IKEA: Entering Russia - Case Study Example

Number: IKEA: Entering Russia IKEA is one of the world’s largest produces and retailer of high quality, but inexpensive furniture. The company’s top-level managers attribute its global success to effective pricing strategies, product differentiation, and its excellent experience in furniture retailing. Its leadership in the industry may also be attributed to it’s believe that furniture should be packaged like any other product in retail store and assembled by customers from home. The company’s key target are young clients looking for stylish, but less expensive furniture, and is as well ready to offer a few services to him or herself including transporting and assembling furniture at home. The company’s mission is to provide a wide range of stylish, durable, and less expensive furniture. Its market positioning statement, on the other hand, is “your partner is better alive. We do our part do yours. Let us save money together”. Marketing mix The company has put into consideration various marketing elements in its efforts to meet its customer needs including the product, distribution strategy, price, and communication strategy. IKEA’S pricing strategy is based on its desire to be the global price leaders in furniture items. Its products retail at prices 30 percent below the market rates. The company’s pricing is standardized and applies to all its stores across the world; and the only difference is due to exchange rate fluctuations. The company has been able to achieve competitive prices because of economies of scale attained while purchasing raw materials, locating its retail shops in suburban areas, and its effective distribution strategy. Low pricing has contributed significantly to the company’s market share growth. Another key contributor to the low pricing is its long-term healthy relationship with its suppliers. The company products are not only less expensive, but also stylish and of high quality. High quality and durable products have strengthened the company’s relationship with its customers. The company has a strong relationship with its suppliers and the benefit is mutual. In other words, the supplier benefits from the company being their customer and the company benefit from the suppliers being its customers. Additionally, the company has a wide range of products which depicts is focus to diversity. Through diversification, the company minimizes the business risk. In other words, if demand for some of its products goes down, decrease in profitability is offset by increase in demand for other products. The company also focuses a lot on product differentiation. By making it products different from its competitors, the company ensures a sustainable market share by winning its consumers loyalty. Additionally, the company has incorporated standardization in its production thus ensuring that its products are similar across the globe as opposed to tailor-making products to suit customers’ desires. The company has designed an effective communication strategy. It uses both traditional, as well as, modern medium of communication. Its catalogue is the most valued marketing tool costing 70 percent of the marketing budget. The catalogue is produces in numerous languages and auditions to reach a wider audience. Other tools of communication include magazines, television, social media, and radio. For example, numerous of the company’s products are posted on its website. Its promotion strategy is meant to enhance brand awareness, products usage, stores locations thus driving traffic to them, as well as, showing how their products are different from competitors. The company also uses the word of mouth to market its products in Russia. The company’s distribution strategy has contributed a lot in its effort to cost cutting thus being able to charge low prices. The company’s stores are located outside big cities, which enable it to reach its target customers including customers willing to transport their products home themselves. Theirs stores are also big in size, which gives comfort to customers while shopping. They also have big parking space, which attract a big number of customers at a given period thus increasing sales. Additionally, their stores have hotels offering customers places to eat while doing shopping. They are also additional sources of revenue for the company, as well as, a diversification strategy. SWOT Analysis IKEA uses SWOT analysis tool to evaluate its performance, as well as, to design short-term and long-term strategies for its growth. The below SWOT analysis tries to look into the company’s strengths, weaknesses, opportunities and threats. Strength One of the company’s key strengths is its expertise in marketing its brand. The company brand has become much famous over the last one decade. This has contributed significantly to the increased profitability as well as the growth in the market share. It is easy to recognize the company’s products all over the world since they are differentiated from competitors though an effective communication strategy. It products quality is another key strength attracting key consumer groups all over the world. The products are not only durable and stylish, but they are also affordable. The company’s efforts to make high quality and affordable products have contributed a lot to its success. This is in line with its vision statement of offering high quality and affordable products to everyone including the average consumer. The company’s diversification is also a key strength. This is done through offering a wide range of products thus minimizing business risk. The company’s extra sources of revenue including hotels ensure stable profitability, as well as, growth of revenue, which is also part of the company’s strengths. The company’s strengths contribute significantly to its efforts of attracting new customers, as well as, retaining already existing customers. The company uses the market share as a tool to measure its strength in the industry. By measuring its strength, it is able to evaluate if its strategies are effective as well as determining what aught to be done to grow its profitability and market share further (584). Weaknesses The company has to understand its weaknesses to be able to