2010

Marketing Project
A critical evaluation of sustainability of the IKEA s international market entry strategies to persuade the British people to buy the Swedish Product

Name: Shaikh Mohammad Mehedi Hasan

Colege ID: 094801-80 UWL ID: 29002463

Windows User [Type the company name] 12/27/2010

Executive Summary This report is based on the critical evaluation of the IKEAs international market entry strategies in the UK market. As a Swedish company IKEA is one of the most successful brands in the furniture industry. This report critically evaluates the reasons how the IKEA can make a good position in the UK market. With the help of theories and practical example this report finds out the different international market entry methods and how this will affect the consumer purchase decision making and the customers segmentation. This report evaluates whether this strategy will sustain in the long run or not. With the help of different strategic tools such as Ansoff Matrix analysis, Porters generic strategies analysis, targeting, positioning and segmentation strategy analysis this report explain the different factors which are affecting the international market entry strategies of IKEA. Finally, this report will measure the sustainability of this strategy.

Page | 1

Introduction: This report critically evaluates the international market entry strategies of IKEA and how they are capturing the UK market. Because of globalisation impact many companies are moving forward to the international market expansion to increase their profits and revenue generation. This is important for the companies to measure the international market when they are making the decisions of using the market expansion strategy. A market entry strategy is the planned method of delivering goods or services to a target market and distributing them there and when importing or exporting services, it refers to establishing and managing contracts in a foreign country, (Jobber, 2010) . This report identifies the different issues of international market entry strategies such as market development, product development or the focus strategy. It is quiet helpful to focus on the small segment of the market rather than focusing on the whole market. Because of high competition in the market it is better for IKEA to focus on the small segment of market. This report critically analysis the market entry strategies of IKEA and how they are capturing the UK market as a Swedish company. The business operation in the international market is very challenging because of high competition and cultural differences. IKEA need to critically evaluate the strength and weaknesses of the international market before expanding their business operations. This report will use the PESTLE analysis to evaluate how these external factors are affecting the business operations of IKEA. IKEA need to evaluate their market segmentation strategy by selecting the target market segment and change their product categories accordingly. They can also position their market in taking a good positioning strategy by using the 4Cs framework analysis. Before making any positioning strategy IKEA need to analysis the market and then make the decisions on the basis of that market condition. This report also explain the targeting strategy for IKEA by analysing the three different types of targeting strategy such as undifferentiated, differentiated or concentrated targeting strategy. The objective of this report is to evaluate the sustainability of IKEAs international market entry strategies with the help of different strategic tools such as Porters generic strategies, Ansoff Matrix analysis, and segmentation, targeting and positioning strategy. Finally, this report will evaluate the sustainability of using this strategy in the international market.

Page | 2

Desk Research Report: a) Company Background: This critically evaluation report of international market entry strategies are based on IKEA which is one of the largest furniture producer in the world. IKEA is an internationally recognized home furnishing retailer. At present it is the world largest furniture retailer. IKEA offers a wide range of well- designed, functional product at a low cost so that the people of low purchase ability can easily buy them. The home furnishings are modern, attractive and represent the Swedish life style through its carefully chosen colour and materials. But celebrating 21 years of retail success in the UK, its major presence in the market cannot be denied. IKEA welcomes 110,000 customers a day, making for approaching 40 million a year.

(www.utalkmarketing.com, 2010)

IKEA brings the Swedish style in UK and successfully increase their marketing operations in the UK market. The story of IKEA begins in a small town of Sweden in 1943.Since then IKEA grows rapidly and becomes the world largest furniture retailer operating in 44 countries and territories in the world. The uniqueness of IKEA is recognized by its Swedish style. IKEA furnitures describe the Swedish life style which reflects nature- full of light and fresh air creating the sensation of summer sunshine indoors all year round. IKEA offers home furnishing for every room in the house. There are 301 IKEA stores in 37 countries. 267 of them run by IKEA itself in 25 countries and rest of them are run and owned by franchisees in 16 countries and territories which welcome 590 million visitors in 2009 and 450 million visits IKEA websites during that period, (Global Information Database, 2009).

The following section of this report will describe the different international market entry strategy for IKEA and the uses of different strategic tools understand the international market entry strategies for IKEA.

