How does IKEA contribute to the simple living trend in Denmark?
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Ikea’s vision
"To create a better everyday life for the many people."
How does IKEA contribute
to the simple living trend
in Denmark?
1st year Project by:
Javier Garnica
Carmen Socaciu
Maribeth Legaspi
Siripan Wandee
Bernadette Hengartner
Lyngby Business Academy
Service Economist Program 2005 – 2007
(class tr05-sem22)
How does IKEA contributes to the simple living trend in Denmark? 1st year project
Index:
Index: ...................................................................................................................................................2
1. Structure Model................................................................................................................................4
2. Introduction......................................................................................................................................5
2.1 Motivation..................................................................................................................................5
2.2 Problem Statement .....................................................................................................................5
2.4 Scope..........................................................................................................................................6
2.5 Criticism of the methodology ....................................................................................................7
3. Company Description and History...................................................................................................7
4. The Service Management System (SMS) ......................................................................................10
4.1 The Market Segment................................................................................................................10
4.2 The Service Concept ................................................................................................................10
4.3 The Service Delivery System...................................................................................................12
4.4 Image.......................................................................................................................................16
4.5 The Culture and the Philosophy...............................................................................................18
4.6 Conclusion of the Service Management System (SMS)..........................................................20
5. Industry Analysis ...........................................................................................................................21
5.1 Porter's 5 Forces.......................................................................................................................21
6. Political, Economic, Social and Technological analysis (PEST)...................................................25
6.1 Political Factors: ......................................................................................................................25
6.2 Danish furniture industry .........................................................................................................27
6.3 Socio-cultural Factors: .............................................................................................................28
6.4 Technological Factors:.............................................................................................................29
6.5 Conclusion ...............................................................................................................................29
7. Competitors analyse.......................................................................................................................30
7.1 Identifying our competitors......................................................................................................30
7.2 Target Model............................................................................................................................31
8. Customer Analysis – Marketing Research.....................................................................................34
8.1 Definition of the problem statement and the research objectives ............................................34
8.2 Methodology ............................................................................................................................34
8.3 Survey research:.......................................................................................................................35
8.3.1 Structured research with direction approach.....................................................................35
8.3.2 Contact methods................................................................................................................35
8.3.3 Sampling plan ...................................................................................................................35
8.3.4 Research instrument..........................................................................................................36
8.4 Primary data result and data interpretation ..............................................................................36
8.4.1 Introduction.......................................................................................................................36
8.4.2 Evaluation of the questionnaire.........................................................................................37
8.4.3 Summary of the quantitative research...............................................................................39
8.5 Result of the qualitative research .............................................................................................39
8.5.1 In-depth interview:............................................................................................................40
8.5.2 Conclusion on the interview. ............................................................................................42
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 2/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
9. Consumers Buying Behaviour Analysis ........................................................................................43
10. Strengths, Weaknesses, Opportunities, Threats of IKEA (SWOT Analysis) ..............................44
10.1 SWOT-Overview ...................................................................................................................45
10.2 ISSUE ANALYSIS................................................................................................................46
10.2.1 Converting Weaknesses into Strengths...........................................................................46
10.2.2 Matching Strengths and Opportunities ...........................................................................46
10.2.3 Converting Threats into Opportunity..............................................................................47
11. ECONOMICAL SITUATION AT IKEA....................................................................................47
11.1 Economic suggestions............................................................................................................48
12. Product Life circle (PLC).............................................................................................................51
13. Suggestions ..................................................................................................................................51
14. Final Conclusion ..........................................................................................................................54
15. REFERENCES.............................................................................................................................56
16. Appendix......................................................................................................................................59
16.1 Questionnaire .........................................................................................................................59
16.2 Evaluation of the Questionnaire (graphs) ..............................................................................65
16.3 Qualitative research: Questions for In-depth interviews........................................................77
16.4 Economical numbers and calculations...................................................................................77
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 3/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
1. Structure Model
How can IKEA distribute the simple living trend in Denmark?
Research objectives
1. Has IKEA influence on its customers’ lifestyle
2. Will simple living trend attracts more customers to IKEA
Etc.
Description and analysis Description of Furniture industry
of IKEA Marketing research In Denmark
SMS Descriptive research
Situation of industry
Porter’s 5 forces Primary & Secondary Secondary data
collection plan collection
Situation of industry
Porter’s 5 forces Primary data collection
Competitors analyses Qualitative research
In-depth interviews with end-
users and relevant people
Buying behavior analysis
Quantitative research Implementing research plan
End-users opinion’s survey by
questionnaire
SWOT/ISSUE analysis
Interpreting data & report findings
Marketing plan
Partial conclusion
Suggestion
Final conclusion
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 4/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
2. Introduction
2.1 Motivation
We have chosen to study about IKEA because we have found from
http://www.simpleliving.net/resources/resource.asp?sku=BNSFB that this organisation is
positioning itself for long-term competitiveness by integrating the Simple living as their corporate
goal. This means that the company is more concerned about the environment and regards
sustainability as an opportunity to gain competitive advantage. Its objectives are to reduce costs,
increase employees loyalty and being innovative.
