IKEA SWOT Analysis

Abstract

IKEA Company was founded in 1943 by the renowned business magnate Ingvar Kamprad from Sweden. Although this multinational company did not start by selling furniture, its furniture retail trade gave it growth. The company has more than 330 branches spread over 38 countries. Its SWOT analysis shows the areas it has done well and those that it should work hard to sustain in terms of growth and development. Some of its strengths lie in the company’s knowledge of the customers’ needs and wants, the rapid expansion to tap foreign markets, the low-price strategy, and product portfolio diversification among others. However, IKEA has several weaknesses in publicity and the presence in developing economies, for example in Asia. Still, it has opportunities ranging from the growing demand for low-priced products, broad and untapped market potential, to the growing grocery industry. These factors are enough to resuscitate the business. Despite all these aspects, IKEA should work hard to overcome the threats of stiff competition from the companies in the same industry. Fortunately, IKEA has been doing well in the marketing area by enhancing its marketing mix through the implementation of the 4P’s that represent the price, promotion, product, and place.

IKEA’s growth and flourishing on the multinational marketing stage have not been an easy task. In fact, it is never easy for any company to thrive without proper implementation of strategies that can help it maintain its positions and increase the global market share. Over the past years, it has faced stiff competition from big businesses, such as Walmart and Tesco, who use the same strategy of low price (Townsend, 2009). What makes the situation worse is that many other companies are venturing into the furniture and furnishing field at supersonic speed, which makes the established companies concerned. This research paper is going to analyze IKEA Company and its marketing functions by discussing various aspects, such as what it has done well, how efficiently it has implemented the 4Ps, and its SWOT analysis among many others.

IKEA Brief History and Overview

In 1943, IKEA Company was founded by the famous magnate Ingvar Kamprad. The name of the business was formed from the initial letters of the founder’s names, his farm, and the village he was living in, which are Elmtaryd and Agunnaryd respectively (Velez, 2016). The company did not start by selling furniture; it began by selling other commodities, such as watches, wallets, pens, table runners, jewelry, etc. The furniture introduction to IKEA’s business was to complement the original merchandise, and it was only in 1948 that the company began to explore innovative solutions ranging from advertising to furniture design (Inter IKEA Group, 2016). This shows how the company began to take shape and gain momentum in growth.

That notwithstanding, the company’s growth did not just end on diversification of its business. It began to establish its infrastructure, which laid the foundation of the historical expansion. In 1958, it opened its first store in Sweden at a place called Älmhult, a store that was the largest in the whole Scandinavia (Velez, 2016). This seemed strange because at the time Älmhult was a small village located in the forests of Småland (Inter IKEA Group, 2016). However, this ended up earning IKEA unexpected fame from all the people in the country. People were ready to travel from far places because of the quality and design of the furniture at low prices. Visits to IKEA became good days for most families (Inter IKEA Group, 2016). As a result, the company was compelled to provide additional services, including the creation of a self-service restaurant, as well as a supervised playroom for children.

The opening of the first store in Sweden marked the beginning of more stores being opened. In turn, that led to growth beyond the nation’s boundaries and subsequent attraction of global customers and a robust workforce. Velez (2016) reports that IKEA went ahead and opened several stores in Europe, Australia, and the United States. In 1997, its website was launched. In 2010, the company possessed 313 stores in 37 different countries across the world (Velez, 2016). With this in place, IKEA has employed thousands of people to provide services essential for meeting the set goals and aims.

IKEA’s Success

IKEA Company has grown beyond national boundaries to tap its potential and influence the global market. Currently, it is a multinational group of various companies that not only design, but also sell furniture, home accessories, and appliances (Arshad, 2014). The world’s largest retailer of furniture has shaken its competitors to gain an international platform. The company has always been aiming at providing furniture of both high quality and design to its customers with limited financial capabilities. This has been achieved in most cases through its struggle to reduce the prices of its commodities, as well as to increase the sales volumes by the sustenance of strong cost controls (Abrahamian, 2013). Its tremendous growth has made the company emerge as the global industry leader providing high-quality, affordable furniture for all people regardless of their social class. Its furniture is suitable not only for offices, but also for home usage.

