Business Innovation at IKEA
Business Innovation at IKEA
Ikea is a Swedish based multinational corporation that designs and sells ready-to-assemble furniture and home accessories. IKEA is the largest furniture company in the world. It is known for its modern architectural designs, as well as its attention to continuous product development, operations details, and cost control.
IKEA relies on design innovation to bring great quality and beautiful designs to the market and its stores by collaborating with the best designers from various parts of the world. It has developed cost efficient and innovative methods to match people’s expectations of price and quality.
Answer all the three following questions in relation to IKEA. You can use your study material and other resources to write your answers. Use your own words and adhere to the wordcount specified for each question.
Question 1: Innovation at IKEA (30 marks, 300 words)
1. Why is IKEA an innovative company? Support your answer with examples. (10 marks)
2. Discuss the role of four business functions at IKEA. Give at least two innovation examples for each business function at IKEA (20 marks)
Question 2: Product offering and targeting (30 marks, 300 words)
A. Discuss the three levels of a product by using the HAMARVIK mattress as an example. (15 marks)
B. Discuss the four targeting strategies. Which targeting strategy does IKEA use for its mattresses. Justify your answer. (Check the mattress section on the IKEA website before answering this question) (15 marks)
Targeting is a strategy of subdividing a large market into small-sized segments based on distinctive characteristics to focus solely on serving a specific group of consumers. There are four core targeting strategies. First, an undifferentiated strategy involves making the same offer to the entire market (Masterson et al., 2017). Secondly, the differentiated strategy entails making different offers to distinct customer segments. Next, the concentrated strategy focuses on either one or a few niche market segments. Finally, the customized strategy uses one-to-one marketing in combination with the segment’s strategy. IKEA uses a differentiated targeting strategy for its mattresses. The company caters to different sleeping patterns of its customers as well as differences in shapes, tastes and preferences. IKEA features a wide assortment of diverse mattresses choices in either king, queen, twin, or full sizes. The company also offers foam, spring, or latex mattresses that are intended to provide comfort and back support at affordable pricing.
Question 3: The marketing mix and innovation (40 marks, 500 words)
IKEA’s marketing strategy consists of market segmentation, targeting, positioning and the marketing mix. IKEA’s marketing strategy enables the company to be a successful player in the global market. Using your B207A course material, evaluate how the innovation in IKEA’s marketing mix elements are used to position the products within the minds of consumers. Your answer should contain the following:
A. IKEA’s market segmentation and targeting
Segmentation is a process of grouping customers in the markets into small homogeneous segments. Targeting involves focusing on a given customer segment by aggregated groups with the same requirements and purchasing characteristics. IKEA uses the differentiated targeting strategy to fulfil the different needs, tastes, and preferences of consumers seeking value for money. First, the criteria for geographic segmentation is based on regional and density criteria. The target groups are urban customers in America, Asia, Europe, and Australia. The demographic segmentation is based on age groups, gender, life-cycle, occupation, income, and social interaction. The target customers are male and female customers aged above 22 years. They include single people living alone, young couples with no children, full nest married couples, as well as empty nest retired older couples with no children. The basis of behavioural segmentation is loyalty, sought benefits, and user status. The target customers are easy-going and determined customers seeking cost-effectiveness who are switchers and have hard or softcore loyalty. The psychographic segmentation is social class and lifestyle where the target is lower, working, and the middle class with the struggler resigned mainstreamer and explorer lifestyles.B. What is positioning. How is it related to the marketing mix?
IKEA has transformed from being a product-based business to value-based positioning. The positioning strategy aids customers in assessing the attributes of products that are of great importance to them. IKEA’s positioning strategy is differentiation based on the customer value provided by the IKEA quality of the product, in terms of affordable prices, space-saving, and durability.
C. Examples of IKEA’s marketing mix elements and their contribution to brand positioning.
Product: IKEA’s wide range of products is vast as there are over 9500 DIY home furnishing products, and the firm renews its products range yearly, launching about 2,500 new products. These products are designed by IKEA’s in-house and contracted designers. The furniture manufacturer adheres to five democratic design dimensions: form, low price, function, quality, and sustainability.
Place: IKEA is a multi-channel firm as it integrates both offline and online sales channels. The company operates 313 outlets in 38 markets globally along with online sales channels extensively to sell the home furnishing products to its target customers. Currently, the company is focused on smaller city stores as well as planning kitchen studios to reduce its dependence on selling exclusively in out-of-town warehouses.
Promotion: IKEA uses various tools like television, print, online adverts, and billboards. The primary tool is the catalogue that is distributed in different markets and can be accessed online or apps. IKEA uses social media and public relations campaigns to enhance publicity and popularity. The online advertisements are used in promoting products to demonstrate the various problems faced by individuals, and offering practical solutions.
Price: IKEA has adopted a cost leadership pricing strategy by offering a wide range of products at low prices to ensure that customers can afford them. The firm maintains its low pricing owing to economies of scale and sale of large furniture merchandise as flat packs, rather than ready assembled items. IKEA also uses psychological pricing by appealing to the emotional, not rational side of the buyer’s decision-making.
References
Kotler, P. T., Armstrong, G., Harris, L. C., & He, H. (2019). Principles of Marketing. Harlow, United Kingdom: Pearson Education Limited.
Masterson, R., Phillips, N., & Pickton, D. (2017). Marketing: An introduction. Los Angeles: SAGE.