It is necessary for a company with an appropriate system to detect developments and changes on the market where it competes in. It is because the competition in all business sectors starts off to be very extreme lately. This influences companies in all sectors to examine and understand interior and external market environment. This drives companies to examine the marketplace environment where they operate in. By using appropriate business systems to look at market environment, this does not only permit the company to see the changing market condition, but it can also enable the organization to develop appropriate ways of prevent hazards (France, 2006). At the same time, this will allow the company to match in to the new environment. The main focus of the study is to look at external and inside market environment of IKEA by using SWOT, PESTEL and Porter's five forces frameworks. Thus, short information about IKEA will be provided before going into aspect.
About IKEAhttp://www. sacc-sandiego. org/files/media/IKEA%20logo. jpg
Source: http://www. sacc-sandiego. org/files/media/IKEA%20logo. jpg
IKEA is one of the leading international furniture companies numerous branches in many countries about the world. IKEA is a Swedish-based home products dealer that companies and offers home accessories, level load up furniture, bathroom products and kitten items (IKEA, 2010). The business sells and trading markets these products in every of its stores around the world. The business was founded in 1943 by Ingvar Kamprad (IKEA, 2010). Low costing strategy is a main factor that drives customers to shop for home products in stores of IKEA. Apart from home futures and products, customers can also enjoy a good quality food in the on-site restaurant which assists traditional inexpensive Swedish meals like Swedish meatballs and lingonbery jam. The on-site restaurants of IKEA wide open daily prior to the business hour of the furniture outlet. The nice part of its on-site restaurant is the fact that it offers free refills of tea, espresso and soft drinks. Today, IKEA is the world's greatest furniture store that market home products.
SWOT identifies 'advantages, weaknesses, opportunities and hazards' (Hannagan, 2002, p. 93). Strengths and weaknesses are inner factors of an business. The business got to know them and use them to its benefit. On the other hand, opportunities and risks are exterior factors that the business cannot control. However, if these exterior factors are well monitored and detected, the company can develop new methods to modify itself in to the changing environment. This section is designed to verify SWOT research of IKEA.
Strengths make reference to internal factors of an business that make it competitive and different from others in the same industry.
IKEA does not only sell quality and well-designed household furniture and products to customers, but it addittionally comes with an on-site restaurant where customers can enjoy a meal together.
IKEA uses a low pricing strategy to grab the interest of customers. This effectively attracts the attention of customers. It is because many people are now very-price delicate (Iglesias & Guillen, 2004).
It develops a strong brand for its home products. This can help it differentiate it from rivals in the same industry like B&Q and Homebase. When people think of home products, they think of IKEA.
It uses lasting development strategy as the main business practice. Household furniture and home products of IKEA are made from ecological resources (Ikea: not Sweden's only quality company, 2006). The company also has a forest plantation to ensure it effectively achieves this core business strategy.
The location of IKEA' stores are outside the town center. Many of these locations are definately not the reach of the public travelling. Thus, this makes it problematic for customers using their own cars to look at IKEA.
IKEA has to work hard to ensure it complies with the economies of scale. Thus, it must move its development overseas. This helps it be is problematic for the business to ensure that it's a green organisation. It is because it must use airfreight and sea freight to deliver their products (Reynoso, 2009).
Low rates strategy of IKEA cannot be used as the main tactic to preserve the competitive position. It is because it can certainly be copied by others.
IKEA runs food market. Many of its fresh food offers can be perishable if they do not get sold promptly. Therefore, it could reduce the profit margin of the business.
Make its online offers and offers attractive. IKEA may give a free delivery to customers who make a purchase online or those who make a certain amount of purchase.
Develop new promotional deals and offers that would increase sale level of IKEA during the market meltdown (Mintel, 2008). This will also help it to compete against online home products providers.
Seek local and domestic providers in the united kingdom or EU geographical block to supply materials for IKEA. This will make it further reduces the level of carbon emission in its business operation.
IKEA should eliminate fresh food market business to reduce the functional cost.
Source: Kotler, P. 2003, Marketing Management, Prentice Hall, New Jersey.
It can be assumed that an opportunity in cell 1 should be considered by IKEA first. Alternatively, opportunities in cell 2 and 3 should be checked in case they develop as a good business option for a great revenue. A chance in cell 4 might be overlooked. However, the key point here is that it's important for an enterprise to see and identify new business opportunities before others as they can take many forms.
The downturn makes many people become unemployed. Therefore reduces the buying self confidence and spending power of customers. Thus, they may look for cheaper home products like secondhand household furniture and products from other stores.
The development of web and internet solutions helps it be easier for customers to look for affordable home products from other providers like eBay and Amazon (Mintel, 2008).