Page | 3

b) International Market entry strategies of IKEA: IKEA can use the different international market entry strategies such as the following:a) Exporting: IKEA can use exporting as an international marketing strategy both directly and indirectly. Exporting can be done by selling the product or service directly to an international company or customer, or indirectly by using an export intermediary. These include commissioned agents, distributors and export management or trading companies, (Fill, et al., 2008). b) Licensing: The second type of market entry strategy is called licensing. Licence may be granted by a party (licensor) to another party (licensee) as an element of an agreement between those parties. A shorthand definition of a licence is "an authorization (by the licensor) to use the licensed material (by the licensee)", (Ghauri&Catreora, 2006). c) A joint venture: It is another most widely used international market entry strategy to gain the competitive advantage.International joint ventures are often accomplished through licensing or offshore production, which requires either establishing your own facility or subcontracting the manufacturing of your product to an assembly operator, (Ghauri&Cateora, 2006). d) Mergers & Acquisition:This is another kind of international market entry strategies by which IKEA can increase their market share by making mergers or acquisition with the different companies.

c) PESTLE Analysis of IKEA: The PESTLE analysis of IKEA is the following:y

Political: Different political factors like government rules and regulations, public attitudes towards the industry, changes of the political institutions, legal issues or the regulatory climate can affect the business operations in the international market.

Economic: Societys economic structure, stock exchange, interest or inflation rates, nations economic policies and performance, exchange rates also affecting the business activities of IKEA in the UK market.

Page | 4

Social: Different social factors like cultural attitudes, ethical beliefs, shared values, lifestyles of the consumers, demographic variables or the education level of the consumers can affect the business operations of IKEA.

Technological:

Different technological factors like, innovation, new

technology, information technology, new strategic group unit, managerial innovation can also affect the IKEAs international business operations.
y

Legal: Different legal issues like legislation, employment law, contract laws, and access to materials, import or export laws, and taxation policies will affect the business operation of IKEA.

Environmental:

Different

environmental

factors

like

ecological

or

environmental issues, social and ethical consideration can affect the business operation in the UK market.

Analysis (Strategic): a) Market Segmentation Strategy for IKEA: Before entering into the international market,IKEA need to understand the segmentation of the market where they want to expand their business operations. The process of market segmentation entails the subdivision of a market into distinct subsets of customers, where any subset may conceivably be selected as a target market to be reached with a distinct marketing mix, (Kortler, 1991). The segmentation of IKEA can be understood by the following table:Table-1: Segmentation variable for IKEA Segmentation variables Social Characteristics Grade In case of IKEA a. Upper middleclass b. Middle class B A Higher managerial professionals e.g. 35.00% Lawyers, directors Intermediate managerial/administrative/professional c. lower C1 Supervisory, clerical, junior managerial, 20.00% 25.00%

Page | 5

middle class d. Skilled working class e. Working class f. Lowest level E of subsistence D C2

administrative, professional Skilled manual labour e.g. electricians, 10.00% mechanics, builders etc.

Semi-skilled operators

labour

e.g.

machine 8.00%

State pensioners, widows (no other 2.00% earners), causal workers, students

(Source: JICNARs social grade definitions (A-E), 2010, Marketing planning process, BPP, p-125) From this segmentation variable this report will find out the pie chart such as:-

E 2%

Sal s

D 8% C2 10%
A 35%

C1 20%

B 25%

(Fig-1: Market segmentation of IKEA) On the basis of this market segmentation IKEA need to implement such policies which can help to make the effective decision making to capture the market.

Page | 6

b) Market Positioning Strategyfor IKEA: The market positioning strategy for IKEA is the key elements of understanding the international marketing positioning strategy of IKEA. Positioning is the act of designing the companys offer and image so that it achieves a distinct and valued place in the target customers mind, (Korler& Keller, 2006). The positioning strategy for IKEA is the following:i) Clarity: IKEA need to analysis the positioning strategy on the basis of both target market and differential advantages. ii) Consistency: IKEA need to position in the market by using the consistency of the service which can be measured by the quality of service and product quality. iii) Competitiveness: IKEA need to position in the consumers mind by creating a competitive advantage. iv) Credibility: IKEA need to make their positioning strategy and send their message in such a way which can be credible in the market.

c) Market targeting strategy for IKEA: To understand the business operations of IKEAs international market entry strategies it is important to understand the market targeting strategy for IKEA. Target market is a market or segment which is selected for special attention by an organisation with distinct marketing mix, (Kortler, 2006). i) Undifferentiated targeting: Under this targeting strategy IKEA can use the single marketing mix for the whole market. This strategy is not that much applicable for IKEA. ii) Differentiated targeting: This targeting strategy can be a good solution for IKEA for targeting the desired customers by producing different products for different market segment.