plan effectively. This is through designing new strategies that would enable it manage its weaknesses. On of its key weaknesses is maintaining a balance between quality and less expensive products. It is true that the two variables, price and quality, are directly related. In other words, if the quality of a product goes up, its cost of production must go up. Therefore, the company’s need to offer high quality products would demand increased cost of production, which may adversely affect its market share because of losing its price leadership position. Another weakness is its huge size. The company’s operations are complex and, therefore, managing its standards, as well as, quality may be difficult. This may affect the company’s desire to provide standardized products across the globe. Lastly, the company’s standardization is also a weakness. Failure to tailor-make products to meet different customers’ needs may reduce the company’s market share. Opportunities Every company uses its strengths to take advantage of opportunities available in the market. There are numerous opportunities available for IKEA, for example, customers need for a sustainable life at home. The company has an opportunity to provide solution for this, for example, through making recyclable equipments. Customers are in more need of greener products that are environmental friendly. If the company would be committed to this, it would benefit a lot because of support from both the government and the clients. Another opportunity for the company is peoples need for cheaper products because of a tough economic climate. The company is in a good position to offer even cheaper products. The ever-advancing technology is also an opportunity available for the company. It should take advantage of advanced technology to enhance efficiency through production. This would enable the company to reduce costs significantly. It should also use technology in marketing it products, for example, through the social sites. Additionally, the company may also use technology to build its online selling which would help in growing its revenue and profitability. In Russia, the company has an opportunity to open stores in new cities, which would boost its profitability significantly. Threats One of the company’s key threats is new entrants in the market. Many companies are entering into the market, with the same idea of offering affordable home furniture products. To survive the stiff competition, the company must design strategies to reduce production, as well as, operations costs. Economic factor is another threat to the company. The 2008 global financial crisis, for example, reduced consumers’ income, which hurt many businesses across the world including Russia. Another threat is difficulties in opening new stores in Russia because of complex bureaucracies imposed by authority. Additionally, Russian culture is a challenge to the company. IKEA’s culture and Professor Hofstede’s Four Dimensions As a global company, IKEA is concerned about learning and understanding people’s different cultures in all its regions of operations. The company’s yellow and blue images are part of its culture, which is noticeable all over the world. It is important for the company to understand different cross-culture theories, for example, Hofstede’s Four Dimensions theory including power distance, masculinity versus femininity, individualism versus collectivism, and uncertainty avoidance. Power distance entails how different countries handle inequality. In its countries of operation, Sweden is the most concerned with equality and Spain is the least concerned. For the company to succeed in a country it must align its business with the country’s culture. In an individualistic society, citizens take care of themselves as opposed to collectivism. There is favoritism and nepotism in collective society, which is not present in individualistic societies. In Russia, people are collective, which makes it difficult for the company to implement no favoritism laws (586). Spain is more collectivist compared to Sweden and, therefore, IKEA must deal with this problem in Spain by enforcing no favoritism laws. Feminine cultures values equality, quality of life, and caring for others etc. on the other hand, masculine cultures put more emphasis on achievement, competition and success. Comparing Sweden and Spain, the former is more feminine. Lastly, uncertainty avoidance focuses on the level of trust. Low trust cultures dislike failure and conflicts and, therefore, make laws frequently. On the other hand, high trust cultures are more relaxed and do not fear conflicts. Spain has a lower score compared to Sweden. In other words, Sweden has low trust than Spain. Spanish opposed IKEA’S informality solutions when the company started operations in the country forcing it to hire a Spanish human resource manager. IKEA Success in International Markets The company’s success in international markets lies behind its philosophy of affordability and quality. The company also believes that its designs could be acceptable everywhere in the world, which enables them to standardize products thus lowering the cost of production and prizes. The company believes that people all over the world have the same needs including a sustainable home, green products, a nice place to eat, affordable products etc. the company success in Russia is attributed to the support it gets from the country’s numerous citizens who live in small apartments located in the country’s huge cities. The company’s products offered storage solutions to Russian citizens and, therefore, were warmly welcomed. Russian citizens were also happy about the company’s cheap and beautiful accessories. Although Russians loves their traditional style, citizens who explained it as a symbol of change welcomed the company’s modern style of furniture. Additionally, the fact that IKEA was the only foreign company that did not withdraw its operations from Russia, after the economy collapsed in 1998, following its currency devaluation, has contributed a lot to its success (587). Work Cited Elg, U, Jonsson, A & Tarnovskaya, V. “IKEA: Entering Russia” in Ghauri, P. Cateora, P. “International Marketing” (2006:599-603) McGraw Hill Education. 2006. Print Read More