IKEA-An Assessment of Customer Centricity and Customer Experience Management

8/10/2019 IKEA-An Assessment of Customer Centricity and Customer Experience Management

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Nottingham University Business School

MBA Programme

Marketing

N14M04

IKEA

An Assessment of Customer Centricity and

Customer Experience Management

Sirsanath, BANERJEE ID : 014803

Hui Jinn, LEE ID : 016476

Alwyn Chee Hua, KOAY ID : 015855


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Table of Contents

Content Page Number

1.0 Abstract 1

2.0 Traditional Marketing versus Customer Centric Marketing 2

3.0 TM and CCM in the Furniture Industry 3

a) Market Segmentation 3-4

b) Customer Experience Management 4-5

c) Shaping Customer Needs and Wants 6-7

d) Competitive Advantage and Core Compentencies 7

(i) Value Chain 8

(ii) Porters Generic Strategy 9

4.0 Conclusion 9-10


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List of Appendices

Content Appendix

Reasons for CCM Appendix 1

Examples of Segmentation Appendix 2

Offensive and Defensive Factors of CCM Appendix 3


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List of Figures

Figures Page Number

Figure 1 Demographic Diversity Factors 3

Figure 2 CEM Strategy 5

Figure 3 IKEAs Value Chain 8

Figure 4 Porters Generic Strategy 9


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1. Abstract

This report examines how the furniture industry has evolved from traditional marketing

method (TM) to customer centric marketing (CCM) and the factors required to be

considered in order for the above to be implemented efficiently. Global furniture giant IKEA

has utilised several methods to strike a balance between TM and CCM in their marketing

strategies and we have highlighted the above in the report.

The reasons for deviation mainly relates to the availability of savvy technologies like the

Internet which allow customers to have higher accessibility to information online and the

failure of TM to add value to the customers. On the contrary, Sheth, Sisodia and Sharma

(2000) have resonated that CCM is associated with several benefits which TM failed to

deliver.

However, CCM is not without challenges such as difficulty to acquire customers data

(Wright, Stone and Abbot, 2002) and may not be applicable for all situations. Further, an

organisation should also take into account, its business strategies and internal capabilities

before concluding that CCM is the best marketing method.


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2. Traditional Marketing versus Customer Centric Marketing

Scullin, Fjermestad and Romano (2004) has defined TM as an assertiveness which represents

an organisations aim to push its products to the market via engines like printouts and media.

Sheth, Sisodia and Sharma (2000) evaluated that TM manages the market demand and

segregate customers from the product segment perspective. This was reflected in the

conventional marketing method of the furniture industry, where marketing revolves around

the 4Ps, namely product (development vide in-house ideas), pricing (valuation of product),

place (distribution channels) and promotion (inside-out method to stimulate market interest)

(Kotler, 1972).

The internet has enhanced customers knowledge nowadays as they are able to research onproducts of their interest hassle-free instead of accepting the products which was not

considered by TM (Hill, 2008). Osborne and Ballantyne (2012) criticised that the 4Ps are

merely reclassifications of marketing functions and have assumed customers as passive

recipients of their products. Allen and Fjermestad (2001) added that TM is ineffective and

expensive which burdens an organization. Goi (2009) noted that TM is offensive foromitting customers opinions and suggested organisations to shift their focus to CCM.

Generally, CCM is an effective marketing approach that acquires customers by considering

their opinions and create mutual benefit to both customers and the organization, CCM also

retains them through the provision of quality and service based assistances (Scullin,

Fjermestad and Romano, 2004 and Osborne and Ballatyne, 2012). Galbraith (2005) andAllen and Fjermestad (2005) further evaluated that a CCM organisation would strive to fulfil

their customers expectations and focus in creating experiences (e.g. feelings and memories)

in exchange of their loyalty, hence marketing is no longer a function but a strategy.


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assessable information and consumers are well educated on their rights. Therefore it is

inevitable that marketing will begin to evolve from TM (i.e. functional role) to a strategic rolevia CCM. In adopting CCM as a company strategy, its implementation need to take into

account the business environment that the company is competing in order to determine the

extent and focus of CCM. For example, in emerging countries, the CCM implementation

need not be as extensive as compared to develop market to gain the same desire results.

