Ranking the 10th largest exporter of furniture in the world, Malaysia exports around 80% of its production. With large markets in US, Japan and Australia, Malaysia’s has a strong position in the global furniture industry. With tremendous growth in exports to UAE, Saudi Arabia, the Philippines and Russia, Malaysia is now eyeing on countries like Algeria, Greece, Puerto Rico and Libya. Malaysia has always been known for its wood based furniture, owing to its natural resources.
The government has set an annual growth target of 6.5% for wood based furniture by year 2020. In recent years, the growth has shifted from producing general products towards designing its own in propelling Malaysia onto the international arena.
Popular with overseas buyers of the middle to high category, foreign buyers look to Malaysia for manufacturers who can meet their high production demand. Despite numerous economic downturns, the industry is still supported by a strong global demand. Chinese and Vietnamese furniture pose strong competition with lowered price furniture, Malaysian furniture continues to set itself apart with original design that places importance on aesthetics as well as its good work ethics.
The government also plays an important role in nurturing the industry. Providing Pioneer Status for tax exemption and Investment Tax Allowance, the pro-business environment makes doing business easier and faster.
The IKEA story begins in 1926 when founder Ingvar Kamprad is born in Småland in southern Sweden. He is raised on ‘Elmtaryd’, a farm near the small village of Agunnaryd.
Even as a young boy Ingvar knows he wants to develop a business. In 1920, at the age of five Ingvar Kamprad starts selling matches to his nearby neighbors and by the time he is seven, he starts selling further afield, using his bicycle. He finds that he can buy matches in bulk cheaply in Stockholm and re-sell them individually at a very low price but still make a good profit. From matches he expands to selling flower seeds, greeting cards, Christmas tree decorations, and later pencils and ball-point pens. 1943, When Ingvar Kamprad is 17, his father gives him money as a reward for succeeding in his studies.
He uses it to establish his own business. The name IKEA is formed from the founder’s initials (I.K.) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew up. IKEA originally sells pens, wallets, picture frames, table runners, watches, jewellery and nylon stockings – meeting needs with products at reduced prices. Year 1945, Ingvar Kamprad’s business outgrows his ability to make individual sales calls, so he begins advertising in local newspapers and operating a makeshift mail-order service. He uses the local milk van to deliver products to the nearby train station.
The furniture is produced by local manufacturers in the forests close to Ingvar Kamprad’s home. The response is positive and the line expands. In Year 1951, IKEA founder sees the opportunity to sell furniture on a larger scale using a catalog. The IKEA catalog that we know today is born. 1953 is another important year for IKEA as the first concept show store had born. For the first time customers can see and touch IKEA home furnishings before ordering them. The showroom is born out of a price war with a main competitor of IKEA. As both companies lowered prices, quality was threatened. By opening the showroom, IKEA clearly demonstrates the function and quality of its low-price products.
The innovation is a success; people wisely choose the products with the best value for money. This is the innovation that IKEA still maintain today and the show room of IKEA that we visit today is based on this idea. 1956, IKEA started to design furniture with flat packing and self-assemble due to pressure from competitor on supplier to boycott IKEA. Exploration of flat packaging begins when one of the first IKEA co-workers removes the legs of the LÖVET table so that it will fit into a car and avoid damage during transit. After this discovery flat packs and self-assembly become part of the concept. 1958, the first IKEA store opens in Sweden.
The first IKEA store in Älmhult has 6,700 square meters of home furnishings. At the time, it is the largest furniture display in Scandinavia. In year 1960s the first IKEA restaurant is bornt and subsequently expanding its furniture and restaurant business throughout the world. Since year 1990s, IKEA had been focusing on human and environment responsibility as pre requisite of good business. In Year 2003, IKEA ventured into Malaysia with its first furniture concept store opened in Petaling Jaya Selangor.
Market segmentation or segmenting is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics which distinct segments that the total market for a given product category is often fragmented into each segment contains people who are relatively homogeneous in their needs, their wants, and the product benefits they seek as well as each segment seeks a different set of benefits from the same product category. In market segmentation, customers in a segment respond to similar market fluctuations and require identical products.
