IKEA Marketing Case Analysis IKEA

IKEA Marketing Case Analysis

IKEA is a global leader in the do-it-yourself retailing industry, generated $32B in sales during the time period of the case study, up from 7% a year before, with previous years generating 14% revenue growth. With 80% of revenue generated from Europe, 15% from North America and the remaining 5% from Asia and Australia, IKEA is heavily slanted in operations, marketing, sales and retailing practices to Europe. Known as a brand synonymous with frugality and low cost, IKEA is challenged with entering new markets that expect high quality and whose customers demand very high levels of personalization. The core strength of the company is its supply chain integration to retailing, with 27 distribution centers across 16 countries and localized operations in 41 different locations. Their accuracy and speed of supply chain operations is an integral part of their unique value proposition as well, as they regularly set retail prices on products first, then find the suppliers who can meet the specific price points they need. Their marketing is heavily balanced to their catalog selling strategy which consumes 80% of the total marketing budget. IKEA concentrates on product design, catalogs, advertising and public relations as the core components of their marketing strategy. Their low-cost, frugal and egalitarian-based strategies are highly effective in Europe yet in North America the company continues to struggle.

SWOT Analysis

IKEA became a global leader in do-it-yourself retailing by concentrating on their supply chain operations and fine-tuning them so well that the customer actually helps with the last mile of logistics and fulfillment. This model works very well in Europe, where customers often gain greater levels of satisfaction form the furnishings they build vs. just buy outright. The following is an analysis of the company's strengths, weaknesses, opportunities and threats.

Strengths

Having fine-tuned their supply chain operations and logistics so well, IKEA has a very low-cost operating structure. They have successfully made do-it-yourself retailing a core part of their loyal customers' mindsets and expectations. In addition, IKEA continues to use their expertise in supply chain operations to drive increases in sustainability performance by recycling many of their containers and shipping materials. Unifying all of these aspects of their business model is a very egalitarian-based corporate culture and brand image of unpretentiousness.

Weaknesses

Just as their global supply chain expertise is a strength of low cost performance, it is also a weakness in terms of limiting the amount of customization that customers can do. Their do-it-yourself strategy can backfire at times, making the brand appear cheaper and less valuable over time too. The limited amount spend on promotional programs and weak online technical support show that marketing is an area that needs work in the company as well.

Opportunities

The economic conditions globally actually favor IKEA over the long-term, as the company is known for saving customers money and making it possible for them to furnish apartments and homes inexpensively for example. The rising demand for convenience is also a very strong motivator for customers as is the demand for stylish but sustainable and eco-friendly products as well. All of these elements together work to further strength the company's position in the global do-it-yourself market.

Threats

The greatest threat is from competitors who are also selling do-it-yourself store concepts throughout North America and also working to create highly effective supply chains. There is also the continual competitive threat of changing customer needs, tastes and changing market preferences over the lifecycle of a customers' buying cycles in the areas of furnishings and furniture.

Problem Statement

Modifying a highly efficient business model to take into account the individuality of U.S. customers and also adapt product offerings to local tastes are both critically important problems to IKEA today. Their advertising is very European-centric as well, which needs to be changed to better fit the American market, where their concepts would be considered "edgy" by some.

Strategic Alternatives

The following three strategic alternatives are recommended to IKEA:

1. Create a North American supply chain operation that can scale quickly to support mass customization of consumer-centric goods for that market

2. Scale global supply chain operations with selectively suppliers in the U.S. And use advanced demand management planning concepts to further minimize inventory risk

3. Create regional distribution centers and a localized supply chain in the U.S. To mitigate risk and increase overall market performance

Strategic Recommendation

As IKEA is so heavily centered on its supply chain operations as a core part of its unique value proposition, the company needs to create distribution centers throughout the U.S. And also build out its supply chain in North America as well. This will ensure a very high level of responsiveness to customer needs and also drive down costs over time. It needs to in essence create a localized supply chain for North America.