The UK federal urges local business to take a green marketing approach by using and purchasing materials from home providers. This is to reduce the carbon emission during the transportation activity. This can make it hard for IKEA as they have forest plantation abroad.
There are extensive competitors in the market. Thus, low costing strategy and promotional offers cannot help IKEA to sustain its competition in the market. This is also true if the current difficult economic condition has a long-life span.
Source: Kotler, P. 2003, Marketing Management, Prentice Hall, New Jersey.
It can be assumed that a danger in cell 1 is the one which the business should concentrate on first. Dangers in cell 2 and 3 should be monitored and monitored to see its development. On the other hand, hazard in cell 4 is modest and maybe it's ignored.
It can be seen that SWOT evaluation should be used and also other external business environment research. Thus, PESTEL and Porter's five pushes models will be utilized to support the evaluation.
PESTEL refers to 'political, economic, sociable, technology, environment and legal' (Dibb & Simkin, 2001, p. 264). These are external market environment makes that have make a difference the proper position and reduce profit margin of an business. However, a firm cannot control these causes. Thus, it's important for a company to build up and set a highly effective system to monitor the development of the trends.
In modern times, countries in the same physical block create a competitive position for their local businesses by creating a business integration area. EUROPE is one of the examples of business integration (Fraser, 2005). As IKEA is a Swedish-based company, this makes it easy for the business to enter the united kingdom. However, this will make it hard for IKEA to type in other markets outside Europe. This is because countries in other physical blocks also begin to form business integration like NAFTA and ASEAN.
Under the management of Gordon Brown, the UK has been experiencing many new guidelines on taxation (Rae, 2008). That is area of the tactics to complete the downturn. However, these new policies do influence the profit margin of many businesses.
The recession does not only decrease the buying self-confidence of customers, but it also influences the competitive position of any business. This is because many companies cannot get through the turbulent time. Therefore, they opt to make employees redundant. This also makes many people become unemployed. At the same time, people who manage to keep their careers, they are uncertain about their financial scenario. Thus, the current economic crisis will affect customers to become price-sensitive as they would like to save as much as they could (Special issue on the global market meltdown, 2008). This means that IKEA should expect to see a decrease in sales and profits as customers may look for home products and furniture somewhere else. They may also put their house furniture and products on carry. This is because they may believe that they are not the urgency purchase.
The market meltdown first occurred in the UNITED STATES and European marketplaces. This makes major monetary currencies like the Euro, US Us dollars and English Pound Sterling weakening (Plagnol & Scott, 2009). However, the downturn may have a long-life span as the global market is strike by another immediate economic crisis influx when the Dubai World asked for the extension to repay their personal debt of 35 billion (US$59 billion). Thus, this reduces the price of gold decline speedily (BBC, 2009). Therefore, the current difficult monetary conditions will probably have a long-life period as the center East market, specially United Arab Emirates is a primary global market for petrol and gas. Certainly, this can make it hard for IKEA to support its low-pricing strategy. This is because the operational costs like transportations and materials will be increased.
The credit crunch does not only decrease the disposal income and buying self-assurance of customers, but it also affects the credit leaning self confidence of banking institutions and finance institutions. Thus, many banking companies commence to use a tough stance on their credit lending procedures (Keasey & Veronesi, 2008). This will make it difficult for IKEA to acquire credits for any business expansion job.
People in these days start to use price as the key factor to make their final decision when they buy something or service. They want to have more from what they purchase. This changing behavior is powered by the recession (Carrigan & Pelsmacker, 2009). Thus, this might make people become even more price-sensitive when they make a decision to buy products that are perceived as non-urgent. Which means that it may affect the proper options of IKEA as it might need to drop price further to draw in customers.
People start to become health-conscious. They need everything they buy and take in to be made from environment-friendly sources. This will likely creates a competitive position for IKEA as it has already been taking up a renewable marketing approach. At exactly the same time, it could provide a new business chance for IKEA. This is because it might consider seeking new source for organic cotton and fabric to produce soft gadgets and other products.
Web and internet systems start to recognition among customers. They start to use the internet as the key way to obtain information. Data from Mintel (2009) also indicated that lately, many people learn to use the service of online or home shopping. This is because it is convenience. However, the internet shopping of IKEA is rather limited. This is because some products of IKEA are not available for sale in its web store.
The internet and web technologies are essential to competitiveness of a business. It is because using new technologies to support the business enterprise operation can help the business to lessen costs. New solutions can help a company to promote and market products in other countries with minimal obstacles. Also, with the internet support, an organization can operate a business 24/7. However, in the case of IKEA, the internet does help it to promote its products in many countries surrounding the world. At the same time, its product designs, principles and ideas can certainly be copied by other companies. It is unveiled that many companies in China commence to duplicate the designs and ideas of IKEA' products (China shows IKEA limits of homogeneity, 2009).