It is very exciting to acknowledge that IKEA is following the simple living trend because the IKEA
is in the furniture industry, which concerns directly to the people’s way of living. Nevertheless, the
meaning of simple living is subjective and there are different ways to practice it according to the
trend. For some people, simple living means less consuming, sufficiency, ecological living, on the
other hand, for other people, it means life with advance technology that helps make everyday life
easier, less time consuming so that they could have more time for themselves.
Since the customers nowadays are more conscious about their consumption and environment, and
they tend to support the service providers that show responsible to the society and environment, if
IKEA will use this trend to attract customers, it could be very successful.
We are wondering how IKEA contribute to the simple living trend in Denmark, how this
corporation reflects the trend and what strategy they are using, and whether their customers have
any opinion about it.
2.2 Problem Statement
How does IKEA contribute to the Simple-living trend in Denmark?
Objectives:
1. What make people go to IKEA?
2. Has Ikea any influence on its customer lifestyle?
3. How does Ikea reflect the simple-living trend?
4. What is the opinion of the customers toward the trend that Ikea is following?
5. Will the simple living trend attract more customers to Ikea?
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 5/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project 2.3 Interpretation In order to make our problem statement and objectives more clearly to the readers, we will explain some of the words we used in the problem statement and objectives in the following lines: Contribute: To make a contribution to something1 Simple-living: Simple living as a concept is distinguished from the simple lifestyles of those living in conditions of poverty in that its proponents are consciously choosing to not focus on wealth directly tied to money or restrictive, cash-based economics.2 Trend: Current style; vogue: the latest trend in fashion etc3 Influence: A power affecting a person, thing, or course of events, especially one that operates without any direct or apparent effort: relaxed under the influence of the music; the influence of television on modern life etc.4 Lifestyle: A way of life or style of living that reflects the attitudes and values of a person or group5. Reflect: To make apparent; express or manifest of something.6 Opinion: what the customer thinks about the trend that Ikea is following. Toward: In the direction of: driving toward home etc.7 Follow: To go in the direction of8 Attract: make more people visit Ikea because of the trend they are following Customers: people who buy from Ikea 2.4 Scope In our research, we are going to analyze IKEA in Denmark, in the perspectives that relevant to our statement of problem and objectives. We have planned to interview people who relate to IKEA, however we did not succeed to do that. 1 http://dictionary.reference.com/search?q=to%20contribute 2 www.wikipidie.com 3 http://dictionary.reference.com/search?q=trend 4 http://dictionary.reference.com/search?q=influence 5 http://dictionary.reference.com/search?r=2&q=life-style 6 http://dictionary.reference.com/search?q=reflect 7 http://dictionary.reference.com/search?q=toward 8 http://dictionary.reference.com/search?q=follow Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 6/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project Although we will study about the competitors, we are not going to analyze deeply about what trend the other companies within the furniture industry in Denmark are following because it is not our focus. 2.5 Criticism of the methodology As simple living have different meaning to different people. We spent some time to define this phrase before we could decide about what we wanted to write. Finally we have agreed to write about IKEA and started to make the research plan. Despite having met key personnel of IKEA but he finally could not coorperate with us. Therefore we had to base the research very much on the secondary data. The major problem that hinders us from making use of the information we found from websites related to IKEA in Denmark was the language. Therefore, we have to use information from the IKEA from other countries that presented the website in English. We would have analyzed our SMS model more specifically if we could understand better Danish For the methodology, we have tried to use the suitable theories where possible. However, we would have liked to make the marketing plan and to explain about Ikea’s organization structure in its own chapter but we did not manage to do that due to the time and we had other parts that we regarded as more relevant for our project. The market research is also a crucial part of the project and we have based on it when we do the analyses with different models. The result from the questionnaire and in-depth would have been broad and reliable if we could have more respondents cooperate with us. We believe that the research we have carried out would have been better and more informative if we would have had more time and could have managed to use the information obtained more efficiently. 3. Company Description and History Ikea is an international retailer of home furnishings. They are one of the world’s top retailers. Ikea has 231 retailer stores over 33 countries and most of this stores located in Europe. There are some stores which are in United States, Canada, Asia and Australia. They also have stores in Israel and Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 7/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
in other Middle Eastern nations. They are famous for their affordable furniture where consumers are
required to assemble it for themselves.9
Ikea was founded in Ålmhult, Sweden in 1943 by Ingvar Kamprad, he formed his own company at
the age of 17 and Ikea was named after his name Ingvar Kamprad and the village Elmtaryd,
Agunnaryd, where he grow up.10
In 1945, IKEA first appear in the local news papers to advertise their products and by the year 1950,
furniture and house wares were added to mail order products.
In 1958, they opened a new store in Norway. This is the first time that Ikea opened another store
which is outside Sweden. Then in 1969, a store in Denmark was open. They then expanded their
market outside Scandinavia. The first stores was opened in Germany and Switzerland at the same
year, and then followed by US and Canada in the year 1976.
