IKEA is considering entering the Sri Lankan market through both online and offline channels. It plans to partner with John Keels Holdings to establish a joint venture. An analysis of Sri Lanka's political, economic, social, and technological environment shows opportunities for IKEA's expansion. Porter's five forces model indicates moderate competition from local furniture brands. IKEA will position itself as providing high-quality, affordable products. Both social media marketing and traditional advertising will be used to promote the brand and generate sales through online and brick-and-mortar stores.
2. 1
Executive Summary
This report has been developed for IKEA, Swedish furniture manufacturer to critically assess the
impactof international marketing approaches for them to successfullyenter a new market in South
Asian Region, Sri Lanka. Accordingly, considering the potential risk and rewards it has been
recommended for IKEA to enter the Sri Lankan market by means of joint venture by partnering
with the largest conglomerate in Sri Lanka, namely, John Keels Holdings. In particular, the initial
assessment of the market factors pertaining to macro and micro elements reveals positive
prospects for the company to successfully operate in the Sri Lankan market. Subsequently, it is
noticed that the market positioning of IKEA amongstthe competitors in Sri Lanka would be around
high quality and high priced products. Further, marketing communication is planned via both
online and off line mediums. Accordingly, to generate the maximum out of the proposed business
venture it has been recommended that IKEA must engage in both online and offline
communication strategies. Indeed, social media marketing would gain prominence in their
marketing strategy as a means of reaching out to the customers and gaining customer brand
awareness and persuading them to purchase from the product. Hence, utilisation of both off line
and online mediums are imperative for the success of IKEA in Sri Lanka.
3. 2
Table of Contents
Executive Summary........................................................................................................................ 1
List of Tables................................................................................................................................... 4
List of Figures.................................................................................................................................. 4
Introduction ..................................................................................................................................... 6
1.1 Chosen organisation and chosen international market ................................................... 6
1.2 Sources of information..................................................................................................... 7
1.3 History of IKEA................................................................................................................. 7
1.4 VMO of the intended company ........................................................................................ 7
2.0 Rationale for selecting the foreign country............................................................................... 8
2.1 PESTEL analysis for Sri Lanka............................................................................................. 8
3.0 Literature review ..................................................................................................................... 10
3.1 Industry analysis of Sri Lanka............................................................................................. 10
3.1.1 Porter’s five forces analysis.......................................................................................... 10
3.2 Direct competitors in Sri Lanka........................................................................................... 11
3.2.1 3 I model ....................................................................................................................... 11
3.2.2 Perceptual mapping...................................................................................................... 12
4.0 SWOT analysis ....................................................................................................................... 13
5.0 Marketing mix.......................................................................................................................... 15
6.0 International strategies and entry mode strategies for IKEA ................................................. 17
6.1 International strategy for IKEA to enter Sri Lanka.............................................................. 17
6.1.1 Entry mode strategy ..................................................................................................... 18
7.0 International marketing communication models..................................................................... 18
7.1 AIDA model ......................................................................................................................... 18
7.1.1 Analysis of AIDA model................................................................................................ 19
5. 4
List of Tables
Table 1: IKEA background.............................................................................................................. 6
Table 2: Vision and core objectives of IKEA .................................................................................. 8
Table 3: AIDA model..................................................................................................................... 19
Table 4: IMC model application for IKEA ..................................................................................... 21
List of Figures
Figure 1: 3I model application to Sri Lanka.................................................................................. 11
Figure 2: Perceptual map of competitors ..................................................................................... 12
Figure 3: IMC model ..................................................................................................................... 20
Figure 4: Recommendations......................................................................................................... 23
7. 6
Introduction
Contemporary business world demands organisations to operate beyond a single territory
(Campbell & Craig, 2012) resulting in companies to engage in globalised business operations. In
response, international marketing management is gaining prominence (Jain, 2001) as it deals
with how these businesses should make their marketing mix decisions beyond a single
geographical boundary. On the contrary (Henseler, et al., 2015) define international marketing as
‘the marketing activities coordinated and integrated across multiple country markets. Therefore,
this report has been developed to evaluate the marketing tasks that mustbe managed at the initial
market entry stage from the client organisation, IKEA, in their potential decision to enter the Sri
Lankan market.
