FACULTY OF ECONOMICS AND MANAGEMENT

BACHELOR OF BUSINESS ADMINISTRATION PROGRAM WITH HONORS

EPPM3363 RETAIL MANAGEMENT

Tittle:
GROUP ASSIGNMENT

Lecturer:
ASSOC PROF DR CHE ANIZA BINTI CHE WEL

Members:
Name Matric No.
NUR SYAKILA SUHADA BINTI ABU BAKAR GA04122
AASHMINY DEVI A/P MAGENDIRAN GA04258
NORSAHILA ISMAIL GA04268

1.0 INTRODUCTION
2.0 INTRODUCTION TO THE ESTABLISHMENT
2.1 OWNERSHIP

IKEA is a privately held, international home products retailer that sells flat pack furniture,
accessories, and bathroom and kitchen items in their retail stores around the world. The
company, which pioneered flat-pack design furniture at affordable prices, is now the world's
largest furniture retailer. IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden
and it is owned by a Dutch-registered foundation controlled by the Kamprad family. The
company which was originated in Småland, Sweden, distributes its products through its retail
outlets. As of August 2009, the chain has301 stores in 37 countries, most of them in Europe,
North America, Asia, and Australia. The IKEA Concept began when Ingvar Kamprad, an
entrepreneur from the Småland province in southern Sweden, had an innovative idea. In
Småland, although the soil is thin and poor, the people have a reputation for working hard, living
frugally, and making the most out of limited resources. So when Ingvar started his furniture
business in the late 1940s, he applied the lessons he learned in Småland to the home furnishings
market. Ingvar's innovative idea was to offer home furnishing products of good function and
design at prices much lower than competitors by using simple cost-cutting solutions that did not
affect the quality of products. Ingvar used every opportunity to reduce costs, and he scraped and
saved in every way possible - except on ideas and quality. The name IKEA comes from the
initials of Ingvar Kamprad, I and K, plus the first letters of Elmtaryd and Agunnaryd, which are
the names of the farm and village where he grew up.

Despite its Swedish roots, IKEA is owned and operated by a complicated array of not-for-profit
and for-profit corporations. The IKEA corporate structure is divided into two main parts:
operations and franchising. Most of IKEA's operations, including the management of most of its
stores, the design and manufacture of its furniture, and purchasing and supply functions are
overseen by INGKA Holding, a private, for-profit Dutch company. Of the IKEA stores in 36
countries, 235 are run by the INGKA Holding. The remaining 30 stores are run by franchisees
outside of the INGKA Holding. INGKA Holding is not an independent company, but is wholly
owned by the Stichting Ingka Foundation, which Kamprad established in 1982 in the
Netherlands as a tax-exempt, not-for-profit foundation. The Ingka Foundation is controlled by a
five-member executive committee that is chaired by Kamprad and includes his wife and attorney.
While most IKEA stores operate under the direct purview of Ingka Holding and the Ingka
Foundation, the IKEA trademark and concept is owned by an entirely separate Dutch company,
Inter IKEA Systems. Every IKEA store, including those run by Ingka Holding, pays a franchise
fee of 3% of the revenue to Inter IKEA Systems. The ownership of Inter IKEA Systems is
exceedingly complicated and, ultimately, uncertain. Inter IKEA Systems is owned by Inter IKEA
Holding, a company registered in Luxembourg. Inter IKEA Holding, in turn, belongs to an
identically named company in the Netherlands Antilles that is run by a trust company based in
Curaçao. The owners of this trust company are unknown (IKEA refuses to identify them) but are
assumed to be members of the Kamprad family. In Australia, IKEA is operated by two
companies. Stores located on the East Coast including Queensland, New South Wales, and
Victoria are owned by INGKA Holding. Stores elsewhere in the country including South
Australia and Western Australia are owned by Cebas Pty Ltd. Like elsewhere, all stores are
operated under a franchise agreement with Inter IKEA Systems.

