Essay on IKEA
Sample Essay on IKEA:
The company I would like to analyze is a global manufacturing enterprise of Swedish origin called IKEA. The company was founded more than half a century ago and now is one of the world’s leading producers of furniture and household appliances (IKEA, 2010b). Mainly, IKEA’s business is concentrated around interior solutions with affordable pricing, which tend to follow the modern trends. Nowadays IKEA owns around 300 stores in 40 countries with approximately 123,000 people employed and contracting 1300 suppliers in 50 countries. Measuring in other dimensions, Mental Floss (2009) informs that one tenth of living Europeans nowadays were conceived on the beds produced by the company. Besides, IKEA is identified as a large exporter of Swedish food (Barkeman, 2006), regular partner of organizations dealing with environmental protection (“IKEA Hits”, 2009), global advocate of recycling (Butler, 2009), partner of UNICEF (UNICEF, 2009) and one of the world’s biggest charitable organizations (Mental Floss, 2009).
IKEA Group Facts & Figures Brochure (2009) reports on the main business trends within the company. Let us discuss them. Furniture manufacturing takes place on the three continents: Europe, Asia, and Northern America (Chart 1). Europe accounts for the two thirds of production with the dominance of Poland and Italy in terms of production volumes. Manufacturing in Asia mostly refer to China as a country with low labor costs.
Furniture is fabricated at 46 plants in approximately 40 countries (Table 1). Raw materials for production are taken from the suppliers, 1220 units in 50 countries.
Europe provides 67% of raw materials, Asia and Australia has a share of 30%, and there is also a small 3 per cent contribution from Northern America (Chart 2). The ready-made goods are transported to the 28 distribution centers and 11 customer distribution centers in 16 countries (Table 1). Transportation is accomplished by road, rail and waterway transport (IKEA, 2010a). In order to keep the costs as low as possible, air transport is not used.
The total number of IKEA stores is equal to 301 (Table 1). However, only 267 stores in 37 countries belong directly to IKEA. The company is known for its unique franchising system, which incorporates 34 stores owned by franchisees. The total amount of employees, IKEA Group Facts & Figures Brochure (2009) reports, comprises 123,000 people. Almost 100,000 of them live and work in Europe, while the rest refer to the stores in North America, Asia and Australia, where IKEA is also present (Chart 3).
Let us now implement the SWOT analysis and observe the trends that tackle IKEA. The strengths of the company are strong identification, high customer value (Lamb et al., 2008, p.8), uniqueness of the product offers, supply chain, use of global sourcing, and many more. Clients perceive IKEA as the total brand experience under one roof (Zaccai, 2006). They like functionality, design, and price of the furniture and other products. These features comprise the competitive advantage (Lamb et al., 2008, p. 41) of IKEA and its offerings. From the insider point of view, IKEA has an optimized structure when delivering goods to the final consumers (Lamb et al., 2008, p.176) and implements intensive distribution. Global sourcing concerns the way how IKEA work with the suppliers all over the world.
The structure of the company is one of the weaknesses. Employee motivation is a big problem for a company with thousands of people working for it. Most of them accomplish routine duties on the everyday basis. Another weakness is an exaggerated trend of reducing the costs: Shell (2009) outlines the negative customer experience of travelling to the nearest store which is usually outside the city line. Besides, “the company declines to pay a premium to ensure that all timber is legally harvested, citing costs that would be passed along to the consumer” (Shell, 2009). This casts doubt on the quality of each item produced by IKEA.
The key threats incorporate market competition, government regulations and natural resources. Chinese manufacturers are dominating in different markets and industries due to the low cost of production. They are the main rivals of IKEA in the global market. IKEA is also accused in violations in terms of financial and social policies (“Flat-pack Accounting”, 2006). It is reported to avoid paying taxes originally being registered as a charitable organization. Finally, the natural resources that tend to replenish may once be not accessible to IKEA.
IKEA is full of opportunities. It may become a global supplier of wood or ready-made furniture in B2B and B2G levels. Another option is to launch an unrelatively diversified business following the same practices and the business model. No matter which industry the company would enter, it could offer an easy and beneficial solution for the customers.
There are the main implications concerning the target market of IKEA obtained from the corporate brochure (IKEA Group Facts & Figures Brochure, 2009). IKEA is a multinational corporation delivering products directly to the final consumers through the retail channels. The company is well established in Europe, which is proved by the list of countries with the top sales (Chart 5). Four out of five countries in the top sales list are European. However, the USA appears to be the fourth in the rating that means that the products are acceptable in North America as well. 80% of sales occur in Europe, approximately 15% take place in Asia and Australia, others refer to North America (Chart 6).