First, a brief overview of organisation will be provided along with the macro and micro business
environmental analysis of Sri Lanka. Moving on competition in Sri Lankan home furnishing
industry would be evaluated. Thirdly, entry strategy recommendations would be made along with
the marketing mix elements. Finally, an integrated communication marketing plan will be
developed.
1.1 Chosen organisation and chosen international market
The company chosen for the purpose of report developing is IKEA which is intended to enter the
Sri Lankan market through both offline and online mediums to reach the potential customer base
in Sri Lanka.
Table 1: IKEA background
Name IKEA International Group
Industry Retail
8. 7
Geographic
areas served
Worldwide
Headquarter Netherland
Employees 154,000
Source: Author Developed (2018)
1.2 Sources of information
The primary source of information used for the development of the report will be secondary
sources by means of referring IKEA website to gather the company related information and other
published books for the purpose of literature review development.
1.3 History of IKEA
The history of IKEA runs back to 1943 where it was first launched for its business operations
during the year 1943 as a home furnishing company. In fact, the business commenced initially
when Ingvar Kamprad initially paddled to neighbourhood selling useful furniture items. Indeed,
since the inception the company has been revolving around the vision of ‘creating better everyday
life for the many people by offering a wide range of well-designed, functional home furnishings at
prices so low that as many people as possible can afford them’ (Anon., 2018). On account of this
yielding aspiration of IKEA the company has been able to establish their presence in global scale
as a modernist provider of various categories of home appliances and furniture at an affordable
price. Subsequently, vision, mission and objectives of IKEA has supported towards this
1.4 VMO of the intended company
IKEA’s business strategy is developed around its core vision statement and objectives as per the
illustration in table 2.
9. 8
Table 2: Vision and core objectives of IKEA
Vision To create a better everyday life for the many
people
Objectives Togetherness
Caring for people and planet
Cost consciousness
Simplicity
Renew and improve
Different with a meaning
Give and take responsibility
Lead by example
Source: Author Developed (2018) based on (Anon., 2018)
2.0 Rationale for selecting the foreign country
2.1 PESTEL analysis for Sri Lanka
The PESTEL factors those are likely to influence the operations of IKEA in their decision to enter
the Sri Lankan market are as follows.
Political factors considered in Sri Lanka outlines that country is a democratic state with the mixture
of parliamentary system and presidential system (Economy Next, 2018). In fact, the current
ongoing crisis in the parliamentary system in Sri Lanka raises doubts with relevant to the country’s
political stability. Nonetheless, the end of 2009 war has yielded substantial political stability for
the country in terms of freedom from violence and terrorism. Accordingly, the present instability
in the Sri Lankan parliamentary system has negative impact on the foreign operators such as
10. 9
IKEA as the company is uncertain on the potential policy changes that may materialize with
relevant to foreign trade occurring in the country.
On the other hand, any corporate, inclusive of IKEA entering Sri Lanka is demanded to be abide
by the legal factors associated with the country especially related to corporate laws,
environmental laws, employee laws and anti-corruption laws (News18, 2018). Hence, IKEA needs
to be clarified on these legal systems prior entering to the market to ensure the non-breach of
legal factors. Further, with relation to economic factors of Sri Lanka it is imperative that the country
is recognised as one of the fastest growing middle-income country. Yet, the current political
instability and rapid appreciation of Sri Lankan Rupee has created negative implications
pertaining to the foreign trading practices of Sri Lanka. Accordingly, this may create negative
implications on the purchasing power of the customers in Sri Lanka. Especially owing to the fact
that IKEA is a foreign branded furniture manufacturer.
