Micro and Macro Environment of IKEA - Assignment Example

? IKEA Table of Contents Overview of IKEA 3 Define IKEA 3 IKEA’S History 3 IKEA Today 4 2.Macro-environment of IKEA 5 3.Micro environment of IKEA 7Strengths – 7 Weakness- 8 Opportunities- 9 Threats- 10 4.Evidence of an analysis of the key resources that IKEA might utilise to achieve strategic success 10 5.A Strategic Plan for the Next Five Years 11 References 12 1. Overview of IKEA Define IKEA In this age of stiff economic condition and tough competition, IKEA is one of the recognised brands of Sweden, dealing in the segment of ready-to-assembled furniture’s, fittings, appliances, and many others stylish accessories of the residence. It came into existence in the year 1943 and within a very small time frame it attained a renowned brand image due to its modern architectural designs and eco-friendly nature. Due to which its revenue and operating income enhanced by €27.628 billion and €3.482 billion by the end of 2012 as compared to other rivals in the market. This marked the success of the organization of IKEA and so it expanded in many other parts of the world like Germany, Norway and Denmark (Inter IKEA Systems B.V, 2012). IKEA’S History IKEA is established in the year 1943 by Ingvar Kamprad, a young entrepreneur residing in Smaland of Southern Sweden. The name of the organization IKEA is derived from the initial letters of Ingvar Kamprad, i.e. I and K along with the first letters of his hometown, Elmtaryd and Agunnaryd. Ingvar Kamprad started his career in business by selling matches, pen, pencils, fishes, seeds and many others. However, slowly and gradually, he started offering high-level of concentration over IKEA and so presented varied types of advertisements in local newspapers to attract wide range of customers. Moreover, in order to make it a branded furniture retailing house, he presented varied types of attractive and stylish furniture’s such as beds, chairs, tables, home appliances and many others at a quite lowest price. This proved quite effective for the organization and helped Ingvar Kamprad to open his first store in Norway in the year 1963 and in Denmark in 1969 (Inter IKEA Systems B.V, 2013). After that, within a small time frame, IKEA expanded to other parts of Europe, Switzerland, Australia, Hong Kong, Canada, Germany, UK and many others. Therefore, by the end of 2009, IKEA group became successful to operate in more than 332 stores in 40 countries. Hence, IKEA took more than six decades to mark its position in the segment of trendy furniture’s among other retailers. IKEA Today Inspite of extreme economic downturn, IKEA maintained its popularity and brand image in the market in a quite stable condition due to its objective to present qualitative products at a competitive price. Due to which, the leading leader of home furniture enhanced its total sales by ?2.15 billion and net income by ? 3.51 billion by the end of 31st August 2013. Along with this, the market share also increased from 7.3% in 2012 to 8.5% in 2013 in the market of UK. This became possible only due to its wide expansion into 332 stores in more than 40 countries in the entire globe (Inter IKEA Systems B.V, 2012). Other than this, the annual sales figure and sales per region is presented in the below graphs. Therefore, from the graph, it might be clearly depicted that the rate of sales of the furniture’s of IKEA is very high as compared to others. This enhanced the equity and profit margin to a significant extent among other retailers (Inter IKEA Systems B.V, 2013). 2. Macro-environment of IKEA In order to analyse the external environment of the market of UK, one of the most renowned technique is used. It is named as PESTEL analysis. Political Factors- the political scenario of UK is quite cacophonous due to the presence of inefficient bureaucracy and corruption. Other than this, the instable government policies and regulations also acted as a curse that hampered the growth of the organization of IKEA. Not only this, shaky coalition of the government of UK hampered the business scenario to a significant extent. Among other segments, the furniture retailers attained a serious set-back due to such inconsistency. As a result, the world famous retailing brand, IKEA lost its market share by 3.5 % and profit margin by 4.9% at the end of 2012. Side by side, the reputation and brand image of the organization of IKEA also declined thereby hindering its market value and equity to a certain extent. Economic Factors- due to inflation, the rate of GDP declined from 8% in 2010 to 5.4 % in 2013. As a result, the growth rate of the organizations operating in segments such as agriculture, furniture and services also declined significantly as presented in the below graph. Side by side, rate of exports also attained a serious set-back due to inflationary conditions that hindered the market share as well as revenues. Other than this, due to economic inflation, the per capita income reduced thereby enhancing the rate of unemployment and poverty. Moreover, the rate of buying behaviour of the individual of the UK market reduced that sharply declined the total sales of IKEA in the market among others. Social Factors- due to inflationary conditions, the mind set as well as the buying behaviour of the individual of the UK market altered significantly. As a result, the market growth and brand image of the organization of IKEA reduced considerably among others. Side by side, due to changed ideas and income rate, the net income and sales of the organization of IKEA reduced significantly. Due to which, the organization of IKEA had to lose a huge range of profit and returns. Technological Factors- due to inflation, the organization of IKEA failed to attain highly skilled labours. Due to which, the