Page | 7

iii

Concentrated Targeting: Thi i al

a wi l used method of targeti g

such as produci g the ideal product for a si gle segment of the market IKEA can use this strategy to target their medium class customers. (Source: Jobber, 2010, p. 281)

d) Market E

ansion (Ansoff Matri ) Anal sis for IKEA:

IKEAs market expansion strategy can be understood by using the Ansoff Matrix Analysis. The ff ti ll w eters t si er w s t

four possi le product

arket combinations. This matrix helps companies decide what obber,

course of action should be taken i en current performance,

a) Market Penetration: IKEA can gain the competiti e advantages by selling their current product in the current market by using the market penetration strategy. They can do this by gaining the competitors customers or non-uses of the product by providing more promotional offers and discounts. Creating awareness by increasing the advertising and promotional activities can help IKEA to capture the market easily. Sometimes this strategy can be risky because the company need to provide more promotional offers to attract more customers.

(Fi

nsoff

atrix nal sis for K

, adapted from, obber,

b) Product Development: Under this strategy, IKEA can sell the product in the current markets by introducing new product They can do this by changing the .

4 54 6 &

!"! #

siness ia

rrent and r new products, in current and or new

arkets there are

 

 

(2 1

    0 ( ) ' ( &% $

expand the



Page | 8

characteristics of the products, colour, and design according to the expectations of the customers. c) Market development: Based on this strategy, IKEA can sell their existing products in the new market. This is becoming the most challenging strategy for IKEA to enter into the new market. Before entering into a new market IKEA need to analysis the market carefully and need to make a proper plan to capture that market. d) Diversification strategy: Finally, IKEA can do this diversification strategy by focusing on making the new products in the new markets. This is becoming a challenging issue for IKEA to use diversification strategy and a long term strategic planning can help them to be successful using this strategy.

e) Porters Generic Strategies analysis of IKEA: With the help of Porters Generic strategic analysis IKEA can use their market positioning strategy in the international market such as the following:a) Cost leadership strategy: IKEA can do the cost leadership strategy to capture the UK market. A cost leadership strategy involves winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what customers receive), (Porter, 1990).

IKEA can do their cost leadership strategy by lowering their price of the product which will increase the number of sales and increase the profit by calculating the number of sales. To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than rivals. This could be achieved through high asset turnover, low direct and indirect operating costs and control over the supply/procurement chain to ensure low costs, (Porter, 1990)

Page | 9

(Fig: Porters generic strategy, adapted from, porter, 1990) ii) A Differentiation strategy: IKEA can also do the differentiation strategy by creating a unique product or creating the differentiation in the competitors products. A Differentiation Strategy is aimed at the broad market, which involves product/service creation that is perceived throughout its industry as unique (e.g., Nike athletic shoes). It has been suggested that a differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier, (Porter, 1990). iii) Focus Strategy: IKEA can also use the focusing strategy to focus on the small market segment by getting the maximum market share from the small market segment. Special types of promotional strategy will be useful to capture the small market segment.

f) Measuring the sustainability: The sustainability of this strategy can be measured by the monitoring and evaluation of the marketing strategy. Long-term strategic planning can help the companies to gain the competitive advantages. The sustainability can also be measured by consumer response rate and their positioning strategy in the international market.

Page | 10

Conclusion: This report explains all the issues of international market entry strategies for IKEA and how this can be used to gain the competitive advantages in the international market. This report explains how IKEA can take the market position in the international market such as product development, market development or focus strategy. PESTLE analysis help to measure the factors which are directly and indirectly affecting the business operations of IKEA and segmentation and positioning strategy help to make the positioning strategy for IKEA in the international market. Differentiation strategy can be useful for IKEA to make the differential products to capture the market easily and make the products on the basis of consumers needs and wants. This report will help to make an effective decision making for the managers who are going to expand their market into the international market and how any company can gain the competitive advantages.

Page | 11

Appendices: Appendix-1: (Project Proposal) Title: A critical evaluation of IKEAS marketing strategy to persuade Brits to shop Swedish. Background of the study: IKEA is an internationally recognized home furnishing retailer. At present it is the world largest furniture retailer. IKEA offers a wide range of well- designed, functional product at a low cost so that the people of low purchase ability can easily buy them. The home furnishings are modern, attractive and represent the Swedish life style through its carefully chosen color and materials. The story of IKEA begins in a small town of Sweden in 1943.Since then IKEA grows rapidly and becomes the world largest furniture retailer operating in 44 countries and territories in the world. The uniqueness of IKEA is recognized by its Swedish style. IKEA furnitures describe the Swedish life style which reflects nature- full of light and fresh air creating the sensation of summer sunshine indoors all year round. IKEA offers home furnishing for every room in the house There are 301 IKEA stores in 37 countries. 267 of them run by IKEA itself in 25 countries and rest of them are run and owned by franchisees in 16 countries and territories which welcome 590 million visitors in 2009 and 450 million visits IKEA websites during that period (Global Information Database, 2009). The IKEA range comprises 950 products that are largely same in all IKEA store. The sales for the IKEA group reached 21.5 billions euros showing the growth rate of 1.4 percent for the financial year of 2009(IKEA, 2009). The biggest sales countries are USA, GERMANY, FRANCE, ITALY and UK. In 1987 IKEA opens its first store in UK and it has 18 stores throughout the country (IKEA, 2009). IKEA has considered one of the fastest growing retailers over the last five years. Ikea carefully has chosen its products and materials to minimize any negative impact on people and environment, while meeting business objectives. In order to achieve this IKEA mingled the four elements of marketing mix. Every product has its own different mix of the four 4 Ps. The right mix of the 4 Ps will ensure customer satisfaction and will help to achieve business objectives.