During early 1980’s the company entered Australia for extending more their market. By this year
1980, Kamprad decided to transfer the ownership of the company to a charitable organisation
named Stichting Ingka in order to avoid questions of his succession after his death. In 1985, Ikea
opened its first US store in Philadelphia. In 1990, Ikea expanded in Central and Eastern Europe and
opened Ikea stores in Hungary and Poland. By 1991, the company purchased its own saw mills and
factories that constitute the Swedwood Group.
In 1996, Ikea opened its first store in Spain and in 1997, the company announced plan for 5 years
that they would build approximately 20 plants in Bulgaria and Romania in order to reduce its
independence on contract manufacturers and almost double its own manufacturing capacity. In
1998, Ikea opened its largest store outside Europe in Chicago. The company also announced plans
to open further stores in Russia, China and Eastern Europe.
9
http://en.wikipedia.org/wiki/IKEA
10
http://www.gmid.euromonitor.com/HitList.aspx
Source: Euromonitor International from company reports
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 8/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project In the year 2001, the company continued its expansion and Ikea plans to open between 60 and 70 new stores throughout the world. Furthermore, in September 2001, the company moves its headquarters from Denmark to Netherlands for reasons of better international communication facilities. Last October 2005, Ikea operated 201 fully owned stores in 24 countries. A further opening of 19 stores in fiscal 2006 which focuses in Western Europe with 9 stores, 2 stores in Asia, 2 stores in US and 1 in Eastern Europe. Over the next decade the company plans to open five new stores a year in the US, making its second biggest market behind Germany. Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 9/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
4. The Service Management System (SMS)
We decided to analyse IKEA through the SMS model, rather than just describing it and to relate
to that the 7 P's as well in order to provide a good description of the company. We want to find
out as well if there is harmony between the boxes which make the service management system.
The information we used in describing the company we have found it on the homepage
www.ikea.com11. The reason why we chose to do it this way is because we will have a better
view of the concept, which will help us in the rest of the project. It will make the SWOT analyse
and the 7 P’s more accessible.
4.1 The Market Segment
The first segment in the SMS model is the market segment, which refers to the particular types
of customers for which the whole system was designed.
People: IKEA target the young people and young couple with low to medium income.
However, everybody else is also very welcome.
4.2 The Service Concept
The service concept which constitutes the benefits offered to the client could in our case be:
• The core product – lifestyle highlighted through the broad variety (9500 articles) 12 of
furniture, home-decoration, kitchen accessories etc.
• Peripheral products
- The accessories which enhance the core product, e.g. bed linen, towels, postcards etc.
- The IKEA catalogue where customers can get an overview on the product line available in
the store which can be downloaded from the internet as well.
11
Referring a Call with IKEA in Taastrup, they told us that they do not hand out any information’s about the company
or give personal interviews, but instructed us to use all the information from their international website: www.ikea.com
12
http://franchisor.ikea.com/showContent.asp?swfId=store3
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 10/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
• Core services:-self service and self assembly
• Peripheral services:
– The possibility to take home the purchased items the same day
- The possibility to have your goods delivered home by IKEA delivery service and Post Denmark
(Post Denmark)
- The possibility to have your items assembled by a company which have an agreement with
IKEA, which costs as well. 13´
- IKEA websites: the possibility for customers to get an overview on the products available in
the store as well as buy them online and having them deliver home or having them reserved
in the store. Through internet customers can get any answers on questions regarding the
shop.
- The possibility to try the items before purchasing them.
- The return policy IKEA has, which does not limit the return date.
- Legeland which means play land, it is the play room with colourful rubber balls where the
children can play while the parent are shopping.
- Food service; IKEA stores in Denmark has great restaurant that offer food at cost price.
Etc.
To this segment we will relate as well the price and the product:
Price:
Because of the self-service philosophies (transport the furniture home and assemble it there) of
IKEA, they can keep their prices low. In 1950 IKEA invented the flat-pack which helped them to
cut the shipping costs.14
Product elements
The IKEA product range is developed to be extensive enough to have something that appeals to
everyone and to cover all functions in the home. The products are modern not trendy so they are
practical enough for everyday use. 15
13
http://www.freep.com/apps/pbcs.dll/article?AID=/20060419/BUSINESS06/604190342/1019
14
http://www.freep.com/apps/pbcs.dll/article?AID=/20060419/BUSINESS06/604190342/1019
15
http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 11/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
From the broad line of products they have, here are some of them:
Upholstered furniture, coffee tables, rattan furniture, bookshelves, media storage, doorknobs,
Beds, wardrobes, hall furniture Dining tables and chairs Bookcase ranges Bathroom articles
Kitchens Chairs, desks Materials, curtains Garden furniture Carpets Lighting Bed linen,
bedcovers, pillows/cushions Children’s items Curtain accessories Kitchen utensils Boxes, wall
decoration, pictures and frames, clocks etc.16
4.3 The Service Delivery System
The service delivery system, which is the equivalent of the production and distribution of the
service in our case focuses on 3 aspects: the personnel, client, technology and physical support.
The employees:
IKEA take cares of its co-workers providing them with many advantages and opportunities from
working in such a free and open environment. They provide the employees the possibility to further
develop themselves and their professional skills, give them the possibility to choose between many
different jobs within the company with fair and reasonable conditions.