The company has further succeeded in expanding its geographical market to increase its revenues. According to Chopra (2009), IKEA had only 18 stores in the UK in 2009, including the one in Warrington that was opened in 1987. Furthermore, it began as a small business entity during its initial years of operation. Currently, IKEA has a huge influence on the global market since it operates in more than 38 countries with 332 stores (Jurevicius, 2013). This has been made possible by an array of customers, which has resulted in huge financial development of the entity. In 2012, the company made over $12.8 billion in addition to recording a huge number of customer visits, reaching 600 million (Jurevicius, 2013). Therefore, the company has succeeded in many areas, which has resulted in its enormous growth.

Strengths (What Is IKEA Doing Well?)

IKEA’s determination to attain an international appearance for the past decades is a reflection of how the company is succeeding in its operations. First, the company understands its customers, and this gives it an added advantage over its business competitors. Jurevicius (2013) asserts that the competitive advantage of IKEA comes from the widespread knowledge and understanding of the customers’ needs. It has a grasp of the purchasing factors that impact customers’ decision to purchase its commodities, which is a tool to its routine implementation of best practices. The vast knowledge has enabled the multinational company to offer a huge range of products that are not only of high quality but also the best designed in the world. It has some of the best and most experienced designers who continually produce new designs and stylish products that attract most of the customers (Jurevicius, 2013). The products are easy to assemble and transport from the areas of manufacture and assemble to areas of sale. Since customers have varied purchasing preferences, IKEA has made sure to attract a great number of customers by offering a broad range of products. This knowledge is in line with the needs and wants of the clients. As a result, the company enjoys good results and high sales. Without IKEA’s best practices and extensive customer knowledge, the company would not be able to outcompete its strong competitors in the market.

Secondly, the company is doing very well in expanding its capacity by opening many branches across the world so as to access a larger market share. In 1997, the company opened several branches across Europe, Australia, and the US, and by 2010 it had a total sum of 313 stores in 37 countries (Velez, 2016). This shows that the company was rapidly expanding beyond the boundaries of its country of origin. The Inter IKEA Group (2016) reports that the business group secured land use rights in the lucrative Republic of China, which made it announce its expansion and investment in this nation. In the same year, it opened an office in Stockholm, while focusing on investments in non-Swedish listed companies. Furthermore, the company’s Property Division launched the first Warsaw’s Business Garden concept in 2011, while three others were under development (Inter IKEA Group, 2016). This shows how the company is committed to broadening its marketing base by expanding its operations through opening many branches across the world.

That notwithstanding, IKEA can maintain its low costs of commodities in several ways. According to Jurevicius (2013), the company drives its costs down through finding new and innovative methods of performing its routine operations. Some of the innovations include the less costly and environmentally sustainable materials. Furthermore, its newest ways of handling, packaging, and transporting materials are cost effective. IKEA’s supply chain integration is an important proof that the company is doing well in minimizing its costs of operations. The multinational corporation has aimed at maintaining a close relationships with the suppliers (Jurevicius, 2013). As a result, it can order substantial volumes of supplies, which makes it enjoy low prices and good quality. Subsequently, the suppliers benefit from the relationship because they get an assurance of new orders from time to time. Moreover, the organization sources materials close to its suppliers so as to cut down the costs of transport. Therefore, this company is doing well in reducing the costs of operations and commodities.

Similarly, diversification of product portfolio, market presence, and brand reputation are among the areas the company is doing well in. Other than only offering furniture products to its esteemed customers, IKEA operates restaurants, flats, and houses among many other things (Abrahamian, 2013). This makes the company have a huge say in the competitive market. Adverse impacts from the furniture retail industry can not affect it more than its competitors who have not diversified. Furthermore, IKEA is the world’s most valuable retailer in the furniture industry with an estimated value of about $US 12.8 billion in 2012 and a substantial market share since it has 332 stores spread across 38 countries (Jurevicius, 2013). Jurevicius (2013) further explains that its brand reputation has attracted a huge number of customers with over 600 million customers visiting its stores. Therefore, the company is doing well in many areas.

