Strategic Business Management and Planning of IKEA

Strategic Business Management and Planning of IKEA IKEA has its roots in Smaland, historically one of Swedens poorest regions, so hard work and economizing with resources have always been a part of its heritage. The influence can be seen in products and value-system. Based on deep knowledge of peoples lives at home, IKEA offers good quality, durable and functional home furnishing products for everyday life today. IKEA continues to learn from, and develop with co-workers, customers, suppliers and other partners in 41 countries. The policy is to make out a lot out of very little. Since it was founded IKEA has always had the concern for people and the environment. The IKEA vision to create a better everyday life for the many people puts this concern at the heart of the business. IKEA has responded to the publics rising concern for sustainability in its choice of product range, suppliers, stores and communication. It has also spotted business potential in providing sustainable solutions. Contents Table of Contents Introduction IKEA is an internationally known home furnishing retailer with fully integrated supply chain including its own industrial groups Swedwood Swedspan. The IKEA Group directly or indirectly also owns retail centres, always with an IKEA store as a unique anchor tenant. It has grown rapidly since it was founded in 1943. Today it is the worlds largest retailer, recognized for its Scandinavian style. The majority of IKEAs furniture is flat pack, ready to be assembled by the consumer. This allows reduction in costs and packaging. IKEA stores include restaurants and cafes serving typical Swedish food. They also have small food shops selling Swedish groceries, everything from the famous meatballs to jam. The IKEA group works in four basic areas: range strategy product development, production, supply and retail. Low prices are one of the cornerstones of the IKEA concept and help to make customers want to buy from IKEA. This low strategy is coupled with a wide range of well designed, functional products. IKEAs products cater from every lifestyle and life stage of its customers, who come from all age groups and types of households. This has become the vital feature when the retail sector is depressed, as it increases IKEAs potential market. Why IKEA? Walking into an IKEA is like walking into a whole new world, its a wildly different experience when I visited the IKEA store for the first time. Its an incredible value for money. IKEA offers a tremendous bargain to the savvy buyer you just have to pick wisely. Many of IKEAs product ranges are component based, meaning that the parts and pieces that make up the whole are sold separately, so lots of flexibility. Low price, but not at any price is IKEAs motto when it comes to social environmental responsibility. IKEA works toward using the least amount of resources possible and as many renewable and recyclable material as possible in their products. While price is a prime consideration neither safety nor quality are compromised in the pursuit of a low price. One of the fundamental reasons that IKEA is able to sell for less is that they expect and require you to do part of the work yourself. The IKEA group has developed an environmental policy to ensure that the company and its co-workers take environmental responsibility for all activities conducted within its business. Marketing Strategy Your partner in better living. We do our part, you do yours. Together we save money. Internet, T.V., Newspapers, magazines. Catalog being the main marketing instrument. IKEAs success is based on principal marketing strategies that remain the same throughout the world, which include a catalogue that is printed in 17 languages and the use of the colors of the Swedish flag blue and yellow in IKEA logo. This is combined with an emphasis on customer freedom and choice with regard to buying and taking home products, and low prices intend to create a sale mentality amongst customers. This aggressive price strategy coupled with a wide product range catering for every potential lifestyle and life stage of a consumer, can best summarize the companys recipe for success. General Marketing Strategy To describe IKEAs marketing strategy it is necessary to start with its business concept as formulated in IKEAs mission (IKEA 12 Jan 2009).IKEA offers a wide range of well designed, functional home furnishing products at prices so low that as many people as possible can afford. The key words in the business mission, address several marketing aspects and the marketing strategy can be seen to emanate from it. One central theme is the alleged standardized approach of IKEA: IKEAs guiding principle is to work in the same way in every country within which it operates. SWOT Analysis IKEAs goals of sustainability and environmental design are central to its business strategy. It has launched a new sustainability plan to take the company through to 2015. This will combine social, environmental and economic issues. IKEA uses SWOT analysis to help it reach its objectives. This is a strategic planning tool. It helps the business to focus on key issues. SWOT is the first stage of planning and looks at the strengths, weaknesses, opportunities and threats involved in a project or business venture. Strength and weaknesses are internal aspects. This means they are within the control of the business. They may refer to aspects of marketing, finance, manufacturing or organization. Opportunities and threats are external factors. This means that they are outside the control of the business. These may include the environment, the economic situation, social changes or technological advances, such as the internet. (Johnson, 2005) Strengths Every company needs to analyze its strengths so that the company can overcome its shortcomings and can increase its profits. IKEA attracts key consumer groups as it is a strong global brand. It promises good quality and price. It offers wide range of well designed, functional products at low prices. It is important to have good relations between suppliers, retailers and customers. Ikeas adopt strategic schemes of work based on relationship marketing which aspire to make better customer devotion and long term relationship with suppliers. Here the Porters Five Forces (Appendix 2) model can be applied. In relation to buyer power in the company IKEA seeks to enhance customer loyalty and make good relations with existing customers while aiming at winning new customers also and tying them into long term relationships with companies. To result this IKEA provides nursing rooms and playgrounds for parents to make sure that the children have positive experience at the outlets and offering home delivery. It also provides a hotline for customers who have troubles with the assembly or missing parts. According to Five Forces Model of Porter (Appendix 2), the substitute products are matter of searching for other products which can perform the same function as the product