Ikea’s Future Market Strategy

Ikea Analysis report on the marketing strategy in US market and expansion beyond IKEA Analysis report on the marketing strategy in US market and expansion beyond TABLE OF CONTENTS 1. Introduction …………………………………………………………………………………. ……. 3 2. Current Market and Future Strategy …………………………………………………… 3 3.

Further penetrating the US market? ………………………………. …………………… 5 4. A new opportunity: Mexican market ………………………………………………….. 6 5.

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Conclusion ………………………………………………………………………………………….. 7 6. References ………………………………………………………………………………………….. 8 7.

Appendix …………………………………………………………………………………………….. 9INTRODUCTION The purpose of this report is to discuss the IKEA’s current market situation, suggest new market strategy and evaluate the option of further penetrating the US market considering the present market conditions. In this report we also provide an alternative market, which can be explored in near future, for the further growth and expansion opportunity to the company. SWOT analysis is taken as the basis given in the case study and compared to the present condition and taste of customers in the US to logically bring out the facts to support the further expansion in the US market.

Matching the different methods, marketing and products policies of IKEA to the economic conditions and customer’s buying behaviour Mexico is suggested as the alternative market for the company and rationally discussed bringing and comparing the relative facts. CURRENT MARKET AND FUTURE STRATEGY The SWOT analysis tool aids to find the IKEA’s internal strength, weakness and external opportunities and threats specifically keeping in mind the U. S market (See Appendix Fig 1). IKEA’s strength of producing low cost products with right quality grants IKEA an advantage in the recent economic onditions in U. S.

As the demand for convenience in US is increasing, the Flat packaging of products and added amenities like in store restaurant, child care services, renting a car for customer, offers IKEA to have a competitive advantage in U. S market. U. S is a potential market and IKEA already has an established base in U. S. Thus, the strength of economies of scale creates an advantage to IKEA.

The brand image, corporate culture and emphasis on sustainability make IKEA suitable for U. S because of popularity of stylish but sustainable product.Based on the SWOT Analysis, we recommend IKEA to implement Aggressive Strategy as their Strategic Approach. Ikea should focus on i. expansion and growth, ii.

Introducing new products and iii. Entering new markets. i. Expansion and Growth In an Interview with “USA Today”, Founder of IKEA, Ingvar Kamprad mentioned that they have started using aggressive approach. They plan open five stores annually in USA.

(Theresa Howard. (2004)) Compared to the competitors, this is a slow growth, but it suites the belief of IKEA, that too much fast progress can harm whatever you have. Recommendations: . The DIY approach is not very popular in US customers are willing to pay more for convenience. Assembling furniture can be quite a daunting task for many specially the old and working class people. Ikea should improve their customer service and make home delivery and assembly services more convenient and affordable.

2. IKEA should carry on with their plans to open at least 5 stores annually. IKEA can open its stores in the west coast and middle part of USA as there is a lot of potential market and growth opportunity in this region (See Appendix Fig 2). ii. Product StrategyIKEA’s product vision of producing high quality products at lowest possible cost and their work towards achieving sustainability are keys factors which are going to help IKEA to implement aggressive approach.

IKEA is well-known for its product innovation and design. Recommendations: 1. The market trend in the US changes at a very fast pace. Competitors store like Wal-Mart are able to change their product line very frequently to keep up with the current market trends. IKEA should continue with their process of replacing 1/3rd of its products annually which helps to introduce new product lines with changing trends (Theresa Howard. 2004)).

IKEA should also consider the taste and preferences of USA’s population. For example: Ikea products are known from simple and clean design but the population in US prefers trendy and colorful designs. People prefer bigger and more premium product feel and finish. Ikea should look to alter its product range to better suit the taste of the people in US. 2.

Ikea can follow a tiered pricing policy of products giving a wide variety of products to its customers and capturing people from different section of the middle class.For example: Ikea can target cash ridden youth population by having affordably prices products and on the other hand they can also target more mature middle class owners by offering a little more expensive priced products for more premium feel and finish. iii. Changing Marketing Strategies: The US market has been a very difficult one for Ikea. The taste and preference of the consumers are different from than that of Europe. The market is already saturated with many players in the home furnishing sector and it is going to take a different strategy from Ikea to succeed.

Recommendations: 1. IKEA should keep focus on middle class population. They should open stores in Sub – Urban areas to target potential families. IKEA’s products being durable, reliable, low cost with good quality will help them capture the middle class population. 2. Introduce Campaigns for promotional Strategies.

For example: Giving Discount Coupons with their catalogues, Flyers, Pamphlets, TV commercials with suit the US culture. 3. In furniture and furnishing sector in US, 6% of total revenue is earned by online shopping. (Insert reference).There is good opportunity for IKEA to grow their business online and Ikea should look to improve online buying experience. 4.

IKEA’s already has alliance with AOL for digital media (Chantal Tode. (2009)) and should make more alliances with other companies. For example: They can alliances for their restaurants, delivery service etc. FURTHER PENETRATING THE US MARKET? Coming to the question, if it is a good idea to penetrate to US market, we will examine few parameters. The first parameter is potential market growth- does the home ware market within the US provide IKEA with an opportunity to generate profits?When looking at the home ware’s market segmentation in value, in 2009 the US market held 31.

8% of the market, second only to Europe with 34. 4%. The US CAGR expected growth in 2014 if of 1. 6%, to sum up a total of $97Bn (EuroMonitor-2, (2009)). From those figures we can assume that the US market will continue to generate possibility for profits to the key players in the home Furnishing industry.