The furniture industry in Malaysia is well developed and there is a number of companies with high reputation that serve the market. As well known, IKEA was customer focused. As they were not selling through dealers which could obtain feedback directly from customers. Also, Ikea sees itself not so much as a retailer but as a central star of services. It appears that the countries Ikea entered through international expansion had already had a growing number of potential customers who were not tied to a traditional furniture image. They preferred practicality, good value, simplicity, and liked the idea of contributing by giving their time in assembling stage.
They also wanted: wide variety available at one place providing assurance that “something suitable can be found, will be nice and simple, practical and of good value”. These factors combined with the perceived wide variety and “good” design were appealing in many countries to a similar customer market segment. This concept was also easy to promote world-wide – mainly through catalogues, uniform in layout, with minor regional differences. All that contributed to the making of “universally accepted” IKEA formula. IKEA has accepted world-wide is that IKEA has a good marketing management.
The market is segmented according to geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes.
IKEA’s geographic segmentation. Normally, the products of IKEA in each country are quite similar products because this company has the same standard in being produce products, however it has still difference of goods which depend on the traditional customers in each country as well. Besides, IKEA choose location of store on the city outskirts as the company’s stores were large and required huge parking spaces.
For Malaysia has only one IKEA warehouse located in Kuala Lumpur. Even though Malaysia was a large country but the status of this country still developing country it is suggested that IKEA pursue a market in Kuala Lumpur which is the capital city of Malaysia. This segment is more likely to be familiar with IKEA brand and have the purchasing power for current IKEA product.
Demographic segmentation of dividing the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race and nationality.
IKEA’s segmenting market typically target’s customers who interest in decorating their home both women and men generally from the age 20 to 60, and also live in minimalize style of architecture of residential. IKEA has become such a strong brand because they create a good mix of low cost furniture with high quality. Therefore, it is appealed to customers every age especially students group and customers who have middle earning.
For Malaysia, the population was 28.33 million making it the 42nd most populated country. The population of Malaysia consists of many ethnic groups and Islam is the official religion of this country. Positioning to Malaysia citizen who demand functional, unique, and low cost furniture for their minimalize residence. Therefore, Malaysia can be a new huge market for IKEA expansion due to has the large number of population.
Psychographics is the science of using psychology and demographics to better understand consumers. Psychographic segmentation: consumer are divided according to their lifestyle, personality, values and social class
IKEA’s psychographic segmentation: Malaysia citizen who live in minimalize style of architecture residential area and apartment.
Affluent class (pleasure seekers) includes businessmen, politicians, CEO’S, MD, etc.
Characteristics: rich, status conscious, big houses, more than one home, want plush furniture and interiors.
Offering: Wooden furniture (exclusive), light and stylish, carvings done on demand, giving an antique look, sandalwood furniture at extra premium, can be a packaged offering too.
Upper middle class(achievers): middle level executives, managers, entrepreneurs, small business owners.
Characteristics: well to do, handsome salaries, own flat or apartment.
Offering: wooden furniture, durable and rugged, metal furniture (if interested), packaged offering.
Middle class (aspirers): salespersons, clerks, class 3 government employees, migratingfrequently.
Characteristics: average salary, rented apartment or house, sharing a flat.
Offering: metal furniture (steel, aluminium, plastic), easy handling and packaging, rugged and durable, packaged offering
The advantages of IKEA’s market segmentation
Although there are possible advantages to segmenting the market, there are possible disadvantages as well.
There is generally an increase in costs with segmentation due to market research, research and development, production costs (the need for different products for different market segments), and inventory/ Stock Costs (increase in materials needed).
One of the main aims of the organization include: keeping costs low and assist customers and products combining good quality, durability and functionality and this replies to the needs of the Bulgarian customer.
Marketing Mix is one of the marketing strategies used in marketing. The marketing mix is often crucial when determining a product or brand’s offering, and is often synonymous with the four Ps: price, product, promotion, and place.