On account of the social factors in Sri Lanka reveals that the country accounts for a very high
literacy rate and the residents in the commercialcapital of Sri Lanka, Colombo are moving towards
acquiring trendy and fashionable products from overseas markets (Colombo Telegraph, 2018) .
As a result, a lot of ecommerce web sites have been developed catering to the changing life style
patterns of the customers. In particular, this has been further supported by the technological
infrastructure available in the country as well. Indeed, the access to free Wi-Fi zones along with
the higher penetration for smartphones suggest the desire for customers to purchase products
through online and offline mediums. Hence, technological factors in Sri Lanka are considered
versatile and appropriate for the proposed entry of IKEA to sell their products in both off line and
online mediums.
11. 10
3.0 Literature review
3.1 Industry analysis of Sri Lanka
3.1.1 Porter’s five forces analysis
Porter’s five forces analysis supports IKEA to evaluate the potential industry attractiveness in the
Sri Lankan home furnishing market and the ability to generate profits in the market.
The competition in the Sri Lankan market is considered moderate for IKEA in their eventual entry
to the Sri Lankan market. Primarily the IKEA would face a swift competition from established
players in the market such as Singer Modern Homes, Damro, Arpico, Finez Furniture & Interior
and so on (Market Research.Com, 2018). Nevertheless, the competition could be overcome by
the wide array of products available in IKEA, coupled with quality of service and products. Hence,
the pressure generated from the competitors are moderate.
The entry barriers to Sri Lankan home interior and furnishing industry is high. Indeed, any entrant
to the industry should pursue a strong capital investment ability to invest in the firm infrastructure,
warehousing capacities and so on. Moreover, the company need to gain customer brand loyalty
as well (Grundy, 2006) IKEA been an international brand has the capacity to overcome the entry
barriers by exploiting their financial and non-financial resources which suggests the entrance to
the Sri Lankan market is viable and attractive to the company.
Competitive rivalry : Moderate
Threat of new entrants: Low
Threat of substitutes: High
12. 11
Home furnishing and interior is not considered as a necessity for the citizens (Market
Research.Com, 2018). Therefore, the products offered by IKEA is faced with a challenge to
overcome in relation to substitution for income of customers as well as company need to
overcome the challenge of vast array of Chinese products available which could be replaced at a
lower cost rationalizing the fact that threat of substitutes is high.
With relation to suppliers of IKEA company maintains a fair-trade approach with their existing
suppliers and deemed a significant buyer of the supplier products/raw materials. Moreover, most
of the raw materials used are not considered unique, hence, resulting in low bargaining power of
suppliers (Sutherland, 2014).
Bargaining power of customers would be low. Indeed, customers are willing to pay a premium
price for the acquisition of foreign brands (Roy, 2017). Meanwhile, the product portfolio of IKEA
is considered vast meaning which the customer bargaining power will be deteriorated. Further,
the customers will have a high switching cost in terms of alternating between the products which
may create potential threat for the IKEA’s operations.
3.2 Direct competitors in Sri Lanka
3.2.1 3 I model
Figure 1: 3I model application to Sri Lanka
Bargaining power of suppliers: Low
Bargaining power of customers: Low
13. 12
Immediate competitors Singer Modern Homes, Damro, Arpico, Finez Furniture & Interior
Impending competitors Small scale furniture shops
Invisible competitors Cargills, John Keels
Source: Author Developed (2018)
3.2.2 Perceptual mapping
Figure 2: Perceptual map of competitors
14. 13
Source: Author Developed (2018) based on (Colombo Telegraph, 2018)
4.0 SWOT analysis
SWOT analysis for offline mediums and for online mediums intend to evaluate the ability of IKEA
to generate value through their digital marketing approaches by selling within the outlets (Dincer,
et al., 2006). In fact, this SWOT analysis is narrowed down to the marketing function of IKEA
rather than focussing on the holistic organisation.
