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IKEA's Digital Transformation
IKEA's Digital Transformation
IKEA Name:
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As IKEA is one of the pioneering retailers that has successfully adopted and implemented massive
digital transformation in almost every operation of its business, therefore IKEA has been in the
headlines and has achieved marvelous attention of the business analysts and researchers. The
digital innovations that started in the beginning of 21st century transformed the business models.
(Marr, 2018). More and more companies shifted from traditional brick and mortar business
models to digitalized business models. Realizing the changes in the market brought up by digital
transformation, IKEA started to adopt digital transformation in 2005 (Marr, 2018). The digital
transformation strategy was quite visionary and proved beneficial for IKEA in various aspects.
From giving customers a virtual depiction of their products in the rooms and houses through
‘Augmented Reality’ to the development of Internet of Things, Smart Homes, robotic furniture’s
and implementation of AI based Reverse Logistic System; IKEA has transformed its business
model through the adoption of digitalization. Another reason because of which IKEA has been
the center of focus for the business analysts is their effort for introducing sustainable products
and adopting environment friendly and sustainable business operations. The minimization of
waste during production, recycling and reuse of waste products and maximum utilization of solar
energy are some key processes through which IKEA is adopting a sustainable business model.
Segmentation, Targeting and Positioning of IKEA
Segmentation and Targeting Strategy of IKEA
The IKEA’s business report-2020 gives a comprehensive overview of the strategies regarding
segmentation and targeting of customers. IKEA uses a differentiated segmentation strategy. A
summary of IKEA’s segmentation and targeting strategy is provided in the table below:
Adaptive Positioning
This sort of positioning is linked with “periodical repositioning of products and services in order
to reflect and incorporate the changes in customer preferences in the business model” (Ayodele,
2013). IKEA continuously updates and modifies its products and services according to the change
in the preferences of its customers. The massive digital transformation that IKEA has adopted is
one the best incidents which exhibits that IKEA has been incorporating adaptive positioning
strategy in its business model.
The components of PESTLE include political, economic, social, technological, legal, and
environmental factors which are explained in the detail.
Political factors
Political factors determine to the extent to which a government can influence a business industry
or the economy. These factors may include the economic policy of the government, tax
imposition or subsidiaries, fiscal policy, or trade tariffs. Since IKEA operates in more than 40
countries, the political environment, state’s policies, and other political decisions are very crucial
for the performance of the company (Alzghool, 2020). If a country is business friendly and have
good policy it can be help for the growth of the company, therefore political factors should be
investigated before landing into a new market.
Economic Factors
Economic factors are also crucial because a country’s GDP, average income and inflation has
direct impact on the buying decisions of the consumers. For example, if IKEA thinks of starting its
operations into a third world country, it is less likely to succeed because of the bad economic
condition of that region.
Social factors
Social and cultural factors are significant for the company because cultures are related to people
and people directly impact an organization. Therefore, it important for IKEA to understand the
culture, norms and values of the country when entering it (Alzghool, 2020). The different culture
and values should be respected and given importance. It is also important to understand social
factors in order to understand the consumers because the consumer preferences are directly
related to the social factors.
Technological factors
IKEA is rapidly adapting information technology in all its business components from the market
research to the distribution of the products. The company invests heavily in research and
development to come up with advanced technological tools and practices. Since technology helps
the company to be more efficient and sustainable, therefore its important to understand all the
technological factors that can favor the company and help it getting the competitive advantage.
Legal factors
As discussed earlier, IKEA operator in more than 40 countries and have its operations in many
countries as well. Therefore, it is important to understand the legal requirements, employment
laws and other operational companies to avoid any legal repercussions.
Environmental factors
The companies such as IKEA who consumes natural resources in their production, environmental
concerns are crucial. The company should not only follow the environment compliances for legal
reasons but also for the sustainability of people, planet and for the profit. The company has been
focusing a lot on sustainability as major part of its energy is produced through solar source, such
efforts should be encouraged in all the regions where company operators and sustainability
should be the priority.
Strengths
Good Quality, Affordable Products with Modern Designs
IKEA has implemented a “Democratic Design” strategy in its production processes. This strategy
includes five key elements: form, function, quality, sustainability and low price (Frue, 2020). Every
product at IKEA is produced keeping in view these five concepts. The designers of IKEA
incorporates feasibility of the products in the very initial stages by working closely with suppliers,
manufacturers and even customers. This allows them to make high quality products with
minimized cost. The quality of the products are ensured at different stages during the production.
Weaknesses
Following are few of the weaknesses in the business model of IKEA that could affect it in the long
run:
“Although IKEA has been thriving to expand its own manufacturing capacity, however
more than 50% of its furniture are produced by third party manufacturers” (Kim, 2018).
Most of the products of IKEA are sent to the customers in an unassembled form such as
beds, shelves etc. This may make these products of IKEA unattractive for few customers
group.
Leasing the forests is a feasible option for IKEA to have a control over its supply chain,
however it is a costly option as lease option are associated with high fixed costs (Kim,
2018).
Opportunities
90% of IKEA’s sales are generated from OECD countries. According to Euro monitor report,
India, China, Pakistan, and other developing countries in Asia are rapidly growing markets.
Therefore IKEA should focus on expanding in these virgin markets as well (Kim, 2018).
IKEA should focus on producing sustainable products that could give the company a
competitive edge in the future. Similarly, the company should think of using renewable
products in the manufacturing of its home furnishing appliances.