rate of production of the organization of IKEA declined significantly thereby hindering the rate of market share and brand image. Side by side, due to lack of trained labours, the organization failed to present trendy and fashionable products to its customers. Due to which, the level of loyalty and trust over the brand of IKEA in UK market declined. Environmental Factors- in order to prevent the environment from pollution, varied types of inventive machines and materials are used. Along with this, use of varied types of chemicals and insect killer sprays used to save the furniture from terminates and other insects are also considerably reduced. This is done, in order to retain its objective to maintain a clean and eco-friendly environment. Legal Factors- as the tax and tariff factors within the market of UK changed due to high rate of inflation, the market share and growth of the furniture retailer IKEA reduced. Along with this, the brand image and reputation of the brand also declined significantly as compared to other rival players of the market. Still, due to its wide range of products, IKEA retained its portfolio and reputation in the market of UK among others. Therefore, it might be analyzed from the above mentioned points that recession considerably declined the market image and popularity of IKEA. So, the total sales and distinctiveness of the furniture of IKEA reduced significantly as compared to other existing rival players. Along with this, the chances of new entrants also increased to position its products within other existing retailers so as to enhance their brand image and uniqueness. 3. Micro environment of IKEA The micro environment of an organization might be analysed with the help of an analytical tool named SWOT. It is one of the most famous analytical techniques used to detect the internal scenario of any organization. Similarly, in this paragraph, SWOT analysis is used to detect the environmental factors of IKEA in UK market. Strengths – Powerful brand image- the brand image of the organization of IKEA is extremely high as compared to other operating rivals in the market of UK. It is mainly due to its varied types of designed products at an affordable price. Other than this, IKEA always tried to present the products as per the demands and requirements of the customers so as to retain them for a longer period of time. Side by side, IKEA offered high level of customer services so as to maintain a good relationship with their existing customers as well. This acted as a boon for the brand thereby enhancing its image and reputation to a significant extent. Wide range of products – IKEA offered a wide range of trendy and fashionable products at a quite cheapest price as compared to many other retailers. Due to which, maximum extent of the fashion conscious customers of the recent age get attracted towards the products of this brand in the market of UK among others. So, it is recognised as the ‘ultimate experience of shopping’ (Kazmi, 2007, p. 456-478). Cheap and affordable- the products presented by IKEA to its target customers are extremely cheap and affordable for them. This is another advantageous factor for the brand that enhanced its profit margin and total sales by 3.5 % and 6.7% significantly among other rival players (Inter IKEA Systems B.V, 2012). Strong distribution network- as the distribution network of the stores of IKEA is extremely praiseworthy, the reputation and position of the brand remained always high among others. Side by side, the products might very easily get transferred by the stores to the respective locations within a very small time period. So, this brand is highly preferred by the customers of UK market among other contenders. Strong relationship with the suppliers- as the organization of IKEA desires to maintain ethical behaviour and norms with the suppliers so its relationship with the suppliers is also extremely strong. Side by side, due to which the suppliers try to present the raw materials to IKEA at a quite cheaper cost as compared to others. Easy to assemble and ship- the furniture and other home appliances presented by IKEA is quite easy to assemble and ship as compared to many other rival players. Due to which, the customers of varied culture and religion, try to purchase products for their residences from IKEA (Porter, 2008, p. 356-378). Weakness- Durability of furniture is low- although the furniture’s of IKEA are extremely qualitative and cheaper in cost, still its durability is low. This is mainly because; a wide range of products are produced at the same time, which sometimes remains in the store for longer period of time. Due to which, the organization of IKEA loses a huge extent of its customers and total sale as well in this age of aggressiveness. Unassembled furniture- as the furniture’s presented by IKEA is unassembled in nature so it is not preferred by maximum range of the customers. Due to which, a wide range of customers switch over to other brands presenting assembled products. This significantly affects the profit margin and dominance of the organization of IKEA in the market among others (Inter IKEA Systems B.V, 2013). Promotions do not attract many customers- as the promotional advertisements presented by the organization of IKEA are not effective. So, it fails to attract wide range of customers towards the products of the brand. Swedish designs do not attract the customers of UK market- as the likings and preferences of the customers of varied market differs significantly, so the sale of the furniture’s of IKEA are quite low in this market among others. Less number of sales persons in the stores of UK- less number of sales person within the stores of UK is also another important weakness among others. Opportunities- Wide range of