2.2 RETAIL FORMAT

3.0 RETAIL STRATEGY

3.1 RETAIL IMAGE

 FIGURE 1

The IKEA Concept is based on offering a wide range of well designed, functional home
furnishing products at prices so low that as many people as possible will be able to afford them.
Rather than selling expensive home furnishings that only a few can buy, the IKEA Concept
makes it possible to serve the many by providing low-priced products that contribute to helping
more people live a better life at home. The IKEA Concept guides the way IKEA products are
designed, manufactured, transported, sold, and assembled. All these factors contribute to
transforming the IKEA Concept into a reality.

IKEA stores are usually very large blue buildings with few windows and yellow accents. They
are designed around a "one-way" layout which leads customers along "the long natural way."
This layout is designed to encourage the customer to see the store in its entirety (as opposed to a
traditional retail store, which allows a consumer to go right to the section where the goods and
services needed are displayed) although there are often shortcuts to other parts of the showroom.

The sequence first involves going through furniture showrooms making note of selected items.
Then the customer collects shopping cart and proceeds to an open-shelf warehouse for smaller
items (Market Hall). Then the customer visits the furniture warehouse (Self-Serve) where they
collect previously noted showroom products in flat pack form. Sometimes they are directed to
collect products from an external warehouse on the same site or at a site nearby. Finally, they
take their products to the cashier's station to make payment. Newer IKEA stores make more use
of glass, both for aesthetic and functional reasons. Skylights are also now common in the Self-
serve warehouses. More natural light reduces energy costs, improves worker morale, and gives a
better impression of the product.

FIGURE 2

Whilst the original design involved the warehouse on the lower level and the showroom and
marketplace on the upper, today most stores globally have the Showroom upstairs with the
marketplace and warehouse downstairs. Additionally, some stores are single level. Some stores
maintain separate warehouses to allow more stock to be kept on-site at any given time, although
this occasionally results in challenges in finding the items, as well as a perception of having to
queue in line twice.

Single-level stores are found predominantly in areas where the cost of land would be less than
the cost of building a 2-level store – examples include the store in Saarlouis, Germany and
Haparanda, Sweden. Some stores also have dual level warehouses and machine-controlled silos
which allow large quantities of stock to be accessed throughout the selling day. Most IKEA
stores offer an "as-is" area at the end of the warehouse just prior to the cashiers. Returned,
damaged and formerly showcased products which are not in new condition or taken out of the
IKEA product range are displayed here, and sold with a significant discount, but also with a "no-
returns" policy. Most IKEA stores communicate the IKEA policy on environmental issues in the
"as-is." In the United Kingdom, this is referred to as "Bargain Corner.
 FIGURE 3

3.2 TARGET MARKET

Based on the market segmentation strategy, the target market of Ikea is towards the younger
consumers who are focused on lifestyle and space saving. There are different consumers that
make up this target market. The first type of consumers are those younger consumers who are
just starting out in life where they may be just moving to a new place or apartment or that the
younger consumers are couples who decide to move in together. These consumers have a low
budget and the concept to save the world because they are concerned about the future and
environment. These younger consumers have the appetite to technology and modern style (Wei,
2006). The second type of consumers are the student’s market who are looking for those
products that can provide convenience to their existing lifestyle. The characteristics of this target
market is typically lower income since they are not in the workforce yet and that they have a
simple approach towards useability and practicality. The students want something that can solve
their daily needs without many hassles. The third target market is the older customers. This type
of customers wants something that is light and not too bulky because the older customers tend to
be downsizing. This means that they are selling out of their previous residence and moving into
an apartment style living for comfort and security. Therefore, these customers are seeking the
simple products that can provide the comfort. Besides, the older customers tend to have a ‘green’
approach to their lifestyle where they want to be environmentally friendly for the future
generation. Based on this target market, Idea needs to position the products accordingly so that
they are able the meet the needs. To achieve this, the products are designed to suit the needs of
this target market. This is observed through the simple and minimalist approach from the Ikea
products (Blome, 2015). Ikea does not aim to provide the highest quality product that is made up
of solid materials that are able to last a long time. Rather, Ikea aims to provide the simple
products that are tested against durability. This is observed within the Ikea store that aims to
educate the consumers that the products may be relatively cheaper, but it does not mean that the
products are not durable. Also, there are different use of technology throughout the Ikea store
that uses the advanced programs to assist the consumers to determine the appropriate products.
These programs are able to provide the customers with a picture of how the final results will be
when those different Ikea products are combined together (Blome, 2015). This technology
approach appeals to this target market.