Threats
The outbreak of COVID-19 throughout the world has severely affected almost all the
business sectors. At the Macro level, it has impacted the economies of country and has
also brought a shift in the preferences of customers. Currently, there could not be any
more bigger threat than this deadly virus.
Another emerging threat for IKEA is the issue of locating sustainable sources of wood and
recycling of wood in the market (Kim, 2018).
Product
IKEA targets a wide range of products in its marketing mix within a broad product category.
Company’s offerings can be divided into categories such as outdoor furniture, bathroom, kitchen,
baby and children, decoration, cloths storage, sofas, bedroom furniture, cabinet appliances,
lightning, tools, and hardware (Burt et al., 2011). This is just an overview of the product categories
as there are hundreds of more subcategories within main categories. These products can be
accessed at the official webstore of the company.
Price
IKEA’s pricing strategy is to compete with the global chains and with the local supermarkets.
Therefore, the company’s vision is to offer products with affordable prices while maintaining the
high quality so that it could capture the market through increasing market shares (Burt et al.,
2011). The company focuses on its operational efficiency and creates internal strengths to
provide low price products to wider audience (Burt et al., 2011). This helps the company to
achieve its objective to become a high-quality affordable brand. Although, the company is known
for its low prices but they offer state of the art innovation and are known as the pioneer of
innovative designs and product development.
Place
IKEA has both global and local distribution networks to reach the potential consumers in all the
regions. IKEA focuses on high volume and it helps the company to achieve economy of scales
(Han & Zhong, 2012). The company has more than 25 distribution centers in different regions
and operates its stores in more than 40 countries. The key regions of the company include
Sweden, UK, and China, and for the manufacturing company is more focused in India because of
the cheaper manufacturing costs (Han & Zhong, 2012). This global supply chain helps the
company to distribute products effectively but also help in reducing the costs.
Promotion
IKEA uses a variety of promotional mix for the promotion and communication. In traditional
media, the company uses print, TV commercial and newspaper, while for the digital marketing
campaigns it uses company’s official website, blog posts and other social media channels such as
Facebook, Twitter, YouTube, Instagram, and LinkedIn (Han & Zhong, 2012). IKEA’s LinkedIn
handle alone has more than 2 Million followers which is an evidence of the effective promotion
of the company. There are hundreds of videos on IKEA’s YouTube channel, which have millions
of views. The company is able to engage, interact and communicate with its audience effectively
and it has been able to achieve it through high quality products and effective promotional
strategies.
Integrated marketing communications leads to numerous benefits for IKEA. The cost of
marketing decreases because of this integration, which leads to better impact on consumers and
the business (Kim, 2018). Inherently each component of the promotional mix was operated
separately, which made the marketing process less efficient, expensive, redundant and time
consuming, but with the help of IMC all the components are connected, and different managers
can access the data, monitor the progress of a campaign and other variables in the real time and
can make the decision accordingly. Although, the company still takes help from the external
marketing agency for traditional marketing campaigns, but the company has been shifting
towards digital marketing because of its promising returns and effective results. The company
uses the following digital media channels to communicate with its clients and to run
advertisement campaigns.
Social media
The company relies on such media channels such as Facebook, Twitter and Instagram to keep
engage with the consumers, answer their queries and inform them about the new products or to
make any other announcements. The consumers can also reach to the support team using these
platforms and they do not necessarily have to use the traditional website of the company or to
visit the stores. These social media channels have a very flexible support team that is available
for the maximum time of the day. The company have an accumulative audience of more than
400000 users on Facebook, Instagram, and twitter. The digital media not only helps the company
to communicate but it also helps it to connect with the relevant and target audience which is not
possible with the traditional media.
LinkedIn
LinkedIn is a famous platform used by businesses and employees and to connect with each other
or other businesses for marketing purposes. This digital platform is mainly helpful for businesses
to business transactions and communications. IKEA has been able to effectively use the platform
as it has more than 2 million followers on Linked which is a good manifestation of the power of
the digital media. The company manages B2B sales and communications through this platform,
these can be offices, home interiors suppliers or other retailers.
Conclusion
The analysis of the business strategies of IKEA sheds light on the fact that only those companies
survive and achieve marvelous growth that remain adaptive to changes in the market. The
changes can be in any form such economic changes, changes in customers preferences, changes
in technological advancements, and change in the form sudden and unexpected outbreak of the
pandemic. The analysis also hints that dynamism and digital transformation are inevitable and
are the only guarantee of success of businesses in the future.
References
Alzghool, M., 2020. An evaluation of IKEA’s global position and marketing standing.
Ayodele, A. (2013, December 17). A SITUATIONAL AND STRATEGIC ANALYSIS OF IKEA AND THE
FUTURE. https://doi.org/10.13140/2.1.3001.5684
Burt, S., Johansson, U., Thelander, Å., 2011. Standardized marketing strategies in retailing? IKEA’s
marketing strategies in Sweden, the UK and China. Journal of Retailing and Consumer Services,
Nordic Retail and Wholesale Conference 18, 183–193.
Frue, K. (2020, November 18). SWOT Analysis of IKEA: What’s the Brand’s True Strength?
https://pestleanalysis.com/swot-analysis-of-ikea/
Han, R., & Zhong, X. (2012). The Analysis of IKEA’s Value Chain Management Strategy. 210–212.
https://doi.org/10.1109/BCGIN.2012.61
Marr, B., 2018. The Digital Transformation To Keep IKEA Relevant: Virtual Reality, Apps And Self-
Driving Cars [WWW Document]. Forbes.
Sally Dibb, L.S., William M. Pride, 2019. Marketing Concepts & Strategies. Cengage Learning.