Ikea Marketing Plan
Ikea is one of the world’s top furniture retailers, and its International sells home furnishings and other housewares in about 270 stores in 35 countries.
To cut transportation costs, IKEA uses flat packaging for most of its furniture; customers assemble the products at home. The company designs its own furniture, which is made by about 1,300 suppliers in more than 50 countries. IKEA’s stores feature playrooms for children and value cuisine restaurants. It also sells by mail order and online.IKEA began operating in Sweden in 1943.
It is owned by Kamprad’s Netherlands-based charitable foundation, Stichting Ingka. IKEA’s current strategy (IKEA designs its own low-cost, modular, ready-to-assemble furniture to fit its positioning which is ?. The trade-off between low price and self-assembly is indeed a most effective strategy. However, this strategy might not be able to target other potential markets such as the group of retired people, for example. There are six points that I think the most important to understand from a strategic perspective.
Firstly, since manufacturing costs in foreign countries such as China and Thailand are much lower, seeking out global production sources would increase its profits. • Secondly, selling the ready-to-assemble furniture significantly allows IKEA to charge a low price on its furniture. • Thirdly, there are many competitors entering the market and they copy IKEA’s marketing strategies, This might be lowering the price of IKEA’s furniture in the longer term. Thus, IKEA should be proactive and innovative all the time when designing products. Fourth, it is optimistic to anticipate that the economic growth will persist within the next few years.
It implies that the demand for housing units will increase. When selecting furniture, low price is the key variable that many people consider. • Fifth, changes in policies that restrict the logging businesses might increase the cost of the raw materials to IKEA. Thus, IKEA might reconsider their strategy by also offering finished furniture in the store. • Finally, labour wages increase due to economic growth in Canada. As a result, IKEA might look for new technology and alternative ways to produce its furniture.
B) IKEA products offer the following benefits 1) Low price 2) Convenience (consumers can buy all they want in IKEA) 3) Flattened packages (easy to carry) 4) Modern and fashionable designs 5) Products have multi-functions 6) A variety of product choices 7) Durability Based on the above benefits, I developed comprehensive profiles of three viable market segments: (1) Young families with children (2) Students and fresh graduates and (3) Immigrants. I would choose the segment of young families with children over others because this group has the high purchasing power and they are willing to buy IKEA’s products.Compared to other groups, this group spends the most money while shopping time at IKEA. They are open-minded and like to try new products. As well, assembling the parts together is actually a good activity that bonds the family members together. Compared to the group of young families with children, students have less purchasing power because many of them have only part-time jobs.
Their budgets constraints only allow them to buy limited products that they need the most. The students have less intensive buying behaviours than the young family with children.For the group of immigrants, although there is an increasing number of an immigrant in Canada, many of them would carefully allocate their budgets on the different expenditure. For example, I have one Chinese friend who wanted to save more money in order to invest in his children’s education. Thus, the segment of immigrants would spend their money more carefully.
From all of the above reasons, I think IKEA should target the young family with children because the size of its current and potential consumers is relatively larger. What numbers do you have from StatsCan to add to this?C) IKEA’s Financial Objective Marketing and sales objective ( Expand into home design services by partnering with selected Real estate agencies D) Developing positioning strategies • Analyze competitors’ positions The statistics Canada website shows that the Canadian market for furniture was 7. 1 billion and 66% was supplied by the domestic industry in 2003. At the same time, Canada only exported $6. 9 billion worth of furniture.
Thus, the data suggests that the furniture market is potentially large and IKEA could capture a large domestic market share.Wal-Mart is IKEA’s major competitor. Wal-mart is the world’s number one retailer in which it has more than 7,250 stores and 590 warehouse stores worldwide. It is also the number one retailer in Canada and Mexico (www. statcan. ca) • Identify sustainable competitive advantage In the furniture industry, IKEA’s current strategy is to sell their beautiful, colourful and modern products at a low price.