They want to recruit unique individuals who share their values. Co-workers are not restricted at
IKEA, as they listen and support each individual to identify his or her needs, ambitions and
capabilities.
The potential positions that the employees could have involve everything imaginable from working
in a store selling home furnishing solutions, to less obvious jobs behind the scenes in transport, IT
and communications like:
- Stores/retail- working place
- Product development
- Purchasing
- Distribution/warehouse
- Support functions
- National /International jobs17
IKEA has even its own business college, situated in Delft, The Netherlands.
IKEA Pilot Store is the place where they teach management team members and specialists of
existing and new IKEA shops from the all over the world. The international training centre of Inter
IKEA Systems LTD is offering different training programmes where thousand of people are
16
http://en.wikipedia.org/wiki/ikea#History
17
http://www.ikea.com/ms/en_US/jobs/business_types/index.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 12/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
annually trained. In combination with the implementation of training projects in the shop, the IKEA
teams learn how to work effectively with the concept. 18.
The customer:
Ikea takes very good care of its customers providing first of all stores where they can find
"everything under one roof"19 and transforming the shopping act into an extraordinary experience
by "encouraging people to touch, feel and use the products on display to see how they would fit into
their own home."20
They have a simple return policy and offer services where the client needs it but they allow the
client to make most of the decisions themselves by making it easy for them to choose the right
products by displaying them correctly and describing them accurately.21
IKEA has new products arriving all the time, seasonal themes, and play areas for children, special
events and a great value family restaurant, everything in order to provide the clients with a great
shopping experience and a pleasant stay at the shop for the whole family.
Ikea makes also special offers, promotions, coupons and warranties for its customers22, providing
them even with a customer service.
The customer service includes:
- Stores locator through which you are able to find locate the Ikea store next to you.
- IKEA Help Centre where you can have answers to all your questions regarding the store.
- View catalogue where you can have a look at the new on line catalogue.
- Stock availability where you can find out if a product is in stock before you go to the store.
- IKEA services where you can find out all the customer services that Ikea provides
- FAG where you can take a look at the most frequently asked questions and their answers,
the product recall information and Ikea recycle information.
- Contact us where you can ask for customer assistances
- Ikea planner tools where you can download programs in order to help you organise or plan
your new office or kitchen
- How to e-shop where they provide a practical demo to learn you how to buy Ikea furniture
online
18
http://www.ikea-delft.nl/content/view/12/40/
19
http://franchisor.ikea.com/txtconcept.html
20
http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html
21
http://www.ikea.com/ms/en_GB/about_ikea/press_room/student_info.html
22
http://www.ikea.com/ms/en_AU/privacy_policy/privacy_policy.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 13/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
- Stay up-to-date with Ikea where you can subscribe on an email list and Ikea will make sure
to update you with the latest news regarding their products. 23
- They communicate their interior design through the Com-in department where all the Ikea
specialists present their products using all current range presentation Medias and techniques to
ensure their customers always see something new and exciting, and want to come back again
and again.
- IKEA food services: the Ikea restaurants and bistro areas are important in providing their
customers a place to eat and relax while shopping.
Technology and physical support:
The impact of the new technology especially information technology and the physical tools which
could be the fact that you can order and pay online, the fact that they have their own web page were
you can check for information etc.
They have recently started using Nortel technology to resolve customers concerns by developing its
contact centre where they deal with customer complains.
The system combines telephone, e-mail and Web multimedia that allow contact centre staff to use
the most effective communications medium to deal with the customer's concerns. It also gives
IKEA the capability to run outbound campaigns to deliver an improved service to its customers.
"To remain competitive, it's essential for organisations like IKEA to raise service levels and adapt
to how customers may want to communicate with them," says Roxann Swanson, vice president and
general manager of multimedia applications at Nortel. 24We will relate to this system as well the
physical evidence, the place and the process.
Place and Time:
IKEA stores are situated close to highways and close to big cities. So it is possible to come by car
on a direct way and enter the IKEA parking. IKEA deliver for a small fee the furniture and bought
things directly home, and they also help to carry the things in the apartment and when you want to
screw them together. The Service is absolutely fast. It is possible to get the bought things on the
same day delivered. If wanted, it is also possible to drive home directly with the delivery (like taxi).
23
http://www.ikea.com/ms/en_US/customer_service/splash.html
24
http://www.ottawabusinessjournal.com/297839298686457.php
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 14/79How does IKEA contributes to the simple living trend in Denmark? 1st year project Physical Environment: In general, IKEA buildings look similar. Not only from outside, but also from inside are all the shops built up on the same system so it is easy for customers to find around without trouble wherever they shop in Ikea. A blue building with the huge letters in bright yellow of I K E A shows us all the time that IKEA has its roots in Sweden (flag: yellow cross on a blue background) It is loco that we always can recall think about IKEA. IKEA is the store where the customer can have a good trip walking through it. In the store, the family may drop the children in legeland before start their shopping. The store has many departments and showrooms that display the products for example the bedroom and sample living room, home office etc. The customers should follow the arrows and signs in order to get to every department or the section they look for. The customers can try the product, ask for advises from the shop assistant before they go collect the article of their choice. The miscellaneous items like wineglasses, plate mat, kitchen utensils, and lampshades are found in the market place. The atmosphere in IKEA is relaxing and calm and the customers can always rest on the couch or chairs displayed. Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 15/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
Process:
In order to visualize the service process of IKEA, we decided to describe it through the blueprint.
