Marketing Case Analysis

IKEA is one of the leading suppliers and distributors of home and office furniture and other appliances in the world. The Swedish firm has been gaining dominance in the USA over the last four decades, but at present, it appears to be losing momentum because of stiff competition and lack of creative strategizing. This case study analysis will examine some of the main problems it is facing in its American expansion such as poor customer perception, a negative reputation failure to adapt to the American customers and weak online presence. The company’s SWOT analysis shows major weaknesses in customer perception and opportunities in its brand recognition and market experience. Leveraging on its strength as a dominant player and the opportunity to capitalize on the price sensitive US market, it is proposed that the firm can make up for its shortcomings, by acquiring one of the competing firms such as Tesco. Consequently, it can retain its traditional values, appeal, and adapt to the emerging trends such as developing an online presence and product diversification.

Problem

The case study examines some of the main challenges that are limiting the IKEA’s growth into the domestic market, focusing primarily on poor adaptation with local tastes as well as perception of low quality. Although IKEA undoubtedly occupies and important position in the list of America’s major retailers, however, it is currently, faced with several serious challenges that it must solve to be able to progress with its domestic expansion (Bhasin, 2012). Given that its products are mostly “do it yourself” IKEA usually manufactures generic parts which are then sold together to be assembled by the buyers. However, this model has failed to appeal to many Americans based on their individualistic nature. Therefore, if they are to expand any further into the US market, they might have to reconsider one of their core operating models since it appears it may be dissuading potential clients from purchasing their products (Grönroos, 2007). Consequently, it is critical that they take decisive steps to adapt to the local market and style themselves as a supplier of quality and unique products. In addition to this, IKEAS expansion into the US is being derailed by the negative perception from a section of consumers who feel the company does not provide the best quality possible (Moon, 2004). The do it yourself concept is seen by many as a sure sign of low quality on the basis that, if anyone can assemble it, it cannot be that good. Additionally, there is also the problem of a negative reputation stemming from claims that the firm treats its employees unfairly, which has resulted in a degree of consumer apathy. Coupled with the other challenges, the bad publicity has significantly reduced the firm’s ability to expand its market share.

SWOT Analysis

Strengths

Low cost cited as one of the firms major competitive advantages because its retrospective success was built on its ability to provide affordable but relatively good quality furniture. Indeed, low prices are the cornerstone of its business model and it invests a great deal of money and innovation trying to come up with new ways of cutting costs to make their products more affordable (Bhasin, 2012). Companies like Wal-Mart and target primarily use low pricing, and bulk purchase to reduce overheads, conversely IKEA has a unique advantage in that they have much more experience and control over their production process.

Supply Chain integration is another major strength that has helped IKEA remain ahead of its competition. They have established lasting relationships and commitments with suppliers, which allows them to order goods in large quantities and ultimately enjoy the subsequent economies of scale (Ferrell & Hartline, 2012). Moreover, since its raw material is sourced from near the suppliers the transport cost is minimized and the supply chain is closely integrated, which has significantly contributed to the firms’ competitive advantage.

One of the firm’s biggest external strengths is that it has a household name, easily recognized by most Americans. Furthermore, they have tried, albeit not with complete success to model their products after their customer needs. Through a concept, dubbed “Co-creation” IKEA tries to create pieces inspired by customer needs and this democratic workmanship greatly appeals to the American buyer.

Weaknesses

It is however; quite ironic to note that IKEA’s strengths and weakness are in many cases the same things, which implies that the firm may have to work on its strategies to be more accommodating. From an external perspective, IKEA is viewed very negatively by sections of the public since it has been accused of poor employee treatment and unethical adverting practices and environmental practices (Drayse, 2008). Apparently, in as much as it is a household name, there are those who associate it with negative products and services, especially in view of the firms high consumption rate of trees. Its products, while described as low priced and high quality, do not always answer to this depiction since in its quest to reduce prices; it sometimes compromises on quality. Low costs, despite appearing to be an advantage have also been found to be a weakness in that they compromises the potential for diversification and differentiation of products (Ferrell & Hartline, 2012). Because of standardization, it is easy for IKEA suppliers to manufacture many units and supply in bulk, however, this results in generic products. When it comes to the buying of furniture, most people will look for the most unique pieces, which can help them create an identity, and this is not possible with uniform looking products. Low promotional expenditure can also be considered an external weakness, which has reduced the firm’s ability to make inroads into its competitions market share. Unlike other firms which spend millions on online print and TV advertisement, IKEA has struck to largely traditional techniques such as catalogues and word of mouth, which are not as successful today as they a few years ago. Without leveraging on the power of digital and other forms of modern adverting, IKEA will likely remain relatively unknown in comparison with firms that are willing to splurge millions on advertising budgets. This weakness, especially critical in that it has resulted in IKEA losing touch with the younger generations who are likely to do their shopping online rather than go through catalogues.