3. TM and CCM in the Furniture Industry

(a) Market Segmentation

Sheth, Sisodia and Sharma (2000) stated that the convergence of demographic and

technological factors has led to higher diversity among customers. Doorn et al (2010)

identified the variances in Figure 1. Further, Selden and MacMillan (2006) also noted that inorder to resolve the above, segmenting customers based on different demographic and needs

categories and allocate appropriate resources to each category allows organisations to be

ahead of other competitors.

European Union (n.d.) noted the significance of segmentation in the furniture industry as


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Burt, Johansson and Thelander (2008) stated that IKEA in each geographical location has

divided the market based on customers needs, past behaviours and demographic profiles.

IKEA subsequently forecasts the profit potential for each category and assigns resources (e.g.

human capital and monetary investments) to respective categories. The segments were then

monitored and measured at a certain period of time and adjustments would be made in

accordance to any market conditions that may affect the Company (Burt, Johansson and

Thelander, 2008).

Basically, it is evident that IKEA has segmented their customers in a manner that promotes

efficient planning and decision making process, it is also deemed to be customer focussed as

compared to the traditional product focus strategy which disregard the different interest of

customers. Scullin, Fjermestad and Romano (2004) evaluated that this is important because

it satisfies customers demand and endorses a more accurate future anticipation of their futuredemand by capitalising on the first-hand information obtained from the customers. In

addition, segmentation also helps IKEA to identify the appropriate marketing strategies, for

instance, for underdeveloped nations, TM (e.g brochures and mass media) remains the most

appropriate method.

(b) Customer Experience Management (CEM)

CEM is deemed to be important in the 21st century and should be adopted by each

organisation to attain success. Holbrook and Hirschman (1982) and Schimtt (1999)

highlighted that CEM data could be acquired by analysing the experiential aspects of

customers consumption, via their senses, feelings, thoughts and actions towards the

organisations products or brands. However, Parasuraman, Zeithaml, and Berry (1988)

discovers that the above is often omitted as organisations would emphasise on customer

satisfaction and service quality measurements.


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expectations. A positive relationship could be maintained and extended to external parties by

word-of-mouth and as a consequence the organisation is able to increase its market share that

leads to higher profitability.

According to Kotler (2003), company needs to create branded customer experience in order

to add up customer loyalty. Verhoef et al. (2009) justified that the CEM strategy should also

consider the factors illustrated in Figure 2. Nevertheless, in order to have effective CCM,

CEM needs to be very focussed.

Traditionally furniture industry neither utilised little or no furniture showcases nor advanced

technologies. They do not offer comfortable shopping experience to its customers. TM would

passively adopt push marketing through rolling-out promotions.

IKEAs CEM strategy is often debatable due to its limited customer services, i.e. customer

need to pick up product from warehouse floor, transport home and do-it-yourself assembly.Nevertheless, instead of offering full customer service, IKEA is only focusing on CEM which

is valued by the customers, i.e. IKEAs design/concept at affordable price. This in turn

creates brand affinity. IKEA is considered the market leader in CEM within furnishing


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In addition, while they commence to practice CCM in more developed areas, IKEA also still

relies on traditional marketing methods like brochures, banners and mass media

advertisements, this is to accommodate its current business strategies as well as certain target

markets (e.g. older generation and underdeveloped countries) which are not technology-savvy.

It is therefore arguable that IKEA has been able to strike a balance between the TM and CCM

practices.

(c) Shaping Customers Needs and Wants

Often a time, the customers does not really know their needs and wants. The conventional

competition within the industry, i.e. either functional oriented or emotional oriented, has

unconsciously educated the consumer on what to expect. Such competition affects customers

expectations in a reinforcing cycle. Therefore there are opportunities to create an entire new

market dimension by shaping the customers needs and wants through exploring across

functional-emotional dimensions (Kim and Mauborgne, 1999). Kim and Mauborgne (2005)

has introduced the adoption of Blue Ocean Strategy (BOS) which emphasises on the

identification of a new market niche instead of competing with others. However in reality,

business is generally more complicated and uncertain and the adoption of BOS may not be

possible in a highly saturated market.

Voola and OCass (2010) added that a responsive and proactive market orientation will fully

capture the benefits of the competitive strategies and transform the benefits to performance.

Selden and MacMillan (2006) further evaluated that a proactive market orientation would

understand that innovation through R&D could help the organisation to develop improvised

products that exceeds expectations. As a result, presenting new products would capture their

interest and restructure their needs and wants.