Customer enters IKEA shop Customer takes a yellow Customer takes catalogue
shopping bag or a trolley where the products are
shown
Customer measures Customer tries out furniture Customer starts walking
furniture with free paper which he likes to buy through the IKEA shop and
yardsticks from IKEA decides what he will buy
Customer puts small IKEA-staff helps to check if Customer writes furniture
furniture and home-décor the big furniture is available and stock-number of big
into the shopping bag in the stock furniture on paper (free)
Customer takes its furniture Customer arrives to the Customer walks through /
from the stock furniture stock of the IKEA beside the IKEA restaurant
shop down to the ground floor
Customer arrives to the Last possibility for the Customer put the goods on
check out area customer to add some the run-volume
goods in the trolley / bag
Cashier scans goods Customer returns the yellow
Customer pays for goods shopping bag (can buy a
and packs them in blue one)
Customer exit the shop
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 16/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
4.4 Image
The image is very important for a service business. If the business open up with the clear message
about how they want their product to create the image in people’s mind, they will get the right
customers seeks for the product that responds to their image and value.
IKEA credits itself with a strong environmental consciousness and as a result of that IKEA has
learned to be very efficient in packing and delivering products because of the enormous energy
consumption involved in transporting non-local products from suppliers in 55 countries to its outlets
in 35 countries.
The IKEA sets up its own standard and requirements regarding social and working conditions, child
labour and the outside environment and it expects the all parties with whom it interacts to follow.
This means IKEA expects them to respect fundamental human rights, and to treat their workforces
fairly and with respect. They are also obligated to try continuously towards minimizing the
environmental impact of their operations as Ikea uses resources wisely striving to minimise any
possible effects on the environment which is caused of their actions. 25
Ikea focuses on 3 aspects regarding its environmental work:
• It is cost consciousness and resource efficiency because they try to use fewer raw materials
and create less waste and discharge.
• They try to use as much wood as possible in their products because it is recyclable,
biodegradable and renewable material, as it is also a good material from the environmental
point of view.
• They train co-workers as previously mentioned and engage them in the environmental
issues.
• They try as well to work economically with the raw material, energy and other resources to
minimising costs and use the resources efficiently as well as reducing waste and discharge.
When possible, leftover material from one product is used in the manufacture of another
product as they develop the products themselves and are able to monitor all aspects of the
product life, that being possible.26
http://www.ikea.com/ms/en_AU/about_ikea/social_environmental/the_ikea_code_conduct.html
25
26
http://www.ikea.com/ms/en_AU/about_ikea/social_environmental/resources.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 17/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
“By communicating the content of this framework and encouraging customers to experience the
IKEA concept, we are building the IKEA brand. The IKEA brand is the sum total of the emotional
and rational values that consumers associate with the IKEA trademark and the reputation of our
company. The brand image is the result of over 50 years work by IKEA co-workers at all levels all
over the w27orld.”28
Ikea promises to do what they actually say about their products, the prices, providing the customers
with all the information they need in order to make stronger their brand and increase people’s
awareness about it so they can inspire customer to come to the store again and again.
Promotion :
The parameter that helps builds the business’s image is Promotion. Nowadays IKEA promotes itself
through its websites and the annual catalogue that are sent to its customers every year in August.
For 2006 it has printed out 160 catalogues. The websites of IKEA is very informative. It represents
IKEA and very useful for the customers. The catalogue is a very good tool to promote IKEA
because the target group can see beautiful photos of IKEA products. Moreover, IKEA can put as
much information as possible. IKEA CEO (chief executive officer) Anders Dahlvig has stated in an
interview that “it is important to choose your target group and not try to be everything for
everyone” This is the main reason why IKEA only sends the catalogues to families.
In addition, IKEA also inform journalists of news and information within IKEA through press
releases, website information, catalogue distribution and product launches
The slogans that IKEA have used to promote IKEA worldwide are for instance:
• "Screw yourself." — 2004, Norway.
• "Unböring." — , 2003, Canada.
• "You don't have to be rich, just smart." — , United States
• “ discover the possibilities” – 2005, Switzerland
4.5 The Culture and the Philosophy
The employee reflects the company culture and value and IKEA prefers to have the right person to
do that. Furthermore, they train and inform the co-workers and engage them in environmental issues
continuously so that they work in different ways to increase environmental awareness.
28
http://www.ikea.com/ms/en_AU/about_ikea/social_environmental/projects.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 18/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
The corporate culture of IKEA is based on shared values for which people and team spirit are
central values which include:
- TOGETHERNESS
- COST-CONSCIOUSNESS
- RESPECT
- SIMPLICITY
Their culture and philosophy worldwide are as described below:
“The IKEA vision is "To create a better everyday life for the many people."