FIGURE 4

3.3 RETAIL LOCATION

As of the end of August 2020, there were a total of 445 IKEA stores worldwide. The vast
majority of IKEA stores are located outside of city centers, primarily because of land cost and
traffic access. Several smaller store formats have been unsuccessfully tested in the past (the
"midi" concept in the early 90s, which was tested in Ottawa and Heerlen with 9,300 m2, or a
"boutique" shop in Manhattan). Operating in 57 countries, IKEA is a global destination store for
home furnishing, appliances, ready-to-assemble furniture, home accessories and kitchen
products. It is the world’s largest furniture retailer with more than 301 stores and 30 franchised
units. The largest market for the company is Germany with 44 stores followed by the United
States with 37 stores. Sales volume of the privately held company is estimated at over $24
Billion with $3 Billion coming from the US according to recent reports. According to the
company 533 million people visited its stores last year. IKEA’s products are exclusive to IKEA
and typically reflect its Swedish heritage with modern architectural design.

The world’s five largest IKEA stores are:

a) 552,000 square feet in Stockholm, Sweden
b) 494,000 square feet in Shanghai, China
c) 470,000 square feet in Shenyang, China
d) 457,000 square feet in Tianjin, China
e) 450,000 square feet in Berlin, Germany

IKEA has an intricate corporate structure, which means the company is not likely to go public.
Most of the operations, management of the stores, design and manufacture of furniture is run by
a trust, INGKA Holding, headquartered in Delft, Holland. While most of the designs of IKEA
products are made in Sweden, manufacturing has been outsourced to China and other Asian
countries.
 FIGURE 5

3.4 PRICING STRATEGY

Presently the evaluating piece of Ikea is a sort of non-kind because of its administrations and
their individual nature, as it has been into a monopolistic business, with simply a couple of
contenders and greater part of piece of the pie stills to support it. In such a condition, in the same
way as another organization or business holding, Ikea additionally has embraced a methodology
which is most suited, and that is of not cutting costs to strip the brand of its esteem, and in the
meantime, not to be obviously overpriced, in order to repulse the business sector strengths. In a
comparative manner, Ikea has been consistent and has taken after the center way in evaluating its
administrations and this methodology has created it to flawlessness. However, it is a point of
appreciation for Ikea, that even after being at the top, Ikea offers fantastic products at low prices,
which is the reason its customers have always been retained to Ikea.
"To design a desk which may cost $1,000 is easy for a furniture designer, but to design a
functional and good desk which shall cost $50 can only be done by the very best. Expensive
solutions to all kinds of problems are often signs of mediocrity." - (Ingvar Kamprad)

Ikea, the world’s largest furniture retailer, is known for providing high value in terms of creative
designs, multiple functionalities, and quality at a low price. It has been able to stake out a unique
and a valuable strategic position for itself by carrying out some of the following activities
differently from its rivals.

Innovative Designs
Ikea focuses on generating design creativity by internal competition among a huge network of
freelancer and 9 staff designers. Freelance designing provides a great degree of flexibility and a
valuable source of creativity. The network of free-lance designers and the teamwork of people
from a wide range of professional and personal backgrounds provides some of the most
significant design creativity which Ikea demonstrates in its furniture1. Ikea’s designers provide
innovative designs and multiple functionalities to the user. They also focus on using material as
efficiently as possible without comprising on sturdiness and quality of the product.