A total of 590 million people visited IKEA in 40 countries in 2009. IKEA is present on the four continents representing the choice of all races and religions living withing different climatic peculiarties and time zones (Scheme 1). Out of them, 29 millions in 21 countries are loyal to IKEA – they are the members of the IKEA Family program. IKEA’s products primarily target young and middle-age energetic couples and individuals with a good taste, who appreciate quality, mobility, and design. A high percentage of customers is technologically advanced: 561 million visits were registered at IKEA Web site in 2009. 200 million people benefit from a certain type of POS material – the IKEA catalogue printed in 27 languages. Aiming at no premium segments, IKEA’s products are affordable to people with diverse levels of incomes (Shell, 2009). The usage rates are medium due to the long lasting properties of the products. However, a great percentage of people visit the stores on a regular basis.
The total amount of sales in 2009 was equal to 21.5 billions of Euros. The company shows permanent growth despite the crisis (IKEA Group Facts & Figures Brochure, 2009).
Wal-Mart, Target, and Home Depot are the most obvious competitors of IKEA. Wal-Mart, the world’s biggest retailer with 8,000 stores and 53 brand names in 15 countries (Capell, 2006; Treble, 2008; “Retailers in the Top 20”, 2010), is a direct rival in furniture and décor merchandise. According to Treble (2008), it will control more than 30% of market together with Target due to the low price, the same competitive advantage that IKEA uses. The Home Depot, the largest American retailer of interiors and construction solutions and the fourth largest worldwide retailer, possesses more than 2,200 stores in North and South Americas, UK, and China (The Home Depot, 2006). Within such competition, IKEA is the only European manufacturer which emphasizes on design, technical novelties, and package innovations. The company appears to be an advocate of environment protection, which turns more consumer groups to the company and its environmentally friendly goods.
IKEA manufactures all types of stylish and reasonably priced furniture. The furniture itself became popular due to the comparatively low price, nice design, and functionality (Inter IKEA Systems B.V., 2009; Shell, 2009). IKEA introduced and developed a special method of furniture packaging, which is called a flat pack. “It allowed easier shopping for urban Europeans who depended on public transportation, and it also lowered the company’s shipping costs dramatically” (Mental Floss, 2009). According to the Product Life Cycle, the furniture section of IKEA products is in the maturity stage allowing for high profitability, lowering the costs, and continuing to expand internationally. Price is reasonable and always tends to go even lower with the designer and production innovations implemented.
After the product is assembled at the plant, it moves to the distribution center, from where it is directed to the stores on the regional geographic principle. The retailer customer buys a disassembled product from the shelf in the trade hall of the store. After the purchase, the customer has to assemble the product according to the instruction and enjoy using (IKEA, 2010a). In the last years, Internet also became a means of ordering goods. Scheme 2 illustrates the whole process.
The distribution of IKEA is intensive for that it aims at total customer satisfaction, pleasant purchasing experience, and accessibility of all products. These principles are the basics for establishing customer loyalty.
The primary promotion channels for IKEA were catalogues and exhibitions (IKEA, 2010b). According to the IKEA Group Facts & Figures Brochure (2009), almost 200 million catalogues were printed throughout the history of IKEA. Other channels of promotion include outdoor and media advertising. IKEA uses non-traditional approach to advertising, which sometimes brings the company to the center of scandals and, at the same time, makes it a repeated award winner of the prestigious Cannes Lions International Advertising Festival.
When calculating the price, IKEA tries to make it as low and as affordable as possible. When achieving this, the company tries to reduce expenses on production and distribution, as well operating costs associated with retailing. At first, a regular customer may travel up to 80 km to IKEA and back in order to make a purchase. Butler (2009) explains why. Placing stores outside the city or in its suburbs allow sparing on the cost of the land. At second, airplanes are not used in the logistics of the company (IKEA, 2010a) which is also a position in cost reduction. At third, global sourcing and significant production volumes are also found among the factors that decrease the cost. Finally, the IKEA designers are in constant search of how the products can be improved. This concerns both technical innovations and financial aspects. Delivery and assembly of the products are not included in the price for that the customer may prefer to do everything on his or her own. These services are paid separately.
As a conclusion, I would like to mention that IKEA being a multinational manufacturing corporation of full cycle is the one to implement the price-oriented strategies effectively and provide extremely high turnover of goods and significant customer feedback as a consequence. IKEA’s approaches allow for leading positions on the global basis and in each country separately. The philosophy of IKEA is designed in a way that makes the customer feel important and valuable to the company, that’s why the level of loyalty is high among the consumers. Products possess the best characteristics in terms of customer expectations. They effectively combine affordable price, high quality, contemporary design, and easiness in maintenance.
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