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Marketing Mix And Sustainability Of IKEA

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Question:

Discuss IKEA's Marketing Mix Strategy in China and Evaluate the Company's Responses to an Increasingly Environmentally Concerned Market.
 
 

Answer:

Introduction

The report would discuss the marketing mix element of IKEA in the market of China. A review of the company would be presented in order to gain an insight of marketing strategy and internal operations of the company. Mission and vision would also be discussed in the company profile. Further, marketing mix element would be discussed with respect to China in order to contrast the difference between the marketing strategy of IKEA in Europe and China. The effective measures taken by the company would be discussed that have led to sustainable operations of the company. The report also proposes some of the recommendations that could be incorporated within the company to maintain sustainability.

IKEA: Company Profile

IKEA is Sweden based company which was founded in the year 1943 by Ingvar Kamprad. The company is the world’s largest furniture retail chain with its outlets spread across the globe. Apart from furniture, IKEA also offers kitchen and dining appliances, textiles and other house hold products such has bathroom accessories. The company has over 392 stores in 48 countries. The vision of IKEA is “to create a better everyday life for the many people” (IKEA, 2014).  In order to fulfill its vision, the company offers a wide range of products with great and attractive designs at very low prices. The company has been able to attain low cost of the products by developing an optimized value chain and strategic supplier relationship. The company has been able to achieve its vision through its optimized operations and offering the products at very low prices to create affordable products.  The company is drive by the business idea ‘making better lives everyday’ and has been consistently thriving to optimize its operations in order to increase its consumer base. Generally, low priced products are perceived as low quality products but IKEA has negated this fact through its high quality standards across all its store outlets. IKEA not only offers products at low prices but also makes sure that its operational activities does not harm people or environment and has incorporated sustainable measures to ensure that. The company’s furniture, interior design work and appliances ensure an eco-friendly production.

 


In order to survive in the changing business environment context, IKEA consistently thrives to reduce its product cost and develop new products using innovation and technology. From the beginning, the company has been trying to identify the needs of potential market segment. The company offers wide range of products to the customers ranging from household furniture and fittings to sophisticated interior designs for offices and homes. The products offered by IKEA include furniture, household furnishing, kitchen fittings, bathroom fittings, closets, book cabinet, kid’s beds and other fittings. The key differentiating dimension of the company is its fresh designs (IKEA, 2016).

Further, the store layout of IKEA has been designed in a manner so as to mesmerize the customers. IKEA entered the market of China in the year 1998 through a franchisee based model. The first store was opened in Shanghai which was redesigned in the year 2003. As of today, IKEA has 7 outlets across the region of Shanghai, Beijing, Chengdu, Dalian, Guangzhou, Nanjing and Shenzhen. The company had to change its strategy to enter the market and offered a different value proposition to the people of China. The products were slightly modified in order to meet the needs and requirements of people. The company sources its raw material locally in China and offers products at affordable prices instead of low prices.

Marketing Mix of IKEA

Marketing mix is defined as the marketing strategy of a company to promote its products in the market. Marketing mix is made up of 4Ps including product, price, promotion and place. However, there are another 3 Ps which are also included some times: people, process and physical evidence. Thus, there are 7Ps of marketing mix that have been discussed below in great length:

Product

Product is the item being sold by the company and is identifies by certain characteristics in the market. The product is designed and developed in a way that it fulfills the need and requirement of people or else it may not be purchase by the customers (Percy, 2008). Further, the product may be a real time product with some set of characteristics or a service that serves the need of the people. These days even a product is looked as a service because the consumer analyzed the post sales services of the product such as warrantee period, customer support, product exchange policies and customer service stores (Percy, 2008). Thus, a product is accompanies by several services in order to satisfy the needs of the consumer and ensure repeated purchase.

When IKEA entered the market of China, it could satisfy with its product range because of it could not recognize the needs of the consumers and thus, has to change its value proposition in order to survive in the market. The stylish furniture equipments did not attract the target audience of China which was modified according to the demand of the market. IKEA offers high quality westernized furniture for the customers of China and targets the middle class segment of the country. Thus, the company offers a complete range of furniture, household furnishing, kitchen fittings, bathroom fittings, closets, book cabinet, kid’s beds and other fittings. The company understood that China has smaller apartments as compared to Europe and USA, therefore, developed functional and modular products to meet the local needs of the country (USCBC, 2006). Another value proposition of IKEA is its latest design assorted products. Thus, IKEA offers wide range of products to satisfy the needs and aspirations of the consumers.

The product line of IKEA includes desks, mirrors, cooking, eating, children’s IKEA, bathroom storage, beds and mattresses, chairs, clothes storage, lighting, small storage, decoration, kitchen cabinets & appliances, IKEA family products, tools and hardware, tables, textiles & rugs, sofas and armchairs, Swedish food and small storage. Each and every product line has further product extensions with great variety of products. 

