Services marketing - Integrated marketing communications.

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Marketing and Services Management
TITLE OF ASSIGNMENT: INTERIM ASSIGNMENT BASED ON IKEA CASE STUDY
Submitted to Dr. Roy Damary and Dr. Peter McGregor
Date 28th
June, 2015
Type of Assignment Individual
Submitted by
Name of Student Sanjay Vaid
Roll No 00436743

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Contents
Introduction .................................................................................................4
Marketing Mix: ............................................................................................4
The first P: Product:...................................................................................4
The Second P: Pricing ................................................................................6
The third P: Place.......................................................................................7
The Fourth P: Promotion.............................................................................8
The fifth P: People and internal marketing.....................................................9
The Sixth P: Physical evidence..................................................................10
The Seventh P: Process Management..........................................................11
Analyses of Environment IKEA has to operate...............................................12
Macro level analysis.................................................................................13
The Political Environment:........................................................................13
Economic Environment ............................................................................14
Social Factors:.........................................................................................15
Technology Factors:.................................................................................17
Environment Factor:.................................................................................18
Legal Factor:...........................................................................................18

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Industry level Analysis .............................................................................18
Porter’s 5 forces Analysis:.........................................................................18
Rivalry amongst competing firms:...........................................................18
Threat of new entrant:............................................................................19
Threat of substitutes: .............................................................................19
Bargaining power of Supplier: ................................................................19
Bargaining power of buyer:....................................................................19
Evaluation of the quality and sustainability of the Ikea offering in the context of its
marketing mix and marketing environment:....................................................19
Product:...............................................................................................19
Price:...................................................................................................20
Place and Positioning:............................................................................20
Works Cited...............................................................................................21

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Introduction
Since its 1943 foundation in Sweden, IKEA has offered functional home furniture and
accessories of good design at low prices so that people can afford the same. The author shall do
the analysis for Ikea taking in view India as the market; the marketing mix would be universal as
Ikea follows standardization process and offers Scandinavian design in its furniture.
Marketing Mix:
“In practice, the core of marketing is considered as the marketing mix. Dr. Ravi Shankar in his
book has cited Neil Borden, who further quotes from an article by James Culliton that a
marketer is viewed by a ‘decider’, or an ‘artist’ or a mix of ingredients’ who plans various
means of competition” – (Shankar, 2002) (Borden, 1964) (Cullition, 1948)
The first P: Product:
Product in the marketing context is anything offered to a market for the exchange or
consumption. In good markets like that of Ikea, we would say that there is an intangible
component to which intangibles like a style, after-sales-services, credit etc., are integrated.
Ikea provides highly functional quality furniture at a low price with a goal to “create a better
everyday life for the many people” which is their core product. Ikea has a wide range of very
well designed home furnishing products and complements these tangible products with
intangible service options online order taking process, picking, transferring and assembling the
furniture which also the augmented value.

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“Kotler has identified five levels of a product. It is the core and basic which might be the same
for most competing products while it’s other level that makes the difference.” (Kotler, Marketing
Management: Millennium Edition, 1999)
Table 1.1 Five Product level
Core Product The fundamental benefit or service that the
customer is buying.
Basic Product Basic, functional attributes
Expected Product Set of attributes/Conditions the buyer normally
expects
Augmented Product That meets the customers desire beyond
expectations
Potential Product The possible evolution to distinguish the offer.
Gronroos constructed that the services a product offer consists of three levels as shown in figure
1.2 below, the first level is basic service level consisting of core services, supporting services and
facilitating services. The second level is of augmented services offering where accessibility,
interaction, and customer participation is given equal importance in delivering the service
product. The third level is that of market communication of the service offering as in its absence
the augmentation services package does not have any relevance to the customer (Gronoos, 1987)

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The Second P: Pricing
Pricing is linked to demand any increase or decrease in prices affect demand, similarly prices
also tend to increase perceived value, for example, a high-cost product is perceived to be of
better quality and better post-sales support and service.
The Core Product
Supportin
gservices
Facilitatin
gServices
The Service Concept
Interaction
Accessibility
ofthe
services
Consumer Participation
CorporateImage
Wordof
Mouth
Marketing Communication
Figure 1.2: Image, Communication and Augmented
Services
Offering.