When examining IKEA’s position and market share, we can see that the firm is an established player in the market, capturing 2. 3% of the furniture sector in 2008 (see appendix Fig 3).This market is characterized by its segmentation- 69% of its share was divided by “other” small players, which leave plenty of room for a strong brand to expand (EuroMonitor-2. (2009)). Another key parameter which is essential for any IKEA success is the level of establishment of the IKEA brand.

Familiarizing with the IKEA concept, through word-to-mouth communication between costumers, is a key factor in IKEA’s success. IKEA’s first US store was opened in 1985, and since then the brand has gradually established itself in the market. Evidence to the strong awareness of IKEA can be seen by the buzz that new openings of IKEA stores generate.For example, the IKEA opening store in New Jersey attracted a crowd of 3,000 customers in the first 15 minutes, and a total of 27,000 customers in the first day of sales (Sylvia Wieland Nogaki. (1994)).

Numerous references of the IKEA’s brand in the media demonstrates that it has been established in the US market through the years, which makes it relatively easier to expand in comparison to a market that lacks the brand awareness. The third parameter that can influence a successful expansion in the US market is the similarity of its customer profile to Europe.American customers have some unique features in the way they perceive the shopping experience, but they do share some of those features with the Europeans consumers who generate most of IKEA’s profits. The first feature is that a growing part of the American costumers values sustainable products. A study at Purdue University found that, when it comes to wood furniture purchases, roughly 93 per cent of those consumers surveyed said “they’d like to know that their furniture originated from a sustainably managed forest. ‘ Also, 68 per cent said “they would be willing to pay more for furniture whose construction materials originated from a sustainably managed North American forest” (Richard P.

Vlosky. (1999)) and since sustainability is a core concept of IKEA, it may provide a genuine advantage for the American customer. Another cultural aspect is the fact that in US it is also common for youngsters to leave their parent’s house at the ages of 18-25, and thus also have the need for low cost and trendy designed furniture as they do in Europe.The US market also hold some major challenges for IKEA, most notably are: the fact that in the US Low price can sometimes be perceived as cheap quality, the fierce competition by giants such as Kmart and Target, and the tendency of the US consumers to prefer customized products with emphasis on convenience, which may collide with IKEA’s approach of DIY and standardization of products. Having taken the challenges under consideration, we argue that the benefits and opportunities for growth in the US outweigh the challenges that lie in the path, and thus we argue that further penetration in the US market should be a good for IKEA.

A NEW OPPORTUNITY: MEXICAN MARKET After a considerable amount of debating and research we decided that Mexico would be an ideal new market for IKEA to launch itself. We looked at the several contributing factors towards this decision, one of the most important ones among these was the fact that Mexico is right across the border from the US, and Texas which is close to that border already had 3 IKEA stores set up. In addition to this there are several already existing stores of IKEA throughout the US. We felt that this would enable quicker and more efficient supply chain management, whether it was the question of raw aterials, cheap labour or the movement of finished goods. We also found that Mexico has a population of 110. 6 million, out of which 96% population lived in urban areas (CIA.

(2012)), and growing and out of this population approximately 3. 5 million people were between the age group of 17 – 25, (EuroMonitor. (2009)) and the people in this age group were the ones setting up new homes, and that Mexico had a rapidly growing middle class population, who prefer cheap, DIY and standard products, all of which works in Ikea’s favour (EuroMonitor. (2009)).One of the other main factors that contributed towards the decision of picking Mexico was the fact that beside Wal-Mart there aren’t any other major international players in the market, which means lesser competition and the ability to capture a higher market share.

It was seen that Mexican furniture is rustic and simplistic in terms of design, and people generally assembled it themselves. It meant that this would definitely work in IKEA’s favour because their concept is essentially DIY i. e. do it yourself furniture. IKEA believes more in the concept of bringing people to their stores to shop rather than internet based selling.It was seen that in Mexico in store retailing and sales accounted for approximately 98.

7 % of the sales whereas the internet accounted only for about 1. 1 % ((EuroMonitor. (2009))). Mexico is a growing economy and has the highest number of imports and exports second only to China, and as per the reports from the year 2011 Mexico has topped the BRIC (Brazil, Russia, India, China) in terms of development. All of these reasons helped us conclude the fact that Mexico is a market with tremendous potential for IKEA.

CONCLUSION The growth story of Ikea in US has not been a fairy tale till yet.But, a better strategic approach and market strategy can put Ikea back on track and help in gain valuable market share. Ikea will have to adjust to the economic and social factors in the current US market and our report give the recommendation for the market strategy for Ikea in US. Ikea should continue penetrating more in the US market as the benefits outweigh the potential threats. Also, Ikea should target Mexico as a potential market along with US as it offers a high growth opportunities and suitability for a company like Ikea. REFERENCES 1.

Chantal Tode. (2009).Ikea expands its presence in US digital with AOL alliance. Available: http://www. dmnews. com/ikea-expands-its-presence-in-us-digital-with-aol-alliance/article/149364/.

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Richard P. Vlosky. (1999).A Conceptual Model of US Consumer Willingness-To-pay for Environmentally Certified Wood Products. Available: http://www. scribd.

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Sylvia Wieland Nogaki. (1994). Ikea’s Grand Opening In Renton Is An Event — Cheering Shoppers Pour Into Furniture Store. Available: http://community. seattletimes. nwsource.

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pdf. Last accessed 27. 12. 2011. APPENDIX Fig1: SWOT Analysis of IKEA in US Fig 2 : Location of IKEA stores in US Fig 3: Market Share in US ((EuroMonitor-2. (2009)) Fig 4: Home Furnishing Market Size Comparison (EuroMonitor-2.