15. 14
Source: Author Developed (2018)
Strengths
1. Clearly specified unique selling
prepositions
2. Updated and modern website
3. Clear monitoring of web traffic
4.Strong brand identity
5. Informative website
6. Uniquwe products
7. Service quality
8. Clear purpose of the business
Weaknesses
1. Lack of interaction in Twitter and You
Tube (social media)
2. Failing to develop attractive Facebook
posts to gain shares and views of the
potential buyers
3. Conventional approach for marketing
and lack of regular marketing initiatives
4. No customer testimonials
5. No mobile application
Opportunities
1. Higher rate of penetration amongst Sri
Lankans for e-commerce based products
2. Higher rate of Sri Lankans to penetrate to
the usage of mobile phones and ICT
infrastructure
3. Government support for the development
of ICT
Threats
1. Threats from the competitors creating
effectie offline and online marketing
strategies
2. Rapid evolution technology
16. 15
5.0 Marketing mix
Having understood the potential for market driven strategy adopted by IKEA it is imperative that
the company would be able to exploit significant benefits consequently (Menon et al., 2015). For
example, market led approach demands for significant amount of research, which has been
already conducted by IKEA in their decision to enter the Sri Lankan market. In particular, the
company has realized the need within the Sri Lankan market for outstanding furniture and home
appliances at an affordable price justifies the rationale for entering the Sri Lankan market.
However, it is imperative that the entrance of IKEA to the local market needs to be assessed with
relevant to their online and offline marketing mix approach.
Product offered would be similar by IKEA despite of the chosen medium whether its off line or
online. Subsequently, being a globally recognised brand IKEA has a large scope with relation to
their product portfolio. For example, the product scope includes products ranging from children’s
furniture to toys and feeding equipment to kitchen and home décor units, fabric and leather sofas
and so on. Indeed, the wide scope of products offered by IKEA suggests that company pursue
the potential to reach a wide customer base. To be specific IKEA accounts for more than ten
thousand products.
Price of IKEA is represented in their missionand vision attributes where the company depicts that
company exist to maintain low price for the customers by providing a higher value, hence, no-frills
pricing. Yet, in considering the exchange rate volatility of the Sri Lankan market and rapid
depreciation of Sri Lankan Rupee the Sri Lankans may experience products been priced at a high
price compared to the competitors such as Damro, Singer Homes and so on. Further, home
delivery would be available to the online purchased customers at an additional cost which has to
be borne by the customer.
17. 16
Place of IKEA would be a highly residential area in Sri Lanka where, Nugegoda is selected as the
mostly potential market location. Especially Nugegoda is considered as one of the prime
destinations in residents amongst Colombo city. Further, a small-scale outlet would be opened
up in Colombo City Centre and Kandy City Centre to attract the potential buyers. In addition, a
localised web page would be developed which would be directed from the main company website
and it is essential to develop a strong Facebook page to relate the product offerings in Sri Lankan
market.
Promotion strategy for IKEA would be primarily based on the press release for offline and online
store announcing the grand opening in Sri Lanka. In addition, the promotion mix would be based
upon on gaining sponsorships, newspaper advertisements in Sunday newspapers such as
Sunday Observer, Sunday Times, Lankadeepa and Lakbima. Similarly, the promotions would be
conducted to encourage online buying through specially designed online promotional strategies
by utilizing concepts such as ‘Black Friday’.
People is considered one of the fundamental phenomena in managing IKEA’s marketing mix.
Indeed, IKEA brand has been renowned for its capacity to maintain strong customer relationship,
in particular, enhancing customer experience. Therefore, IKEA needs to maintain sufficiently
skilled individuals to ensure the same level of service in their outlets which is compatible with the
other locations in the world and also it is important to ensure responsiveness in their online store
as well. For example, customers need to be assisted with frequently ask questions, and need to
include a responsive individual 24*7 to respond to the customer needs and wants.