A successful marketing mix has to meet the following specification: • The product has to have the right features – for example, it must look good and work well. • The price must be right. Consumer will need to buy in large numbers to produce a healthy profit. • The goods must be in the right place at the right time. Making sure that the goods arrive when and where they are wanted is an important operation. • The target group needs to be made aware of the existence and availability of the product through promotion. Successful promotion helps a firm to spread costs over a larger output.
Product – A product is an item that satisfies what customer needs and wants. It can be tangible item or an intangible service. A product must address the needs of customers as identified through market research.
Price – The price is the cost paid by customer for the product. Price is the one which create sales revenue. Researching consumers’ opinions about pricing is important as it indicates how they value what they are looking for as well as what they want to pay.
Promotion – Promotion is a way of communicating with customers. It will provide information that will assist them in making a decision to purchase a product or service. Advertising covers any communication that is paid for, from cinema commercials, radio and Internet advertisements through print media and billboards. Public relations is where the communication is not directly paid for and includes press releases, sponsorship deals, exhibitions, conferences, seminars or trade fairs and events.
Place – Place is concerned with various methods of transporting and storing goods, and then making them available for the customer. Getting the right product to the right place at the right time involves the distribution system. It will be more convenient for some manufacturers to sell to wholesalers who then sell to retailers, while others will prefer to sell directly to retailers or customers.
IKEA’s current marketing strategy is to provide low cost, high quality products that are as eco-friendly as possible to its customers. Marketing Mix allows IKEA to continuously cut costs for the consumer and keep pricing competitive, and it also shows the company as socially responsible because of the efforts made to keep the operation as eco friendly as possible.
IKEA provide wide range of home furnishing products to satisfy different needs and design and produce the products, which does solve life’s daily challenges and create convenience. The categories include living room, bedroom, kitchen, workspaces, small spaces, children, and Garage and garden in particular market. IKEA is build on the Do-It-Yourself basis, the company still provides delivery, van rental and assembly services to satisfy different needs.
IKEA provide inexpensive cost and general quality of the products, most users are drawn into a heavy cycle of usage. IKEA focuses on ensuring their products and packaging are both environmentally conscious by complying with a strict environmental standard, and ensuring the use of renewable, reusable and recycled materials as much as possible.
The modern, stylish and functional design on IKEA products attracts younger generation to consistently shop in the store. The added amenities such as childcare, restaurants and completed show rooms make the store more desirable for customers to shop and stay shopping for a long period of time at IKEA. Moreover, with more people become environmentally conscious, the company appears to be the ultimate concerned with being viewed as green and environmentally friendly.
Price is an important element of the marketing mix. The price charged for our products determines whether our consumers would by it, and the level of sales acheeved determines whether Ikea will make a profit.
IKEA focus on providing lowest possible price for the product it offers, while maintain majority customer satisfaction with acceptable quality. IKEA successfully place its brand image with a balance between price and quality.
In order to achieve the goal of offering well designed and quality product in an affordable price, IKEA depend on strong relationship with its customers, suppliers, distribution centers and carefully selected store locations.
At IKEA, our advertising campaigns aim to identify the right markets. We must be aware of which market, or market segments are being targeted. This is a straight –forward market segmentation exercise. With our consumer goods, the choice might be age, sex, social-economic grouping, occupation, race, religion, or region. The choice is increasingly associated with lifestyle categorizations.
In terms of promotion currently most of the company’s yearly advertising budget is put towards the production of the IKEA catalogue. IKEA relies heavily on its printed catalog; it has printed 208 million copies ofthe catalog in 59 editions and 30 languages.
Internet website is another tool IKEA focus on, with its global development, IKEA now has 42 websites for different countries and market locations. Each IKEA website has been market locally with different promotions. Furthermore, the website contains detail information for each specific product that customer is looking for.
IKEA has 28 distribution centres and 11 customer distribution centres in 16 countries. The company has selected its locations carefully to reduce transportation cost by locating the stores near rail and highways. The choice of using flat packs also reduces the cost of transportation and more convenience for its customer on DIY base. Products of IKEA are purchased through in-store and online buying.
IKEA also cuts costs by placing products in flat packaging to reduce space needed in transfer and storage. IKEA is doing research and develop a perfect combination to delivery its product in less expensive way but environmental friendly at the same time.