of the industry. While furniture cannot be the substituted product by the majority of people. Therefore IKEA has the nature of supplying them and the manner in which products or services can be supplied, have become highly substitutable with technological developments. IKEA organizes the furniture in its store in such a way that the customers would not need to try on the furniture to see if they fit and look good in their rooms and computer imaging could allow the creation of virtual rooms. By this the suitability of purchasing of products also increases. The emergence on e-shopping method is another example that IKEA applied and will continuously shape traditional furniture retailers competitive positions in the market. Such strategies have yet remained underutilized and such substitutes have yet become part of t heir competitive strategies. Weakness IKEA has to grant its weaknesses so as to improve and manage them. This will help to set its objectives and developing new strategies. The size and scale of its global business can be one of its weaknesses. It could make it hard to control standards and quality. In some countries, they do not execute the legislation to control working condition, where IKEA products are made. This shows a weak link in IKEAs supply chain, disturbing consumer views of IKEAs products. IKEA needs to balance between the low costs and good quality products. It doesnt differentiate itself and its products with other competitors. It believes that there is nothing to compromise between good quality products and low prices. It must keep good quality relations with the customers and the stakeholders about its environmental actions. To enable business to communicate with different target audiences IKEA produces publications in print and online (eg People and the Environment) and carries out major TV and radio cam paigns. It operates in a highly competitive industry, characterized by small family-run businesses producing low cost which include other low priced furniture producers characterized by designs that are expensive which results in small-scale production for the local market. Besides this, a few large retailers such as Nova, Courts and Furniture mall enjoying economies of scale to compete effectively as they are producing affordable products. It can be seen that the competition of rivals is intense with IKEA and Porters Five Forces can be applied. It has seen that there are the differences of opinion concerning product offerings and positioning. Opportunities Every business take an advantage of opportunities that arise uses its strengths. IKEA believes that resulting in good conducts even in a price sensitive market it should conduct environmentally focused business. As the company states that the customers live more suitable life at home as there is a true business potential for IKEA in providing solutions to them. IKEA is recycling and reusing the used products and is developing effective solutions for customers to support them, aiming at producing new IKEA products with recycled materials. IKEA has some of the opportunities that take advantage of through its sustainability agenda are- increasing demands of greener products, increasing demand for low priced products. The customers may switch from more expensive stores to IKEA by seeing the trends in current financial climate. IKEA gives online tips and suggestions for sustainable life at home. To be open with all its stakeholders IKEA builds trust with its consumers, co-workers, key opi nion farmers and press through good communication. It organizes programmes to reduce its use of water. IKEA also focuses on developing social responsibility; here IKEA applied Corporate Social Responsibility Strategy, its policy includes support for charities such as World Wide Fund, UNICEF and Save the Children. IKEAs relationships are redefined by IWAY policies and practices with suppliers with more effective way. The actions of IKEA in response to the crises of 1995 were very appropriate as the company made a realization that it would be in their best interest to think long term instead of short term. Threats IKEA can use a particular strength in defending against threats in the market. If a company is aware of its threats it can plan to counteract them. By applying PESTEL Framework (Appendix 3), IKEA has threats in social factors. IKEA gives suggestions to the customers for more sustainable life by online. Because of this the customers would reduce their impact on the environment although it saves money. IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, effective use of technology or employing expert managers. Economies of scale also give a business a competitive perimeter if cost savings are then conceded on to customers in the figure of lower prices. For the smaller companies entering into the market this puts up high Barriers to Entry (Appendix 2). Economic factors, part of PESTEL Framework (Appendix 3), can also be applied here as in tough times IKEA create an appeal amongst its customers as it provides low prices. When the retail sector is depressed it is better to low cost as much as possible. Consumers come with limited financial resources because of the IKEAs pricing strategy. Its products will also demand to those with higher budgets through good quality and design. The company must make sure that it is always recognized in the future as having lowest cost on the market. Communication plays an important role here. There is an overall threat to the performance of the business in UK and American markets due to global depression there is over rising of living costs and depleting disposable income. Conclusion With hundreds of stores across the world IKEA is a well known global brand. It must charge its external and competitive environment in order to improve performance. By this it can reveal the key opportunities and the threats it can deal with. IKEAs passion combines design, economical use of resources, low prices and responsibility for people and the environment. IKEA tries to go ahead of profitability and reputation. It develops a sustainable business (Appendix 1). This will make an enhanced daily life for its customers. IKEA has exposed a business truth- being sustainable and accountable is not just good for customers and the planet; it is also excellent for business. A steady development of the IKEA retail business appears to be the focus for the company in the near future, with strategies unlikely to include aggressive expansion into new areas, but rather building and developing in old. (The United Kingdom, 2005). However development of e-commerce some changes may be seen. As IKEA is already assured that its products are of good quality and craftsmanship, the consumers may prefer to but its products through Internet. IKEA has also adopted an insistent expansion-based strategy more than the last few years, although the flaw of the external consumer market means that sales growth in excess of the next few years should remain relatively reserved.