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In setting price objective, several factors related marketing strategy should be considered:
First is the plan the market position of the product. “Gitlow suggested that price not only
influences the market position but also significantly affects customers' perceptual positioning. It
is therefore important to keep market/customer position in mind while deciding on pricing
strategy. (Gitlow, 1978) Secondly, the stage of the lifecycle of a product is important for setting
price as during the introductory stage if the demand is high and no or low completion prices can
be high which is a skimming policy similarly if the demand is low and competition is higher than
market penetration policy can be used for lowering the price. Also, the elasticity of demand
needs to be considered if the demand is sensitive to change in price.
Thirdly an in-depth understanding of competition needs is to be conducted in terms of brands,
substitute products, and complementary products.
Lastly, we need to consider the strategic role of pricing in the overall marketing mix for example,
Ikea can introduce package deals and discount which can enable customer use their products this
might be a losing proposition in short but in the long run this would increase customer mindshare
and likely hood of them buying the IKEA product due to experience they had with the products
they bought with discount or in package deal.
Ikea offers reasonable and affordable price for the furniture, they use large volumes and fa
packaging to cut cost.
The Third P: Place
There are 2 methods to sell channel and direct, direct, traditional channel involved distributors
and multi-brand or exclusive retail stores, but new age retail channel also includes online internet

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based selling via intermediaries like amazon, eBay, Argos, Tesco etc., direct channel is Ikea own
stores, Ikea own website through which they offer B-to-C online product as well.
Ikea has over 360 stores in around 50 countries; In July 2014, Ikea opened its foremost store in
India in the town of Hyderabad and is expected to open stores in Bangalore, Mumbai, and Delhi
soon.
Ike Smaland is a play zone is in every Ikea store. Parents leave the kids at the entrance to the
park and pick them up following their return. This allows undivided attention from parents and
they experience products and get navigated around the store in by the store employees
The Fourth P: Promotion
The Promotion is also called the marketing communications mix, consisting a blend of
advertising, sales promotion, public relation, personal selling and direct marketing. Ikea uses
both pulls and pushes strategy.
“In the service sector, there is a direct contact between the person who provides the service and
the consumer, therefore, some amount of promotion should be targeted at the employees so to
motivate them to serve the customer better. In such communication, the objective can also be to
educate the employee about how to handle operational problems and customer handling so as to
increase their performance level. The other set of the audience is similar to that of goods where
the target audience may not necessarily be the buyer or user, but also the influencers, decider or
user of the buying cycle” (Shankar, 2002)
Apart from TV advertising, newspaper, brochure Ikea also conducts internet marketing
advertising on various sites and social media. Ikea also pays a lot of importance to environmental

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and ethical issue; they cooperate with UNICEF, Worldwide fund for nature (WWF) which
contributes a lot to building a favorable corporate image and good public relationship.
The ‘Ikea Catalogue’ is a list issued yearly by Swedish home furnishing retail merchant IKEA.
First issued, in the Swedish Language in 1951, the list is deemed to be a principle promotion tool
of the company and as of 2004, consumes 70% of its annual marketing budget. Worldwide,
approximately 208 million copies of the catalog were printed in the year 2014 with 62 different
versions of the catalog created in 43 countries. The Catalogue is now available online as well.
The fifth P: People and internal marketing
“Judd, in 1987, came with yet another ‘P’, people. Judds argument was that it is the employees,
which represent the organization to the customer. If these employees are not given training on
how to go about face-to-face customer contact, the entire marketing effort may not prove to be
effective.” (Judd, 1987)
Strategic Objective of Internal Marketing
Overall Objectives To develop motivated and customer-conscious personnel
Strategic level
Objective
To create internal environment the supports customer-consciousness and
sales-mindedness amongst the personnel through supportive:
Management methods
Personnel policy
Internal trading policy
Planning and control procedures.
Source: (Gronross, 1981)

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Ikea has a well-trained and motivated Frontline and back-end team, the front line team engages
with customers directly in person, over phone or face-to-face this includes the sales team, which
helps the customer decide and help buy the furniture, the phone based support and sales and on-
site assembly team for customers who chose the not do it your self-option.
The Sixth P: Physical evidence
G Lynn Shostack once observed. “A physical object is self-defining a Service is not.” And
therefore the marketing task in service industries is “definitions for the service what the service
cannot define for itself.” (Shostack G. L., 1987)
Although a consumer cannot see a service, but definitely he can see various tangible clues of the
service offer like facilities, communication, material, objects, employees, other customers, price,
etc. On the basis of his perception of the tangible clues, the customer makes the purchase
decision.
In services marketing, both peripheral and essential evidence is significant as they aid in
providing the tangible experience of service to the consumer. Peripheral evidence can be
possessed as a part of the service purchased while essential evidence, on the other hand cannot
be possessed.
McGrath added two more Ps: Physical Facilities and Process management, his argument in
support of these P’s was that the physical facilities are important in facilitating the delivery of