IKEA doesn’t only offer the satisfied products to its consumers, but it also provides consumers convenience and fun shopping experience.For example, families can buy a large quantity of flat-packaged furniture at one-time and they can do their own delivery. In addition, many consumers indeed enjoy assembling furniture parts by themselves and it is an activity that bonds family members closer. • Capital requirements Since IKEA is a large and well-known furniture store in Canada, it creates a barrier in that the competitors must be able to the high market entry costs. To compete with IKEA, potential entrants must spend significant amount of money when doing advertisements and developing new products.Thus, it limits other competitors from entering the market in order to gain its market position in the furniture industry.
Recommendations IKEA offers low price and ready-to-assemble furniture to their consumers. Consumers can build their furniture by themselves at any time anywhere . Thus, they don’t need to spend all day long waiting for the delivery. Although its current strategies are good, there are some ways that might be improved. For example, some people don’t buy furniture from IKEA as they are concerned that they might not be able to assemble the parts to make a finished product.
To overcome this problem, I developed a slogan… “Get a piece of cake from IKEA”. This slogan expresses the idea that IKEA’s furniture are easy to assemble by consumers themselves meaning it’s a piece of cake to assemble. One way to promote its strategy is that consumers will get a free cake coupon with the purchase of its flat-packaged furniture. Moreover, the marketers can promote this idea by having children as the TV model to show that even children can assemble the parts. It will give consumers the confidence that they can do the assembly job so they are more likely to buy the IKEA furniture.Good idea • To persuade more consumers to buy its products, IKEA could put down the instructions on the outside of the package boxes.
If the consumers see the simple steps of assembling the furniture, they will be more likely buy the products. • IKEA will do more advertisements on TV and more promotion activities will be taking place in stores. (IKEA sales representatives can demonstrate assembling the furniture at stores. At the same time, the representatives can also answer customers’ inquires. ( IKEA also can do more advertisements on TV to catch the consumers’ attention.For example, IKEA can advertise a selected product on TV every week in order to stimulate sales and show how easy it is to build.
E) Objectives • Providing a variety of low priced products that can satisfy different consumers’ needs. • Continue to sell flat-packaged furniture so consumers can get the value of convenience • Partnering with chosen real-estate agencies in order to offer “home design” services to homeowners. Thus, the housing units can be sold at a higher price. Product Concept (core, actual, augmented) Core Products: When consumers purchase IKEA’s furniture, they fulfill their dream of being the designers.Actual products: Furniture, kitchenware appliances, toys and more.
Augmented products: 1) the information and instructions for assembling the furniture provided on the website 2)Having sale persons to demonstrate assembling the products in store and 3)recommendations that consumers can get when they are purchasing furniture at IKEA. For example, if a consumer wants to buy a chair, there will be a picture showing that the chair goes well with the table on the package box. Products Line Strategies • IKEA should also provide customized furniture, in order to satisfy different consumers’ needs.For example, consumers who are too tall usually cannot find the right size of their beds. Thus, IKEA could consider adding a new product line to expand its market.
Service Strategy • IKEA would regularly send e-mail or catalogues to their consumers • Consumers are always welcomed to express their opinions via its website and suggestion. (If one IKEA site received a complaint, it would transfer it to other sites through e-mails. • During weekends or holidays, IKEA would add more cashiers in the store, in order to effectively serve the consumers. Brand name and Brand strategy Although IKEA provides its products at a low price, it offers consumers a good quality of products. Consumers don’t need to spend a large amount of money and they can fulfill their dream of being home designers.
• IKEA furniture makes middle class people have a modern, fashioned, beautiful and loving home. Pricing Objectives • IKEA can seek to reduce the effectiveness of one or more competitors by adopting a competitive price effect. For example, IKEA can suddenly offer a 50% sale with discounts on their selected furniture. It gives its major competitors too little time to react. Price discounts, terms and conditions Quantity discounts For new consumers, IKEA can offer them a quantity discount.
