The graduate marketing management Essay

This report was requested by the recruitment manager at IKEA as part of an application for a place on the graduate marketing management trainee scheme. The deadline for this report was 21 February 2005. It provides a response to three questions based on a case study. Supporting evidence from a variety of databases and web based sources has been used.

BACKGROUND INFORMATION

IKEA is a Swedish mass market producer of home furnishings, and was founded in 1943 by Ingvar Kamprad. IKEA has grown considerably since then and is now the leading global brand in the home furnishings sector with more than 190 stores worldwide. Their product range and strategy transcends national boundaries and maintains success in over 45 countries.

MAIN BODY OF REPORT

1.0 Marketing Mix

The marketing mix is used by IKEA as a tool to assist in the implementation of its market positioning statement “Your partner in better living. We do our part, you do yours. Together we save money.” (Source: IKEA)

Their marketing mix not only satisfies the needs of their consumers within the target market but simultaneously maximises the performance of the organisation.

McCarthy identified 4 variables that can make up the marketing mix.

2.1 Product

IKEA offers a wide range of home furnishing items of ‘Scandinavian light and fresh, yet unpretentious design’ that is perceived as modern and stylish. Other characteristics of the augmented product are that there is relatively less customer service, customers have to assemble, retrieve and transport the goods themselves. According to Handy this serve-yourself philosophy saves labour in the core and is the forth group of people that contribute to an organisation. Source: Mullins

As well as tangible products, IKEA also provides additional services such as roof-racks, children’s play areas, adequate parking facilities and Swedish restaurants.

The products are high in quality and are functional covering all areas in the home. They are practical and simple to use, so are appropriate for everyday use. There is a wide range of products although they are rather standardised.

2.2 Price

Price is one of the most critical dimension of the mix because it determines value for money, which is highly regarded by their target market. IKEA take a low-cost leadership pricing strategy because they are an oligopoly and are in the mature PLC stage therefore face high levels of competition, their prices match and are often lower than competitors offering a similar level of quality.

Their marketing-orientated business mission is to offer prices so low that the majority of people can afford to but them. IKEA facilitates this by offering customers the ‘home card’ and provides customers with �1950 at 12.9%apr.

IKEA is able to offer low prices without sacrificing quality because their marginal costs are relatively low due to scale of economy. Products are bought in bulk to keep costs down, flat-packing saves money on transportation and storage and cuts assembly of furniture out of the value chain altogether. The low prices do not effect the customer’s perception of the quality of IKEA products as it is obvious where the company saves money.

2.3 Promotion

The catalogue and stores are the main marketing tools used to promote and communicate the range, 13 million catalogues were circulated in the UK last year. The store and catalogue penetrate the target market by presenting the products in a way that they can relate to; ranges are set out in mock rooms so customers can experience the product and the catalogue uses models of similar age and depicts similar lifestyles.

IKEA tends to discount its products and have sales promotions when opening stores, in addition, it has a highly acclaimed sale twice a year and displays weekly product offers on its website.

IKEA embrace a ‘through the line’ advertising strategy which utilizes a wide range of media for brand communication including; television, billboards, magazine adverts and radio. They tend to use locally based advertising for sales promotions, such as mail-shots and also produce an IKEA magazine.

Public relations is used to protect corporate image, it promotes its environmental and social responsibility in the community. In addition it communicates the brand values and vision of “A better everyday life for the many people”.

2.4 Place

There are currently 12 vast-destination superstores in the UK and are usually located out of town close to motorways and major truck roads, this is convenient for distribution and delivery. This geographical spread and location ensures that stores are on consumers route plans when ‘shopping around’.

There are relatively few stores, but they have wide catchment areas, this is important because consumers buy furniture infrequently, and are typically destination shopping so are prepared to travel a long way. This travelling can be included as part of the IKEA concept and experience.

Most stores have extensive opening hours, often until midnight on weekdays, this is convenient for customers because the majority would be working during the day and caters for their market in a way that many competitors do not.