Our business idea is "To offer 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."
Our market positioning statement is "Your partner in better living. We do our part, you do yours.
Together we save money."29
“You can take IKEA out of Småland, but you can’t take Småland out of IKEA.
Småland, where the company’s founder was born and raised, can be easily identified as the source
of our shared values. Simplicity, humility, thrift and responsibility are all evident in the lifestyle,
attitudes and customs of the place where IKEA began.”30
Ikea supports different projects in cooperation with UNICEF and not only with a percentage from
selling different items. Some of these are:
- Children’s development- the right to play
- Strengthen teenager’s awareness of HIV/AIDS.
- Prevention of child labour - Child rights projects in India together with UNICEF
- Alternative Learning Centres
- FORESTRY -IKEA supports mapping of intact natural forests
- “Sow a seed” rehabilitates rainforests in Borneo
- IKEA works with WWF, the global conservation organisation
- Self-help groups for women
29
http://www.ikea.com/ms/en_US/jobs/join_us/ikea_values/index.html
30
http://www.ikea.com/ms/en_AU/jobs/join_us/ikea_values/index.html
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 19/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
- Scholarships to study responsible forest management, etc.
4.6 Conclusion of the Service Management System (SMS)
We used the Service Management System in order to analyse Ikea Company and find out if all the
five elements consisting of Market Segment, The Service Concept, The Delivery System, Image
and Culture and Philosophy are in perfect harmony with each other. Because of the fact that they
are closely interrelated and all linked together and change in any one of them will influence the
other four, directly or indirectly, which might create disharmony in the system we wanted to find
out about the situation in Ikea.
According to our findings we can conclude that there is harmony between the Service Management
System as Ikea has defied its market segment for which they provide a core product and service
enhanced with the peripheral products and services they offer at very low prices and for a good
quality which gives value for the customer’s money. Their culture and philosophy is highlighted
through the services they offer which include educated and service minded employees and good
location of the Ikea stores.
The culture and philosophy of the organisation reflects on their well trained and serviced minded
staff. This is very important for the service business when the staff always have direct contact with
the customers. The service delivery process of IKEA is unique. The customers take a very
important part of the process as the service concept is cost conscious which is present through the
flat package and more importantly, self-serve. IKEA service concept fits very well with the target
group of IKEA, which are young people and young couple. The flat package and self-serve is also
the unique selling point of IKEA. The peripheral products and services have differentiated IKEA
from the rivals and make it unbeatable. Image of IKEA is presented by its websites and attractive
catalogue and it helps bring customer for IKEA effectively. It has the policy about environment and
attended many charity organisations. This enhance positive image of IKEA. Therefore, we can
conclude that the service management system in IKEA is harmonious and IKEA takes control over
its five components.
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 20/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
5. Industry Analysis
5.1 Porter's 5 Forces
IKEA is in furniture industry. There are over 700 major furniture sales outlets in Denmark and the
retail trade is dominated by chain stores.31 Besides the furniture, IKEA distributes wide range
selections of product within furniture and home decorating items. It is one of the non specialised
retailers, which supplied to 22% of furniture demands in Denmark, while 76% furniture demand is
supplied by the specialised distributors, and only 8%, which is the demand of top range product, is
supplied by the small scale specialised distributors.32
In order to decide on the best competitive strategy and most realistic budget for the IKEA, we will
analyse the industry using the Porter’s 5 forces.
New entrants
Threats of entry to
market from other
organisations
Bargaining power
of suppliers
Intensity of rivalry
Suppliers Industry existing Buyers
competitors
Bargaining power of
buyers
Threts of availability of
subtitutes
Substititutes
Buyers: The bargaining power of the buyers
The buying approaches in IKEA are both the business to consumer and business to business types,
but in our studying, we are going to concentrate on the Business to consumer. Since IKEA offers
very wide selection of products, most customers goes there with a long shopping list because they
31
http://www.asiafurnitek.com/news.asp?newsid=1304
32
Same source
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 21/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
know they can find almost everything they need. IKEA offers products with inexpensive prices
because they aim to sell by volume, this means they will sell to large number of people. Thus, most
of regular customers do not buy by volume but they tend to buy a few of different items and the
price of total purchase is still low in comparison to buying the same amount of items other places.
The main factors that bring the customers to IKEA are price and its broad products lines. The
customers believe that they get a product with fair quality from IKEA. Although the brand royalty
is low, but the customers are not price sensitive because they do not change to buy from other stores
because they get a better deal but mostly because of their taste and what they look for and how
many items they plan to buy. However, the products provided by IKEA are for daily usage and they
are not strategically important for the customers. In addition, these products are things that the
customer cannot produce by them or that are they capable to integrate backward; therefore, IKEA is
in a good position.
Conclusion: There is always something for everyone in IKEA and it continues to be the first
choices for most customers, therefore the customers have low bargaining power.