Processes are mainly seeming vital for the online operations of IKEA where the company should
be maintaining effective processes to ensure customer satisfaction. For example, once a
customer place an order through online store the customer should get the feedback on the
delivery status of their product or should provide with a robust tracking option. In particular, this
could include a mobile application to track the products.
18. 17
Physical evidence vice considered the IKEA needs to maintain international standards in their
stores as well as their online website needs to be attractive. In particular, the physical store needs
to pursue sufficient car parking facilities and other amenities such as children play areas and
arrow guidance to product search to ensure customers are capable of experiencing a hassle-free
shopping experience on entering an IKEA store. Indeed, these characteristics are deemed
essential considering the modern trend amongst Sri Lankan customers and the decision of IKEA
to follow a market led approach.
6.0 International strategies and entry mode strategies for IKEA
6.1 International strategy for IKEA to enter Sri Lanka
IKEA has the potential to select between various entry strategies to the market namely,
multinational corporation, multidomestic strategy, global strategy to transnational strategy
(Priluck, 2017). Accordingly, the suggested approach for IKEA to enter the Sri Lankan market
especially through offline mediums by adopting a transnational strategy. Indeed, IKEA been
renowned for the customer satisfaction and ability to address the needs and wants of the
customers it is essential that the company adopt a transnational strategy which will support IKEA
to improve the efficiency of the operations or to maintain the same level of efficiency whilst
adopting the product attributes based on the preferences of the local customer base in Sri Lanka.
However, in their online distribution attributes IKEA has to pursue a multidomestic strategy in
which the company is capable of arranging all their strategies to matchwith the cultural paradigms
of the local market. Indeed, this strategy would be focussing on IKEA forgoing the opportunity to
yield benefits associated with efficiency rather generating appropriate marketing platform which
is in direct compatibility with the expectations of Sri Lankan customers.
19. 18
6.1.1 Entry mode strategy
On account of the various entry mode strategies available for IKEA to enter the Sri Lankan market
it is recommended that the company enter through a joint venture with John Keels holdings (JKH)
in Sri Lanka. In fact, John Keels holding is considered as the number one conglomerate in Sri
Lanka and has bestowed name and recognition amongst the mindset of Sri Lankan consumers
for the product quality. Hence, entering into the Sri Lankan market by means of joint venture would
be beneficial for IKEA. Indeed, a joint venture-based distribution approach for IKEA is deemed
appropriate as it will allow both JKH and IKEA to share the risk of new operations. Further,
considering the long-lasting establishment of JKH and the awareness relevant to the market
domain, Sri Lanka, would mean IKEA is capable of better adopting their multidomestic strategy
through delivering what the customers are expecting in the market. However, the clash of
corporate culture in between JKH and IKEA may become vibrant which may result in disputes
thereby affecting the operations.
7.0 International marketing communication models
7.1 AIDA model
AIDA is an acronym which resembles the awareness, interest, desire and action that needs
careful consideration within the organisational marketing management process (Menon, et al.,
2015). In particular, AIDA model intends to conveys the organisations on the process of which a
customerwould go through during the phase of purchase decision making. Hence, the model has
been widely acknowledged for its usefulness in devising organisational sales strategies.
Nevertheless, the modern organisational ethos suggests that a linear model as AIDA may not be
sufficient to attract the attention of customers as well as to devise organisational wide strategies.
20. 19
7.1.1 Analysis of AIDA model
Subsequently, IKEA could use AIDA model to devise their both online and offline strategies as
illustrated below.