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services. (Macgrath, 1986)
Figure 1.3 The three Elements of Service Evidence
“As per Berry and Parsuraman physical environment is one of the three elements. The other two
elements are communication and price as shown in figure 1.3. There three elements are not
mutually exclusive, but rather they influence each other.”(Berry & Parasuraman, 1991)
Ikea has no of showrooms across the world the product design, the facilities, the ambience, the
facility design, the social factors like behaviors, number of services, personal, and children
playing area, recreation facility like restaurants, quality and quantity of other customer, it own
vehicles that deliver the product all of them lead to physical evidence influencing customers,
employees, and influencers.
The Seventh P: Process Management
The importance of process management is that it assures service availability and consistent
quality.
Price
Communication
Enviroment

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Ikea selling process is less complex and has some divergence in term of options for customers to
buy online or directly from store and option of delivery or assemble services for products. The
process is standardized.
“Shostack describes process in two ways: The first way is as per steps and sequences that
constitute the process and she termed it as ‘complexity of processes. The second according to
the exceptional latitude or variability of those steps and sequence, which she called ‘divergence’.
Any service process is a combination of both complexity and divergence.” (Shostack G. L.,
1987)
Analyses of Environment IKEA has to operate
The business environment if often divided external macro environment, the external industry
environment.
Exhibit 1.4 Drivers for global strategic perspective

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Macro level analysis
The Macro level environment consists of Political, social, economic, Technology, Environment
and Legal factors (PESTLE).
The retail sector is India is expected to be worth US$ 675 billion by 2016 and its fractured and
disorganized nature means that it's huge potential for consolidation or entry of an outside player.
The Political Environment:
The government can have a major impact on business by imposing regulations, the level of
taxation, import duties, and provide subsidies to certain firms.
Business strategies are now also affected by global institutions like World trade organization and
regional economic blocks like The European Union, NAFTA, and the Association of South
Asian Nations (ASIAN) Free Trade Area (AFTA). (Geogrge & Mellahi, 2011)
Hence, multinational firms need to pay attention to a complete set of important political issues,
regional economic integration, government legislation, political risk, tax policy and corruption.
The Foreign Investment promotion board has given approval to IKEA to invest INR 10,500
Crore and they plan to open 25 stores in 10 years, they have already opened a store in Hyderabad
and new stores are expected in Mumbai, Delhi and Bangalore soon.
http://articles.economictimes.indiatimes.com/2014-09-17/news/54024673_1_furniture-retailer-
new-stores-large-format-stores
India is both a sourcing country as well key market for IKEA and with India is a labor abundant
country the government would like Ikea to invest in India, which creates employment and for

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IKEA India is the second largest country in terms of population and growing hence a key market.
Also, India has been sourcing market for Ikea for 25 years.
India and the EU are working towards Bilateral trade agreement (BITA) for which frame has
already been agreed and government of India is now at an advanced stage talk with the European
Union (EU) to conclude BITA, commonly known as EU-India Free trade agreement. Since
Sweden is part of the EU, which is the country of Origin of IKEA it stands to benefit from the
bilateral trade agreement.
Economic Environment
Changes in economic business environment can influence a firm’s expansion. Exchange rate,
cost of production, cost of capital, inflation and cost of living, working –age population,
unemployment, Debt – internal and external, Income distribution, Urban verse rural income,
labor cost, poverty, productivity, Balance of payment are to be considered while analyzing
economic environment.
Other factors that are to be taken into consideration are Gross National income, Gross Domestic
Products, Per Capita Conversion, Rate of change, Purchasing power parity, Degree of Human
development, Green Measure of GNP (Daniels, Radebaugh, Sullivan, & Salwan, 2009)
- Indian GDP in 2014-15 is US$ 1.68trillion
- Gross Value added at basic price is 7.5 percent.
- Per Capita Income for 2014-15 is US$ 1166.48
- Growth in per capita income is 6.1 percent.