Cost Reduction
Ikea mainly targets people who want value at a low price but are willing to do a bit of work. It
can provide quality furniture at low price to its customers by making some tradeoffs. Instead of
having salespeople attending customers, Ikea uses a self-service model based on clear in store
displays. Rather than relying on third party manufacturers, Ikea designs its own low-cost,
modular, ready-to-assemble furniture. Items are provided to customers in flat-packed form,
which results in a wide range of supply chain contributions. The Flat package reduces the cost of
shipping, storing, construction and assembling. It also provides greater transportation capacity
and warehouse space.

Global Strategy
Ikea has developed its distribution network worldwide. It can ensure timely delivery of products
to retail stores all over the world by utilizing control points in the distribution cycle. It has over
1800 suppliers located in over 50 different nations. Ikea’s suppliers are mostly located in low-
cost nations with proximity to raw materials and distribution channels. The company possesses a
big network of suppliers closely attracted to supply chain processes that helps in gaining
industrial knowledge continuously and enhances information flow facilitation and operational
efficiency.
These suppliers provide highly standardized products intended for the global market. However, a
standardized product strategy does not mean complete cultural insensitivity. The company
responds to globally emerging consumer tastes and preferences by placing great emphasis on the
product lines that appeal to local customer preferences apart from basic product range that is
universally acceptable.

Close relationship with consumers

Ikea focuses on extracting customer insight by market research, observations, and ongoing
communication. This strategy is not only beneficial to Ikea’s production design but also serves as
a source of valuable knowledge of types and amount of production material that would be
needed. This enables Ikea to coordinate better with its suppliers by providing them information
and ultimately decreases procurement cost associated with purchasing and transportation of raw
materials.

Close relationship with suppliers

The company operates 43 local trading offices in 33 countries to manage relationship with
suppliers. Although Ikea fosters competition among suppliers to ensure best price and material, it
believes in making long-term business relationships with its suppliers and ensures Volume
Business.

Unique Services
Ikea offers several extra services that its do not. Ikea in-store environment and purchasing
processes promote greater consumer interest and facilitate the buying behavior of customers.
Ikea displays every product and sells in room-like settings that help customers to imagine how to
put the pieces together. They also provide in-store childcare and extended hours facilities. These
services are mainly designed for the customers who are competitors young, not rich, likely to
have children, or work for a living and need to shop at odd hours.

4.0 MERCHANDISING STRATEGY

4.1 TYPES OF PRODUCT OFFERED AND THE MIX OF PRODUCT OFFERED

Much of IKEA's furniture is designed to be assembled by the consumer rather than being sold
pre-assembled. IKEA claims this permits them to reduce costs and use of packaging by not
shipping air; the volume of a bookcase, for example, is considerably less if it is shipped
unassembled rather than assembled. This is also a practical point for many of the chain's
European customers, where public transport is commonly used; the flat-pack distribution
methods allow for easier transport via public transport from the store to a customer's home for
assembly.

IKEA contends that it has been a pioneering force in sustainable approaches to mass consumer
culture. Kamprad refers to the concept as "democratic design," meaning that the company
applies an integrated approach to manufacturing and design. In response to the explosion of
human population and material expectations in the 20th and 21st century, the company
implements economies of scale, capturing material streams and creating manufacturing processes
that hold costs and resource use down, such as the extensive use of particle board. The intended
result is flexible, adaptable home furnishings, scalable both to smaller homes and dwellings as
well as large houses. IKEA has also expanded their product base to include flat-pack houses, in
an effort to cut prices involved in a first-time buyer's home.
Ikea, from the very beginning understood the needs of its customers and target prospects and
studied the potential of this segment and provided variety of options to the customers, so that
they were highly attached and heavily relied upon its name thereby propelling its popularity even
further. It has a detailed list of product catalogue ranging from furniture items and fittings, to
more sophisticated and intricate assemblies to organize a variety of home furniture. Ranges exist
in variety of categories, such as home furnishings, furniture, bathroom fitments, kitchen fittings,
book cabinets, closets, kid’s beds and other fittings, home extensions and so on.

