Wan Marini Izayu Mimi Merani Maizul Norhidayah Yazid Mimi Haidazatul Zuhanaria

Company Background
y Ingvar Kamprad Elymtaryd

Agunnaryd y He started his business by selling matches and variety of goods. y So when Ingvar started his furniture business in the late 1940s, he applied the lessons he learned to the home furnishings market.

Continued
y IKEA was officially incorporated in 1943 to serve

price-conscious neighbours in the province of Smaland in southern Sweden. y Its large retail store in the blue-and-yellow colors of Swedish flag are located on the outskirts of major cities, attracting shoppers who are looking for modern designs at good value.

Continued
Ingvar's innovative idea was to offer home furnishing

products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect the quality of products. Ingvar used every opportunity to reduce costs, and he scraped and saved in every way possible - except on ideas and quality. This is how the IKEA Concept began

Issues??
y IKEA, the Swedish furniture store chain virtually

unknown outside of Scandinavia more than 25 years ago, has drawn large opening crowds to its stores as it has pushed into Europe, Asia and North America.

y Currently, IKEA has 316 stores in 38 countries

including the one in Mutiara Damansara, Petaling Jaya, Malaysia.

Issues??
y But the expansion was not always smooth and easy.

Despite some cultural issues pending the expansion strategy during its expansion especially in the United States of America as discussed in this case study, IKEA was able to solve all these issues and proceed with the expansion successfully.

Future Planning
y Although the firm remains private, it continues to

innovate and reorganize itself. In 1992, IKEA abolished internal budgets and now each region must merely keep below a fixed ratio of costs to turnover to maintain its financial position and to continue with expansion.

Discussion area
y In the following section, we shall discuss:1. 2. 3. 4. 5.

IKEAs firm-specific advantage Country-specific advantage Cultural factors issue IKEAs promotion and distribution strategy Issues relating to the expansion in the USA

What are IKEAs firm-specific advantages? Country-specific advantages?

QUESTION 1

Definition of Specific Advantage

Described as : criteria or credibility of the companies that can assist or guide them in positioning their product/brand in the market

Specific Advantage
1) Store Design and Layout
 

ready to assemble product were conveniently placed on racks Larger inventory in store

2) Supplier Network and Standardized Product Line

 mass produced gain economies of scale  high standard of quality furniture but at a very

minimum price  Can overcome insufficient stock and cut cost on importing/shipping the product from Sweden

Specific Advantage
3) Marketing Strategy
 unique store lay out, word of mouth and free catalogs
 Free catalogs- helps the potential customers visualize

the complete room

4) Legacy of Quality
 Example Volvo  In US, IKEA will sent people to suppliers factory and

provide technical tips about efficient methods and to shop for better quality but at low price.

Specific Advantage
5) Simple Management Structure
 only have four levels (from chief executives to check

out counter).  decision can be made in a short period and in a faster way

6) Location in Europe[Sweden]
 easy to penetrate the Europe market since have

similar root culture  sent employees who knows the local language to set up stores

Specific Advantage
7) Suits to Customers Demographic
 Southern California- young and active  Modern design and assemble-it-yourself was widely

accepted by them

8) Political Stability
 The countries selected by IKEA had a stable political

environment eg : USA, Switzerland, Denmark and Canada.

What are the cultural factors which make expansion abroad in retailing difficult? What has made it possible in IKEA's case?

QUESTION 2

Definition of Culture
y "The integrated sum total of learned behavioral traits

those are manifest and shared by members of society y Elements of Culture:

     

Preferences and tastes. Management style Educations Laws and Politics Religion and language Social organization, technology and material culture

IKEAs expansion: Specific Cultural Reasons

y Different management style  IKEAs employees were assigned greater responsibilities and more freedom than usual in many traditional retail stores.  In Canada, individuals often asked for more direction and specific guidance.

IKEAs expansion: Specific Cultural ReasonsContinued

y Different consumer decision process  The universal slogan and the moose symbol were not as valuable in the US as in Canada and Germany.  Different tastes. [Bed]  American people are more interested in aesthetic and shopping style.  American also were not much happy with the cash and carry service  In America more media advertisements were needed.

IKEA Strategies
y Product adaptation to be closer to the customers

y y y y

desire: for example reconfiguration of the size of the bedroom for the US market. Promotion adaptation: diffrent slogans, diffrent images. Store layout was altered to conform more with American aesthetics and shopping styles. A more generous return policy. Next day delivery services.

Describe how IKEA'S expansion has re-energized mature markets around the world and changed the competitive situation.

QUESTION 3

y Winning formula that could offer quality furniture y y y

and very low price Broken several rules of international of retailing IKEA layout was like a warehouse Small furniture retailers have disappeared Changed the consumer behavior Consumers have more fun shopping furniture IKEA is the only company that offer product to different type of people and lifestyles IKEA innovates all the time

How does the TV advertising campaign initiated by IKEA overcome the entry barrier of high advertising expenditures?

