IKEA Submitted By :

Nagaraj N.B.

Saurabh Sao

Pooja Sharma

Rupa Pattnaik

Rachita Luthra

Shruti Goyal

Background• As of January 2008,

• It is the world's largest furniture retailer.

• Founded in Sweden in 1943• 17 year old Ingvar Kamprad,(one of the world's richest people in 2013)

• IKEA designs and sells • ready-to-assemble furniture (such as beds, chairs and desks), • appliances, • small motor vehicles and • accessories.

• Known for • modern architectural designs• various types of appliances and furniture, and • its interior design work • eco-friendly • simplicity

Background• In addition, known for

• cost control, • operational details, and• continuous product development.

• The IKEA group is controlled by foundations based in the • Netherlands, • Luxembourg and • Liechtenstein.

• As of August 2015, • IKEA owns and operates 373 stores in 47 countries.

• In fiscal year 2010, • US$23.1 billion worth of goods were sold, • total 7.7 percent increase over 2009.

• The IKEA website • contains about 12,000 products • There were over 470 million visitors to IKEA's websites in the year from September

2007 to September 2008.

IKEA Timeline

FOUNDER : Ingvar Kamprad

FOUNDED : 1943, Sweden 1948 : Added furniture to newsletter

1951 : Introduced concept of display store, Stopped mail orders, Introduced catalog 1953 : Introduced self-assembled furniture

1963 : Expanded in Oslo, Norway1965 : Opened 1st self-financed store in Stockholm

1973 : Entered Switzerland1974 : Entered Germany

1980s : Formaldehyde

Years

Market Position

PAN GLOBAL PRESENCE

Company Values• Strategy of selling affordable, good quality furniture.

• Informal Culture:• CEO didn’t have separate office• ‘Anti-bureaucrat week’ every year which requires all

managers to work in store to re-establish contact with front line and consumers.

• Cost Consciousness :• No acceptance of expensive solutions – Sign of

mediocrity• Idea without price tag is never acceptable.

SUPPLIERS• SWEDEN CARTEL :

• Sweden Cartel of Furniture pressured manufacturers not to sell to IKEA.

• Pressured IKEA to not show prices in fairs being the price leader.

• ABROAD :• Contracted abroad with Poland furniture factories due to constrained

local supply.• IKEA taught its processes, provided machinery for quality output and

reliable delivery.• Supply contracts, technology transfer and loans to supplier leaded to

long term partnership.

• SWEDWOOD :• Internal production company as suppliers moved to Berlin• Only 10% purchases from Swedwood.

Business Strategy • IKEA focused on good management rather than high tech

facilities.

• PRODUCTION STRATEGY :• Buy unused production capacity.• Seek seasonal manufacturers with spare off-season capacity.• Matched products to supplier capabilities.

• Sail makers – Seat Cushions• Window factories – Table frames• Ski manufacturers - Chairs

Business Strategy • RANGE EXPANSION :

• Predetermined store design to maximize customer’s exposure to product range.• E.g. Living room interiors placed just after entrance.

• Product line :• Textiles, Kitchen utensils, flooring, rugs and carpet, lamps and plants.

• FINANCING :• Each new entry was financed by previous successes.• Took only one loan in history.

• SERVICES :• Playroom for children• Low-priced restaurant• Sweden shop for groceries – Leading food exporter of Sweden.

PORTER’S FIVE FORCES MODEL

PORTER’S FIVE FORCES MODEL Rivalry among existing firms is INTENSE• In the global market of discount furniture and the major players in the

industry include Euromarket Designs Inc, Galiform plc, Wal-Mart Stores Inc, Argos and others.

• However, currently IKEA is the undisputed market leader in the industry of discounted furniture in the global scale.

PORTER’S FIVE FORCES MODEL • Threat of new entrants into the industry is LOW, • The chances of emergence of new competition for IKEA is

insubstantial as the current market is saturated and significant amount of financial investments and expertise are required to become a discounted furniture retailer in a global scale.

PORTER’S FIVE FORCES MODEL • The bargaining power of IKEA customers is STRONG, • As the competition is intense and the customers have a wide choice

of alternative options offered by global furniture retailers, as well as, local furniture producers.

