Ikea Pestle And Strategic Options Analysis Marketing Essay

Ikea Pestle And Strategic Options Analysis Marketing Essay INTRODUCTION The aim of this paper is to conduct a SWOT and a PESTEL analysis of IKEA and summarise an assessments of IKEAs strategy and strategic options. IKEA, which was started in 1943, is the world largest furniture retailer. It offers a wide range of well-designed, functional home furnishing products at affordable prices. This enables as many people as possible to afford them. IKEAs focus throughout its existence has been to make and provide good products at low prices to customers. Thus, it has with time developed methods that are both cost-effective and innovative. SWOT ANALYSIS According to Kourdi (2009), an analysis of the companys strengths, weaknesses, opportunities and threats is a good tool for gathering information on the strategic position of the business. He explains that strengths and weaknesses are found within the internal environment of the organisation while opportunities and threats are usually found from the external environment within which the business operates. Strengths IKEA provides other amenities in their stores these include playrooms for children, ample parking space and restaurants and Swedish cafà ©s. This attracts customers who care about parking and who have children. The children can be left playing at the play zone while the parents do the shopping. IKEA designs its own furniture. This makes the business become innovative in designs and also assures customers of the same range of furniture and quality all over the world. Long-lasting relationships with selected key suppliers are a major strength of IKEAs purchasing and product development strategy. This is because IKEA is directly involved only in conceiving, distributing, and selling its products Designing products so that they can be packed flat and assembled by our customers greatly reduces IKEAs cost. This means IKEA can ship more items in one truck, less storage space is required, labour costs are educed and transport damages are avoided. For the customer, this means lower priced products and easy transportation home. Weaknesses Scandinavian design and style is not everyones preference. IKEA needs to diversify on its product design to appeal to other conservative markets in the world. For example, customising some products and amenities like restaurants to oriental markets in a place like China or Hong Kong , Arabic ones for the middle-east or even African products for the African market (when it ventures to Africa) will appeal more to another market segment of traditionalists or very patriotic citizens of these regions Since IKEA does not own any transport facilities, its supply and distribution network is physically connected through external actors and thousands of logistic partners. Coordinating and connecting this complex network it had adopted needs a lot of concentration and very advances monitoring system, in addition, IKEA does not unilaterally control and most of the logistic relationships Opportunities There is the potential to expand to other areas where IKEA has no stores due to its international fame, strong globally recognised brand and growing demand for its products. These untapped markets include South America and Africa. IKEA recycles materials in its aim to grow organically. IKEAs website states that There is a true business potential for IKEA in providing solutions that enable customers to live a more sustainable life at home. IKEA is developing effective solutions for customers in order to support them recycling or reusing used products, aiming at no products ending up at landfill and the recycled materials used in producing new IKEA products.  [1]   Threats IKEA delegates much responsibility to its competent partners. These are normally either those who have long been in charge of manufacturing a certain product, or those who have specific technical competences. This provides a difficulty in controlling and maintaining standards. Due to this, IKEAs competences and organizational structure need to keep on being re-visited and modified to fit specific partners and interaction processes and networks Like any other business, Competition from low end general discount retailers such as Wal-Mart, office supply stores such as Office Depot, and discount warehouses such as Costco. Wal-Mart is the worlds number one retailer. These general merchandise retailers tend to aggressively promote their furniture products on the basis of price as well. Another threat is the high-end specialty retailers who normally offer luxurious store environments designed to appeal to people looking for feelings of affluence, high class, ostentation prosperity, and comfort. These retailers also offer various payment options and easy credit to make it easier for shoppers to commit to a more items or costly products. PESTLE ANALYSIS PESTLE is a tool that is used to analyse the macro-environment in which an organisation exists. It is an acronym that stands for Political, Economic, Social, Technological, Legal and Environmental factors. PESTLE analysis generates information that helps senior managers when strategising and when formulating strategic plans and policies Morrison (2008) argues that PESTLE analysis can also be used as a framework for looking outside the organisation to hypothesise what may or may not happen. It is a useful framework to use to ensure that some of the basic factors are not overlooked or ignored. Used in a similar way to that of business planning  [2]   Political environment This includes issues to do with government policies on taxation, tariffs and trade restrictions. It also encompasses employment laws and the activities and involvement of trade unions. Political stability of the environment is also important. IKEAs political environment is favourable. In Europe and America, the political systems have developed over long time providing a very stable environment. IKEA does not operate in Africa where most nations are not politically stable Economic Factors IKEA like most businesses in Europe and America is currently operating in global economic recession. In most countries, there has been slow economic growth for the last two years. Other economic factors are typical to each country and have to with inflation rates, interest rates, wage rates and minimum wage legislations. Sociological factors Markets where IKEA operates are faced with changing social trends. For example there are now fewer first time buyers in the housing market which is mainly due to hard economic times. Thus there may be a deceleration in the markets growth rate. According to echeat.com, many people associate Sweden with a fresh healthy way of life.  [3]  This Swedish lifestyle is reflected in the IKEA product range. The freshness of the open air is reflected in the colours and materials used and the sense of space they create by using blond-coloured woods, untreated surfaces and natural textiles. IKEA has also developed a very comprehensive corporate social responsibility program. IKEAs social responsibility policy gives a provision for humanitarian donations and support to various charities such as the World Wildlife Fund, UNICEF and Save the Children fund. Technology IKEA has embraced technology as a business tool. It has an up to date website from which customers can view online catalogues, check for stock availability before going to the store, order online and even correspond with the customer service team. As technology evolves, IKEA will perpetually keep on updating and upgrading its technology to keep pace with its global networks ranging from network relationships with supplier to those with distributors. Legal IKEA is a global business. This means that it is affected by many laws and legislations in all the different countries. This poses a threat where IKEA may be unable to control standards and/or quality in some jurisdictions where IKEA products are where there are no regulations to control working conditions. Environment Since it was founded IKEA has been sensitive to the environment which leads it in making better use of both raw materials and energy. This keeps costs down and helps the company to reach its green targets and have an overall positive impact on the environment SUMMARY ON IKEAS STRATEGY AND STRATEGIC OPTIONS IKEA can create more opportunities and tackle threats by strategic planning whist taking advantage of its strengths and working on its weaknesses. In the case study IKEA Invades America, IKEAs strategy is to have market dominance and market leadership as far as house furnishings are concerned. It can do so by assess its external and competitive environment Low-prices for it products is the main IKEAs strategy that makes customers want to buy from IKEA. This low price strategy is coupled with a wide range of well designed products. IKEAs products cater for every lifestyle and life stage of its customers, who come from all age groups and types of households. This diversity in the niche market is increases IKEAs potential market. In the case study Strategy in Industrial Networks: Experiences from IKEA by E. Baraldi, Industrial networks and business relationships play key roles for the strategy of IKEA. It should therefore continue to work with suppliers who take responsibility for people and the environment and who want to grow and develop with IKEAs growth. As part of its continuous work to improve conditions in the supply chain, IKEA has implemented a revised code of conduct, IWAY, and joined an industry collaboration exploring the possibility of developing global supply chain standards (IKEA sustainability report 2009: 13) Sustainability needs to be a part of the IKEA business strategy, and must therefore be integrated into each and every one of IKEAs business strategies, and in its product range (IKEA sustainability report 2009: 8). IKEA will need to lead developments with innovation and technical know-how and be transparent to its stakeholders. IKEAs products, processes and systems should continue demonstrating responsibility for people and the environment.