Ikea's mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA 1994). The company targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The typical Ikea customer is young low to middle income family.
Swedish Company IKEA was the world ’ s largest furniture retailer since the early 1990s. It sold inexpensive furniture of Scandinavian design. The company operated in 55 countries with a workforce of 76,000. IKEA offered nearly 12,000 items to the home furnishings market worldwide. It sold a wide range of products including furniture, accessories, bathrooms and kitchens at 186 retail stores in 30 countries across Europe, North America, Southeast Asia, Middle East and Austral. IKEA is well known for its unique concept, low price, wide range of product and flat packing.
IKEA have a strong internationally known brand attracting key demographic customer groups.
The IKEA business model is unique in its construction and execution with little direct competition on a like for like basis.
Success has been driven from the price architecture offering value to the customer in innovative but functional products.
Despite the large shed operations IKEA operate there is a degree of specialist knowledge within key product areas where purchases are more considered and require assistance such as kitchen installations.
While an international brand there is a level of reliance on European markets with 90% of the stores based in Europe and the balance across America, Middle East and Asia.
Although the model promotes low prices it has been identified there is an associated low level of customer service which couples this suggesting there is a need to work on service to ensure a complete shopping experience and ensure repeat business within the existing customer base.
As a reaction to marketplace movement the development of Ecommerce has been necessary to compete in a modern technological world however there is also a consideration this movement into multi channel retailing moves away from the fundamental vision of the customer being able to see and touch the product.
IKEA are moving from International to global status through the development of Asia and Eastern European models.
Traditional product for IKEA has been within value, low price high volume product however the movement into mid and higher price points will see an opportunity to move the demographic base and increase the average basket value with less reliance on a limited demographic group.
Although there are negative associations within the development of the IKEA Ecommerce site there is an associated opportunity to achieve growth and increase levels of customer service as the additional transactional capability will reduce pressure from stores to a certain degree.
Within growing competitive retail markets mainstream retailers are beginning to mirror the model of low cost value flat packed furniture which will impact on the buoyancy of IKEA.
With economic concerns over rising living costs and depleting disposable income there is an overall threat to the performance of the business in UK and American markets specifically.
lKEA already has successful operations in the U.S., Canada, Europe, and Asia. The South Korean economy has a growth rate that can result in a profitable market to penetrate.
The European Union, the United States and China are the main sources of FDI. EU countries invested a combined US$ 3.1 billion in South Korea in 2003, according to the MOCIE
South Korea offers a more open and capitalistic philosophy, offers significant benefits to a company such as IKEA. With a population of almost 49 million, IKEA would have easy access to shoppers. The emerging low, middle class and trend toward privatization offer a target market that would definitely be interested in IKEA furniture.
To enter this market, IKEA has several options available and needs “to evaluate the pros and cons of” foreign direct investment through, “joint ventures, franchising, subsidiaries, or a mix of these as a mode of future involvement.
IKEA’s strategy is based on cost leadership. Across markets where it currently has a presence, products are sold at low prices. Prices are 30 to 50% lower than competing products. Price variations are only a result of fluctuations in exchange rates. This penetration pricing enables IKEA to gain significant market share. Low prices are a result of large-quantity purchasing, low-cost logistics. IKEA also benefits from economies of scale and healthy supplier-firm relationships. IKEA enters into long-term contracts, provides leased equipment and technical support in exchange for exclusive, low-cost manufacturing from suppliers. For new markets, IKEA should retain its price-image to maintain the brand’s positioning.
IKEA’s value chain is unique in that customers are also suppliers and suppliers are also customers. The transactions between the supplier and IKEA and on to the customer have a value adding step in each stage. Product differentiation exists in the value-added dimension. IKEA’s consumers are treated as ‘prosumers’ with most of its products requiring assembly after purchase. But although assistance in this aspect is limited, IKEA offers options for choosing, transporting and assembling furniture. While this is well accepted in areas where IKEA now operates, it may be a point of consideration when entering new markets. Should IKEA encounter a market where DIY is not favored, IKEA may include the cost of the service to the product’s price.
IKEA stores are located in suburban areas. This is a factor in the achievement of IKEA’s low pricing. While it may appear as a disadvantage, this fits IKEA’s target market of customers willing to transport their own purchases and requiring less assistance in assembly.
Catalog , TV advertisement, Blog, and Web site. Advertisement is needed to make potential customers aware of store location. It was thought that lower prices and selection would do the rest-positive word-of-mouth had proven the best advertising in the most other martket.