Global Marketing Strategy in IKEA
Question 1
IKEA had been able to establish itself as the largest furniture retailer by the early 1970s. Particularly by 1973, IKEA had already established itself as the largest retailer of furniture in Scandinavia, with a total of nine stores at that time. In Sweden, the company had already enjoyed a 15% market share and was able to expand rapidly in Western Europe (Hill & Jones, 2011). IKEA was able to gain its competitive advantage because; the furniture markets in Western Europe were largely fragmented. They were also served by high-cost retailers that were situated in expensive downtown stores. These stores were selling furniture at a rather expensive cost, and the furniture was not readily available for delivery. Therefore, IKEA opted to design functional, stylish designs that were elegant, immediately available, and ones with low prices, a move that enabled it to gain a competitive advantage in Sweden in the early 1970s.
Question 2
The company’s expansion into Europe went so well because they were able to make products with high quality and low prices. Additionally, the company also had innovative approaches in selling their products that made its expansion into the European market a success. The company was also less responsive to the locals’ needs. It so happens that most of the European countries were dominated by those retailers who made sales of expensive products that were not readily available for delivery (Hill & Jones, 2011). Therefore, when IKEA came up with a strategy to make stylish furniture designs at low costs and make them readily available for the market, it was a plus for the company because it only meant that it would purposefully serve the needs of the customers in the better part of Europe. Customers were willing to purchase furniture at low costs that IKEA produced.
The company, however, stumbled in the North American Market. This problem was rooted in the company’s inability to pay attention to the customers’ needs in these markets. The customers in this market needed household items and large furniture that IKEA was not able to offer. The company also experienced tight competition from rivals in the market like Ethan Allan that offered products that were well designed and ones with high quality. The company, also, offered customer-related services as well as other essential delivery services, which means that it was dominant in the market in which IKEA was making its expansion (Hill & Jones, 2011). Most IKEA products were not good enough for Americans because, in as much as it was selling similar products to both American and European markets, customers in these regions had different preferences and tastes. There were cases where the American sheets did not fit on beds that IKEA designed, the drawers were shallow, and their sofas were significantly small. These were contributing factors that made it difficult for the company to make its way into the American market.
IKEA had to learn a lesson and decide on the appropriate measures to take to correct the stumbling. The company learned that understanding the customer market is essential for success. The company was able to redesign most of its products to match clients’ preference in America. IKEA chose stores in the American market that were large and located in better places. Besides, the company ensured the outsourcing of goods from locations with lower costs and priced the with regards to dollars. As a result, the company lowered the prices of its goods (Hill & Jones, 2011). IKEA established factories in the US to reduce transportation costs and the dependence of the dollar value.
The company is now applying these lessons through making adjustments to the American culture. The company started to make advertisements for itself to the younger demographic, which has been able to realize a rapid increase in the company’s sales.
Question 3
Before the missteps in North America, IKEA’s strategy could be characterized as going contrary to the norm charting their path to success.The strategy was using low manufactures priced to secure reduced selling costs aimed at targeting middle-class individuals and the ones with older ages. On the other hand, their new strategy aimed at younger demographic individuals and married couples who were younger, youthful singles, and college students (Hill & Jones, 2011). In four years, IKEA realized the doubling of their revenues through design reemphasizing and offering encouragement to customers to dispose of old furniture.
Today, IKEA has been able to adapt the local customization strategy in which its stores’ layout will look like the layout of many local households. This was proven in their success in China, where they could not expand beforehand (Hill & Jones, 2011). IKEA also keep their prices low today through sourcing a large product percentage in the areas they operate.
Question 4
The strategy IKEA uses towards its suppliers is a low production cost strategy. The company aims at selling its products at the lowest possible price (Hill & Jones, 2011). This strategy is important to IKEA’s success because it ensures the establishment of long-term relationships with suppliers by offering them with new technologies
Question 5
IKEA’s source of success today attributes to the company’s understanding of the buying behavior and profiles of customers. However, the company’s weakness can be seen in the scale and size of its global business. The other weakness is the need for raw materials with low costs to produce products at low prices. There is also the weakness of stock market inaccessibility (Hill & Jones, 2011). For the company to address correct these weaknesses, it should conduct extensive market research and take risks that are well calculated. The company should also join in partnerships with other local companies.
Reference
Hill, C. W., & Jones, G. R. (2011). Essentials of strategic management. Nelson Education. Retrieved from http://202.28.25.105/e-learning/courses/703309/document/EssentialsofStrategicManagement_3rdEdition.pdf