PORTER’S FIVE FORCES MODEL • Bargaining power of Suppliers is LOW• IKEA suppliers do not possess substantial as there are numerous

factories around the globe with the capabilities and resources to form partnership with IKEA. At the same time, IKEA pursues the strategy of forming strategic long-term relationships with its suppliers.

PORTER’S FIVE FORCES MODEL • Threat of substitute products and services are LOW• As there are not too many products and services available that can

substitute the demand for furniture, home appliances and a range of other products like are offered by IKEA.

Value Chain Analysis• The concept of Value-Chain analysis is introduced by Michael Porter

(1985), who divides activities of the firm into two categories: PRIMARY ACTIVITIES and SUPPORT ACTIVITIES.

• PRIMARY ACTIVITIES are necessary elements for producing the products and offering services,

• SUPPORT ACTIVITIES assist businesses to become successful in the marketplace.

Value Chain Analysis

Value Chain AnalysisPrimary Activities

Value Chain AnalysisSupport Activities

• Since IKEA products are based on the low prices, we can imply that IKEA has adopted THE LOW COST-LEADERSHIP STRATEGY as a competitive advantage.

• Starting with the Primary Activities, inbound logistics; IKEA has large shipments and massive warehouse to product their products. Operation runs in various countries. In procurement; IKEA purchases from numerous sources having a strong bargaining power with suppliers. Technological development; learning and experienced amortized over large volume. Human resource management; providing intensive training to emphasise cost savings means and firm infrastructure; having to centralised cost controls.

Value Chain Analysis - Summary

Environmental Wake-up• 1980s : Formaldehyde

• Presence more than permissible limit in products.• Fined by regulatories which resulted in sales drop by 20%

• Resolution :• IKEA worked directly with glue-producing companies like ICI and

BACF• Reduced formaldehyde and off-gassing in its products.

Environmental Wake-up

• 1992 : Lacquer• Emissions higher than German legislation allowed in Bookcase

series.

• Response :• Stopped production and sales of Billy Bookcases.

Environmental Wake-up

• Forestry Woods :• Held discussions with Greenpeace and World Wildlife Fund (WWF)• Stopped accepting woods from forests with high conservation

value.

• Projects on Global Conservation :• Chlorine free recycled paper in catalogs.• OGLA chair made using waste material of yogurt cup.• Redefine packaging to eliminate use of PVC.

Black & White Clause

• 1994 : • Added clause to supplier contracts• If found child labor, contract will be cancelled• Third party agreements to audit child labor practices at supplier’s

factories

• 1995 : • Rangan Exports

• One of major suppliers exposed using child labor.

• 2005 : • Venkat Industries

• Textile mill exposed using child labor• Stopped using water treatment plant.

REACTION• Met with UNICEF to run educational programs for children.• Sent representatives for educational tour of company’s

Indian suppliers.• Started Alternative Learning Centers (ALC) with UNICEF in

Indian villages.• Health care programs (Vaccination Initiative).• Self help credit groups (Women)

• Ordered embroidered cushion covers• Helped in saving money, lending loans, starting small enterprises.

• Global Auditing Contracts :• Environmental Responsibilities• Timber Sourcing• Working conditions• Child labor

• IWAY :• Violations leads to termination of supplier contracts.• In case of child labor, supplier needs to bear costs of education of

children.

Key Success Factors

Key Success Factors

Geographical Reach

Competitive Strength

Global Strategy : Italy

Global Strategy : China

Global Strategy : Germany

Challenges faced!!

SWEDEN• Constrained local supply of raw materials AND Innovation

was their key to success.

POLAND• Faced price war and Quality was threatened AND

Contracted with furniture factories in Poland.

Another example of IKEA’s local failure in the German market was when IKEA opened a new store and tried to attract more customers to its inauguration ceremony by offering breakfast during the early morning hours of that store. Unfortunately, because this promotional decision was not culturally well-studied, it caused IKEA to be taken to court. The central reason was simply because Germans do culturally consider eggs to be served as a major part of their breakfast. So, IKEA was blamed for cheating its customers because its breakfast did not include eggs. In the end, IKEA won the dispute because a continental breakfast does not include eggs.