This offer delivers a benefit to these new consumers, and it encourages them to buy a large quantity of products at a time. This way enables IKEA to earn a big profit. • Cumulative quantity discounts For loyal consumers, IKEA can offer them a cumulative quantity discounts. This offer can also deliver a continuing benefit to these consumers and it encourages them to keep on buying IKEA products. At the same time, some loyal consumers will recommend IKEA’s products to their friends, colleagues and relatives.
All these, it effectively expand its market share. Distribution Objectives • Consumers can easily access IKEA’s products. • Maximizing profits. For example, IKEA should open small IKEA stores in shopping malls, this can increase the awareness of IKEA products, and help IKEA earn a big profit. Channel Strategy • IKEA will emphasize employees training to provide excellent customer service.
• New products will be distributed through relationships developed between sales persons and customers. Communication Strategy • Pull strategy (Sales representatives at IKEA can demonstrate assembling the furniture on TV.So, consumers can see that all the furniture can be easily assembled. (IKEA also can give some new arrivals furniture posters to the house agencies. For example, put the posters into the open house. When people visit, they always can see it.
Communication tactics • Information appeal (IKEA could send more flyers and catalogues to their potential consumers. The products information will also be shown on the flyers and catalogues. • Demonstration appeal (Sales persons play demonstrate assembling parts on TV or in store What about their radio advertising?? Budget allocationI assume that there is $500,000 on the IKEA financial account for advertising • I would allocate 20% of the total budget ($100,000) to target families with children • I would allocate 60% of total budget ($300,000) to do advertising. . Because advertising is good for mass-market products, more funding would be allocated to do advertisements on TV, magazines and newspapers.
As well, they can use sale person demonstrate assembling the products in store. • I would allocate 20% of the total budget ($100,000) to offer discounts on the products Evaluation • Positioning To see if its advertisement effectively communicates the message, IKEA would use an unaided recall tests. It is anticipated that 75% of the audience will recall what that they have seen on the advertisement. • Sales promotion (Measured sales volume every month • Surveys (surveys will be given out weekly • Research institutions (To find a Research Company to do a specific research for IKEA, so that improvements will be made on current strategies. F. Recommendations • Implementation schedule In order to effectively implement my plan, I would recommend the following plan.
Item |Person Responsible |Timeline |Resource Required | |Market segmentation strategy |Marketers |Q1 |Memo to employees on IKEA | | | | |strategy | |Customer-service quality |Store managers |Q1 |Managers can hold a meeting with| | | | |staff to discuss | | | | |customers-service quality needs | |Communication strategy |Marketers |Q2 |50% of total budget for | | |Sales representatives | |advertising on TV and newspapers| | | |and radio | |Software product | IT experts |Q1 |Clear each person’s duty and do | | | | |a regular check everyday | |Products Strategy | Marketer |Q1 |Recruit various product ideas | | | | |from potential consumers of all | | | | |ages | |Web site development |Information department |Q2 |$15,000 too low | |Loyalty program |Customers service department |Q1 |$10. 00 | |Home-design service |Designers or marketers |Q2 |Allocate $25,000 to modify | | | | |retail software contact and | | | | |develop partnership with | | | | |selected agencies | • Evaluation and control (how will you-determine if your strategy is working or not) There are several ways to evaluate and control the marketing plan. Firstly, IKEA will monthly examine sales volumes by market segments. Thus, IKEA will be enabled to take corrective action when something goes wrong.Secondly, IKEA will regularly monitor the customers and employees’ feedback, so that problems will quickly be identified and fixed.
The last way is that IKEA must keep modifying their strategies to be right for fitting the current situations. If external factors change, it also will changes IKEA strategies. For example, if a monthly check showed that there was a decreasing in sales volume of chairs. The sales persons could do more promotion activity by showing the steps of assembling the chair at stores during the weekends. This temporary changes sale strategy will help IKEA increase the product’s sale. • Here I provide some solutions for IKEA to deal with its weakness and threats (Problem1IKEA pay too little attention to the cultural differences because most of the research and development have been done in Sweden.