expansion opportunities- due to strong brand image and reputation, the chances of expansion into new markets is extremely high as compared to others. Due to which, its range of sales and profit margin gets enhanced considerably to a certain extent as compared to other rivals. Along with this, it also helps in amplifying the distinctiveness and reputation of the organization in varied markets. Total sales increased through online sites- due to the presence of online sites, the range of sales of the furniture’s of IKEA increased. Due to which, its market share and growth rate also increased significantly. Establishment of numerous new stores- the introduction of numerous new stores in untapped markets acted as a boon for the organization of IKEA. This proved quite effective for the organization to enhance its equity and influence over other new entrants Threats- High-end competition from low-end retailers- the organization of IKEA faced high level of competition from the low-end retailers such as Wal-Mart, Costco and many others. Due to which, the level of sales and revenues of the organization of IKEA reduced considerably in the market of UK (Keegan, 2002, p. 345-678). Less willingness to purchase new furniture’s- as the citizens of UK shows less interest in purchasing new items for their residences, so the total cost and sales of the products of IKEA reduced. Therefore, from the above mentioned points, it might be clearly revealed that IKEA need to offer high attention over the trends and requirements of the customers. Side by side, the organization might try to present varied types of attractive advertisements so as to increase the awareness of the customers. 4. Evidence of an analysis of the key resources that IKEA might utilise to achieve strategic success In order to enhance the rate of sustainability and profit margin of the organization, the management of IKEA desired to recruit experienced and committed staffs. Only then, the reputation and brand image of the organization of IKEA might get enhanced thereby fulfilling the dream of attaining the supreme position in the segment among others. Side by side, if the staff members are committed towards their duties and responsibilities, then the organization of IKEA might very easily prosper in its profit margin and total revenues as well (Inter IKEA Systems B.V, 2010). Moreover, the idea of recruiting experienced staffs might also prove effective in achieving the dream to present a better life to its customers thereby amplifying the chances of strategic success in future. Side by side, the use of non-renewable raw materials such as plastics, foam, steel and metals also enhanced the rate of efficiency of the organization of IKEA. Other than this, the use of recycled woods, cotton and metals for the preparation of the furniture’s might also help IKEA to achieve strategic success in future age (IKEA Group, 2010). 5. A Strategic Plan for the Next Five Years In order to retain the competitive advantage and sustainability, IKEA decided to enhance its customer base so as reduce the fear of new entrants. This might be possible only if IKEA desires to introduce varied types of inventive products such as EKTORP Sofa at a quite lowest cost. This might prove effective for the organization of IKEA to attract wide range of customers of varying preferences and income groups. As a result, the profit margin and total sales of the organization of IKEA might remain in a stable position in a situation of recession as well. Thus, the organization of IKEA might try to implement the strategy of cost-leadership, in which value added products may be presented at a competitive cost. This might prove advantageous for IKEA to create a distinct position in the market among others. Other than this, IKEA might also try to use non-renewable resources such as plastic, foam and steel so as to reduce over-dependency on renewable products. As all these renewable products might not be present, after a time period of five years, so use of non-renewable resources is extremely essential. Side by side, use of LED light fittings to reduce the impacts of poisonous gases over the environment is also essential. This might help the organization in fulfilment of its objective of presenting a better life to its employees and customers. References Inter IKEA Systems B.V. (2013). Ikea HISTORY - how it all began. [Online] Available at: http://www.ikea.com/ms/en_CA/about_ikea/the_ikea_way/history/ [Accessed on 19th November, 2013]. Inter IKEA Systems B.V. (2012). Affordable Solutions for better livings. [Online] Available at: http://www.ikea.com/ [Accessed on 19th November, 2013]. Inter IKEA Systems B.V. (2013). Annual –report of IKEA. [Online] Available at: http://www.ikea.com/ms/en_CN/about_ikea/press/press_releases/annual_report.html [Accessed on 19th November, 2013]. Inter IKEA Systems B.V. (2012). IKEA UK announces Financial Year 2011 results. [Online] Available at: http://www.ikea.com/gb/en/about_ikea/newsitem/IKEA_FY11_results_02.11.11 [Accessed on 19th November, 2013]. IKEA Group sustainable strategy. (2020). People & Planet Positive. [Online] Available at: http://www.ikea.com/ms/en_GB/pdf/people_planet_positive/People_planet_positive.pdf [Accessed on 19th November, 2013]. Inter IKEA Systems B.V. (2010). It takes a dream to create a successful business idea. It takes people to make dreams a reality. Could you be one of those people. [Online] Available at: http://www.ikea.com/ms/en_US/jobs/join_us/ [Accessed on 19th November, 2013]. Keegan. (2002). Global Marketing Management. London: Pearson Education. Kazmi, S, H, H. (2007). Marketing Management. Germany: Springer. Porter, M, E. (2008). Competitive Strategy: Techniques for Analyzing Industries and Competitors. London: Simon and Schuster. Read More