Ikea has continuously kept changing with a change in the business environment. The designs
have always been fresh, and this was the major point of differentiation for Ikea. Ikea is a brand
that has broadly differentiated and has not depended upon a solitary classification of items or
administrations for its extension. The key for Ikea has been to give the business a wide
assortment of items and administrations to satisfy their aspirations and to defeat the obstructions
or impediments of confined classes. The wide variety of products at Ikea can be explained with
the complete product portfolio mentioned below. Remember, that these are just the product line.
The product depth is immense with each product line having further product extensions and
product varieties.

Products of IKEA
 Eating
 Desks
 Mirrors
 Children’s IKEA
 Cooking
 Bathroom storage
 Beds & mattresses
 Chairs
 Clothes storage
 Decoration
 IKEA FAMILY products
 Kitchen cabinets & appliances
 Lighting
 Small storage
 Sofas & armchairs
 Storage furniture
 Swedish food
 Tables
 Textiles & rugs
 Tools & hardware
5.0 TYPES OF PROMOTIONAL STRATEGY

As expected from a consumer durable brand, Ikea uses all form of promotions. However, due to
its popular brand name, and its pricing structure, the best promotions which bring results for Ikea
are sales promotions and trade promotions. Thus, this is where Ikea concentrates the most. Using
coupons, price discounts, festival promotions, and all other marketing gimmicks in their bag,
Ikea ensures that customers get regular advantages from various deals offered by the large-scale
manufacturer.

IKEA uses a variety of promotional techniques to promote its brand. Most unique and most
successful among the tools used by IKEA to promote its brand are the promotional catalogs. It
is also the most used and most effective of all its marketing communication channels. These
catalogs of IKEA products are printed in several languages and different catalogs are served in
different markets. Apart from unique home furnishing ideas, there are real life stories and a wide
range of products showcased through the hundreds of pages of the catalog. The catalog is
available both in print and online. Apart from that an extended version of the catalog is available
in the IKEA app. The IKEA websites, publications, brochure, advertising, and public relation
campaigns are also used for the promotion of the brand.

Further to BTL promotions, Ikea also uses ATL medium like Newspapers, Television as well as
Digital media. The print ads of Ikea are known to be smart and to the point which grabs customer
attention. As they have a presence in varying geographies, the communication too differs from
the company. They focus on localized communication in their advertising so that they connect to
the local audience. However, in general Ikea is a smart marketer and their product itself speaks
volumes. The promotions support the products by making them look desirable and unique in
their design.

IKEA uses both traditional and digital channels to advertise and promote its brand. It has used
social media to attract and engage customers. Separate country pages are used to engage
customers on Facebook. Pinterest, Twitter, Google plus and other social media channels are also
used by the brand to promote itself. IKEA does it very well. They post discounts, promotions,
giveaways, news and events on Facebook, Instagram, Twitter, and Pinterest. They are responsive
to their followers and quickly returns for any customer for the complaints. From time to time, it
also uses well designed outdoor campaigns for promotion. Now, IKEA is using augmented
reality to help customers get a better experience of how well IKEA products fit into their homes
and lives. Another key area where IKEA has focused to build a better reputation is sustainability.
People and environment are an important focus area at IKEA. This has helped it build a stronger
brand image.

Virtual Reality (VR) technology already using for entertainment purpose and game content
creation. IKEA’s unique virtual experiences take customers to an unforgettable journey.
Customers accessing the VR technology and try kitchen before buying it and even cook there!
This kind of virtual experiences attracts so much attention and creates so much buzz around the
brand. IKEA uses VR technology for being closer to the customers and gaining their loyalty.

