Question 1 (Maketing)

Using the concept of segmentation, discuss TWO major segmentation variables that might be used by IKEA in segmenting consumers for home furnishing products. (20%)

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The following is the situation : Case Study: IKEA IKEA was founded in Sweden in 1943. As a private international home products retailer, IKEA 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. The IKEA vision is "To create a better everyday life for the many people." To meet this vision IKEA provides products that many people can afford to buy them. However, in creating low prices IKEA is not willing to sacrifice its principles. Low price but not at any price is what IKEA says. This means it wants its business to be sustainable. IKEA supplies goods and services to individuals in a way that has an overall beneficial effect on people and the environment. Customers all over the world have responded positively to IKEAs approach. The business idea is "To offer 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." The market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money. The IKEA concept is based on the market positioning statement. "We do our part" focuses on their commitment to product design, consumer value and clever solutions. By using inexpensive materials in a novel way and minimising production, distribution and retail costs, their customers benefit from low prices. 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 of these factors contribute to transforming the IKEA Concept into a reality The IKEA brand is the sum total of the emotional and rational values that consumers associate with the IKEA trademark and the reputation of the company. The key IKEA messages all have their roots in the Swedish origin of IKEA. Swedish furniture is light and fresh yet unpretentious. The warm welcoming Swedish style has become a model of simplicity, practicality, and informality that is now world renown. PRODUCT The IKEA product range is developed to be extensive to have something that appeals to everyone and to cover all functions in the home. IKEA products are functional, appealing and easy to use. They don't have unnecessary features; they give genuine solutions for specific home furnishing needs and are made of the most suitable materials for their purpose. IKEA products enable people to improve their home life through practical solutions to everyday problems. The products are subjected to rigorous tests to make sure that they meet national and international safety standards. 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. PRICE Low price is a prerequisite for the IKEA Concept to realise the IKEA vision - "to create a better everyday life for the many people". As the IKEA Concept aims to serve "the many people", the IKEA product range needs extremely low-price levels. IKEA designers do their part to keep prices low by using production capabilities from other areas in unique and previously unimagined ways - like having a shirt factory produce furniture upholstery. Or using leftover materials from the production of one product to create an entirely new one. IKEA customers also contribute to keeping prices low. They select and pick up the products themselves, transport them home and then assemble them themselves. And they can enjoy them already later that day. Low price is not appealing unless it represents good value for money. This is where IKEA is able to make a real difference. IKEA is committed to having a good relationship with their suppliers and so they are able to purchase good quality, economically produced designs that are bought in bulk to keep costs down. By making all their furniture flat packed they cut down on transportation, storage and assembly costs. PLACE 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 store is IKEA retailers primary medium for presenting and communicating the product range, its low price and the IKEA concept. As of the end of August 2020, there were a total of 445 IKEA stores worldwide. The IKEA store offers convenient shopping and "everything under one roof". Most of the products are available for immediate take-away. IKEA offers service where they need it, but allows customers to make most of the decisions themselves. This means that they need to make it easy to choose the right products by displaying them correctly, describing them accurately and having a simple returns policy. Many stores include restaurants serving traditional Swedish food such as potatoes with Swedish meatballs, cream sauce and lingonberry jam, although there are variations. Besides these Swedish staples, hot dogs and drinks are also sold. Refills of coffee, tea, and soft drinks are free of charge, even in countries where this is uncommon in other restaurants. Many stores also have minishops selling Swedish-made, Swedish-style groceries, such as Swedish meatballs, packages of gravy and various Scandinavian cookies and crackers, as well as salmon and salmon roe. PROMOTION IKEA uses a variety of promotional techniques to promote its brand. Among the tools used to promote its brand, the promotional catalog is the most unique and successful one. It is also the most used and 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. In 2000 IKEA began selling merchandise on the Internet, and the company expanded rapidly. By 2003 it was so popular that its catalog had the worlds largest annual print run, and by 2009 the catalog was being issued in more than two dozen languages. The IKEA catalogue is the main marketing tool with around 70% of the annual marketing budget being spent on this alone. It is produced in 38 different editions, in 17 languages for 28 countries. The catalogue is distributed in stores, by mail and posted on the IKEA website.

IKEA 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. 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.

The IKEA advertising, PR and other types of communication are complements to the IKEA product range; store and catalogue are used to spearhead the penetration of our target market. IKEA has launched a loyalty card programme 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. The card also gives discounts on food purchased in the restaurant and the Swedish Food Market.