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- Purchasing power parity: 7,996.6 US$ ranked 3rd in the world and 6.4 percent share of global
GDP on a PPP basis.
- Population 1.2 billion
- External Debt (end-December 2014) – US $ 461.9 billion
- Long-term debt – US $ 376.4 billion
- Short-term debt – US$ 85.6 billion.
- Reserves: US$ 355.4593 billion
- Cumulative Foreign Direct Investment inflow: US$ 373.163 Billion (Between April 200 to
April 2015)
Income level of Indians is increasing and they aspire for the better quality of life; spending by
average Indian is more than ever before.
India is also a high potential market for luxury retail furniture and for office furniture which is a
large market due development work happening in India and 100 new smart cities proposed by
the government of India.
India also provides for low cost labor, raw material, production and supply chain which can be
used for exports by IKEA as well as its mainland is well connected via train and road to its
seaports and has land routes to Asia Pacific, Central Asia, Persia, Middle East as well.
Social Factors:
Social factors are extremely important for marketers to understand before they plan and enter a
market. Information related to population, age group, cultural values and attitudes, accepted

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norms, education, social institutions, manners and customs, ethical dimension, religion,
Languages, Hofstede index -power distance, individualism, masculinity are important to gather
before making any marketing plans and market entry strategy.
Regional Languages in India: Assamese, Bengali, Gujrati, Hindi, Kannada, Kashmiri,
Malayalam, Manipuri, Marathi, Nepali, Oriya, Punjabi, Sanskrit, Santali, Sindhi, Tamil, Telugu,
Urdu.
Hofstede Index for India:
- Power distance 77
- Individualism 48
- Masculinity 56
- Uncertainty Avoidance 40
- Long term orientation 51
- Indulgence 26
Population Facts:
- Age Group 15- 19 – 9.7% (Source: Ministry of Home affairs)
- Age group 20-24 – 8.7%
- Age group 25-44 – 27%
- Age group 45-64 – 13%
- India, Middle class: 267 million people.
India has rising middle class and 48.7% of the population is working adults, hence there is high
potential demand, the furniture retail segment is getting organized and currently there are multi-

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brand outlet chains like hometown, Fab furniture etc. and there is high demand for furniture
fueled by multiple segment requirements within home furnishing.
India is also going through social transformation where due to technology, information sharing in
happening across the country, more children are getting education and India is transforming into
a modern nation with its deep routed ethics and value system intact.
Technology Factors:
Technology has changed the way business was conducted and technology can influence the
business success. Technology directly impacts organizational efficiency and can reduce any
efficiency loss making the firm more competitive.
“Three important things to consider are global technology scanning and technology clusters, the
rise of knowledge-based economy and spread of internet” (Geogrge & Mellahi, 2011)
- Broadband users in India: 243.9 million
- Mobile users in India: 962.34 million
- Smart Phone users in India: 167.9 million (3rd largest in the world)
India has high-speed internet access, data centers, secure payment gateways, cyber laws, growing
and high penetration into mobile, broadband and smartphone users, which can be effectively
used by Ikea in their e-commerce sales and supply chain management thus enabling high
efficiency, lower cost, higher profits and revenue for Ikea in India.

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Environment Factor:
The two important environmental factors that relate to IKEA are wood for furniture which is
produced by cutting trees and other is power both have environmental effects in terms of carbon
and greenhouse gas emission leading to environmental concerns.
There is an environment clearance process India, Ikea would have to go through the same and
comply to ensure that they have requisite clearance especially in case of manufacturing in India.
Legal Factor:
The legal acts that concern Ikea in India are Foreign Exchange Management Act, 1999 and a
regulation made thereunder competition act, 2002 (‘FEMA’), The companies Act, 1956,
Securities and Exchange board of India Act, and regulations made thereunder, Income tax act,
1961, stamp duty laws, health and safety law, Labor laws, consumer laws. IEKA should ensure
that they have a good understanding of the law and comply with same before venturing or
expanding their business in India.
Industry level Analysis
Porter’s 5 forces Analysis:
Rivalry amongst competing firms: Indian Retail furniture market can be categorized in
organized and non-organized player and at present the number of organized companies is low
Fab-India, Hometown, Godrej Furniture as against globally were there it is high with players like
Walmart, Argos, Tesco, Target etc. are in retail furniture.