Conventionally, TM is viewed as a function that allocates the responsibilities of marketing to


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furniture to enhance the interior design of their homes as it will reflect their social status and

creativity. As such, through technical innovation and environmental adaptions, IKEA is able

to capture the mind of the markets through concepts of space utilization, technology, creative

designs as well as functionality of the products. Likewise, through incorporating efficient

operations management such as flat packaging, IKEA is able to lower the costs of operation

and transfer these benefits to the customer vide more competitive prices (IKEA, 2014).

IKEA has bridged the functional-emotional orientation by taking the emotional aspect ofdesigner product and stripping the extras to drive the cost down. They have successfully

shaped the needs and wants of the market, creating the desire for designer products and

adopting IKEAs designs as part and parcel of their lifestyle. More importantly, lowering the

cost to create a new market segment, thus now having the concept of affordable designer

home. Now IKEA is no longer just selling functional products but also the lifestyle attachedto its brand.

(d) Competitive Advantage and Core Competencies

Hill (2008) highlighted that the internet has created more knowledgeable customers and it is

therefore vital for organisations to interact with the customers and understand their areas of

interest. Selden and Macmillan (2006) and Sheth, Sisodia and Sharma (2000) supported by

stating organisations that engage with customers are practicing CCM, which will create a

significant competitive advantage over competitors as the knowledge asset is difficult for

competitors to replicate.

However, Wright, Stone and Abbott (2002) noted that turning towards CCM would also havesome disadvantages due to abuse in usage of customer satisfaction and weak implementation

practices and in the end, fail to create competitive advantages. In reality, the process of

creating competitive advantage (i.e. strategic fit) requires the alignment of environmental


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According to IKEA (2014), its vision is to create a better everyday life for the many

people. The business idea is to offer a wide range of well-designed, functional home

furnishing products at prices so low that as many people as possible will be able to afford

them.

In order to evaluate the competitive advantage of IKEA, an analysis is done on its value chain

and generic strategy.

(i) Value Chain

IKEAs value chain has been analysed based on the yearly summary of financial year 2013which is appended in Figure 3.

By analysing the value chain, it may be observed that IKEA has optimised its entire value

chain to gear towards achieving cost efficiency while establishing a strong brand equity.

IKEAs core competencies lies in its design, concept and excellent supply chain management.

Therefore IKEA is only focusing on its core competencies while outsourcing major portion of


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(ii) Porters generic strategy

In general, Porters generic strategy argues that a strategy of differentiation is usually incompatiblewith the pursuit of cost advantage because higher quality or better performance products require

higher production cost (Porter, 1985). The generic strategies are illustrated in Figure 4.

IKEA is proven to be one of the rare successful exceptions to Porters theory, i.e. achieving cost

leadership positioning and simultaneously achieve differentiation via emotional connections and its

brand equity. IKEA is able to achieve this leadership positioning in the furniture industry by focusing

on aligning and developing core competencies in order to create the competitive edge against its

competitors (IKEA, 2014). Hence creating value that are relevant to its targeted customer.

Overall, in terms of marketing strategies, IKEA is found to be highly reliant on its global

brand name and customer loyalty, which it has achieved vide internal capabilities that are

allocated efficiently


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provide an advantage ahead of its competitors and this would subsequently lead to excellent

financial returns.

Notwithstanding the above, while CCM could be achieved vide a combination of segmenting

an organisations customer markets, managing the experiences of its customers and shaping

the customers needs and wants by introducing unique products, it should also refer to its

existing business strategies to ensure the compatibility with CCM. Further, Galbraith (2005)

also stated that in order to implement CCM successfully, the organisation is advised to plantheir marketing strategies based on the following points:-

It should put customers at the centre of its plan, this may include creating a customer

solutions unit which encompasses people with comprehensive knowledge of customers;

It is required to have attractive reward systems as the carrot-and-stick strategy to

encourage employees to continuously maximise customer satisfaction;

Strong leadership to integrate CCM with the conventional product-oriented marketing;

and

Taking one step at a time and slowly moving towards the full implementation of CCM

instead of speeding all processes.

The optimal marketing strategy for the furniture industry can be a combination of TM and

CCM depending on its target market, competitive advantage and value propositions to be

delivered to its customers. As highlighted in European Union (n.d.), in terms of the furniture

industry, it is expected that the future marketing strategies would slowly move towards CCM.


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IKEA-An Assessment of Customer Centricity and Customer Experience Management

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