Marketing and Ikea - Essay Example

Their image of quality and affordability is an asset and their unique decision to go to flat packs provided portability and greater storage capacity. KEA has weaknesses greatest of which is a resistance to change. They also lack transparency between divisions, have high staff turnover, and have difficulty forecasting demand. They have opportunities in the trends toward streamlined customs, Increases In e-commerce, popularity of franchising and the current popularity of minimalist styles.

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The threats come from strong competition from superstores, government regulations and, because of their snail like pace of change, advances In technology and dramatic style changes pose large threats. Furniture Industry Trends 1. 1. As the world economy is developing fast in the past 10 years, the furniture markets have opened up more and the world furniture industry has been growing fast. Furniture industry has changed over the years.

It no longer restricts itself to a production of a chair or a table or a bed but today it includes manufacturing of a range of furniture and home furnishings and designed interiors which spell class and elegance. Every country sports a string of furniture showrooms of all kinds and sizes. Changing lifestyle, disposable incomes, economy growth, increasing migration o urban areas have all contributed to the demand for furniture and in turn the growth of the furniture industry as whole.

Furniture industry comprises not only the production of a wide range of products related to office, living room, bedroom, kitchen , garden, school furniture but also mattresses, furnishings, upholstery, parts of furniture etc. A wide variety of raw materials are used in production of furniture like wood, rattan, plastic and metal and more recently silver. Including various varieties of wood, wooden furniture is the major production and exports of the furniture industry in almost every country. Over 70% of the global market has been taken up by the traditional furniture making countries.

This is possible because of their long established production capacity, advancement in science and technology, solid funds and rich management experiences. Meanwhile, developing countries and regions like China, Southeast Asia, Poland and Mexico, with China taking the lead, have built upon their respective competitive advantages and gradually have covered almost 30% of the world market. The furniture industry in such countries is developing strongly and showing great potentials. The European Union furniture industry accounts for about half of the oral’s furniture production.

The production value of this industry in this region is around в? 82 billion. Considered to be a labor -intensive industry it provides employment for around 1 million people. Among the European countries, Germany takes the lead as the largest furniture producing country, accounting for about 27% of total EX. production. This is followed by Italy (21. 6%), France (13. 5%) and the I-J (10. 4%). The major furniture producing countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore, Thailand, Korea, Taiwan and India.

In the context of lobar furniture trade, Asia shows healthy signs of growth with respect to its other countries like USA, Europe and Australia. Over 20 years of fast growth, China has been able to bring unlimited business opportunities and vitality to the global furniture industry. Now, China has today emerged not only as furniture production center, but circulation and exhibition center as well. The rise of China’s furniture industry has brought about a new round of restructuring of the global furniture industry and trade pattern.

According to a recent estimate, the Indian furniture industry is estimated at around 350 billion. Eighty-five per cent of this falls into the unrecognized sector. According to a study by the World Bank, the organized furniture industry is expected to grow by 20 per cent a year and India, Brazil and Russia will witness a boom. 2. 0. 2. 1. KEA Company Background KEA was establish by Swede Angina Kampala in 1943 in Quandary, Sweden, when he was 17 years old(lake; History, 2013). Kampala created his own business, selling “whatever he found a need for that he could fill with a product at a reduced price” (KEA; History, 2013).

Kampala started by selling goods like pencils, wallets, leery, picture frames, and watches. He tried to keep costs low by purchasing goods in large quantities and passed on a part of this benefit to his customers. In 1947, Kampala introduced furniture in his product line and found that there was a good demand for it. He sourced furniture from manufacturers in local forests so that he could keep the costs low. As the scale of business grew, Kampala found it difficult to make individual sales calls and so started advertising in the newspapers.

In 1951, he designed a product catalogue and distributed it to potential customers who lived near his store. The company name KEA was created by combining Angina’s initials (I. K) with the initials of the name of the farm (Elementary (E)) and the village he grew up (Quandary (A)) (KEA; History, 2013); Kike’s blue and yellow logo was derived from the colors of the Swedish flag. (KEA; How KEA Works, 2013). Eight years later, Angina become a furniture provider on a larger scale than its Therefore, he discontinued all other products except low- prices furniture (KEA; History, 2013).