Suppliers: The bargaining power of suppliers
IKEA is an international company with the Swedish founder. IKEA products in different regions
and country may slightly vary in price and products styles. IKEA has 1800 suppliers located in over
50 different nations33.For example it has a contract with a manufacturing factory in Poland to
produce products for European market and in Mexico to serve the North American market. With a
large number of suppliers, IKEA has choices to switch its production to the more competitive
suppliers. It takes up 90-100% 34of the production of most suppliers which leads to indirect control
over them. Nevertheless, IKEA also has integrated backward by operating a production company;
The Swedwood Group, which produces wood based furniture and wooden components. It has
manufacturing units in nine countries, mostly in Eastern and Central Europe. The operations cover
every step of the production from forestry, sawmilling and board manufacture to furniture
production. The credible backward integration allows IKEA to be able to control quality,
production and logistic cost. It will not suffer from the source of supply, substitutes for the
particular input, which is the big competitive advantage of IKEA.
33
http://www.geocities.com/TimesSquare/1848/ikea.html
34
Academy of Management Executive,2003, Vol 17, No. 1
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 22/79How does IKEA contributes to the simple living trend in Denmark? 1st year project
Conclusion: The suppliers have very weak bargaining power because IKEA is their main
customer and IKEA has influence on their production.
New entrants
In 2005, the consumers spend 6% of their household expenditure or DKK 2500 on furniture35 Due
to the fact that the Danes spend a lot of time in their house and they like to decorate and renovate
their house as a family activity, they are very interested in finding the right items to their home and
they pay more attention to quality and trend. The furniture industry in Denmark has high
competitions.
Although the furniture industry requires very high initial capital, but lately Natuzzi, the exclusive
Italian style furniture and home wares company has opened a luxurious outlet in the heart of
Copenhagen and another one in the major shopping mall in town. It is one of the specialise
distributors that offer top range of products and responded 8% of furniture demand in Denmark as
stated earlier. Though it is not an obvious competitor of IKEA because their market segments are
different, but the economy growth in the past years allows the Danes to have more expenditure
incomes, which has made many luxurious products affordable for the Danes.
The threat of new entrants and competition in the home furnishing industry in Denmark is however
low. If that happened, it would change many significant market environments such as the market
shares, prices and customer loyalty. Therefore, the existing player such as IKEA has to be aware of
their reaction and adjust responsively to new things or all time.
Conclusion: The threat for new entrants to enter the industry is low because it involves high
initial investments and fixed cost.
Substitutes : The threat of substitutes
The customers do not always want to buy different products every time, they will purchase home
furnishing items. This causes many customers who only want to buy few certain things will choose
to go to other stores that also provide the same or similar items. Due to the location and size of
ILEA, it could be very time consuming and exhausted to come to IKEA only for a few things. The
35
www.denmarkstatistic.dk
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 23/79How does IKEA contributes to the simple living trend in Denmark? 1st year project cost of switching could be high if they want to buy a costly item such as kitchen or bedroom set, which will make the customers consider about where to buy. However, if the items they want to buy are miscellaneous, the consumers who live in the area where IKEA situated tend to go there, while those who live far away will consider other substitutes. Though the market research has revealed that the low prices offered keep people coming back to IKEA but the loyalty in the brand is not significantly high. This makes it is easy for the customers to switch to other store, which determined by the customers’ taste, quality of the product they want and the price they are willing to pay. There are many local super market and hard ware stores that offer furniture and home decorations items. The stores as such are for example Bilka, Superbase, Kvickly, Bahn, Kop og Kand, Jysk, Tiger etc. Conclusion: The threat of substitutes is high because consumers have many alternatives. The intensity of competitive rivalry The first IKEA store in Denmark opened in 1969. The arrival of nice design furniture with inexpensive prices has made a significant change in the furniture industry in Denmark. The simple and functional design together with the unbeatable low price was a tremendous success for that time. Nowadays there are many distributors setting up their business in Denmark; this means the degree of competition in the home furnishing market is high which is indicated by concentration of the industry. IKEA has high diversity of competitors which is distinguished by the market segment. There are the stores that offer items in the similar quality as mentioned in the bargaining power of substitutes. Moreover, there are many other design stores that offer higher price items such as kitchen, bathroom, bed room furniture in a higher quality and more exclusive design. The lower level competitors are the products offered in the small stores such as Tiger, Søstre Grene, and other products sold in the local supermarkets such as Føtex, Aldi, Fakta etc. These stores are not direct competitors but they have also taken some market share in the items that does not involve high involvement decision making process which are the products that IKEA sell in volume. Conclusion: the intensity of rivalry is high because the high diversity of the competitors, which makes the industry less attractive. Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 24/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project
The overall conclusion on the furniture and home wears industry analysis.
According to the analysis, the three forces; the buyer, suppliers bargaining power and the threat of
the new entrants are low, therefore we can conclude that the attractiveness of the industry is high
and there are prospects of the sustainable profitability.
6. Political, Economic, Social and Technological analysis (PEST)
This part of our project is about macro and micro environmental factors that explain many forces to
which a firm is exposed. The company has to adapt to more or less uncontrollable environment
within which firm plans to operate and we wanted to see if there are some possible political,
economical, socio-cultural and technological issues in Denmark which Ikea has to face with.