QUESTION 4

INTRODUCTION
y Advertising is the process of persuading potential

customers to buy products or promote its services. y Advertisements may appear in many forms, including newspaper and magazine ads, radio and television commercials, direct mail campaigns, and various other forms. y With the emergence of brand recognition as a key factor in marketing and advertising, companies have entered into multi-billion dollar contracts with advertising firms to promote their products and services.

y An advertisement plays a vital role in the marketing

of products as it provides a buying power for various product operations by affecting the behavior of consumers. y Television however occupies an important place of products due to its extensive spread worldwide. y In addition, television plays an important role on changing the consumer behavior and also provides new patterns for consuming products and services.

y The common uses of television offer effective and

realistic ways for the marketing of products and services. y Many factors may affect the television advertising operation such as the time of advertisement and the way by which the television ad is shown

y TV advertising differentiates over other media. It

allows producers to make promotion farther product and make them known for a lot of consumers through voice and picture. y But we must notice that TV advertising is more effective but more costly when compared with other multi media. y Therefore, it's an important issue to choose the proper time and show of television advertisement.

IKEAs TV Advertising
y With Deutsch an advertising agency based in New

York, IKEA had planned to develop a series of eight TV advertising spots that featured people at different transitional stages in their lives, when they were most likely to be in the market for furniture. y Examples of the advertising spots are:


One spot featured a young family who had just bought a new house, another couple whose children had just left home, and so on.

IKEA even developed one spot that featured a homosexual couples, two men talking about furnishing their home. It was a daring step applauded by most advertising experts and impartial observers. The campaign had a positive impact on IKEAs image and on IKEAs sales. Spot showed a divorced woman buying furniture for the first time on her own.

Should IKEA expand further in the United States or focus on other countries?

QUESTION 5

OPTION 1
y As the biggest Home Furnishings Retailer which has a

large number of chain stores all over the world, IKEA should take the market of the United States and that of other countries as equal. y But WHY?

y As we know, the IKEA Concept is based on creating well-

designed and functional home products for people at prices so low that as many people as possible will be able to afford. y Whats the advantage on IKEA itself?

y Though, generally speaking, most of the Americans are

now living in a higher life label than the worlds average standard , there are still people who are not able to afford quality furniture. So the promotion in America market should keep running ,moreover, more competitive and efficient promotion strategies are required.

y IKEA succeeded finally to adapt its activity in U.S.: y Product  adaption like the dimension of its bedroom,  more quality with U.S. suppliers through random checks,  New cash registers to decrease customers queue,  New store layout  New service like next-day delivery

y Price  Cut importing cost because of recruitment of U.S. suppliers, y Promotion  Advertising necessary (more than in other markets)  Strong slogan : :Its big country. Someones got to furnish it,  TV advertising attracting different kinds of consumers y Place/Distribution  Huge size of the stores : 200,000 square feet  Large inventory and parking space

y What are other reasons?

Advantages of the expansion in the U.S? y The company

    

Objective is to be s global leader of furniture Standardized retailer Need to be always flexible Expensive to import furniture from Europe (shipment) Threat to lose its concept, and competitive advantage, with too much adaption IKEA has already lost a lot of money in U.S.

y The market  Huge markets, huge demand  Household furniture market is one of the important worldwide  High purchasing power  Many competitors, especially U.S. firms that dominate the market, being more competitive  U.S. tastes differ from European  Environment Political and economic environments are stable.  Huge countries, with big differences between consumers.

OPTION 2
y IKEA SHOULD FOCUS ON OTHER COUNTRIES y In other countries , IKEA furniture is easier to be strongly

competitive, for there is more possibly to be less risk and competitors who are handling quality house furnishings, and , more people who can only afford house furniture at a relevant lower price. This is a good opportunity which IKEA has been long for. y IKEA is a global company ,its target market should not be limited in a area.

Thank You !

Introduction
y Ingvar Kamprad Elmtaryd Agunnaryd y Founded: 1943 in Almhult, Smaland, Sweden y Founder: Ingvar Kamprad y Headquarters: The Netherlands y Parent Company: INGKA Holding y Industry: Retail y Product: Self Assembly Furniture y Chain of Product: Restaurant, Manufacturing, Housing, y Revenue: 23.1billion (2009) y Employees: 127,000 (2009) y Area Served: Multinational y 316 stores (2010) y 699million visitors (2010)

IKEA
Vision: y Mission Statement: Ikea's mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them y Growth
y

Source: Ikea, 2010

Growth Pattern
y Started 1943 as a one man y y

y y

mail order company The Ikea concept started in 1950 The company started sourcing supplies from other European countries In 1960, the warehouse principle was introduced In 1963, Ikea went abroad, opening in Norway