Price

Price is the amount of money that a consumer has to pay for the product in order to buy and use it. The price of the product depends on its manufacturing cost, target audience, supply demand, customer’s paying capacity and other factors (Percy, 2008). There are different pricing strategies including premium pricing strategy, economical pricing, penetration pricing, economy pricing, psychological pricing (Schindler & Schindler, 2011). The pricing strategy is determined by the paying capacity of the target audience.

IKEA deploys economy pricing strategy in order to attract large number of customers. Though its low pricing strategy did not work initially in the market of China because low prices for Europe and USA were even higher than the average prices for local people of the country (Qiu, 2011). The local stores in China offered furniture at very low cost because of the fact that they had access to cheaper raw material and labor cost and there was no design cost involved (Wei & Zou, 2007). Thus, IKEA set up its own factories in China to have access to raw material and labor cost and reduce its overall product cost. This way IKEA was able to attain 65% of its sales volume from local sourcing and also resolved the problem of import taxes. In the year 2000, the company was able to reduce its cost by 60% and is consistently thriving to reduce it further through bulk production and trimming supply chain costs. The company could not deploy low priced strategy in the country because in China western products are perceived as high quality products in China (Wei & Zou, 2007). Thus, the company targeted young middle class population of China and offered affordable products for the target market. IKEA has adopted a process which involves maintaining the product prices in order to maintain the brand identity in the market of China.

 

Promotion

Promotion refers to creating awareness about the product among the target audience that could be through advertising, public relations, press reports, word of mouth, events and campaigns and other marketing activities (Kubicki, 2015).

IKEA uses different methods of promotions to reach its target audience. Sales promotions and trade promotions are the major activities which drive huge sales. IKEA offers discounts coupons, festival promotions and other lucrative offers to attract customers. However, IKEA has to drop its one of the major marketing activity to establish its roots in the market of China. IKEA extensively used its product catalogue to market itself that went against the company when the local manufacturers started to imitate the company’s products (CCTV, 2013). Thus, the multinational company then deployed social media marketing and micro-blogging website Weibo in order to reach the market segment of urban youth (Tian, 2007).

Place

The final selling of the product occurs at the place due to which place is one of the crucial elements of business. The businesses must place themselves where the customers can reach easily because if the customers cannot see the retail outlet or store of the company the company would not be able to generate any revenue and may lead to profit losses (Kubicki, 2015). Thus, a right place strategy leads to an increase in the figure of sales revenue. The companies having retail outlets pay a huge sum of money to place themselves right in the eye of customers.

IKEA is furniture & appliances retail chain that operates on a franchisee based model. While distributing its franchisee in other countries, the company assesses four key dimensions including experience, knowledge and presence in local market, corporate and cultural values and the financial strength of the company (Prange, 2016). IKEA has also tweaked its place strategy in China by understanding the consumer buying behavior. In Europe and USA, the stores were located in the suburbs because the people use their personal vehicles to visit the stores, whereas in China people mostly use public transports to visit the stores and therefore, the company has to open its stores on city outskirts that are very well connected to rail and metro networks (Wang, 2011).

Sustainability at IKEA

IKEA has taken various steps to towards sustainability through its innovative processes. IKEA strives to create products that ensure sustainability. Since the products developed by the company exploits natural resources including water, cotton and wood that could deplete their presence in the environment, therefore, the company has taken effective measures to reduce its impact on the natural environment including climate, forestry, cotton and water.

Climate

The first step taken by company is the reduction in emission within its value chain processes. The steps such as raw material extraction, transportation, manufacturing, sourcing energy, product usage and the end of product’s life cycle liberate high amount of carbon dioxide in the air and IKEA has taken effective measures to reduce the emission (PWC, 2012).

Further, IKEA plans to set up solar panel systems so that it does not have to use grid electricity. Solar panels are environment friendly and would also reduce the cost of electricity (The Huffington Post, 2012).

IKEA has also been making efforts to use more efficient goods transport system so as to not to harm the environment. The company chooses rail transportation system wherever possible to optimize the overall transportation process of goods. IKEA has also adopted smart packaging for its product to minimize the impact on environment.

The major carbon dioxide emission is liberated from suppliers, material extraction, product usage and disposal and customer transportation. IKEA has taken steps to identify it’s the barriers in its value chain that are stopping it to become low carbon supply chain (Roos, 2010). IKEA is also developing those products that offer sustainability at home and also increasing awareness among the consumers to minimize the climate impact (Sears, 2016). Once the product has been used by the customer, IKEA helps them to recycle it in order to reduce carbon dioxide emission in the environment and preserve the natural resources (IKEA, 2011).