IKEA closely follows the latest technology trends. Augmented Reality (AR) is one of them.
Augmented Reality is a technology that superimposes a computer-generated image on a user’s
view of the real world, thus providing a composite view. This technology and IKEA Place app
launched in 2017 provides a composite view for the brand. From the customer’s point of view,
it’s really helpful for a customer for only seeing the catalogue and couldn’t imagine how the
furniture will look and fit in their homes.

IKEA always updates its website with fresh contents like new offerings and products of its
collection. The brand catches the attention of potential customers and gives current customers a
new incentive to check new products and opportunities. With events, promotions, and
community outreach campaigns IKEA permanently keeps people’s interest alive. They also
make customers talk around new products on social media.

Ikea also use innovative banner usage. Usually, brands apply maximum five products to a
single banner box but, IKEA’s innovative website banner concept exceeds this product limit.
They have more than 2.800 product on their 300 x 251-pixel banner. This gives a message to
customers that even if they have small living spaces, IKEA always provides a creative solution
with its piece of furniture.

IKEA has launched a loyalty card program called "IKEA Family." The distinctive orange card
is free of charge and can be used to obtain discounts on a special range of products found in each
IKEA store. In particular, it gives 25% off the price of commissioned ranges of IKEA products
on presentation of the card. The card also gives discounts on food purchased in the restaurant and
the Swedish Food Market. In conjunction with the card, IKEA also publishes and sells a printed
quarterly magazine titled IKEA Family Live which supplements the card and catalogue. The
magazine is already printed in thirteen languages and an English edition for the United Kingdom
was launched in February 2007. It is expected to have a subscription of over 500,000.

6.0 CONCLUSIONS AND RECOMMENDATIONS

Today, IKEA is a successful brand. However, the power of marketing is evident behind its
success. One key thing that is important to focus when operating in a global environment is
cultural sensitivity. IKEA has responded to the cultural challenges by using product designs and
marketing techniques that suit the local markets. Most important things to be successful in any
market are product quality and pricing strategy. IKEA has managed these two factors very well.
Its products are not just affordable but also of great quality. Apart from that, IKEA has
complemented it all with great customer convenience and tried to engage shoppers in the best
possible manner. Its catalogs are its main medium of marketing communication. Print and digital
channels also play an important role in the marketing of its products and promote its brand. It has
also released an app and is using augmented reality to provide customers with a better
experience. IKEA’s case suggests that marketing in the international environment requires
intense focus and apart from advertising you must engage your customers better. As a closing
note, I think it is significant that IKEA is a pioneer in sustainability. The company has recently
announced the construction of a wind farm to insure it will operate 100% on renewable energy in
the future. Having a long-term vision that focuses on delivering what really matters to its global
customers, in a uniquely IKEA way, has paid off since 1953 and will continue to pay off as I see
it.
REFERENCE
1. Blomé, M. (2015). Visualization and establishment of product design regulations as
interactive modules: An interaction design study at IKEA. Journal of Systems and
Information Technology, 17(1), 20-34.
2. Bridges, C. M., & Wilhelm, W. B. (2008). Going beyond green: The “why and how” of
integrating sustainability into the marketing curriculum. Journal of Marketing Education,
30(1), 33-46.
3. Steenkamp, J. B. E., & Ter Hofstede, F. (2002). International market segmentation: issues
and perspectives. International Journal of Research in Marketing, 19(3), 185-213.
4. Wei, R. (2006). Lifestyles and new media: Adoption and use of wireless communication
technologies in China. New media & society, 8(6), 991-1008.
3.0 RETAIL STRATEGY
4.0 MERCHANDISING STRATEGY
5.0 TYPES OF PROMOTIONAL STRATEGY
6.0 CONCLUSIONS AND RECOMMENDATION