Weaknesses (What IKEA Should Improve On)

There are numerous things that IKEA should work hard to improve. It should work to restore its public image because it has been overwhelmed by negative publicity because of several incidents concerning ethics. Many a time, this company has received criticisms on issues related to poor employee treatment, lobbying of governmental agencies, and questionable practices in advertisement (Jurevicius, 2013). According to Dudovskiy (2015), the company’s reputation was tainted in February 2013, when it recalled its meatballs after finding that they had traces of horse meat. The 2012, IKEA conducted business with its suppliers that utilized forced labor to produce commodities 30 years ago, which substantially ruined its reputation (Dudovskiy, 2015). These and many other incidents have resulted in a negative reputation that has reduced brand reputation, as well as customer loyalty. Therefore, IKEA should work hard to restore its public image.

Moreover, IKEA’s weaknesses lie in the fact that its products and services are of low quality, which results in low customer satisfaction. Jurevicius (2013) ascertains that the United Kingdom (UK) Insights Report concerning IKEA by verdict revealed that the company’s customers get less satisfaction from its commodities because of their low quality. On the other hand, those clients who purchase their products and services from other stores get more. In this regard, the company seems to have problems with raising the quality of its products and minimizing the costs. Since customer satisfaction should be a priority, the company should work hard to gain a stake in the competitive market.

On the other hand, the company’s weak presence in some places like Asia is preventing its potential from being realized. It should work hard to have an established influence in the region. Dudovskiy (2015) says that during the 2014 fiscal year IKEA generated only 9% from both Asia and Australia compared to a whole 69% from the saturated European market. Since the Asian economy is currently growing at a supersonic speed compared to the European economic stagnation, the company should firmly establish its operations in Asia. The Asian market may weaken this company’s global business share in the market (Dudovskiy, 2015). Therefore, IKEA should work hard to ensure a firm establishment in the Asian economically growing hub.

Opportunities

A company uses its strengths to endeavor into the serious business by tapping the potential opportunities it can access. The first opportunity for IKEA comes from the fact that there is a growing demand for low-priced commodities (Babu, 2012). Most customers are likely to go for cheap products and services because of the never ending financial challenges. This is an advantage to the company because it is already working using the low price strategy. As a result, IKEA is likely to get a huge market share from the customers who prefer purchasing cheap retailed items.

That notwithstanding, there is an outstanding opportunity for the company to expand and grow in the developing countries and tap a substantial market share. According to Jurevicius (2013), IKEA’s retail market increased by an average of more than 5% in the emerging markets in 2015, which opened an outstanding opportunity in the growth of revenue. This proves that if it strives hard to expand in the developing economies, it is likely to benefit from the revenue increase. Currently, the group operates in developed economies, meaning that it has not tapped its potential in the any developing nations except China. An opportunity rests in the hands of IKEA to expand its operations into Indonesia, Malaysia, Mexico, and Brazil among other countries not only to increase its market presence but also maintain future growth.

Another IKEA opportunity lies in the rapidly growing grocery market. If the company will expand its operations to tap into this market, it is likely to acquire enormous benefits. The current trend among people is to consume healthier foods. It has heightened the demand for grocery commodities in most of the developed economies (Jurevicius, 2013). IKEA stands a chance to broaden its grocery business through the introduction of new grocery stores not only in its current regions of operation but also in many other new nations. Jurevicius (2013) explains that since the company has successfully managed its food outlets, its expansion and growth in the grocery market will be an easy task to perform. Therefore, IKEA has a potential opportunity that it should tap without hesitation.
Also, online marketing is a sound field that the IKEA Company can exploit, because it has the necessary tools for prosperity. Most companies are going digital by setting online platforms for trading. In the UK and US, online sales in the retail industry account for 14% and 4% respectively (Jurevicius, 2013). Online sales are likely to grow beyond these figures as time goes by, since most people are visiting the company website. Jurevicius (2013) reports that over 870 million people visit the IKEA website every year. The exploitation of this lucrative platform will greatly benefit this group.