The recent conversation on environment change in Copenhagen in December 2009 between countries exhibited that the government authorities across the world will desire companies in their nations to take up a sustainable development strategy (Times Online, 2009). This will never be difficult for IKEA to do as it is already practicing a inexperienced marketing methodology.
Apart from the federal government, the publics also pay a lot of attention on global warming and weather change. This creates an opportunity for IKEA to make use of its green marketing approach to generate a differentiation point and good image towards the business.
The current difficult economic conditions make it hard for businesses to support their competitive position. Thus, many of them decide to place off individuals. However, with the job regulation developed and presented by the Labour Government, it is hard for companies to lay down off workers without the appropriate redundant deal (Sargeant, 2000). In addition, it requires workers to provide a fairness at the job and healthy and safety office for employees.
Porter's five pushes model is a framework to look at the competitiveness and appeal of the business industry. The concept of Porter's five drive model can help a company to determine whether it should leave or further put forwards the investment into the industry (Porter, 2000). The attractive industry ought to be the one where many of these five forces develop a pour competition. Alternatively, the industry where all of these forces reduce the competitiveness and profit margins of businesses. Porter's five makes analysis of IKEA can be discussed below.
The barrier to enter home furniture and products industry is rather high. The marketplace is controlled by leading companies. Quite simply, greater players like B&Q and IKEA have a big market show.
Players in home furniture and products market understand that there's a high competition. Thus, they use a different market position to draw in customers. IKEA positions itself as soft-approach home furniture, while it key rival B&Q signifies as a hard-approach home products company.
The competition in home products and furniture is rather fragmented. This is because large players like IKEA and B&Q do have a capacity to overwhelm the market. However, smaller players tend to use a low-pricing technique to lure customers through the tough economy (Young, 2009).
Large home furniture companies like IKEA, Homebase and B&Q have a tendency have a vitality to acquire a good site for his or her stores.
The threat of substitutes in home products industry is rather high. The development of web and internet solutions generate a good business opportunity for small and mid-sized companies as well as individual to sell and market cheap quality home products on the internet (Mintel, 2009). Customers is now able to buy secondhand home products and furniture on online industry like eBay and Amazon.
Other small and medium sized household furniture and products providers, customers can also get them from other large companies with both offline and online presence like DFS, Argos and Tesco Direct. These household furniture and products providers may offer a good payment structure for customers to match their financial circumstances.
There a wide range of small and medium sized home furniture companies that not sell and market their products directly to last customers. However, they allow buyers to buy home products at a discounted price. This is widely known as a 'Manufacturer Sales'. These companies also give a made-to-order service in order to deliver a particular needs and needs of customers.
Supplier vitality in home furniture and products market is quite low. It is because your competition in this segment is high. Thus, many suppliers only give attention to developing and advertising products and materials to household furniture companies.
Suppliers of household furniture and products work hard to keep a good marriage using their business buyers. This enables them to find out about the specific needs and needs of last customers. This enables them to increase their sales and profit margin as their offerings meet the demand of the market. IKEA' suppliers only sell it materials from ecological resources.
Buyer electric power is high. It is because customers tend to switch home furniture brands and switch to buy home products from other providers that give them an improved deal. That is partly because of the tough economy which reduces the buying self-confidence and electricity of customers.
Branding is an excellent strategy for home furniture and products to create a differentiation. However, this only works with some customers. It is because many people are price-sensitive. These folks do not value the make of their furniture. This is because it isn't something that can effectively showcase their social category (Mintel, 2008).
Competitive rivalry of household furniture and products industry is high. The marketplace is quite fragmented. There are numerous players on the market. They try to develop a differentiation point by using various marketing strategies. Some use a low pricing strategy to attract customers, while some firms give attention to branding.
The competition in household furniture and products is hostile. Thus, a differentiation point is essential. IKEA creates a differentiation point by expanding an image of soft-approach home furniture and products provider. This also displays in its product lines. Other than reselling hard procedure home products like textiles and beds, but also market segments soft baby toys and pillowcase.
To catch the attention of customers, many home furniture and products sellers like Argos and DFS give a good repayment design to suit financial scenario of individual customers.
It can be figured your competition in household furniture and products industry is very intense. Also, many exterior marketing environment factors impact on the profit margin and competitive position of IKEA. Of all external market environment factors, overall economy has a great impact on its profit gaining ability. It is because the current economical condition does not only impact on a sales level, but also the buying self-assurance of customers. At the same time, the development of exterior marketing environment factors will represent some good business opportunities for IKEA.