The stores are the only method of distribution in the UK. Customers are encouraged to browse products at home, through the catalogue or website, but can only purchase their products in stores.

3.0 Question 2

IKEA products and brand appeal to a wide range of people in the UK, however 20 – 34 year olds, in affluent socio-economic groups that are in the first half of their life stage tend to be a market segment that IKEA caters for particularly well. (appendix 1)

The two potential US markets that are identified in the case study were “Families with teenage children and whose children have left home” For the purpose of this report they will be referred to as target market 1 and target market 2. These markets are comparatively further on in the family life cycle and can be categorised as being in the full nest – stage 3, empty nest stage 1 or empty nest stage 2.

It is fair to suggest that these markets are relevant in the UK as there are many similar socio-cultural factors, for example age structure is incredibly similar in the target middle aged population (appendix 2). The case study suggests that culture barriers become smaller when prices are very competitive, when applied to

IKEA it would imply that these markets in the UK would be valid. However the UK change tastes and needs at a slower pace and so these markets may purchase less frequently than they would in the US.

3.1 Target Market 1

The number of teenagers in Britain has increased this year (appendix 3) this indicates that the full nest – 3 group has expanded. The market for teenage bedroom furniture also appears to growing and remains a relatively large niche market, there is ample opportunity for IKEA here as there is a limited number of other retailers that specifically target this market. Source: AMA research – Bedroom Furniture Market UK. This is also relevant because teenagers have a significant influence over their parents purchasing decision. (Source: Loudon, Della Bitta 1993)

It is reasonable to assume that couples with teenage children are likely to be over the age of 35. The 35 to 54 age bracket makes up a considerable proportion of the companies customer base and 21% of families that shop at IKEA have children that are aged between 10 to 15 years. (appendix 4) This confirms that families with teenagers are already an established segment of IKEA’s market and therefore extending the product range to better suit their needs would encourage this market to grow and reduce the risk of isolating them.

3.2 Target Market 2

An increasing proportion of households consist of couples with no dependant children, or “empty nesters”. These accounted for 30% of households in 2000 and this is likely to continue increasing. Source: Euromonitor – UK consumer lifestyles.

It is fair to suggest that target market 2 are likely to fall into the over 45 age bracket given that this is the subsequent family life stage and that women are tending to have children later in life. This group make up less of the overall market at IKEA but are a sufficient enough to be catered for, (appendix 4) is clear evidence that households of the ‘third age’ are choosing to purchase goods at IKEA rather than other types of furniture outlets.

40 – 59 year olds (Babyboomers) make up 27.04% of the UK population (appendix 5) and according to Euromonitor are spending more time at home and are placing a greater emphasis on creating appealing home environments. They are an attractive market because they are in their peak income-earning years and no children mean that they have a higher disposable income to spend in the stores than any other age bracket. (appendix 6)

Consumers in the 20 – 34 age group are likely to buy more furniture as they would be setting up home for the first time and family formation stages have a new demand for additional furniture. However, rising inflation and house prices in the UK mean that it is becoming increasingly difficult for first time buyers.

Older markets, such as the two that are identified in the case study can take advantage of this and sell their first house in order to move up the property ladder, this creates a requirement for new furniture and homeware. Mintel also suggests that furniture needs replacing when families leave home, this all indicates that the two potential markets have a need for the products at IKEA. Conversely, this market may be more valid in the US as it is more common to buy second homes there and so creates a greater need.

4.0 Importance of Price to IKEA

This question has been answered assuming that the question was intended to mean

IKEAs position (as a retailer in home furnishings market) in relation to other sectors.

Price is fundamental to IKEAs unique concept as it compensates for the lack of service, therefore it’s products must be regarded by its customers as representing outstanding value for money. These low prices are important to its target market, particularly for first time house buyers and families. They have mortgages to pay and young children to support and are willing to do a little bit of work serving themselves, if it means saving money.

