IKEA is a Dutch manufacturing and trading group based in Sweden, the owner of one of the world’s largest retail chains selling furniture and household goods. Its founder, Ingvar Kamprad, opened his first store in 1958 and entering the international market in 1963 (IKEA Company Information, 2021). The organization’s structure implies the absence of fragmentation into constituent parts by future owners to support the business. The company is focused on the production and sale of furniture and related household products for the mass consumer. IKEA, taking into account franchising, is open in more than 50 countries of the world; furniture manufacturer Swedwood, controlled by the company, has factories in about 30 countries (This is IKEA, n.d.). This paper presents a description of the company and strategic and tactical planning for the wealthy segment of the West Asian region to produce premium environmental products.
Situational Analysis
This brand offers, as a rule, affordable furniture of various designs and advanced technological solutions. Political and legal factors affect exports and imports within the company regulate profits with taxation, but in general, IKEA creates many jobs and can raise GDP. IKEA is quite resilient to economic factors, as it has an improving gross profit against the backdrop of falling revenue in 2020 while remaining a company with affordable and affordable products (IKEA FY21 financial results, 2021). Social factors are most often associated with conflicts based on security or culture, which the company periodically faces (Ikea to pay family $46m after child killed by falling drawers, 2020). The technology company follows and keeps up with the times, developing, for example, furniture with wireless charging (Stackpole, 2021). Finally, the company fully meets environmental responsibility requirements by investing in relevant projects and gradually switching to renewable energy (IKEA Sustainability, 2022). A more detailed PESTLE analysis is given in Appendix A.
As mentioned above, democratic design makes it possible to create a wide choice for the buyer, having positions in the line for almost every taste and need. IKEA offers more than ten thousand unique items of its products that meet the requirements of attractiveness and durability (IKEA The Way of Retail, n.d.). Comprehensive international experience allows us to create a reliable and optimized supply chain and take into account the desires of consumers to adapt products in stores. The company’s consumer experience and store design are also a strength, as pre-pandemic retail accounted for 80% of revenue (EcommerceDB, n.d.). The most important plus is the inexpensive cost of products, which, taking into account the current difficult economic situation in the world and the decrease in the purchasing power of consumers, made it possible to return to the positive dynamics of revenue growth after 2020 (IKEA FY21 financial results, 2021). However, the company also has weaknesses that affect its performance.
First of all, due to the broad diversification of home and appliance products, the company depends on third-party manufacturers, harming the reputation of product quality. Moreover, self-assembly of furniture often seems very difficult for consumers due to the particular technology of compact storage of products, packaging, and technology (Suárez-Ruiz, Zhou, and Pham, 2018). The low price of goods is due to not the highest quality materials, which cause breakdowns and, accordingly, bad reviews and advertising. Finally, the company is not yet represented in Western Asia and many countries in South America.
Therefore, the company’s capabilities can be limited to entering new specified markets and carrying out horizontal and vertical diversification. Developing premium products for IKEA using more expensive materials can help increase demand from another segment of the audience, most relevant when entering the Western Asian market—expanding the line not only towards the premium class but also with an emphasis on environmental responsibility, which is in line with modern trends. Threats include substandard third-party products, diversification towards IKEA’s product range of other strong players in each market, the finiteness of wood materials, and IKEA’s unfriendly do-it-yourself furniture assembly. The summary table of the SWOT analysis is shown in Figure 1.
Objectives
The tasks of the company vary in several directions. Above all, IKEA is committed to people’s healthy and sustainable living in their homes (Marsh, Kanngiesser and Hood, 2018). In addition, the company is focused on getting rid of plastic in packaging and production, improving products by complying with environmental responsibility, switching to renewable energy sources, planting more trees every year, and reducing greenhouse gas emissions with growing sales of the company (Highlights from the IKEA Sustainability Report FY21, 2021). Therefore, the main objectives of IKEA determine the quality and ecology within the company’s activities. Describing the highlighted opportunities as part of the marketing plan below, it is necessary to keep these goals in mind so that the recommendation is entirely consistent with the mission and vision of the company.
Strategy
Geographic differentiation has already been discussed above, and among the new and most promising markets, Western Asia and South America stand out. According to socio-demographic characteristics, the most suitable segment is people with an average and high income, over 25 years old, with a permanent job, families, and children already equipping their home. There is no upper age limit among IKEA customers, while children are indirectly also consumers of products due to the many items in the assortment presented for children’s rooms.
Segmentation by behavioral or psychographic factors is the most exciting aspect of this work. Since IKEA is aimed primarily at people who, regardless of their views, religion, habits, are ready to equip their house or apartment, it is possible to attract a different audience by horizontal diversification of the line (Rismayani and Sari, 2019). First, high-tech solutions like a bed with wireless charging will appeal to younger and older segments that value modern features (Sellitto, Camfield and Buzuku, 2020). Secondly, the emphasis on environmental goods will be relevant given the relevant agenda and to smooth out conflicts on this basis in the direction of IKEA. Although many wealthy people are among IKEA consumers, the company is still aimed more at the middle class because their products are available to people with low incomes. Consequently, the segment of the most solvent audience remains untouched since there is almost no furniture and premium class items in the line.