Threats

Despite IKEA’s strengths and the numerous opportunities, it has various threats negatively impact its existence. The growing competition in the furniture retail industry is one of the key issues threatening this company’s operations. According to Jurevicius (2013), the presence of strong competitors such as Tesco and Walmart denies IKEA its potential market because all of these competitors are using the same strategy to find customers. Companies like Walmart work using the low price strategy and have a well-managed supply chain in addition to its strong market presence (Babu, 2012). Such a competitor is a huge threat to IKEA.

That notwithstanding, the growth of income among IKEA’s product consumers threatens the demand for its cheap and low-quality commodities. Jurevicius (2013) asserts that consumers currently prefer to buy fewer products that are of low quality at low prices. Unfortunately, this is what this company offers to the market. This will diminish its power in the retail industry unless some measures are formulated and implemented without hesitation.

Marketing mix of IKEA

IKEA’s Marketing Mix (Implementation of the 4P’s)

In the past years, IKEA has established itself as a synonym to the home furnishing and furniture industry. The fame of this company has risen, especially in developed economies, because of its low price strategy and the provision of a variety of products. The overall implementation of the 4P’s, entailing the products, price, place, and promotion, is the one that has made it grow immensely.

Products

IKEA understands the needs and wants of its customers. In trying to satisfy the customers, the company has diversified its products so as to cater to the interests of all the people. In fact, it has created a detailed catalog that included all the items of furniture and fittings, including the sophisticated assemblies to organize (Arshad, 2014). Some of the products include book cabinets, kitchen accessories, beds, furniture, and home furnishings among many others. According to Lee (2011), the company has a broad range of commodities anyone needs in the house with varied styles. For example, an IKEA table lamp has different designs from the basic lamp design to the stylish table lamp that is capable of serving various functions.

Price

IKEA prices for products are reasonable for different items and their qualities. From its website, it insists that its low price strategy is the goal of its vision and business concept (Arshad, 2014). The company’s core drive is to offer products at low prices through competitive pricing strategies. The low pricing strategy is feasible because of the bulk purchasing of items, incorporation of cheap manufacturing suppliers and low-cost logistics. All these have made the company prosper when it comes to commodity pricing.

Place

Internationally, IKEA has a robust retail and marketing network. This company’s premises have developed ample parking spaces and family-friendly environments because of the supervised activity areas for children (Lee, 2011). Additionally, its products are accessible from many places in the world because of it is spread around the globe. Its presence is felt through the branches that are spread in several countries in Europe, Asia, North America, and Australia. Its online platform and the 24-hour phone operation enable its customers to make orders any time without actually visiting the stores.

Promotion

The company’s strong brand has existed for a long time because of the use of various forms of promotion. Most of the IKEA’s promotional strategies lie between trade and sales promotions. The company uses festival promotions, coupons, and price discounts among many others (Lee, 2011). The use of print media, television, and many kinds of digital media have added value to the company’s promotional strategies. According to Arshad (2014), IKEA publishes annual catalogs that include almost all of its products and the prices. This strategy enables communication between the business and its customers, and this directly promotes its operations and products. Therefore, the company is doing very well in the promotion of its business activities.

Conclusion

The IKEA Company is a multinational company that was founded in one of the poor villages in Sweden and is now dealing with furniture retail across the world. It started in 1943 as a local company, but due to its low price strategy and product diversification has managed to develop. The company’s SWOT analysis shows various strengths that enable it to thrive in the competitive market. Some of them include the low price strategy, diversification of the product portfolio, its strong presence in the business market, the brand reputation, etc. This organization has gained negative publicity due to many ethical factors. Alongside other weaknesses, this made it harder for the company to thrive. However, it stands a chance to enjoy various opportunities. For instance, it has room to expand into the developing countries, establish an online sales platform, and expand into the already existing grocery market. However, IKEA faces threats from the fierce competition from different companies offering the same products. Finally, IKEA’s marketing mix has enabled it to thrive in the competitive furniture retailing market. The 4P’s in the marketing mix include the product, price, promotion, and place.