The home furnishing retail sector contends with other industries for a share in the spending of disposable income, the main competitors would be holidays, garden and entertainment. This puts further emphasis on the importance of providing consumers with good value for money. IKEA subscribe to this as they have stated on their website that: “Low price is linked to the happiness of finding just what your home needs and the joy of being able to own it without having to forsake anything else”

The home furnishings sector has a large number of players in the industry making it very competitive. (appendix 7) MFI targets a very similar market in terms of age and socio-economic grouping (ABC 1). Therefore IKEA has to differentiate itself in price as well as other areas, it has managed this exceptionally well by offering stylish design and quality at affordable prices as well as catering for other needs such as a cr�che and Swedish restaurant.

Other retailers use a high level of discounting to gain market share. IKEA have to keep prices low enough to remain competitive this was demonstrated in 1999-2002 when they dropped prices by 15% to win a price war with M&S (Source: www.news.bbc.co.uk ) The chart (appendix 8) gives an idea of IKEAs position in terms of quality and price comparison to their competition.

Consumers also have other priorities when considering new furniture, the style of the product and quality are also very important because home furnishings have a high usage rate and are usually intended for long-term use. Research shows that the design of the product is considered to be more important than price.

Product style/design (63%) and price/value for money (53%) primarily influence homewares purchase decisions, followed by product quality (25%). This is consistent across all major product groups (Source: Allegra Strategies)

CONCLUSION

The marketing mix positions IKEA as a home furnishings retailer that offers standardised products with a simple, modern design of high quality and good value for money. They take a low-cost leadership pricing strategy but offer little customer service. Product ranges are set out in showrooms and stores have a thin spread of stores that are located out of town. Customers can browse products at home but only purchase them at a store.

This positioning is universal in its appeal although its main market can be defined as young first home buyers or families of an affluent socio-economic status, although it accounts for just over half of sales. It should expand its product line to cater for the US target markets, families with teenagers and ’empty nesters’. The weight of evidence suggests that these markets are valid in the UK, these age brackets are growing in proportion to the rest of population and already have a presence in IKEAs customer base.

Price is important to IKEAs position as a retailer of home furnishings due to intense competition and is fundamental to IKEAs strategy and concept. However the product design and style is of a higher consideration when consumers are making purchasing decision

REFERENCES

LOUDEN, D, DELLA BITTA, A .1993 Consumer Behaviour 4th ed. USA McGraw Hill

MULLINS, L, J, 2002. Management and Organisational Behaviour, 6th ed, Pearson Education Limited, Essex.

ALLEGRA STRATEGIES 2005, Market Overview and Key Statistics: Project Home, London. Available from: http://www.allegra.co.uk/project-home-keyfindings.html

[Accessed 20 February 2005]

AMA RESEARCH 2004, Bedroom Furniture Market UK, Gloucestershire. Available from: http://www.amaresearch.co.uk/Bedfurn04s.html

[Accessed 20 February 2005]

CLARK, E 06/2002, How Ikea won over the Brits, BBC, London. Available from: http://news.bbc.co.uk/1/hi/business/2037864.stm

[Accessed 19 February 2005]

EUROMONITOR 2004, Consumer Lifestyles in the UK 2004, London. Available from:

http://www.euromonitor.com/GMID/default.asp

[Accessed 19 February 2005]

EUROMONITOR 2004, US Consumer Markets 2004, London. Available from:

http://www.euromonitor.com/GMID/default.asp

[Accessed 19 February 2005]

IKEA LTD 2003, IKEA Marketing Strategy, Sweden, Inter IKEA Systems B.V.

Available from: http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html

[Accessed 17 February 2005]

MINTEL 2004, Furniture Retailing UK – August 2004, London. Available from: http://reports.mintel.com/sinatra/mintel/searchexec/type=reports&variants=true&fulltext=home+furnishings/report/repcode=R210&anchor=noaccessR210

[Accessed on 17 February 2005]

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