered crucial was the selection and development of an effective distribution system as a way of bypassing the high import duties in Russia and use alternative channels to get its goods to the country (Jonsson, 2005). In order to achieve this objective, the company has explored possibilities of producing more of its products locally; this does not only help resolve the problem of distribution and high import duties, it also adds to the appeal of the products and makes them more marketable to the local populations. As a result of its local production in Russia, IKEA is able to offer relatively low prices to Russian furniture consumers. However, given that there is a limited degree to which the company can reduce product prices without compromising high quality, it also relies on market knowledge to find good local suppliers that not only understand Russian preferences, but can also offer the lowest prices (Jonsson, 2005). Indeed the price element is important for IKEA because furniture was traditionally seen as expensive in Russia, and thus quality furniture was something that was out of reach for majority of the ordinary Russians. It must be pointed out nonetheless that many Russian consumers still see IKEA’s products as relatively expensive to the average price of furniture in the market.
IKEA in China and Taiwan
The activities of IKEA in each of the country it operates are quite distinct as would be shown in how it operates in China and Taiwan in contrast to its operations in Russia and other places. In Russia for example, customers are more aesthetically inclined and thus look forward to quality furniture which are contemporary and yet has Russian intonation. In China customers want quality furniture with western influence. As there are several local furniture companies in China, Chinese consumers prefer a western furniture company where it would be convenient to buy furniture locally yet with style, design and western aesthetic. However, in attempting to market its furniture products in China and Taiwan, IKEA maintained its characteristic international marketing strategy of thinking globally and acting locally in order to build long-term relationships with customers and capture customer value. In this regard, IKEA uses three principal marketing activities in the Chinese and Taiwanese furniture markets: product design/packaging, price, and promotion/advertising. Its marketing activities in both countries take advantage of the cultural similarities and geographical proximity.
As in its operation in Russia, Product Design and packaging also represents the main element in IKEA’s market offering in China and Taiwan because the company’s localisation in China and Taiwan aims at appealing to local/cultural tastes in home furniture. Accordingly, not only are the range of furniture products that IKEA offers in the area strive to match customers’ preferences, the products showrooms are also designed and arranged to suit the Chinese cultural styles (Armstrong and Kotler, 2006). In order to meet the tastes and preferences of its diverse Chinese and Taiwanese customers, IKEA offers almost 8,000 products that are roughly categorized into about 21 product ranges more than it offers in Russia showing that IKEA goes with the flow and acts according to the need of the specific markets in which it operates. In designing these products, IKEA manages to retain its Swedish heritage while also considering traditional Chinese furniture preferences. In contrast with the usual style of Chinese furniture – which is typically darker and characterised by fancy carvings – IKEA’s furniture designs adopt a much lighter and simpler style that nonetheless incorporates Chinese themes (Miller, 2004). Furthermore, rather than undertake completely new designs for the local market (which may be difficult to apply to a wide product range due to cost overruns), IKEA prefers the strategy of implementing slight alterations of key product features in line with the dictates of the local market. This is has proved an easier approach for IKEA than making brand new designs; it is also less costly and has proved as effective. In terms of product packaging, IKEA prefers to use simple-looking and recyclable materials for wrapping its products. The idea behind this product packaging strategy is two-fold: it seeks to save cost otherwise associated with fancy product wrappings (thereby making the products cheaper for customers), and it also emphasises to the local furniture consumers that IKEA is concerned about environmental-friendliness in the production, transportation and protection of its products (Kling and Goteman, 2003).
Price is an important aspect of communication and it represents a decisive element in the interaction between buyers and sellers (Usunier, 2000). Accordingly, IKEA’s marketing activities in China and Taiwan strongly involves the price element, which the company has used to attract and retain customers for its furniture products. Although IKEA’s initial target market when it first entered the region was the category of individuals with top-tier urban income, it has increasingly adjusted its strategy by reducing prices to accommodate a wider customer-base as is the practice in Russia. In order to achieve profitability in spite of these price reductions, IKEA has had to implement cost-saving methods such as sourcing materials for its products locally instead of relying on imports as it used to do at the beginning of its operations in China (Song, 2005). Overall, IKEA’s pricing policy serves as a strategic marketing tool for creating customer value. The price-based marketing activity attempts to capture the highest possible customer value at the lowest possible cost – principally by sourcing locally for the furniture production materials.
IKEA’s promotion activities in China and Taiwan is based on the idea that promotion is arguably the most culture-bound aspect of the marketing mix – especially because promotion often needs to be adapted in the local market for cultural and language reasons (see for instance Usunier, 2000). Accordingly, IKEA’s promotion activities as it is in Russia involve the use of advertising in local newspapers and television stations to promote its new product ranges and upcoming sales. In using such promotional devices, IKEA ensures that its messages are exclusively transmitted in the Mandarin language (which is the most widely spoken language across Chinese and Taiwan), and that they retain cultural relevance in order to target the local customers effectively. This is in line with the idea that it is important to put a ‘local face’ in advertisements and promotions in order to gain the attention of customers (see Mummert, 2007). Accordingly, the main form of promotion used by IKEA in China and Taiwan is advertisement, and such advertisements often communicate messages in the local language, coupled with culturally relevant themes.
