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The Study of Ikea’s Business Strategy sample essay

Price and promotion

Ikea is not only a furnishings market brand, but also a furniture brand. Through a series of operations, in people’s eyes, Ikea is not simply a purchase house ware places, it represents a way of life. In our mind, Ikea’s success not only depends on its integration of the trade, logistics, but it used to integrate the core idea of trade, logistics-lifestyle (Margonelli, Lisa 2002). As we said before: using Ikea’s products is just like eating McDonald’s, drinking starbucks coffee, becoming a symbol of a lifestyle. Ikea’s management idea is “provide various kinds, beautiful and practical products, promising that most people can afford the household articles for use”. In Britain, Ikea position himself into the provider of the household articles for the mass. Because of its relatively low price and effective promotion, Ikea is well received by the low- and middle-income families.

Ⅰ. Pricing decision

According to Pratt, Alex, an key point to effective pricing is to find ways of placing yourself in the shoes of the customer, patient enough to spend the indispensable time to consider that what it is that they worth enough to cost, accordingly , then to build your pricing model(Pratt, Alex. 2007, p.20). Therefore, Ikea lists prices that are 30 to 50 percent lower than completely assembled competing products.

Ⅱ. Price strategies

It is the low price that based of Ikea’s ideal, business inspiration and conception (Kumar, Nirmalya. 2006). All the production of Ikea is involved the basic idea that low price can make household items, various in kind, attractive and useful, reached by everybody. So Ikea is always emphasizing the strategy of low price (Åsa Thelander 2009). Thus, it constantly strives to put every one thing to do better through more simple and efficient way, in order to make it more cost-effective. It is difficult to set at a very low price by the designers themselves to finish a designing,. Behind Stylist, there is a team, which is consisted of designers, product developers, purchasing personnel, etc. These people cooperate together to determine the best solution in the range of cost, making various performance variables within the scope of the optimal solution. They debate about product designing, used materials, and choose appropriate suppliers.

Ⅲ. How to make low price

How to realize the strategy of low price while keeping the quality of the products is not only a slogan. Actually, low price strategy is put in effect throughout from product design to model, selection, OEM choice, logistics management design, store management and the whole process (De Melim, Rrchard 2007). Ikea’s designing concept is “the same price products, whose design cost less”. Ikea created “module” type of furnishings designing technique .Ikea furniture is divided into assembly goods, distributed into different modules and block designing. Different module can be based on costs in different area production; simultaneously, some module in diverse furniture can also be used (Brian Leavy 2004). Thus not only lower the costs, the entirety cost of products can also get reduced. To cut down the cost, Ikea makes a close cooperation with OEM, mainly manifested in two points: the process of merchandise design and the construction (De Melim, Rrchard 2007).

With the aid of the factory, it is possibly that Ikea has found cheaper substitute material, easier to lower the price of figure, dimension, etc. When product designing is completed, to persuade the OEM to invest the equipment, Ikea promised them a certain quantity of order (Burt, S, Johansson, U, Thelander, A 2010). So this factory is willing to purchase equipment for Ikea production. For Ikea, it saves investment. IKEA products are packed in flat packages, compact, which helps reduce transport costs and the direct reduction of carbon dioxide emissions from land transport (Eleanor R.E, O’Higgins 2003). The company seeks to transport products from suppliers to retailers by sea and rail. Therefore, the customers save some of fees and Ikea is saving cost and maintain the advantage of low price product.

Global production management and logistics system of Ikea is advantageous to reduce costs. In the aspect of product cost, Ikea not only cooperates with OEM supplier, but also encourages competition (Kumar, Nirmalya 2006). Ikea tend to take order presented to those manufacturers whose general prices are relatively lower – selecting suppliers for products in the Ikea, overall considering generally lowest cost. Each product is calculated according to the cost of central repository as a benchmark, and then based on each regional sale potential, Ikea selects suppliers, referring to quality, production capacity, and other factors at the same time.

