IKEA

Company Background

One of the world’s largest organizations today dealing in home furnishing was primarily founded by Ingvar Kamprad on the eastern side of the Scandinavian Peninsula in Sweden, 74 years back in the year 1943 as a furniture business. Today, we all know it by the name IKEA.

To provide home furnishing products to people making them pay less than what the competitors’ products asked for and providing the best quality products to its customers was the prime focus of IKEA. As of the current times, the brand has a workforce of 130,000 employees working in a collection of 300 stores scattered over 35 countries of the globe. And all this has been made possible by the exceptional managerial and marketing tactics implemented by IKEA.

IKEA today provides its valued customers with a vast variety of home furnishing DIY products at unbelievable prices which is within reach of the masses. This provision completely coincides with the vision IKEA has “To create a better everyday life for the many people, by providing products which they can easily buy from a variety to choose from.” www.ikea.com

As it could be deduced from the scenario, IKEA aims to cater to the needs of the segments of the population who are young and belong to the lower or middle class and provide them with practically designed useable home furnishing products to walk on the path to achieve the vision of the company. Hence, there is a combination of strategies and tactics that are embedded into the companies working methods by IKEA.

The primary factor IKEA possesses is to provide products that are readily affordable for its customers. Which has enabled them to remain in the competition, or we can say stand as a leader in the competition of providing products that are within reach of its target market. This factor of easily affordable products has been possible due to the implementation of the low-cost strategy in its operations. And without a doubt, it is the choice of masses.

Review of Strategy

Having good work ethics and culture thriving towards productivity in the organization has been made possible at IKEA with a simple strategy that it makes sure all the people working in the organization are treated equally. Firm’s corporate culture in the employees has been installed in the employees with its leadership working against bureaucracy in the organization.

Providing a customer, especially the young generation who wants affordable furniture that suits their requirements and to make a choice of their own, rather than being suggested or dictated by a sales-person waiting to greet you and get some extra amount selling the product. This strategy to provide products which are based on the do-it-yourself concept has worked well for IKEA in delivering a personalized experience to its valued customers.

Another aspect which IKEA has implemented to become a successful entity worldwide is to make the customers feel like a member of the family which is achieved by providing the best of customer service at all times. Unfortunately, some customers who have the strength to pay well or do not want to go through the hassle of doing things by themselves or might choose to go to the typical furniture shops. For such customers, the do-it-yourself concept can be viewed as something not working in favor of IKEA.Moreover, IKEA can see some unfavorable views from its customers for the fact that, it gives a barter of service for the cost incurred by the customers, without much concern to what type of product the customer has bought from them, also not forgetting the different locations IKEA is available to serve its customers.

Recommendations

Working on the strategy of analyzing the geographic and demographic statistics to serve its customers who want value for money and usually belong to the young and educated lot, can be put to productive use by IKEA to have some competitive advantage.

People respond to advertisements and promotions differently in different locations. A catalog or a brochure is what one can expect from IKEA for its developments, rather than a television commercial or a billboard or an advert in the newspaper. This can be viewed as a negative aspect of the company as customers might be expecting more from them in this regard.

To be able to provide its customers with affordable home furniture, which should be of good quality, practically designed, elegant, modern and work for a more extended period, the brand IKEA strives towards a healthy functioning bonding with its suppliers and the customers alike at the same time. To keep up with the name the brand has built over the years and to stand above in the competition IKEA can provide its customers the products at a price that cannot be beaten by its rivals and retain their customers for as long as possible. This is all achieved by working systematically and it has so far proved to be fruitful for the company and the brand name.

Providing extraordinary customer service has benefited IKEA by escalating the existing loyalty of its customers and also creating a new loyal customer base. A product that is quick and hassles free to make and even makes minimal impact on the pocket has helped IKEA to earn the trust and contentment from the customers and as a result create a loyal customer base.

The prime aspect of being one of its kind and superior from its competitors is that IKEA’s customers have the blessings of getting a lot of choices to make that too at a very reasonable price. The success which IKEA has achieved over time is due to the implementation of an extraordinary marketing mix strategy. To be a global household name as a brand, a deviation from its existing marketing strategies and implement some new marketing strategies. China currently is being worked upon for the expansion process by opening two new outlets, to grab more customer base and increase its share of revenue. Since most of the revenue the company generates is from the Europe which makes around 80% of the income.