Table 3: AIDA model
AIDA element Off-line On-line
Attract attention Development of eye-
catching digital bill
boards in prominent
locations in Colombo
such as Nawala,
Narahenpita and
Bambalapitiya
Give away brochures
Development of a You
Tube clip and
arrangement of a
visually appealing
Facebook page
Promoting the
Facebook page using
sponsorships to reach
out a wide audience
Maintain interest Adding detailed
information to
brochures
Including a detailed
product description in
the website and the
Facebook page
Create desire Providing credit card offers by partnering with banks
such as Sampath Bank, HSBC
Take action Directing customers to
purchase products by
emphasizing on the
potential benefits
Getting involved with
the customer through
opening up of a
conversation
21. 20
associated with the
purchase decision
Diverting customer to
shopping card
process
Source: Author Developed (2018)
7.2 Integrated marketing communications model
Integrated marketing communication model is known as a process as per the illustration in figure
below (Menon, et al., 2015). Moreover, the IMC model is used to deliver the samemessagetheme
across various types of promotions. However, it is noteworthy that the company may utilise
multiple promotional sources, yet, the theme would be same across the mediums.
Figure 3: IMC model
Source: Author Developed (2018)
22. 21
7.2.1 Analysis of IMC model
Table 4: IMC model application for IKEA
IMC model criteria Application to IKEA
Off-line On-line
Analysis Demographic analysis:
middle aged population
whom are seeking for
home improvements
Demographic analysis:
middle and young aged
working population whom
are highly tech savvy and
whom has penetrated into
the mobile application
usage
Marketing
communication
objectives
To increase sales by 0.5%
from off line mediums
every month till end of year
2019
To provide promotions by
partnering with credit card
companies to influence the
purchase decision of
customers
To increase online sales
by 1% every quarter till
end of year 2019
To improve customer
relationship by developing
engaging posts to
generate more likes, views
and comments
Marketing
communication
strategies
Releasing news about the
launch of IKEA store in
media: example radio
Developing videos
associated with
promotions
23. 22
channels such as Yes FM,
Kiss FM and at peak time
periods
Credit card promotions
Black Friday campaigns
for online sales
Customer experience
assessment through
reviews
Marketing
communication mix
Advertising: mass media
Discounts and promotions
Event sponsorship
Discounts and promotions
Scheduling and
budgeting
Press release at the initial launch of the business
Mass media advertisements from the beginning of the
commencement
Discounts and promotions targeting new year eve and
Christmas
Event sponsorship such as events Kadella Live in 2019
Monitoring and
controlling
Establishment of KPIs for the marketing activities along with the
objectives been set
Continuous review on the achievement of KPI’s and providing
of feedback and feedforward control
Source: Author Developed (2018)
8.0 Conclusion and Recommendations
This report has been developed for IKEA to evaluate the possibility of entering the Sri Lankan
market space as a respond to their market development initiatives. Consequently, the Sri Lankan
market has been identified as a viable location to pursue the business. Accordingly, the
international marketing strategy has been recognised to be conducted through utilising both off
24. 23
line and online distribution approaches. Accordingly, it is noticeable that both online and off-line
distribution methods would support IKEA to achieve the objectives of the company.
Figure 4: Recommendations
Source: Author Developed (2018)
Recommendation
01
•IKEA must clearly
clarify the
segments the
company is
targetting
including
geogrpahical and
demographic
segmentation
•Clear
segmentation will
enable company
to position
themselves
effectively
Recommendation
02
•Development of
an effective
promotional mix
targetting all
customer
segments IKEA is
targetting with
Recommendation
03
•Partnering with
JKH by means of
a joint venture to
share the risk of
entering a new
market
Recommendation
04
•Persual of a
geodemographic
staffing approach
to fascilitate
exploiting of skillss
25. 24
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of Massachusetts at Boston, MA.
30. 29
Appendix 01: Questionnaire
1. Do you wish to purchase furniture products from a foreign brand?
Yes
No
2. Are you willing to purchase home equipment through social media/ online sites?
Yes
No
3. Are you willing to purchase furniture through online sites?
Yes
No
4. Which company comes to your mind when furniture or home appliances are recalled in Sri
Lanka?
Arpico Furniture
Singer Homes
Damro
Elegant Furniture
5. What characteristics would you consider in purchasing homeware?
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………..
6. Have you heard of IKEA?
Yes
No
7. How did you get to know about IKEA?
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
8. Do you give preference to the brand name or price of the item purchased? Why?
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
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