• As another case, IKEA decided to celebrate its first birthday after accomplishing one year business in German market. To have such a celebration, IKEA gave presents to its customers and offered some low prices. In Germany, while companies are permitted to celebrate their annual birthdays, they are just allowed to spread gifts for celebrating the 25th birthday. So, this action led to another legal case against IKEA in Germany

• In addition, IKEA’s main marketing strategy of providing low prices has caused serious debates for IKEA’s business in Germany because Germans, like Japanese70, are very quality-oriented who do normally consider that low priced products have low quality. To solve this problem and reset this idea in the minds of German customers, IKEA provided two new strategies as proper solutions. First, IKEA announced that customers could return their purchased products and get back their money instantly if they were not satisfied by their products by any reason. And second, IKEA created the tags of “furniture facts”71 guarantee tags. These tags were designed to show that any furniture model has passed specific quality tests and fulfilled defined levels of requirements. But, as it was not clearly mentioned on the tags that the tests were not done for every piece of furniture but only for every furniture model, IKEA was accused of having deceived its customers to believe so. After yet another court case, IKEA was forced to stop using the Möbelfakta tags under a penalty of 500,000 DM.

• The interesting example of IKEA’s standard advertising is very informative in the fields of comparing the two opposite policies of adaptation and standardization. Surprisingly, this experience proves the point that marketing activities are not similar to mathematics where two plus two is always equal to four. Various marketing strategies can cause different results in various markets depending on the application period of time and the general conditions of that specific market. Based on this example, in some particular cases, being successful is not all about cultural adaptation, but the fact that even disobedience to existing cultural systems can sometimes bring better results in attracting customers’ attention. This is why IKEA’s unconscious incompatibility and unwilling opposition of general policies could luckily end to more advantageous consequences. Although, I do not suggest this strategy but I mean while this incompatibility caused many serious problems for IKEA, it finally helped it to become famous in Germany’s market. By this means, precise study of the marketing features of any unique market is stressed before entering that market because as it was discovered; there can never be an absolute outcome for a unique strategy globally.

CHALLENGES STRATEGIES

Slow progress and expansion due to different culture

Met local needs by doing modifications to its furniture

High cost: IKEA's global branding that promises low prices did not work in China also because western products are seen as aspirational in Asian markets.

Built a number of factories in China and increased local sourcing of materials. The company also started performing local quality inspections to save on repair costs. Since 2000, IKEA has cut its prices by more than 60 per cent.This was done by by mass production and trimming supply chain costs.

CATALOGUE IN CHINA : Indeed, local competitors copied IKEA's designs and then offered similar products at lower prices.

The company is using Chinese social media and micro-blogging website Weibo to target the urban youth.

CHALLENGES STRATEGIES

ENVIRONMENT : It has been charging for plastic bags, asking suppliers for green products. All this proved difficult to implement in China. Price-sensitive Chinese consumers seem to be annoyed when asked to pay extra.

The company also learnt that emerging economies are not ready for environment-friendly practices, especially if they result in higher prices.

Do-it-yourself concept : Chinese people hate this.

INDIA• IKEA may face some India-specific challenges such as varying laws in

different states ruled by different political parties. This could make its operations, especially distribution and logistics, a bit challenging. IKEA already has had to wait a long time to get permission to open stores in India. 

• Indian customer preferences and economic environment are similar to the Chinese market. 

• The company has learnt that doing business in emerging markets is a different ball game for a multinational company. IKEA did well to adapt in China, although it took numerous changes to its strategies and more than 12 years for the company to become profitable in the Asian nation.

• The rules are so onerous that a mass retailer such as IKEA will find it hard to meet them without penalizing customers with higher prices and lower choice.

• Competition law and trade policies are supposed to ensure that a free competitive marketplace exists, with easy entry and exit, not protect existing competitors from new entrants.

Store location strategy

• In Europe and the US, where most customers use personal vehicles, IKEA stores are usually located in the suburbs

• China, however, most customers use public transportation. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks.

Thank you