Page | 12

Aim: The study seek to explore how IKEA won a place in the heart of the British consumers when Brits have a reputation for being loyal to the UK high street retailer. Hypothesis: IKEA has ensured the proper use of the marketing mix which help them to win the heart of the British customer. Research objectives:
y

To study the development of IKEA products those have an extensive appeal to the British customer.

y y

To explore IKEAS pricing strategy that keeps the cost down. To investigate the transportation advancement of IKEA stores that attracts the shopper.

To investigate IKEA advertising in the UK is intended to raise awareness of the IKEA brand.

Scope: although IKEA is an international company, this piece of research should concentrate on UK market. As stated in the research objectives the researcher has chosen main four stakeholders groups.
y y y y

Customers Suppliers Local residents Competitors.

The study has been designed as a desk research which involves secondary data analysis project whether it is published or unpublished. A good place to work on secondary data is to work on companys existing information which was gathered for other purposes. Secondary
Page | 13

research or desk research the search of library and research databases sources related to the topics (Creswell, 2003). Actually secondary data collection method is the combination of secondary research. Desk research includes books, newspapers, journals, magazines, government reports and research data. Data collection from secondary research is the base of the background information and the literature review during the research. Survey method is the right way of collecting data and in case of secondary research survey can be conducted through electronic and non electronic means. In this project the data will be collected from the following sources:
y y y y y

IKEA group corporate and social responsibility report. IKEA group current marketing policy. Previous report into marketing issues carried out with co-workers and suppliers. UK sales figures for the past five years. Reports from IKEA groups media monitoring agency- contain details of press cutting and other media coverage.

Timetable of work: The project proposal will be submitted on the second week of the term for approval. After literature review and analyzing the data, the final report will be submitted on 29th of December. 1. Selecting the project proposal------------ By 26th October 2. Submission of Proposal-------------------- on 27th October 3. Literature Review---------------------------- from 28th October to 27th November 4. Writing the Draft----------------------------- by 15th December 5. Submission of assignment------------------------- on 29th December b

Page | 14

Bibliography: 1. Fill, C. Baines, P. Page, K. (2008), Marketing, 1st edition, Oxford University press, Chap-1, 5, 6, UK 2. Groucutt, J. (2005), Foundations of Marketing, 1st edition, Palgrave Foundations, Chap-2, UK 3. Hooley, et al., (2009), Marketing strategy and Competitive positioning, 4th edition, Prentice Hall publications, UK 4. Jobber, D. (2010), Principles and Practice of Marketing, 6th edition, McGrawHill, UK 5. Kortler, P. & Armstrong, G. (2010), Principles of Marketing, 13th edition, Pearson International edition, UK 6. Kortler, P. &Keller, (2003), Marketing Management, 12th edition, Prentice Hall, UK 7. 8. Lancaster, et al., (2007), Essentials of Marketing, 4th edition, McGraw Hill, UK Marian, B.W. (2007), Essentials guide to Marketing Planning, 2ndedition, Prentice Hall, UK. 9. Porter, M.E (1998), Competitive strategy, 2nd edition, free press, UK 10. www.anythingresearch.com, (2010), Ansoff Matrix analysis, (online), available from, http://www.anythingresearch.com/Strategic-Planning/Ansoff-Matrix.htm, [accessed on 26th December, 2010] 11. www.cipd.co.uk, (2010), PESTLE Analysis, (online), available from,

http://www.cipd.co.uk/subjects/corpstrtgy/general/pestle-analysis.htm, [accessed on 27th December, 2010] 12. www.mybusiness.co.uk, (2010), International Market entry strategies, (online), available from, http://www.mybusiness.co.uk/YTeT-jBone4LcQ.html, [accessed on 26th December, 2010] 13. www.provemodels.com, (2010), Pestle forces analysis, (online), available from, http://www.provenmodels.com/32, [accessed on 26th December, 2010] 14. www.smartsolutions.com, (2010), Generic Strategic analysis, (online), available from, http://www.smartersolutions.com/blog/forrestbreyfogle/2010/08/04/michael-

porter-generic-strategies-and-an-enhanced-business-management-system/, [accessed on 24th December, 2010]

Page | 15