The reason IKEA can provide the price better than its competitors is that the IKEA is a massive entity and has the advantage of economies of scale which outweighs the competitors. The vast availability of suppliers scattered over the globe is also a factor in offering lower prices to its customers. IKEA has proved to be a powerful entity in its field and has created barriers of entry for any new startup business who want to exploit IKEA’s customers.

Due to ever-changing environment and needs of the customers, IKEA needs to innovate with its design, and drop the old ones. It has taken the first mover advantage by bringing in products that do not harm the environment. Today, customers of IKEA can view their products over the internet, on smartphones and e-commerce websites. Quite evident how the concept of low-cost is being followed by IKEA but to make it sustainable the company has to go with the flow and change the required needs accordingly to stay competitive.

A number of aspects are required to be looked upon by any non-local organization to devise a marketing strategy to lay its footsteps in China.: 1) Being a new entrant what is the perception of your products amongst Chinese people; 2) Is the product required by the people; 3) Do the people require the product in the future; 4) How determined and dedicated is the organization to sell products in China and 5) In what time will the brand come to the region. To lay one’s feet in the Chinese market, some core strategies can be applied by the organization: 1) Distributor should be from Hong Kong for export; 2) Utilize direct channels in China for the export purpose, and 3) establish a joint venture if possible.

Pros and cons are attached with each of the strategies in view. Although not so feasible option for an organization to make its roots in the Chinese market, having a distributor based in Hong Kong is favorably the most convenient option for an organization. If analyzed by complete entry into the Chinese market the direct channel factor can be a better option, but initially, it might seem to be a little problematic and slower for entry in comparison to the Hong Kong-based distribution channel. Moreover, if an organization is looking for some mid-term solution direct channel is a good alternative. If a brand needs to go the harder way, then making a joint venture is the least possible alternate of the two strategies mentioned above, but the best substitute of all the three. Local entity and the foreign organization can both be in a win-win situation if the third option is opted for. A combination of a couple of strategies can prove to be a good strategy to set foot in the Chinese market.

It can be seen; there are quite some options to enter are open as a foreign exporting brand due to decentralization and reforms. Other options available to work with concern to direct sellers are— 1) Chinese foreign trading corporations (FTC) 2) industrial trading corporations (ITCs), 3) independent entrepreneurial third party trading companies, 4) domestic end-users or 5) domestic Chinese distribution companies. The prescribed trade process in China is to be analyzed by the foreign brands to choose which option or options to choose from the list above. Moreover, pros and cons of each option, research about the trading company and people are to be analyzed as well.

1: Foreign Trading Corporations (FTCs)

To help out Chinese businesses to do foreign trading, the Chinese government in early 1980’s made FTCs. With a central and provisional office, its annual revenue could be around $25-$750 million along with multiple product varieties. Around 90% of the turnover is mainly due to exports today along with some focus on import at the same time. Importing products in China have been possible mainly due to the FTC.

Since the organization are well built and have strong foundations it can be favorable to work with an FTC. Issues such as letters of credit, transport and logistics and a foreign exchange allocation are nothing new to these group of FTCs. You products can be bought by the FTCs based locally, provincially, the final customer or a local distributor if not by the national FTCs. The cons you can worry about are that your product is not properly promoted by national FTCs and just serve as means of getting you orders.

2: Industrial Trading Companies (ITCs)

Not as big and old as FTCs, industrial ministries are in control of the ITCs such as mining, chemical and pharmaceutical. Level of knowledge and expertise is way better than FTCs about the product. ITCs are fresh and hence new to foreign trade they have a small geographic attention may be a couple of provinces, but have good experience compared to FTCs.

3: Independent Trading Companies

Foreign trade is being taken care of by private trading organizations for some time now. Your product will be marketed in a much better way in comparison to FTCs or ITCs and are the associated organizations of government or private companies. Swift movement and dedicated employees is an advantage of these companies. These companies can have issues of not having the authority to foreign trade can prove to be a disadvantage and need to join hands with companies authorized to engage in foreign trade. Moreover, each group must be studied with caution since the group is new and success factor is a question.

4: Direct End-User Sales

If you need to sell your products and get the best two-way communication from the market, selling the direct end user is the most favorable option. Most of the end users are not allowed to trade with foreign companies unlike the huge end-users and are experienced in foreign trade, since smaller ones are enough capable. With the help of FTCs and ITCs or authorized trading organization, end users can now officially do foreign product buying. Although, with the passage of time assistance from FTCs and ITCs would not be required and deal with foreign companies independently. It is better off to make a company office in China if a foreign company wants to deal end users.

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