KEA is famous for involving its customers actively in searching for products, selecting products at the in store warehouse, taking the product home and assembling the product themselves. (Arnold & J, 2002). KEA opened its first furniture showroom in Almost, Sweden in 1953 where customers could see, touch and feel Kike’s furniture before they placed orders. As KEA was selling furniture at very low costs compared to its competitors, the competitors forced their supplier to boycott supplying to ‘KEA.

That led KEA to design and engineer its furniture and then outsource the manufacturing to Eastern European countries, particularly to Poland from 1955. KEA designed its furniture to cost less, looks stylish and also be functional. In the same year, one of Kike’s co- rockers decided to remove the legs of a table so that he could fit it in his car and minimize any damage in transit. That led KEA to test flat packing in 1956. KEA realized that flat packing would bring down the costs of transportation and storage drastically. The company started designing its furniture to support flat packaging.

In 1958, KEA opened its first store in Almost. KEA saw an opportunity to cut costs by letting the customers transport and assemble the products themselves. The company was thus able to sell furniture at around 30% lower costs than other furniture retailers. In 1963, KEA opened a store in Oslo, Norway, its first store outside Sweden. In 1965, it opened a store in Stockholm, Sweden. The company introduced the self- serve concept in the store. Customers were provided with information about the products on display through written material and information desks.

They were invited to check out the products and select them but there were no sales staff. That enhanced the customers shopping experience at the store as there were no salesperson who were constantly urging customers to make purchases. Customers were given tickets for the goods they purchased and were asked to collect the goods t the delivery docks. There was no door delivery service available and the customers were asked to provide for their own transportation. Car racks could be bought and self-driven vans could be rented. KEA expanded into more European countries and by 1974 it had 10 KEA stores in five European countries.

KEA shifted its headquarters from Almost to Copenhagen, Denmark, as it felt Copenhagen central location made it a better choice to support its European expansion plans. KEA became highly successful in Germany where it opened its first store in 1974. By 1980 another 10 more stores opened in Germany. In 1975 KEA entered Australia by opening a store in Sydney. It continued to expand globally by opening stores in Canada, Singapore, Canary Islands, Iceland, France, Saudi Arabia and Kuwait. KEA entered the US in 1985 by opening a store in Philadelphia, Pennsylvania.

As the company followed the same products assortment and specifications in all of its stores globally, it decided to follow the same in the US. However, this did not work because of the difference in the lifestyles of American and Europeans. For instance, the size realized that it had to modify its products to suit the local’s needs and hence made retain modifications to products like beds and kitchenware. Though the products were modified, the Scandinavian touch was maintained in the style and design. In 1986, Kampala stepped down from the post of CEO and became the advisor of SIFT.

By the year 1990, KEA had 89 stores in 21 countries. Along with global expansion through its stores, KEA also expanded the sources of supply to include countries like China. In its early days KEA sources most of its products from Eastern Europe but as it expanded its business, its dependence on Eastern Europe came down to a certain extent. In the sass around 25% of its supplies were from Eastern Europe. This came down to 15% by 1990. In the same way, Kike’s revenue dependence on Scandinavian markets also came down from 85% in 1975 to 26% in 1990.

In 1991, KEA started a furniture manufacturing subsidiary, Edgewood, to manufacture wooden furniture and components. In the sass KEA further expanded into countries like Taiwan, Malaysia, Spain and China. In 1997, KEA launched its website www. Kea. Com where it provided its customers with an online product catalogue. In the mid-sass, KEA launched a separate line of products specially designed for children. In the year 2000, KEA launched a Code of Conduct for its suppliers, The KEA Way on purchasing Home Furnishing Products.

It defined certain issues like minimum wages, prevention of child labor, amenities for workers at the suppliers end and external environment and forestry management. In 2001 KEA moved its headquarters to Elided in the Netherlands. During the mid-sass as its European markets were getting saturated for ‘KEA, it started focusing more on the Asian, Russian and the US markets. It entered Japan in 2006 by opening its first store in Tokyo. As of August 31, 2012, the KEA Group had operations in 44 countries, including 30 service trading offices in 25 countries.