Ashley Furniture Industries in the United States & Canada
Ashley Furniture Industries is one of the largest furniture manufacturing and retailing companies in North America that sells home furniture products and accessories through its own retail furniture stores as well as through independent furniture dealers (see Ashley Furniture, 2011). Its marketing activities in the United States and Canada mainly involve product, price, and distribution network. It is also important to note there are differences in the activities and strategies of Ashley and IKEA because the companies operate in two different markets where consumers are different, the macroeconomic environment is different and market conditions are different while indeed consumer preferences and choices are also different.
Like IKEA. Ashley Furniture maintains a product strategy which involves providing a fully integrated product line for all aspects of home furnishing including bedrooms, living rooms, and dining rooms. The company’s North American operation is a vertically integrated enterprise that oversees every aspect of product development from design to manufacturing. Using an efficient production system, the company is able to maximize productivity while also minimizing waste-generation (Data Monitor, 2007).
Bearing in mind the furniture tastes of the American and Canadian customers, Ashley Furniture Industries’ products are mainly categorized into three divisions: case goods, upholstery, and millennium. Products in the case goods division include bedroom sets, dining room sets, wall units, and table sets. Its upholstery division consists of products such as sofas, sectionals, and loveseats. Its millennium collection comprises products with the highest quality offered by the company, mainly premium furniture products for top-tier customers (Ashley Furniture, 2011). The idea behind Ashley Furniture’s product design and development process is to ensure that there is sufficient variety in product range to suit the needs and interest of different consumer segments in the US and Canadian markets.
Product pricing is a central aspect of Ashley Furniture’s marketing activities, particularly because the company’s products are targeted at budget-minded consumers that are looking for the best quality furniture products at the best prices (Abbas, 2010). A sharp contrast can indeed be drawn between IKEA and Ashley in terms o price given that both companies have different pricing strategies. Indeed, Ashley Furniture uses an innovative strategy of offering a vast array of product combinations that are grouped together not only on the basis of matching materials, but also on the basis of pricing. This helps the company achieve two strategic marketing objectives: customers can easily choose product combinations that suit their needs in line with their respective budgets. Ashley Furniture is able to offer at products at relatively affordable prices because of a number of cost-saving systems it implements across the production process. For instance, an in-house design team is responsible for creating the product designs – thereby saving the company considerable costs it would have otherwise incurred on design fees. These efficient, cost-cutting systems enable the company to transfer some of the cost-savings to customers in the form of lower prices, and this is a significant aspect of the company’s marketing to its United States and Canada target markets (Data Monitor, 2007). The company’s vertically integrated structure helps it to save cost at every stage of the production process and ensures the delivery of high quality furniture to customers at relatively low prices.
The use of a strong retail distribution network is one of the most effective means by which Ashley Furniture markets its products across North America. In order to ensure availability, affordability, and prompt delivery of its products, the company maintains a network of over 300 retail stores (known as ‘Home Stores’) in strategic locations across the United States and Canada (Data Monitor, 2007). It also supplies its products to independent furniture retailers in these two countries; it also delivers orders from strategically located warehouses, serviced through a sizable fleet of delivery trucks. Ultimately, Ashley Furniture is able to reach a large proportion of customers in the USA and Canada due to the effectiveness of its extensive retail and distribution network. The company’s distribution network takes advantage of the geographical proximity between Canada and America to ensure that there is significant synergy in the production and distribution of its furniture products in both markets.
Ashley Furniture Industries in Japan
While there are no considerable differences in the operations of the company’s operation in Japan, US and Canada except the standardisation and adaptation to the Japanese market. Ashley Furniture Industries maintain a number of store licensees in Japan for the distribution and sales of diverse products in its furniture collections. The company’s marketing activities in Japan mainly involve product design/packaging, social media and website-based sales and promotion, and distribution network.
Using an in-house, full-time design group, Ashley Furniture is able to create furniture styles that complement the decorating styles preferred by Japanese customers. In adapting its furniture designs and packaging to suit local Japanese cultural tastes, the company nonetheless ensures that it uses its central, international workmanship and construction systems in order to retain the same level of quality (Ashley Furniture Homestore, 2011). However, a significant aspect of the product design process is centrally coordinated to reflect the company’s furniture design collections, allowing only for slight packaging elements to correspond with prevailing cultural themes that appeal to local Japanese customers.
Social Media and Website Sales & Promotion
Ashley Furniture also relies heavily on social media platforms to promote its products and increase sales in the Japanese market (Media Sauce, 2010). The company takes advantage of the almost universal internet usage in Japan, as well as the high use of social media among different age groups in the country to advertise its products by communicating strong messages through social media. Similarly, a significant volume of the company’s sales in Japan is done through its home store website, which offers consumers the convenience to choose their preferred products/product combinations, and price ranges online without having to visit the home store (Ashley Furniture Homestore, 2011). Although Ashley furniture also sells its products through its website in other locations in which its home stores are present (see Data Monitor, 2007), its approach to website and internet-based sales and promotion in Japan is more elaborate in view of Japanese consumers’ preference for internet shopping, and the high rate of social media use in the country.
Ashley Furniture enjoys the benefit of a strong distribution network boosted by the fact that the company sources a significant volume of its manufacturing inventory from nearby China (Data Monitor, 2007). Sourcing from China not only helps Ashley Furniture keep costs low, it enhances the distribution system for the sale of the finished furniture products in strategic parts of Japan particularly in its major cities. The considerably large number of retail stores and warehouses that Ashley Furniture operates across china also facilitates easy accessibility and prompt delivery of products to customers, and this helps the company counteract the threat posed by local Japanese furniture makers.
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