By differentiating segmentation by desired benefits, the target audience appreciates IKEA’s confidence and product price. Given that the price, even in difficult times, remains affordable for the middle class, although the quality of the products remains high, it is still not at the highest level. This fact is confirmed by various cases where customer safety suffered, and defective material or assembly led to injury and even death (Child safety door has safety concerns, IKEA has been taken off the shelves and is willing to fully refund the fee, 2021). The segment in which the company is interested in this strategy values safety at the same high level as product confidence. At the same time, the audience is ready to sacrifice a low price for the sake of high impeccable quality. Therefore, IKEA should bet on a segment that values safety through product diversification.
Targeting should be done on the segment of Western Asian countries, among the most solvent people, after diversifying the product line with premium and safer products. At the same time, the company may enter the South American market without appropriate diversification since, in these countries, the demand will be for inexpensive products. However, given the current gross profit ratio, targeting the West Asian market would be the most profitable strategy for several reasons.
Firstly, the company will be able to focus on developing premium and safe products, expanding its line not only in this region but also on a more environmentally friendly one. West Asian countries are now developing various environmental strategies and highly value-related products, such as the Saudi Vision 2030 program (Amran et al., 2020). They are ready to pay more for ecological products, and given that now ecology is becoming a necessity and a trend regulated at the federal levels, IKEA has the opportunity to improve its reputation to avoid conflicts on this basis. Secondly, the transition to more environmentally friendly, technologically advanced, and safer solutions will help IKEA avoid injuries and deaths that have been associated with its products. The company should use the opportunity to develop this kind of product line to develop new approaches to new premium products that will help improve their financial performance and, therefore, their competitiveness. The company’s competitive strategy is to take advantage of almost every segment of the positional map, with the exception of “more expensive, less quality”, which, against the backdrop of international experience and large financial opportunities, can leave competitors far behind.
Product positioning plays a vital role in strategy development. In addition to IKEA, Target, Walmart, Amazon, Wayfair are significant players in the global market, but they cannot be considered direct competitors to the company due to the extremely high diversification they sell. As a rule, IKEA’s main competitors are local furniture manufacturers, while this company has no equal in the international arena. When entering the Western Asian market, the company must position its products as quality, focusing more on safety, brand strength, and price, as a company can do when entering the South American market. It is the most solvent population that values quality that will help IKEA grow in this region through corporate orders, demand for high-quality and expensive products, and access to such customers. Therefore, IKEA should choose the indicated place on the positioning map instead of the usual one indicated in Figure 2 below.
Tactics
According to the 7P model, several aspects need to be carefully considered to be most effective in entering this market. People, the first “P”, are at the heart of this model, and IKEA will carefully assemble a team to enter this market, drawing on experts in Asian countries, VIP customer service, and security. Appropriate marketing can be built after getting to know potential buyers the country’s culture in which the company will be deployed. The sales process, the second “P”, between buyers and sellers will be transformed accordingly. Based on research data on culture, accepted traditions, and the first negotiations, the company will draw up a plan and appropriate instructions for employees who will negotiate in the way that is customary in a given country. Lawyers will handle all sorts of paperwork, legislation, taxation, and import issues, while the core team will work on convenient shopping opportunities for potential clients.
As discussed above, the physical evident is a vital strength of the company. Specific changes can be made to fit the convenience and culture of the area, but otherwise, the location of the product on the sales floor has always contributed to large sales at IKEA. Therefore, a sure bet will be made on this aspect, in connection with which proportionally larger premises can theoretically give a more significant profit in the long run. According to the theory of comparative advantage, it is in this aspect that an approach should be taken to demonstrate the highest quality products in the trading floors, taking into account the targeting of a wealthy audience. It is quality products, even sold in smaller volumes, that will be able to bring more gross profit ratio than products that are more accessible to the consumer. However, the main four aspects require more detailed consideration.
As already mentioned above, the product must have some characteristics that are specific to a given region and segment. The line should be supplemented with higher quality, safer, and, as a result, more expensive furniture, which will be in demand in Western Asia. In addition, IKEA products must be environmentally friendly, modern, and technologically advanced to comply with trends and federal programs. Compliance with environmental responsibility requirements will allow the company to get on the agenda and receive additional advertising and reputation recognition. Emphasis on these three qualities is key to capturing this audience segment, which can lead to an increase in the company’s gross profit ratio and provide relevant experience in the premium sector, which can then be extrapolated to other regions where similar demand appears.
The price of these products will be, contrary to the usual understanding, increased because the quality of these products will be higher. This experiment will allow the company to determine its own ability to enter the luxury and quality goods market, which may still be lower in price than the corresponding analogs from competitors due to its more excellent financial and production capabilities. IKEA will remain true to its vision of affordable products for everyone, as the mainline will also be on display in the salesrooms for other audience segments. Connoisseurs of environmental goods can be found in other segments. Therefore, the development of new lines should be as diversified as possible for several segments: for wealthier people who will be targeted; and the middle class, thanks to IKEA’s worldwide reputation for affordable products.