Opportunities

The low priced strategy is a hardy opportunity given the delicate state of the economy since people are likely to opt for the cheapest brand they can get especially in hard economic climes (Moon, 2004). IKEA also has the opportunity to expand sales, given that it market is already aligned with American purchasing habits and therefore, should they position themselves strategically, they could easily attract many new clients. In addition, given the rise of the online market for goods, IKEA has the chance to expand its recognition by investing in marketing its products online more aggressively (Zentes & Schramm-Klein, 2012). Since it is already a trusted supplier, its online platforms are likely to be very popular and they are bound to attract the younger generation of potential customers who mostly purchase most of their products after online comparison-shopping.

Threats

Bluedot.com, furniture.com, Wal-Mart and Target are just some of the firms that are in competition for American clients. They are especially potent threats given they have all adapted to the online platform, where IKEA appears to be notably slow on the uptake. In the modern business world, online business is no longer an option but a survival tactic and unless IKEA leverages on the opportunities available in the World Wide Web, they may be relegated to obscurity in what is quickly becoming the biggest market platforms in the world (Ferrell & Hartline, 2012). Additionally, many of the competing companies are capitalizing on the fact that IKEA supplies unassembled furniture and ensuring theirs are pre-assembled or freely assembled on delivery. Consequently, this poses a serious threat to IKEA because “do it yourself” is one of its key tenets, but its competitors are out to party it as a flaw.

Objectives

To improve its corporate image, IKEA has focused on the internal and external environments that are used by customers and the society to criticize it. For example, concerning the fact that they use over 1% of the world’s trees in making their furniture, IKEA is intending to become forest positive by 2020 such that the number of trees they will be planting will be more than those they use in the manufacturing process (Ferrell & Hartline, 2012). IKEA will invest in customer education about how to assemble their products, by the end of the year; they will be conceptualizing a business model that does not necessarily require that products are manufactured pieces that need to be assembled by the client.

In addition, IKEA will strive to improve its online footprint by ensuring that by the end of the year 2016, at least 50% of their advertising budget will have been shifted to online spaces specifically designed to target the youthful and versatile consumers. IKEA should also take cognizance of the importance of having online stores where shoppers can simply buy and have products delivered at their doorstep through the internet. To this end, it should be ensured that in the next 12 months, every IKEA store in the US has an online version such that clients have the option of visiting the shop or simply buying from home. IKEA will aggressively pursue and advertising strategy with the objective of increasing its market share in the US by 10% within the next two years. In addition, it will ensure that the maximum period for return on the investment should not exceed 5 years.

Alternatives

In its current state, IKEA will urgently need to come up with ways through which its primary problems should be addressed before they irreversibly derail their incursion into the US. One option that could be applied to remedy the lack of uniqueness is creating an option for customers to request specific products based on personal taste. IKEA can charge willing customers extra, so that, in addition to making additional revenue, they can break the monotony of near uniform products. In addition, IKEA needs to consider investing more in innovation to provide quality goods even if it will mean marginally increasing their price. However, this can be done on selected products so that they can cater for those interested in the highest quality as well as those that prioritize affordability without compromising the needs of either. The matter of online an online market on the other hand is also a very critical choice that the firm needs to make and its ultimate implementation will be of great consequence to the firm’s ultimate success of failure. Finally, IKEA can consider a merge or takeover with one of the new competitors such as furniture.com or Tesco. Such a step, in addition to eliminating part of the competition, would give IKEA access to a new customer base and avail new infrastructure and tools that the more traditional firm may find difficult to adapt over a short period. Consequently, IKEA would retain its historical advantages and gain new competitive advantages in the unfamiliar digital market.

Recommendation

I recommend the last alternative, which in my opinion is best for meeting the company’s objectives of increasing market share by 10% in the next year as well as expanding its digital presence in the United States. By leveraging on its market dominance, IKEA should acquire one of its small but differentiated competitors so that it can quickly achieve the diversity needed to survive and remain relevant in the contemporary market. While acquisition may be a costly process, it will nevertheless provide IKEA with invaluable new networks and customers whose loyalty will be transferred from the acquisition to IKEA. In addition, the staff from the acquired firm will be instrumental in the evolution of a new IKEA that will be adapted to fit with the modern, digitalized American market.

Implementation

1-2 months. Identify and appoint the team that will be charged with managing the transformation of IKEA by designing a new marketing strategy.
1 month. Identify and investigate the company that is best suited for a takeover or acquisition and commence talks with the board of directors of both companies, during this period, representatives from IKEA should propose a price and present it to the directors of Tesco.
6 months to 1 year. The managers should commence the takeover process by gradually absorbing the operations of the target firm into IKEA such that it can capitalize on the new customer base, production and marketing techniques.

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