Geographical Scope

SALES BY REGION Europe 81%, North America -16% and Asia & Australia -3% TOP SUPPLIER COUNTRIES China -18%, Poland- 12%, Sweden -9%, Italy -7% and Germany -6%

Supply Chain (IKEA)

Source: Thetimes100.co.uk, 2010

Business Strategy
y

Segmentation  Middle-class population, All age group.  Advanced Economies Europe, USA, Australia  Emerging Markets China Positioning  Cost Leadership  Differentiation

Business Strategy
Economies of Scale: Standardisation Economies of scope: Furniture and Restaurant Share facilities Economic Design Logistics

Diversity in Assortment

Competitive Advantage

Customers included in the value chain, minimum staff

Network of Supply: 1300 suppliers in 53 Countries

Distinctiveness in Design Strength of brand name

Large Warehouse Showroom in Sub-Urban centres

Value chain of IKEA

SUPPLIERS CUSTOMERS

Purchasing

Range

Stores

DISTRIBUTION

Resource Based View (IKEA )

PHYSICAL ASSETS OWN 313 STORES WOLDWIDE AND ARE USUALLY LOCATED OUTSIDE THE TOWN 37 STORES THAT ARE FRANCHISED 38 COUNTRIES WORLD LARGEST FURNITURE RETAILER PROMOTION AND ADVERTISING SOURCE FROM FRANCHISE EXPERIENCED A 15% SALES INCREASE BETWEEN 1990-2005 2005 THEY MADE 14.8 BILLION EURO 2010 THEY EXTIMATED $23 BILLION

FINANCIAL ASSETS

INTELLECTUAL RESOURCE

GOOD RELATIONSHIP WITH GOVERNMENT SKILLED STAFFS UNIQUE FURNITURE STYLING OPERATE 24 HOURS DAILY GOOD RELATIONSHIP WITH SUPPLIERS BUILDING STRUCTUER

Resource Based View

REPUTION RESOURCE BRAND NAME FRANCHISING $128 MILLION FOR UNICEF IN 2015 WELL KNOWN IN EUROPE ASIA AND AMERICA 127,000 STAFFS SKILLED EMPLOYEES IN STORES AND WOODS GOOD TRANSPORT SYSTEM EXPERT DESIGNERS GOOD CUSTOMER SERVICE OVER 12,000 ITEMS PRESENT IN THE WEB MOTIVATION OF EMPLOYEES (REWARD SYSTEM)

HUMAN RESOURCE

RELATIONAL RESOURCE

28 DISTRIBUTION CENTER GOOD INTERNET ACCESS NETWORKING SYSYTEM 550 MILLION PEOPLE USING THEIR WEBSITE EVERY YEAR GOOD TRANSPORT SYSTEM

PORTERS DIAMOND MODEL: IKEA

FIRM STRATEGY, STRUCTURE & RIVALRY

Suppliers Technology

Low cost low price strategy Low bureaucracy Rivalries:  British B&Q Germany

FACTOR CONDITIONS

DEMAND CONDITIONS

Labour force: low cost Infrastructure: poor => good Government policy
SUPPORTING INDUSTRIES

Population: 1.3 billion The raising of Middle class Cheap furniture demand

INTERNATIONAL (Porter, 1990) BUSINESS STRATEGY (SMM 206) PRESENTATION

Transnational Strategy
y Pressure for global Integration

Standardising whenever possible  90% of product line is similar across in more than 12 countries  IKEAs marketing is centrally developed at headquarters y Pressure for local responsiveness  Adapting when necessary  Modification of its furniture to suit individual countries e.g longer hangers in Italy and deeper wardrobes in USA  Implementation of local adjustments in marketing to suit language and catalogue.


Comparative Advantage
y Supply from China  Low cost labour  Labour skill  Raw material accessibility y Sales in EU, North America  Very Large middle class group

Conclusion
y Since IKEAs target consumers are the middle-class,

they should extend their retail services to Emerging Market Economies where Middle class population is rapidly increasing. y IKEA should increase sourcing its supply from emerging markets, which are characterised by low cost labour to sustain its competitive advantage.

REFERENCES
y Baraldi, E.(2008) Strategy in Industrial Networks:

Experiences from Ikea Carlifonia Management Review, 50(4), 99 126. y Beard, B. (2006) IKEA facing competition on furniture row Arizona Business Gazettes, available online at: http://www.azcentral.com/abgnews/articles/0824abg -tr-emerald0824.html , accessed 01/12/2010 y Boscor, D., and Bratucu, G. (2009). Transnational strategies adopted by furniture manufactures- case study:IKEA ProLigno, 5(3): 55 61. y Datamonitor (2008). Ikea Group