They also had 33 distribution centers and 11 customer distribution centers. The KEA Group had a total of 298 stores in 26 countries. 2. 2 KEA Corporate Structure Figure 2. 1: KEA Corporate Structure 2. 2. 1. KEA Group Companies The KEA Group Companies are primarily concerned with carrying out the necessary functions to bring KEA products to market. The companies include Edgewood, KEA of Sweden, Purchasing, Distribution, and other functions such as Human Services, Internet Technology and Communications. (lake Corporate Structure, 2. 2. 2. ANGINA Holding B. V. ANGINA Holding B. V. S the parent company for all of the KEA Group companies which are governed by a Supervisory Board. Though retired, Angina Kampala serves as Senior Advisor, while his son Matthias is on the Supervisory Board. The KEA Group companies are comprised of KEA Services B. V. And KEA Services ABA which have nine divisions in Sweden and the Netherlands which support the work in all the KEA Group companies. (lake Corporate Structure, 2012) 2. 2. 3 Stitching ANGINA Foundation KEA is actually a privately held company owned by Stitching ANGINA Foundation, a non-profit registered in Elided in the Netherlands which is controlled by the

Kampala family. The Dutch foundation, worth IIS$36 billion in 2006, was created by Kampala in 1982 to maintain the family control on it and minimize taxes as trusts and foundations had tax benefits. Further its purpose is to hold shares and reinvest in the KEA Group and to fund charity through the Stitching KEA Foundation. (lake Corporate Structure, 2012). 2. 3 Business Vision and Mission Business vision Officially, KEA has also formulated a vision, which dates back to 1976 (KEA Group Early summary, 2012): “The KEA vision is to create a better everyday life for the many people” (KEA Group Early Summary, 2012)

This vision is based on a business approach that “proposes a wide range of furniture items, both aesthetics and functional, at such low prices that the majority of customers will be able to purchase them”. This compulsion towards profitability and low prices advocated from the beginning by its founding father. KEA has a clear mission is to selling a wide range of furniture and accessories at a reasonable price so that most people can buy them. By offering a wide range of assortment the key word is functionality, consumers can find everything under one roof.

That’s why you can find everything at ‘KEA. ‘KEA, 2011) Low prices are one of the cornerstones of Kike’s concept (KEA, 2004). Due to Kike’s founder’s mentality, KEA stress low prices which Angina Kampala came from SMS;land, a poor farmer area, where employees received low wages and one had to make the best of it. Counterattacked Kike’s business idea, which was part of his Our Business Ideas has always been to give people with thin wallets a chance to furnish their homes in a beautiful and functional way. We call it “democratic design”. (KEA Group Early Summary, 2012).

In the beginning, the business idea’s part is “for the many people” cover only Kike’s customers (Dahlia, 2004), but the phase is nowadays viewed as covering KEA co-workers, employee of KEA suppliers and the environment as a whole too. Kike’s strong values of togetherness and enthusiasm, a constant desire for renewal and their commitment to achieve goals a reality will support them in taking the many steps, both large and small. 2. 4. The KEA concept The KEA Concept is based on offering a wide range of well designed, functional home furnishing products at low price.

Rather than selling expensive home furnishings that only a few can buy, the KEA Concept makes it possible to serve the any by providing low-priced products that contribute to helping more people live a better life at home. The KEA Concept guides the way KEA products are designed, manufactured, transported, sold and assembled. All of these factors contribute to transforming the KEA Concept into a reality. (Copra, 2009) 2. 5. KEA Range The KEA product range meets the needs of fundamental activities by offering a wide range of well-designed, functional home furnishing products.

The KEA range includes products for every part of the home. (Copra, 2009) I) Design- While most retailers use design to Justify a higher price, KEA designers ark in exactly the opposite way. Instead they use design to secure the lowest possible price. KEA designers design every KEA product starting with a functional need and a price. Then they use their vast knowledge of innovative, low-cost manufacturing processes to create functional products, often coordinated in style. Then large volumes are purchased to push prices down even further.

Most KEA products are also designed to be transported in flat packs and assembled at the customer’s home. This lowers the price by minimizing transportation and storage costs. (Copra, 2009) it) Function- Many people have many needs. So KEA designers are always seeking new ways to improve people’s lives – without emptying their wallets. But how can good design and function be combined with good quality, all at a low price? It starts under a table-top improve the function? Absolutely not.

So KEA designers do not do it, because a product is of no use to the customer if it is not affordable. (Copra, 2009) iii) Low Price- Low price is a prerequisite for the KEA Concept to realize the KEA vision. KEA designers do their part to keep prices low by using production capabilities from other areas in unique and previously unimagined ways – like having hire factory produce furniture upholstery. Or using leftover materials from the production of one product to create an entirely new one. KEA customers also contribute to keeping prices low.