Distribution should be primarily aimed at corporate customers and mass large orders, and therefore the production of new premium products will be cost-effective due to a large number of orders. Entering large companies ready to cooperate will allow IKEA to enter the Western Asian market more smoothly, significantly reducing various risks in terms of possible costs. The region is relatively small in area but developed, and therefore logistics and distribution will not require high costs. As a result, targeting will be aimed at reaching large customers, which will allow cooperation to make market entry more favorable, minimizing the risks of large-scale production of a new product line.
Promotion, as stated above, should focus on quality, safety, and confidence. Since the company will be aimed at large customers, a plan should be built accordingly. First, IKEA will start by contacting representatives of various firms, construction companies, companies looking for rent for their own offices, and similar international players about to enter this market. For each potential client, an individual offer should be drawn up, the answer to which will already reflect the statistics on the company’s capabilities. Based on the partnerships built, internal advertising will be formed, signaling the opening of stores. After that, more targeted work will begin to attract various target audience segments, which requires a more detailed analysis.
Action
The procedure will contain the following components: developing the concept of premium and eco products in the near five months; analysis of the market, culture, traditions of the region’s countries as a parallel action; search for potential customers for the next two months; proposal preparation; conclusion of cooperation contracts. This stage is followed by determining the store’s exact location and possible factories, searching for contractors and builders, and launching a marketing campaign for various segments of the target audience for the last five months. Finally, after opening a store and supplying premium and eco products under contracts, the company will look for ways to develop in this region by analyzing current activities and possible ways to find new customers and diversify products.
Control
The risks are associated with the production of new products, the search for suppliers of new, higher quality materials, the lack of contracts in the region, and a robust locally developed infrastructure for furniture production, which may be underestimated in the initial analysis of the region. In addition, even when contracts are awarded, sales can be underwhelming due to misinterpretation of the needs of the chosen market segment. In this regard, it is necessary to constantly monitor this project at every critical stage of its development and implementation. Firstly, premium products under development should also be offered in other regions to assess the demand for such furniture in countries with existing points of sale. A reasonably broad picture can be reflected in online sales figures if IKEA launches a line in online stores. Secondly, to minimize risks, it is proposed to simultaneously consider the company’s entry into the countries of South America, where IKEA has not yet been represented.
Market scanning should be carried out on information about the sold products of the eco, premium and ordinary available furniture categories. The external environment will dictate the basic needs of customers, which may prompt the further development of the product line: perhaps in the technological direction, or still in the field of mass inexpensive furniture. As a result, the company must follow both potential competitors and new trends in technology, furniture production, ecology and comfortable, safe solutions in this industry.
In financial reports, the leading indicator of the effectiveness of this strategy from all performance metrics is the gross profit ratio, which has been falling for two years now. The revenue per client should also be compared by category and the understanding how the premium products, in quantitative comparison with the usual ones, justify the investment of the project should be obtained. If the company manages to increase this indicator due to the new line and targeting in the selected segment of the West Asian market, then with positive revenue dynamics, this project can be considered successful. The region is eager to invest in environmental and forward-thinking projects, and therefore IKEA can raise funds for new projects, international introductions in other countries, and environmental and technological developments in products presented around the world.
Reference List
Amran, Y. A., et al. (2020) ‘Renewable and sustainable energy production in Saudi Arabia according to Saudi Vision 2030; Current status and future prospects’, Journal of Cleaner Production, 247, pp. 1-19.
Child safety door has safety concerns, IKEA has been taken off the shelves and is willing to fully refund the fee (2021). Web.
EcommerceDB (n.d.).
IKEA Company Information (2021).
IKEA FY21 financial results (2021). Web.
IKEA Highlights from the IKEA Sustainability Report FY21 (2021).
IKEA Sustainability (2022).
IKEA The Way of Retail (n.d.).
Ikea to pay family $46m after child killed by falling drawers (2020).
Marsh, L. E., Kanngiesser, P., and Hood, B. (2018) ‘When and how does labour lead to love? The ontogeny and mechanisms of the IKEA effect’, Cognition, 170, pp. 245-253.
Rismayani, R., and Sari, I. P. (2019) ‘Analysis of Business Strategy in Furniture Company’, International Journal and Science Research (IJSR), 8(6), pp. 2391-2396. Web.
Sellitto, M. A., Camfield, C. G., and Buzuku, S. (2020) ‘Green innovation and competitive advantages in a furniture industrial cluster: A survey and structural model’, Sustainable Production and Consumption, 23, pp. 94-104. h
Stackpole, T. (2021) ‘Inside IKEA’s Digital Transformation’, Harvard Business Review.
Suárez-Ruiz, F., Zhou, X., and Pham, Q. C. (2018) ‘Can robots assemble an IKEA chair?’, Science Robotics, 3(17), pp. 63-85.
This is IKEA. (n.d.).
Appendix A