(Solution IKEA will hire more researchers all over the world. With different cultural background and working experience, these researchers can provide IKEA correct and various input about what local people like and that they believe. (Problem2 IKEA might lose its competitive advantages since other competitors could copy IKEA’s strategies. (Solution IKEA will offer discounts at an unpredictable pace and it makes other competitors hard to follow (Problem 3 The economic growth in Canada increases the labour wages. The relatively high wages might make IKEA hard to maintain its low price any more. (SolutionIKEA should rearrange its employees working hours, and try to allocate its employees to work efficiently.
• Contingency Plans If my plan doesn’t perform as expected, I will hold a meeting with the management and staff immediately, in order to identify the problems and provide potential solutions. However, if the plan doesn’t perform as expected because of the changes in external factors, I will consider new strategies in order to maintain IKEA’s position in the industry. G. Financial Analysis Since IKEA doesn’t publish its financial statements in detail on the website, so there is my assumptions are as follows: Financial statement for year 2006:Gross Sales $30,000 million Sales Returns ; allowance $100,000 Sales discounts $1000,000 Total $1,100,000(1. 1million) Net Sales Revenue $29998.
9million Cost of goods sold $12000 million Gross margin $17998. 9million Total operating expenses $3100millionOperating Income $14898. 9million Taxes (40%) $5959. 56million Net income $8939. 34million Total operating expense: 3100million/30,000million=10.
33% of gross sales From this 10. 33%, 5 %( 155million) was spent on advertising and promotions Gross margin ratio=Net income/Net sales=17998. 9/29998. 9=60% Net income ratio=Net income/Net Sales=8939. 34/29998. 9=29.
8% Operating expense ratio=total operating expense/Net sales=3100/29998. 9=10. 33%Returns ;allowances ratio=returns ;allowances/net sales=0. 1million/29998. 9=0.
000003 Financial Statement for year 2007: Gross Sales $31,500 million Sales Returns ; allowance $150000 Sales discounts $1200000 Total $1,350,000(1. 35million) Net Sales Revenue $31498. 65million Cost of goods sold $18000 million Gross margin $13498. 65millionTotal operating expenses $3875million Operating Income $9623. 65million Taxes (40%) $3849. 46million Net income $5774.
19million Total operating expense: 3875million/31. 500million=12. 3% of gross sales From this 12. 3%, 7 %( 271. 25million) was spent on advertising and promotions Gross margin ratio=Net income/Net sales=13498. 65/31498.
65=43% Net income ratio=Net income/Net Sales=5774. 19/31498. 65=18%Operating expense ratio=total operating expense/Net sales=3875/31498. 65=12. 3% Returns ;allowances ratio=returns ;allowances/net sales=0.
15million/31498. 65=0. 0000048 From above income statement, we can clearly see that the sales revenue of year 2007 was higher than year 2006. With increasing in sales revenue, it has each higher level of expenses. Therefore, if IKEA want to maximize its profits, the mangers and marketers have to find a efficient marketing mix strategies to minimize its production cost and other costs.
A good financial assessment under the circumstances Break-even Analysis: For my example, assuming that IKEA sells its bookcase for $139 each and that variable cost are $69. per unit, contribution per unit is $139-$69. 5=$69. 5. Using the fixed cost for the bookcase manufacturing of $300,000 I can now calculate the firm’s break-even point in units of the product. Break-even point (in units) =Total fix cost/contribution per unit to fixed costs Break-even point (in units) =$300,000/$69.