SWOT is a structured planning method used to evaluate the strengths, weaknesses, opportunities and threats involved in a business. IKEA uses SWOT analysis to achieve its goals of sustainability and environmental design. It is a strategic planning tool to help businesses identify key issues. Strengths and weaknesses are internal aspects. They may refer to marketing, finance, manufacturing or the organization’s structure. Opportunities and threats are external aspects. These may come from the environment, the economy, social changes or technological advances. Businesses must create opportunities and counter threats by utilizing their strengths and managing weaknesses.
Strengths are aspects of a business that add value to its products or services. IKEA’s strengths include:
IKEA is a very successful global brand. It has 332 stores in 38 countries which consist of Europe, Asia, Australia and the United States with 410 million shoppers a year. IKEA’s unique cultural branding that merges the value and fashionable design to ensure the creation of an affordable contemporary household goods for the middle-class.
IKEA is the biggest furniture retail name in the world. This is a business with more than 10,000 products available on every continent. They offer low prices and products that offer good value. IKEA has positioned its business offering away from high-quality and high price, and also a way from low quality and low price.
Fundamental activities such as eating, sleeping, storing items, socialising and so on create a demand for furniture and practical products that solve essential human needs. The IKEA product range meets these needs by offering a wide range of well- designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. The IKEA range includes products for every part of the home.
IKEA is an environmentally friendly business with a keen focus upon sustainability and also encouraging wastefulness since it made a very large numbers of furniture products at low prices. As part of an integrated public relations campaign, IKEA now focuses on sustainability and made it an underpinning principle of its business philosophy. For example, in 2011 IKEA has the enviable record of recycling more than 85% of the packaging and other waste from its stores.
IKEA likes satisfied customers. The business manages to score highly in customer satisfaction surveys. Many marketing research companies rank IKEA in their top 10 companies for customer satisfaction as they managed to enhance their brand association with such great results.
IKEA has strengths right through its production processes, such as:
Much of IKEA’s furniture is designed to be self-assembled. This helps to reduce costs and use of packaging by not shipping air. For example, the volume of a bookcase is considerably less if it is shipped unassembled rather than assembled.
IKEA has an in store food court, shoppers can take their time and look around the store without leaving to get food.
Weaknesses are the characteristics that place the team at a disadvantage relative to others. In order to manage and improve the business, IKEA has to indentify and acknowledge its weaknesses. This is very important to set objectives and develop new strategies.
IKEA’s weaknesses may include:
Customer can only purchase IKEA’s product from it outlet or warehouse and there’s limited outlet in Asia country. For example, Malaysia has only one IKEA warehouse located in Kuala Lumpur, so consumers have to travel large distances to visit the stores.
This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices.
This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA’s supply chain, affecting consumer views of IKEA’s products.
IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example ‘People and the Environment’) and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.
Consumers don’t like to assemble items, but most of IKEA’s products require assembling.
Opportunities are the external chances to improve performance in the environment. A business uses strengths to gain from opportunities. IKEA has a number of areas of focus to its work with sustainability, each of which it supports in various ways, for examples:
IKEA aims for zero waste to landfill and wastewater treatment to reduce its use of water.
IKEA aims to reduce energy use, use more renewable energy, cut its use of air transport and reduce packaging. Its green transport initiative includes an aim to reduce business flights by 20% in 2010 and 60% by 2015.
IKEA’s policy includes support for charities and such as the World Wildlife Fund, UNICEF and Save the Children.
IKEA allocated it manufacturing plant in China and India to reduce the production cost and to reduce labor costs. This will also give the business the opportunity to enter these potentially profitable developing consumer societies.
This involves building trust through good communication with consumers, co-workers, key opinion formers and the press. Being sustainable is a central part of IKEA’s image.
IKEA is aware of the potential external threats. IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from:
IKEA is facing some social trends such as the slowdown in first time buyers entering the housing market. To overcome this business issue, IKEA need to build online website to support and to guide customers to a more sustainable life. It can also focus on home improvement in the slowing housing market. It also gives tips and ideas to customers and employees on reducing their
impact on the environment
IKEA needs to strengthen its unique disposition to compete with competitors due to more competitors offer similar products are entering the low price household and furnishings markets. For example, IKEA struggle against the larger portfolio suppliers such as Tesco.
