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Founded in 1943 by Ingvar Kamprad, IKEA is, over 60 years later, the world largest furniture retailer, providing products in a flat packing concept and at low prices. They have 226 stores in Europe, Asia, and America with revenues of $17.7 Billion as of August 2005. 70% of their marketing communication is based on their famous annual catalog. There are many environmental factors that affect IKEA’s global and domestic marketing decisions. An analysis of those factors, the influence of the global economic interdependency and the effect of trade practices and agreements, the demographic and physical infrastructure, the cultural differences, social responsibility and ethics versus legal obligations, the effect of political systems and the influence of international relations and the Foreign Corrupt Practices Act of 1977, and finally the effect of technology are discussed herein.
The economy, the trade practices, and agreements are factors that help understand the purchasing power of customers, thus it deals with income, prices, savings, debts, and GDP. When a company has the intent of going for globalization, they have to carefully observe and study those factors, in order to have an appropriate marketing mix and in particular a price that is adapted to the country they are targeting. IKEA is present in industrializing and industrial economies where there is potential for selling their goods and touching the middle class, their target market.
The demographics and physical structure are essential to determine in marketing, it includes the gender disparity and differences, their buying patterns and habits, their culture, their religion, and their diversity. It is essential to determine the profile of the customer to have a successful marketing mix.
IKEA’s marketing strategy development considers the demographics and physical infrastructure for their growth potential and development; thus, they have neither implanted shops in third world countries for example, nor in some continents such as Africa and South America, but they are present in Canada, the USA, Europe and Asia. They offer the same products worldwide but adapt the marketing depending on the demography and the physical infrastructure. Thus, they offer different mattress sizes as an example, since a queen and a king are not the same size in the US and in the United Kingdom. They match the offer of competitors but they adapted to their environment to fulfill customers’ needs, by reducing prices in the US, making the stores larger, and converting centimeters into inches. Although IKEA wants to stay Swedish, they adapted their offers to the countries they are coming too. All the names of their products are Swedish. IKEA made a mistake by not adapting their product names and taking into account the language and culture of the country. They called a child’s bed GUTVIK, which is a really rude word in German. In 2004, IKEA designers visited the homes of Hispanic Californians, and realized that Hispanic families had large families, and liked bright colorful colors, so they made some changes in the showrooms.
Marketing has social responsibilities, ethics, and legal obligations towards their customers. Marketing can mislead and lie to customers. There is a business responsibility to create trust and comply with their social obligations, like providing safety with the product used, protect against high pressure selling, deceptive practices, avoid monopoly and high prices. To avoid price inflation and ensure fair competition in order to protect the customers, laws regulate monopoly situations. Consumerism and environmentalism are organized movements of people and governments to protect the consumer and the environment. IKEA adapted to each country by following the laws regarding social responsibilities and ethics. For example, acknowledging the issue with wood chemicals that could harm customers and being also bad for the environment, IKEA initiated some changes among their suppliers and the company, not only for economic reasons but also for their image. Image, as we know, is an important marketing tool that can lead to success. Being eco-friendly is ethical, caring about the health of one’s customers is a legal obligation in most countries IKEA is established in, but it is also an ethic matter. Despite their high moral standards, IKEA had issues in India and Pakistan with regard to child labor, because they were aiming for low prices as always, and they had unethical practices for the sake of keeping low prices for their customers.
The political systems also affect the marketing environment. The number of business laws increases continuously to protect businesses and consumers, it includes competition, safety of the product, and workers, fair trade, credit practice. Laws to avoid the inflation of the price and the fair competition, to protect the customers, regulate monopolies. IKEA signed a framework agreement with The International Federation of Building and Wood Workers (IFBWW) in May 1998 for the promotion of workers right. The laws regarding credit practices, since they offer credit cards also influence IKEA. They have to follow the different rules and laws of each country regarding the promotion of the credit card; the interest rates practiced, disclaimers, consumer’s right and privacy policies, respecting the Fair Lending Act.
The foreign Corrupt Practices Act of 1977 has two intents; one that deals with accounting transparency requirements under the Security Exchange Act of 1934 and the other with bribery of foreign officials. Those acts aim at regulating illegal and unethical practices. Those practices are unfair for the equilibrium of the Global Market, and jeopardize its wealth. Mal practice can damage a company’s image and reputation, and lead the company to failure. IKEA has clear accounting transparency as of to date. IKEA market their image of a good and honest company through the job searches category, defining the importance of accounting control, store control within their businesses.
Technology is an important environmental factor in Marketing. Technology development has provided marketing intelligence systems allowing tracking information about developments in the marketing environment. IKEA for example collect Zip Code of their customers at the sale register. This era has been successful in launching the INTERNET, and the e-business for example. IKEA took advantage of the technology by promoting their items through their website with advertisement, room situation, catalog simulation, mini movies, and also use it for e-commerce. This allows the company to touch a maximum of people worldwide, in a minimum of time, and at a low cost. IKEA Malmo even used Facebook to promote the opening of its store, they uploaded 12 pictures of IKEA products on the general store manager profile, and customers had to tag their names, and check is their names matched with the product names… This was easy to spread to all of the families and friends.
IKEA has a wonderful marketing strategy enabling the company to offer the same product worldwide and impose their trends by keeping and enforcing the Swedish image, creating the same route in every shop, maximizing and prolonging your stay by offering food and day care. They have to adapt to many environmental factors in order to carry on success. So far, they haven’t promoted diversity or ethic practice much as part of their image culture, they are still emphasizing the low cost, and delivering value to their customers. They had a great marketing promotion strategy with Facebook and created the ripple effect, which in a sense was the best promotion to reach a maximum of people, and for people to gain product knowledge and being part of our culture and daily life.
IKEA (2010). Retrieved from http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/index.html
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