Forestry

IKEA ensures that the suppliers strictly adhere to the company’s code of conduct IWAY along with the forest rules and regulations. The forest management department should not go against the conservation values. The forest managers have certified management plan for the sensitive areas so as to abide by the laws of conservation (IKEA, 2011).

IKEA requires wood for the production of its products that is one of the most valuable products. The company is thriving to utilize the wood in the best possible way. Wood is also procured from the troubled regions that do not have to effective sustainable practices (Kaye, 2013). The suppliers consistently thrive to obtain wood from these regions and the company also makes sure that it does not encounter controversial wood in the supply chain process. The company is also making efforts to increase ethical practices by responsibly sourcing wood from the forest by cooperating with forest managers and NGOs (Ethical Consumer, 2017). The company is making efforts to achieve its goal that the raw material used in production process should either be recycled or come from forests.

IKEA has a forestry specialists department that ensures responsible sourcing from the forests. They conduct value chain audits and inspections to assess the quality of products. The team also supports suppliers to enhance their sustainable operations.

IKEA regularly takes reports from its suppliers which have to be delivered within 48 hours upon request (Rangan et al, 2014). This way company ensures that the suppliers abide by the company’s code of conduct of ethical sourcing of wood. IKEA has also introduced a legislation that strictly prohibits the use of illegally logged wood. Illegal logging of wood has been observed mostly in the region of China and to address this issue, the company conducts seminars and training sessions by coordinating with the authorities in order to strengthen the commitment of reducing illegal logging. IKEA has partnered with Rainforest Alliance Trees Programme, Chinese Academy of Forestry and WWF China along with FSC to enhance the standards of forest management (IKEA, 2011).

 

Supply Chain

IKEA has built a very complex network of different suppliers and each supplier has to abide by the company’s code of conduct. The supply chain auditors inspect the different stages of supply chain on regular basis and have enhanced the efficiency of the operations by 10%. The business strategy has not only helped the company to attain its goals and objectives but has also supported to build a sustainable framework by creating a clean and eco-friendly company.

The company has also procured most of its raw materials including cotton and wood that bear the trademark of sustainability of recycled. IKEA has its focus on enhancing its operations by the year 2017 where 50% of its wood comes from recycled wood or FSC certified.

IKEA has also developed its strategic relations with World Wildlife Fund to receive sustainability certification for an area of 30 million hectares in forest. The company has also requested to increase the area by 15 million by the year 2017.

IKEA increased the use of sustainable cotton from 34% to 72% from 2012 to 2013 and has switched to source its complete cotton sourcing from sustainable suppliers (University of San Francisco, 2017).

The sustainable cotton production process has integrated Better Cotton Initiative (BCI) that contributed for the production of 2% of the world’s cotton in the year 2012 (University of San Francisco, 2017). The production level of BCI has increased from 34,300 metric tons to 623,000 from the year 2010 to 2013 (University of San Francisco, 2017).

IKEA has received credits from Sustainability Review for strictly following BCI standards. The future plan of IKEA forecasts that by 2020, the company would meet all its sustainability goals and would become an example for other companies.

Proposed Solutions

In spite of adopting sustainable framework, IKEA has faced severe criticism and has been condemned for unethical sourcing of wood. The company has been found to source wood by destroying ancient forests that are of high conservation value. Wood is one of the vital raw materials and 60% of the wood stock could be of any form (Kelly, 2012). Following are few of the proposed solution that could be incorporated within the company to ensure eco-friendly process at IKEA:

Ethical Sourcing

IKEA need to ensure ethical sourcing practices by keeping an eye on the sourcing of its wood logs. In China, Republic of Chinese owns the forest lands. Further, the according to the Chinese Forestry Law, forests are categorized into public benefit or commercial use forests (China.org, 2017). Public benefit forests are protected by the government laws and commercial use forests can be used by the industries (CCChina, 2006). Thus, IKEA could work with the Chinese Republic  together in order to ensure that wood is only procured from the commercial forests and not public benefit forests.

 

Selection of Suppliers

IKEA should review the background of the supplier before entering an agreement with them. It must ensure that the supplier do not source its wood from unethical sources. The company must review all the documents of the suppliers to ensure that they strictly adhere to forestry law of 1998 and environment protection law of 1998. IKEA must thoroughly check that the company strictly follows the laws and regulations to implement Forest Law (2000). The suppliers must also have certificates issued from the Forest Authority.

Strict Audits for Supply Chain

IKEA must conduct regular audits (within six months) to ensure ethical sourcing of wood. An internal team from IKEA must be appointed to conduct frequent audits. Further, IKEA must also ask to submit the documented report within the duration of 48 hours.

