IKEA Business Model - Case Study Example

IKEA Case Study Introduction IKEA is one of the successful businesses supplying furniture in the global market. The company has outlet stores in various countries that offer the products to its customers. The products offered are a mainly Scandinavian design and are sold at low prices to the customers (Moon 1). The company supplies for to the American market though faces competition from other large companies such as the Wal-Mart chain of stores. Understanding of its marketing strategy is of interest to marketers. This paper is a case study for the IKEA’s marketing activities to reveal the factors that have contributed to its success. This will be achieved by analyzing the case “IKEA invades America” under the following subtopics. IKEA Business Model The best model of business that describes the marketing activity for the IKEA Company is the 4P model. A firm applying this model structures its marketing activities based on the product, price, place and promotion aspects. IKEA is observed to follow this model since has designed the products with unique features that act as identity to customers. The products offered by the company are Scandinavian make. In addition, there are a range of products that customers can buy. The company has opened outlets in various countries from customers can obtain products. Components of the products are supplied and assembled by customers in assistance of IKEA employee at the nearby outlet. This has moved the products close to customers. The company has also used price as a tool to attract customer. The products are offered at relatively lower prices compared to competitors yet are of high quality. The company carries promotional activities to create awareness to customers such as through the internet. Product Strategy and Product Range IKEA has a developed product strategy that is followed in developing new products as well as setting its price. The company has a council made of members from different part of the globe that studies the trends in consumer tastes and preferences. The council recommends for development of a product based on consumer preferences. The company also carries research in the market for similar products offered by the competitors for purpose of benchmarking and setting the price. The company sets the price to as low as 30 to 50 percent of the competitor price (3). In addition, the company has a price matrix followed in setting the price. The matrix has style of product: Scandinavian, modern, country and young against price range (high, medium, or low). The matrix provides for setting prices for different design with a sense of flexibility in the price. The matrix is thus appropriate and could give a competitive edge in the market. IKEA Downside The downside of IKEA was on the culture the primarily based on cutting costs in order to offer low priced products. This included reduction of power costs, low salaries for the employee including the managers, and poor work environment (3). Despite this, the company made huge profits from sale of products. The effect of this practice was low quality of its products in the early years that led to drop from the most prominent furniture company in the world in 2002. The company sold large volume of units and in 2002 it registered revenues of 12 billion dollars. To overcome the fall in market performance, the company had to change the culture of cutting costs and integrated it with sense of quality. Strengths and Weakness in IKEA Strategy Following the downside, the company developed a new vision statement to show commitment for quality products. The vision “democratic design: low price with a meaning” sought to strengthen the relationship of the company with the customers. This statement has some strengths and weaknesses. The strengths include sense for large production of fine and quality products that are affordable to many customers (5). This sends a strong message to customers that the company would deliver products that meet their preferences at affordable prices. The statement show weakness by indicating that achieving delivering low priced product would require their participation. This sends a poor perception of the company to the customers requiring their input while they may be unwilling. IKEA Target Segments and Positioning The target segments for IKEA are the customers in the medium and low end as well as those with aesthetic preferences. This is observed from the practice of the company to offer products at low prices that could be afforded by many people. Customers with low incomes could then purchase high quality furniture with their purchasing power. The company also targets the market segment with high aesthetic sense for furniture made of material and designs of the Scandinavian people. In fact, the company has used the Scandinavian identity to establish its market niche. The company has positioned it with low priced products that the low income earners can easily identify with. In addition, it has carried out advertisements affirming the market target using information for cheap, quality and comfortable product. It has presented itself as company that cares and values tastes and preferences of the customers. Strategic Positioning of the Competition The furniture market in the United State offers a good opportunity for firms in the industry to reap high revenues from their products. However, the market is very competitive and attracts several large firms that have large variety of products for customers to enjoy. A company aiming to experience high sales need to have a strong positioning in the market by ensuring high knowledge of the trends in consumer preferences, strong relationship and wide presence. Improving IKEA value proposition Competition exists in every market. IKEA is a very successful product line dealing with furniture and other several items consumers use at home. To be able to withstand the competition in the market, IKEA has focused on several areas that it feels need improvement. Some of the most important areas to work on are the product line, pricing strategy, and services the company offers to the clients. In pricing strategy, IKEA intends to make the prices appeal to customers. In marketing, pricing plays a critical role in making sales and is, in fact, the most important of the three parts of marketing as it is the only one that brings about revenue to the firm. Selling goods at very high prices may only attract a minuscule part of potential buyers which means that the company may not be making progress. In IKEA’s price strategy, the firm aims at selling its products about 30 percent lower than what its competitors are selling at (Moon 3). In setting up prices, one of the most important parts of the processes is making sure that the raw materials allow for the flexibility in the cost of the final products. IKEA asked the designers and the engineers to focus on how they would make cost effective products without compromising on their quality. To ensure that IKEA can be more attract to the American consumer, it is important that the firm looks at critical areas such as the product line, so far IKEA is doing well in the various products it offers its clients, and the company has almost every item that clients may need. In the services the firm offers clients, the customer is expected to be a big player in making their home (Moon 8). To better make the firm more appealing to customers, it is critical that they are helped in the selection of items and to some extent professional assembling of the furniture. Opening satellite store across America Opening satellite store across America could prove imperative in the functioning of IKEA as they will be in a position to reach out to more customers. In regard to those people who live far from the main IKEA shops, they will have an opportunity to acquire some of the necessary items they may need from the small satellite shops. Unfortunately, this may never be a viable way of meeting the diverse needs of the people since even those customers who live far from the main shops may need more than just buy a few items from the satellite stores. In other words, the customers’ needs cannot be met by a small store that provides less than what the customers need or expects to find. Nonetheless, the small store may act as ‘starting points’ for bigger shops to establish. If IKEA built several of these smaller satellite stores, they may be in a position to reach more significant percentage of the market and will be having a better chance of expanding and stocking more products. In other words, the idea could work if the firm worked toward making the satellite stores even bigger and providing more of the products that IKEA manufactures. This way, consumers will not be forced to shop from IKEA’s competitors due to the store having less than what customers need. Work cited Moon, Youngme. “IKEA invades America.” Harvard Business School pdf. 2004. Read More