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Threat of new entrant: India has high amount of unorganized retailer as the capital expense is
low, however, as we have seen which other organized retailers who bring standardization and
economies of scale and Scope, high capital the threat of new entrant is then low as the author has
observed it is difficult for new players to replicate the process and best practice at a large country
wide level.
Threat of substitutes: The presence of substitute products puts a ceiling on the price that can
be charged hence reducing profitability. In case of Ikea, the threat of substitute product is low.
Bargaining power of Supplier: Since there are few dominant buyers and product have
differentiations hence the bargaining power of supplier is low.
Bargaining power of buyer: the bargaining power of the consumer is high as they can switch
to competing brand or substitutes.
Evaluation of the quality and sustainability of the Ikea offering in the
context of its marketing mix and marketing environment:
“Sustainable marketing calls for meeting the present needsof consumers and business while also
preserving and enhancing the ability of future generations to meet their needs.” (Kotler,
Armstrong, Agnihotri, & Haque, 2013, p. 498)
Ikea provides quality and sustainable offering in its marketing mix and environment.
Product: Ikea adopted environment action plan included 10 key initiatives
1. Replace polyvinyl chloride (PVC) in wallpaper, home textiles, and showers.
2. Minimize the use of formaldehyde in its products.

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3. Produce a model of chair (OGLA) made from 100% pre-consumer plastic.
4. Introduce a series of air inflatable furniture products in the product line to reduce the use of
raw material and transportation weight and volume.
5. Eliminate acid-curing lacquers.
6. Reduce the use of chromium of metal surface treatment.
7. Limit the use of substances such as cadmium, lead, PCP, and AZO.
8. Use wood from the responsible managed forest that replants and maintain biological
diversity.
9. Use only recycles material for flat packaging and “pure” (non-mixed) material for packaging
to assist in recycling.
10. Introduce rental bicycles with trailers for customers in Denmark.
Ikea introduced IWAT Code of Conduct for supplier which outlines work to reduce waste and
emission to air, ground and water, handle chemical safely etc.
Price: Ikea provides people with good furniture at a sustainable lower price, however with good
quality.
Place and Positioning: : Ikea focus to sound environment information and provide
environmental friendly alternative for acquiring IKEA products, this includes marketing
material, a catalog of products on none- chlorine bleached paper and use pulp for framing wood;
Limiting its catalog production to one catalog per year and accepting old catalog back at store for

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recycling , free shuttle buses from selected cities locations to several stores in Europe; allowing
customers to deposit old furniture before purchasing new furniture at some stores in Switzerland.
Works Cited
Berry, L. L., & Parasuraman, A. (1991). Marketing Services: Competing through Quality. New
York: The Free Press.
Borden, N. H. (1964). The Concept of Marketing Mix. 2-7.
Cullition, J. W. (1948). The Management of Marketing Costs. Boston: Division of Research,
Graduate School of Business Administration, Harvard University.
Daniels, J. D., Radebaugh, L. H., Sullivan, D. P., & Salwan, P. (2009). International Business:
Enviroments and Operations (Twelth Edition ed.). New Delhi: Dorling Kindersley
(India) Pvt . Ltd., licensees of Peason Education in South Asia.
Geogrge, J. F., & Mellahi, K. (2011). Global Strategic Management (second ed.). New York:
Oxford University Press.
Gitlow, H. (1978, Apil). Time for discussion of Marketing Policies. Journal of Marketing, 42,
71-82.
Gronoos, C. (1987). Developing the Service Offering: A source of Competitive Advantage.
Gronroos, C. (1987). Developing the Service Offering: A source of Competitive Avantage.
Gronross, C. (1981). Internal Marketing n integral part of marketing theory. (H. J. Donnelly, &
R. W. George, Eds.) Marketing of Services.

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Hollensen, S., & Banerjee, M. (2014). Global Marketing: with a special Indian focus (Fourth
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Judd, V. C. (1987). Differenciate with 5th P. Industrail Marketing Managent, 241-247.
Kotler, P. (1999). Marketing Management: Millennium Edition (Vol. 10th Edition).
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south Asian Perspective (Thirteen ed.). Delhi: Manipal Press.
Macgrath, A. J. (1986). When Marketing Services, 4 Ps are not enough. Business Horizons, 44-
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Shankar, R. (2002). Services Marketing, the Indian prespective. New Delhi: Excel Books.
Shostack, G. L. (1987, January). Service Positioning through Stuctural Changes. Journal of
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Shostack, G. L. (1987). Services positioning through stuctural changes. Journal of Marketing,
51, 34-43.