Conclusion

The report has successfully discussed the marketing mix elements of IKEA. IKEA has tweaked its marketing strategy to enter the market of China and has targeted the market segment of youth middle population of China. IKEA has modified the size of its products to suit the needs of the market. IKEA also faced challenge of being perceived as an aspirational brand in the market due to which it repositioned itself in the market. Store strategy was also readjusted to open the stores in the outskirts of the cities since people use public transportation for travel. Further, IKEA also used social media marketing to promote its product in the market. IKEA has taken various steps to incorporate sustainability in its processes. The company has also allied with Rainforest Alliance Trees Programme, Chinese Academy of Forestry and WWF China along with FSC to improve its standards.

 

References

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CCTV. (2013). IKEA's China manufacturers face tough times. China.org. Retrieved from: https://www.china.org.cn/video/2013-02/20/content_28010909.htm

China.org. (2017). Forestry Law of the People's Republic of China. China.org. Retrieved from: https://www.china.org.cn/english/environment/207457.htm

Ethical Consumer. (2017). IKEA Furniture. Ethical Consumer. Retrieved from: https://www.ethicalconsumer.org/scoredetails.aspx?ProductId=552849

IKEA. (2011). IKEA Group Approach to Sustainability. IKEA. Retrieved from: https://www.ikea.com/ms/en_KW/pdf/sustainability_report/group_approach_sustainability_fy11.pdf

IKEA. (2014). Welcome inside our company. IKEA. Retrieved from: https://www.ikea.com/ms/en_JP/about-the-ikea-group/company-information/

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Kaye, L. (2013). Sustainable supply chain creates a competitive advantage worldwide. The Guardian. Retrieved from: https://www.theguardian.com/sustainable-business/sustainable-supply-chain-competitive-advantage
Kelly, A. (2012). Ikea to go 'forest positive' – but serious challenges lie ahead. The Guardian. Retrieved from: https://www.theguardian.com/sustainable-business/ikea-sustainability-forest-positive-karelia

Kubicki, M. (2015). The Marketing Mix: Master the 4 Ps of marketing. US: 50 Minutes.

Lamb, C.W., Hair, J.F., and McDaniel, C. (2008). Essential of Marketing. Cengage Learning.

Percy, L. (2008). Strategic Integrated Marketing Communication: Theory and Practice. US: Routledge.

Prange, C. (2016). Market Entry in China: Case Studies on Strategy, Marketing, and Branding. New York: Springer.

PWC. (2012). Driving CO2 out of the Supply Chain and off Retailer’s shelves. PWC. Retrieved from: https://www.pwc.com/gx/en/retail-consumer/assets/pwc-driving-carbon-from-the-supply-chain.pdf

Qiu, Y. (2011). Understanding Chinese Consumers. China business review. Retrieved from: https://www.chinabusinessreview.com/understanding-chinese-consumers/

Rangan, V. K., Toffel, M. W., Dessain, V., & Lenhardt, J. (2014). Sustainability at IKEA Group.

Roos, G. (2010). IKEA Reduces CO2 Emissions by 5%. Environment Leader. Retrieved from: https://www.environmentalleader.com/2010/05/ikea-reduces-co2-emissions-by-5/

Schindler, R.M., & Schindler, R. (2011). Pricing Strategies: A Marketing Approach. California: SAGE.

Sears, J. (2016). Ikea Releases New Sustainability-Focused Products. Triple Pundit. Retrieved from: https://www.triplepundit.com/2016/05/ikea-sustainable-products-hydroponics-bicycle/
The Huffington Post. (2012). IKEA’s Environmental Sustainability Strategy Includes Plan For Energy Independence By 2020. The Huffington Post. Retrieved from: https://www.huffingtonpost.com/2012/10/25/ikeas-environmental-susta_n_2018703.html

Tian, X. (2007). Managing International Business in China. UK: Cambridge University Press.

University of San Francisco. (2017). IKEA’s Quest for Sustainable Energy. University of San Francisco. Retrieved from: https://www.usanfranonline.com/resources/supply-chain-management/ikea%E2%80%99s-quest-for-sustainable-energy/#.WNoHZlWGPIU

USCBC. (2006). IKEA with Chinese Characteristics. China Business Review. Retrieved from: https://www.chinabusinessreview.com/ikea-with-chinese-characteristics/

Wang, S. (2011). Determinants of MNCs’ entry mode strategies in China. Sweden: Uppsala University.

Wei, L.Q. & Zou, X. (2007). IKEA in China: Facing dilemmas in an emerging economy. Asian Case Research Journal, 11(01), pp.1-21.

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