5=4316 units Thus, IKEA must sell 4316 bookcases at $139 each to meet its fixed costs and to break even. In the same way, I can calculate the break-even point in dollars: Break-even point (in dollars) =total fixed cost/1-(variable cost per unit/price) =$300,000/1-($69. 5/$139)=$300,000/0. 5=$600000 [pic] H. The overall recommendationsI would implement the strategy of partnering with selected real-estate agencies • Advantages (Increasing IKEA’s sales volume Although IKEA has excellent displays in store, consumers might not get the same design when they place the furniture at home due to the size of their homes for example. Therefore, if IKEA directly displays the furniture in the real housing units, the consumers don’t need to worry about the difference.
It can effectively stimulate consumers to make impulse purchases. This result will improve IKEA’s sales volumes. • Disadvantages (Sometimes, real-estate agencies want their housing units filled with luxury and high-class furniture.For this reason, they may choose other traditional furniture stores rather than IKEA. (When the housing units are sold out, IKEA have to find other real-estate agencies to continue to display the furniture. (Decrease the distribution cost When IKEA display the furniture in real unit housings, it will leave more in store space to store the inventories.
Thus, IKEA could decrease the number of warehouses, and it helps them save more money. I would definitely implement the strategy of competitive pricing on their selected furniture. It gives its competitors too little time to react. • Advantages (IKEA can reduce the number of competitors, and it can target most of the market segmentations.This strategy can help IKEA maximize its profits.
• Disadvantages (When consumers realize IKEA’s pricing strategy, they will choose to wait rather than they buy the furniture at the regular prices. If this happens, IKEA will lose its advantages. (Other competitors might also know this strategy and they will just copy the same idea. The advantages still outweigh the disadvantages because 1)For the partnering with real estate agencies strategy, although IKEA sometimes has to change real-estate agencies sometimes, the short-term benefit is big enough to offset the disadvantages. 2) For the pricing strategy, IKEA can maximize its profit temporary, it will be excessive than cost. Chen;You have done quite a good job at this Marketing Plan for IKEA which is a huge corporation.
You had some good ideas and your analysis of their market situation was clearly observed. You did a nice financial analysis too. Your grade for this section is 20. 5/25 Appendix: SWOT analysis Strength • As the world’s largest furniture retailer, IKEA offers less-expensive, ready-to-assemble furniture. • Global product sourcing and consumer self-service lower the cost. • IKEA is a large furniture store in which it has around 100 sites worldwide.
Also, it is the world’s largest furniture retailer, which sells everything from tables, bookcases and beds to picture frames and toys. IKEA provides the consumers all necessary parts and tools to build the furniture that the consumer purchases.• IKEA achieved the objective of reducing costs. (IKEA buys materials from different foreign suppliers and this significantly decreases their costs. ( IKEA cut out middle the middleman and this make the company more efficient. • IKEA focuses on making universally attractive furniture, in order to satisfy the needs of consumers and it helps maintain its market position.
• The online assistant on its website answers consumers’ inquiries before they go to the store. • IKEA provides a fun and free shopping experience because consumers can go to the restaurants and most importantly, sales persons won’t persuade them. Weaknesses IKEA doesn’t really offer luxury furniture due to the fact that its furniture requires assembly. • Because most IKEA’s furniture requires assembly, they cannot target the segment of seniors. • Although IKEA has a large number of suppliers over the world, most of the research and development have been done in Sweden.
For example, people would purchase flower vases in the retail outlets mistaking them for drinking glasses. Thus, IKEA should pay more attention to the cultural differences.• The management doesn’t really provide what their employees want. For example, many managers would rather take on more challenging tasks than having a long holiday. Threats A number of competitors copy IKEA’s strategies and thus IKEA might lose its competitive advantages.
• Changes in laws on furniture and restrictions within the logging businesses will adversely affect IKEA. • The economic growth in Canada implies that the price level of goods and services will see increases. The increase in labour wages might not allow IKEA to maintain its current low price policy in the long term. Opportunities • Increasing the number of new locations would help IKEA maintain its position in the market. • The high demand for housing units also significantly increases the demand for furniture. • As people are getting busier, consumers look for a “one-stop” supplier who provides them a variety of products.