The recession slows down consumer spending and disposable income reduces. To attract more business, IKEA need to lower product prices and keep prices as low as possible to create appeal amongst its customers in tough financial times. I IKEA’s pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. Besides that, IKEA must ensure that it is always recognized as having the lowest prices on the market in the future.
Ikea’s way of solution on allegation of utilization of prison labour:
Ikea took the allegation seriously and started investigation. Ikea also did engaged independent Ernst and Young investigation services to look into the purchase practices in the formal German Democratic Republic (GDR) and Cuba. Approximately 20,000 pages of documents from the internal archives of the IKEA Group and 80,000 archived objects at German federal and state archives have been analysed. Around 90 individuals, both active and retired IKEA Group co-workers as well as witnesses from the former GDR have been interviewed. In addition, a public hotline was established and questionnaires to both active and former co-workers were distributed.
The investigation indicates that political and criminal prisoners were involved in parts of the component or furniture production units that supplied to IKEA 25-30 years ago. The investigation also shows that there were IKEA Group representatives who at the time were aware of the possible use of political prisoners in the former GDR production. Even though the IKEA Group took steps to secure that prisoners were not used in production, it is now clear that these measures were not effective enough. However there is no sign of long term relationship with Cuba supplier.
Upon the investigation results, Ikea’s Jeanette Skjelmose, Sustainability Manager, IKEA of Sweden apologized about their past involvement in political prisoner as part of GDR supplier. Since year 2000, IKEA has one of the most progressive and respected supplier codes of conduct in the world (IWAY) and conducts more than 1000 audits per year to confirm compliance by suppliers. With close relationship with supplier, Ikea make sure that the same mistakes do not occurred again. The IKEA Group has involves with the organisation Union of the association of the victims of communist despotism, (‘UOKG’ in Germany) and make a financial contribution to their scientific research project on forced labour in the former GDR.
It is understood that product recall is something that will leave an not so good impression that the company quality control of a company. Throughout Ikea business journey, that had been a numbers of product recalls. Rather than make it a silent or sneaky product recalls, Ikea had took the path to publicize its product recalls. IKEA joins Consumer Product Safety Commission (CPSC) in Creative Program to Publicize Product Recalls. The U.S. Consumer Product Safety Commission (CPSC), launched a new Web site devoted exclusively to product recalls.
The WebSite, is an unprecedented collaborative effort of the CPSC and four other Federal regulatory agencies – The National Highway Traffic Safety Administration, the Food and Drug Administration, the Environmental Protection Agency and the U.S. Coast Guard. The new Web site links visitors to the home pages of government regulatory agencies responsible for product recalls. In addition to finding details about recalled products, visitors will gain additional safety information and may sign up for e-mail alerts on recalled products, as they become available. Besides, Ikea provide refund for all the product recalls as well.
This indirectly gives an impression that Ikea cares about their product quality and their customer safety as well. Besides IKEA has a generous return policy, and customers have at least 30 days to bring back purchased products for a full refund regardless of the reason for the return. Every return and complaint is systematically documented so that IKEA can analyze reasons for returns and take action throughout the value chain when needed.
To further enhanced customers trust on ikea product safety , rigorous alarm safety procedure had been setup. Any indication of safety problems with IKEA home furnishing and food
products immediately prompts measures determined by our safety alarm process to prevent injury and/or health risks. The process helps us to secure and monitor product safety and safety standard compliance on all IKEA markets and to initiate corrective and preventive action if needed. All IKEA co-workers have a duty to report safety-related incidents or risks involving IKEA products. Our guidelines state that the threshold should be deliberately low for reporting to minimise the risk of missing an indication that something is amiss.
Alarms are directed to a central internal team, which monitors the system continually. In case of severe risk, an immediate sales stop or recall can be set in motion. Every alarm triggers an investigation, involving all necessary parts of the IKEA organisation as well as suppliers and authorities when needed. Safety alarms also provide important information for product developers and designers in their quest to develop safe and healthy products. Every IKEA store and national Service Office has dedicated resources working with safety alarm procedures, and they receive regular training.