They select and pick up the products themselves, transport them home and then assemble them themselves. (Copra, 2009) 2. 6. Goals The business philosophy of KEA can be best described by four goals namely to create a highly efficient sales department, providing ideas for home furnishing, to serve the customers as well as they are served by a home furnishing shop and giving people the idea that shopping at KEA is a day out for the whole family. Since it was founded KEA has always had concern for people and the environment.

KEA vision to create a better everyday life for the many people puts this concern at the heart of the business. KEA has responded to the publics rising concern for sustainability in its choice of product range, suppliers, stores and communication. Hence Kike’s encourage suppliers to make 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. (Adamant, Theory, Adele, Sesame, & Yakima, 2011) 2. 7.

Environment and Corporate Culture As most customers follow the “green”-trend KEA is keen on protecting the environment and trying to minimize any possible damaging effects on it. Therefore Kike’s suppliers strive to reduce the produced waste polluting the air, water and ground, using recycled or recyclable materials and using wood from known areas. Additionally, suppliers may not use components that are on the list of chemical ‘Compounds and Substances’, use the woods from national parks or nature reserves or areas with high conservation values. They may only use the woods if they are certified for their use.

KEA also operates with a few companies such as trade unions, Nags and it has partnerships with EUNICE, Save the Children and WFM (the global conservation organization). lake and these partners are focusing on improving children’s rights and they are promoting responsible forestry, better cotton cultivation and reduction of CO emissions. (KEA, 2011) 2. 8. Organization Culture enthusiasm, on our constant will to renew, on our willingness to assume responsibility and to help, on our humbleness before the task and on the simplicity in our behavior’. Daft, 2010) Page. KEA tries to give employees a family friendly ailing. There is no noticeable hierarchy among workers, so e. G. Managers also have to stock shelves and all design team enjoy complete autonomy in their work but are expected to design new appealing products regularly. This corporate culture of KEA is built upon the philosophy of sustainable development and a continuous strive for improvement in all areas of the value chain which is an effective way to shape the industry to better fit Kike’s future strategies.

Cost is another part of corporate culture; the culture emphasizes efficiency and low cost which is not to be achieved on the expense of quality or service. . 9. KEA Corporate Social Responsibilities KEA believe that it is possible to make traditional business objectives and social and environmental responsibility work together for the benefit of the many people. KEA wants to take a leading role towards a low carbon society, and significantly reduce the carbon footprint from all aspects of its operation.

KEA CARS activity involves in three main areas Children, better living and environment project. KEA wants its products to have the minimum impact on the environment and for these products to be manufactured in a socially responsible way such as lowering price but to at any price In addition, KEA stores and national retailers are also active in many social responsibility projects to maximize society well-being and produce product which has minimum impact on the environments. 3. 0.

Organizational Structure and Management The present organizational structure can be defined as highly functional with a global market strategy. On that account KEA is able to maintain centralized control over functional activities and at the same time take advantage of low cost and enhanced quality from international suppliers. On top of that, control over strategic erection is improved and functional lay-offs are minimized. In order to ensure efficiency in the logistics process, the organization has integrated purchasing and distribution processes under one umbrella function.

As KEA continues to expand overseas, the importance of centralized strategic direction will increase. The rapid internationalization triggers a range of challenges imposed on the headquarters in Sweden e. G. Increasing difficulty of responding to national needs and cultural nuances, impact of emerging demographic trends forcing KEA to broaden its focus treated to respond to varying nation-level consumer groups etc. These changes can influence the maintaining of Kike’s global organizational structure.

The solution for the problem is to find the proper balance between country level autonomy and centralized intervention through increasing subsidiaries and franchisee autonomy. With logistics complications and long lead times, KEA need to suppliers guarantees high quality, technology transfers and economies of scale and prevents potential suppliers from trying to integrate forward and produce competitive products for Kike’s local competitors. Without Kike’s centralized logistics system it could lead to severe store shortages. 3. 1.

KEA Business Strategy KEA is cost leader in the home furnishing market due to efficiency of the internal production. The suppliers of KEA are usually situated in low-cost countries and can easily access the raw-materials. The products that the suppliers sell on the market are standard furniture. Because KEA is such a big company it can buy thousands of pieces of furniture at the same time and usually gets big discounts, this is called economies of scale. KEA has become such a strong brand because they create a DOD mix of low cost furniture with high quality.