6.1 Political Factors:
There is a political risk in every nation, but the range of risks varies widely from country to country.
In general, political risk is the highest in countries that have a history of instability and changes in
political system but fortunately Denmark does not have this problem.
Foreign Relations:
Denmark is a member of NATO since 1949 and plays also an active role in UN especially in
peacekeeping operations and multilateral aid programmes. Denmark is also a member of the Nordic
Council and is culturally, historically and linguistically linked to the nations of Scandinavia.36
Company tax in Denmark
On a European scale/Compared with other European countries, company tax in Denmark is
relatively attractive and low.
“Companies pay 30% of their profits in tax. In addition, there is a series of deduction and
depreciation rules favouring companies established or investing in research and development,
machinery, IT infrastructure, software, patents and know-how.
In contrast to the tax laws of several European countries, Danish tax rules are quite clear. The
36
http://www.mfat.govt.nz/foreign/regions/europe/countrypapers/denmark.html#Political%20Situation
Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 25/79How does IKEA contributes to the simple living trend in Denmark? 1st year project rules are established by legislation, which means that company tax is never subject to interpretation or special agreements. Consequently, companies always have clearly defined tax obligations”.37 The Danish government has reduced income taxed for foreign researchers and experts interested to work in Denmark so that they could make more attractive the existing research and development environments. The taxation on personal income in Denmark is one of the most high in the world and over that (high-income tax) they pay 25 pct VAT and also many environmental, and special duties. It seems that the political factors are favourable for Ikea especially the tax they have to pay. 6.2 Economic Factors: Denmark seems to be one of the wealthiest nations in the world due to low unemployment percentage and inflation, There is a trade surplus and a surplus on the public finances. Because of the high level of knowledge of the population, the ultra-modern infrastructure and the access to a well-educated and flexible workforce have created a very attractive business climate, and positioned Denmark as a strong player in the new global knowledge economy. Today, Denmark has one of the strongest economies in Europe as it seems to be a stable and a growing one, with the annual growth rate at around 2-3%38. On average, the Danes’ income level is 43 per cent above the average income for the 15 EU countries as a whole measured in terms of GDP (Gross Domestic Product) per inhabitant, 39and even higher considering the rest of the world. Economic growth gained momentum in 2004 and the upturn accelerated through 2005. Because of high GDP per capita, welfare benefits, a low Gini index, and political stability, the Danish people enjoy living standards topped by no other nation. A major long-term issue will be the sharp decline in the ratio of workers to retirees.40 Because IKEA is a Swedish company a part of the profit will go back to Sweden which will affect Denmark’s GNI (Gross National Income) but will not reduce it since is not included in the first place. 41 37 http://www.workindenmark.dk/Business_in_DK/0/4/0 38 http://en.wikipedia.org/wiki/Economy_of_Denmark 39 http://www.copcap.com/composite-8665.htm 40 http://www.cia.gov/cia/publications/factbook/geos/da.html#Econ 41 http://en.wikipedia.org/wiki/GNI Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 26/79
How does IKEA contributes to the simple living trend in Denmark? 1st year project The Danish interest rate is a fully 0.06 per cent and is below those of the euro zone publishes Berlingske Tidende.42 The inflation level has declined in the Scandinavian countries and is relatively low now. At 1st of January 2005 the inflation in Denmark and Norway was around 1 per cent which reflects high productivity growth for these countries.43Denmark's financial system is transparent and diversified, with a strong banking sector and an efficient stock exchange in Copenhagen. In March 2004 Denmark adopted the Public Procurement rules with new set of directives – a consolidated procurement directive for the public sector and a new directive for the utilities sector which entered into force in Denmark from 1 January 2005. “The procurement rules are primarily to be found in the EU public procurement directives, which regulate the procurement of supplies, services and works exceeding a certain threshold value.” 44 Through the procurement rules it is wanted to ensure the free and equal competition in the public sector and instruments in gaining advantage as lower prices, more and better products to choose from, better service from the suppliers better knowledge of the market and a better overview of the actual needs before entering into a contract.45 “Public contracts are also regulated by the principles of the EC-Treaty, e.g. the principles of free movement, non-discrimination, mutual recognition, proportionality and transparency.”46 Danish furniture industry The furniture sector in Denmark has approximately 400 companies, which, combined, produce furniture to the value of DKK 19.3 billion (2005). The Danish furniture sector employs approximately 16,900 people and the combination of advanced technology and a high level of technical competence makes productivity in the sector very high. In relation to the population of Denmark, Danish furniture production and exports are global leaders. More than 82% of production (= DKK 15.9 billion in 2005) is exported, making the Danish furniture sector Denmark's sixth-largest export industry. 42 http://www.copcap.com/composite-8955.htm 43 http://www.norges-bank.no/front/rapport/en/ir/2005-01/inflation.pdf 44 http://www.ks.dk/english/procurement/ 45 http://www.ks.dk/english/procurement/ 46 http://www.ks.dk/english/procurement/ Javier, Carmen, Maribeth, Siripan, Bernadette – April 2006 27/79
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