Wood is one of the most important raw materials for IKEA. This is why IKEA take responsibility for the forest from which we source our wood. They have very tough demands and among the toughest systems in the world to control that those demands are met in every part of the chain and in every forest. We source with long term consideration and we want to make sure that the ways we source helps protect biodiversity. IKEA has taken the lead to develop responsible forestry together with authorities, NGOs and local interests.
This is paving the way for a more responsible forestry, in their lease and in Karelia (an area with high nature values for wood sourcing) as a whole. All wood used for IKEA products must meet our minimum requirements, which include not using wood that has been illegally harvested. Our long-term goal is that all wood used in IKEA products shall be recycled or come from forests that are independently verified as responsibly managed. IKEA set aside 16-17% of the forest to protect high conservation values, which is well above legal requirements as well as FSC (Forest Stewardship Council, the strongest international certification standard available) requirements.
The level corresponds to the goal set by the UN in the Global Convention on Biological Diversity. IKEA are convinced that the certification is an important tool to speed up the development of responsible forestry. The FSC principles and criteria aim to strike a balance between what is environmentally appropriate, socially beneficial and economically viable. It is about protecting biodiversity, ensuring re-growth, as well as protecting the rights and needs of those who work and live in the forest while also stimulating economic development.
Currently, IKEA only expand global presence through opening one or two major store in the main City of a company. For example in Malaysia only a Furniture warehouse is opened in Kuala Lumpur and not in any other state such as Penang, Perak and etc. Micro level expansion within a country will make IKEA brand name more solid and gain more market share.
IKEA can further strengthen their brand position through diversification of products. Most of IKEA products focus on value for money conscious consumer. IKEA may increase its market share through introducing other range of products such as luxury line of furniture or low price furniture to grab more of the furniture market share by capturing high income and low income group consumer as well. IKEA also just sells self-assembly (DIY) furniture currently which may decrease its market share or limit the company sales. By diversifying to ready-made furniture can increase and open up different market share opportunity that will bring profits to IKEA.
Although IKEA does not shy away from products recalls and made it as a commitment to ensure consumer safety through products recalls but IKEA should take extra cautions in designing their product especially on safety aspect. IKEA may hire professional engineers to design the product and have more stringent control in R & D stage of the product. For example Ikea has been fined £75,000 after a toddler had two fingers sliced off in a fall on a moving walkway in UK, June 2012. This will harm IKEA branding and This can be prevented through emphasis on product safety during design and testing stage.
IKEAs’ marketers play an important role in predicting the next trend in order to keep IKEA leading in furniture industry. For example, with increase in scarcity land and space in developed and developing countries IKEA need to focus on what is the next emerging needs and wants of furniture consumers. IKEA would need to innovate and invest more in R & D to develop product features such as multiple features furniture to improve efficiency use of space.
In a nutshell, we think that there are still spaces for improvement in IKEA marketing strategy. IKEA is a well-known global brand with hundreds of stores across the world. In order to improve performance, it must assess its external and competitive environment. IKEA responds to both internal and external issues in a proactive and dynamic manner by using its strengths and reducing its weaknesses. Through this, IKEA is able to generate the strong growth it needs to retain a strong identity in the market.
IKEA’s long-term ambition is to become the leading home furnishing company. However, for IKEA, getting there is not simply about developing profitability and market share. As a global organisation IKEA has chosen to undertake a leadership role in creating a sustainable way of working. It has educated suppliers to understand how and why sustainable production is vital. This has helped IKEA differentiate itself from its competitors.
Consumers are made aware of IKEA’s commitment to sustainability through its involvement with many other organisations such as the WWF and UNICEF. IKEA is now considered by both suppliers and consumers to be a responsible company that they can trust. IKEA believes that there is no compromise between doing good business and being a good business. Hence IKEA is on the right path in building sustainable supply chain in order to differentiate themselves with its competitors which will be the future concern for consumers.