With the purpose of further reduction of the price in the global scope, Ikea adjust its construction layout worldwide, it has nearly 2,000 home suppliers (including Ikea self-owned plant), and vendors will deliver various products from all over the world to the international central repository, followed by delivered from the midpoint to the malls for sale. Ikea also constantly adjust its manufacture orders in the global circulation owing to a variety of product sales with continuous changes,

Ⅳ.Communication and Advertising

Ikea’s communication is centered on the catalog, website and loyalty program Ikea. Printed in 28 languages, the catalog is has a worldwide circulation of 190 million copies, in 35 countries. In Europe, the catalog is delivered to 200 million people annually and has more than 300 pages, presenting more than 12000 products. It is distributed free in stores and by mail. IKEA also will release advertisement through room magazines and internet, as a source of information. In 2005 the IKEA site has attracted 125 million visitors from all over the world. The global site allows access to the other sites.

They both offer information about IKEA products, customer services and their availability in stores. Ikea pays much attention to the promotion of enterprise image. One of the communicating strategies is the emphasis of ecological protection to improve the enterprise image. With reference to a decade ago, Ikea started in a planned way to involve itself in the ecological protection affairs, including: material and market environment, suppliers, forest, products, transportation, etc.

Ⅴ. Sales promotion

Ikea has a relatively comprehensive sales approach, which includes online sales, one-stop procurement, sales calls, and cooperative sales and so on. The display in the store has rich skills, promoting purchase (Rosner, D. 2009). In the Ikea exhibition, the display unit is separated independently, respectively shows how to match different furniture to make unique effect. Unit display (function display) strategy is called “vivid marketing” (Profits and perils 2005), for the reason that this kind of demonstrates method is lively, displays of each product completely. On another aspect, “joint purchase” can be produced in this decoration, which is entire bedroom exhibition displaying rather than single display. As a result, the effect of “joint purchase” is easy to bring into being (Yang, Y 2009).

There are also other promotion skills. Taking gift card for example, for every £1000 you spend on an IKEA kitchen, you will get £100 back on an IKEA gift card. Besides, Ikea is also adept at “color” sales promotion. Ikea promotes dramatic combination with “red fiction”, “orange alliance” and “blue fondness” in the Spring Festival and Valentine’s Day period, making whole market filled with human kindness.

The advantage of these theme promotion is creating the derivative point with the use of theme built-up clientele imagine, transplanting the customer emotion on the Spring Festival and valentine’s day into the exquisite products of Ikea (Pratt, Alex 2007). It makes customers attach to its exclusive products implication for a long time. With the aim of making the whole store appear more lively and to let consumers obtain more profound genuine purchase experience, Ikea assorted more various products, designed different styles among examples, to fully displays each product in the field effect.

Margonelli, Lisa. 2002, ‘How Ikea Designs Its Sexy Price Tags’, Business 2.0, pp.106. Åsa Thelander. 2009, ‘A standardized approach to the world? IKEA in China Ulf Johansson’, International Journal of Quality and Service Sciences, pp.199-219. Brian Leavy.2004, ‘Outsourcing strategies: opportunities and risks, Strategy & Leadership’, Strategy & Leadership, 2004, Vol.32(6), pp.20-25. Profits and perils. 2005, ‘Nike, IKEA and IBM’s outsourcing and business strategies’, Human Resource Management International Digest, pp.15-17. Kumar, Nirmalya. 2006, ‘Strategies to fight low-cost rivals’, Harvard Business Review, pp.104. Burt, S, Johansson, U, Thelander, A. 2010, ‘Standardized marketing strategies in retailing? IKEA’s marketing strategies in Sweden, the UK and China’, Journal of Retailing and Consumer Services. De Melim, Rrchard. 2007, ‘Go green or pay the price’, Cabinet Maker, pp.9. Pratt, Alex. 2007, ‘The price is right (or is it?)’, Director (00123242), pp.20. Rosner, D. 2009, ‘Learning from IKEA Hacking: “I’m Not One to Decoupage a Tabletop and Call It a Day.”’, CHI2009: proceedings of the 27th annual chi conference on human factors in computing systems, VOLS 1-4 :
419-422. BOŞCOR, Dana, BRĂTUCU, Gabriel. 2009, ‘Transnational strategies adopted by furniture manufactories, Case study: Ikea’, Pro Ligno, pp.55. Yang, Y. 2009, ‘A Study on Novelty-Centered Business Model Based on Value Co-Creation of IKEA’, 2009 international conference on e-business and information system security, vols 1 and 2: 909-912. Eleanor R.E, O’Higgins.2003, ‘Global business means global responsibilities; Research: Global strategies – contradictions and consequences’, Corporate Governance, pp.52-66.

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