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HR7003 Strategic Marketing Assignment Level 5 University of East London

561 Downloads I Published: 30 Apr ,2020

Introduction

Every organisation whether small, medium or large are always looking to expand their business in different countries in order to achieve strong brand image in competitive market world. And it can be possible only when an organisation have an effective management who has an ability to make an effective decisions and strategies regarding marketing the new products in new market so as to make them more successful. Ikea, a Swedish multinational company which deals in providing furniture, kitchen appliances and home alliances is taken for the purpose of preparing this report. The company has decided to launch new moulded beds in Romania which can be used for multi-purpose. Through this, they focused on capturing large market share of Romania and achieve huge customer base as well (Acur, Kandemir and Boer, 2012).

The present assignment reports covers the internal as well as external environment which can affects their decision of launching new furniture product in Romania. Selection of best modes of entry among different options in order to sustain in new market for longer period has aloes been discussed under this report. The project also covers Porter Generic Strategy which help company to analyse new market before entering.

The main aim of preparing this report is to provide the modes of entering business into new market in order to capture large market share. For this, the management of company need to conduct PESTLE analysis, Porter generic strategies, modes of market entry all such aspects should be consider the management of IKEA in order to analyse the new market, competition level, taste and preferences of customers etc. through which they can easily enter and survive in new market for longer of period.

Task 1

1: Environmental analysis

Ikea, a Swedish based company which deals in providing wide range of furniture, kitchen appliances and home accessories products through the world. In order to attain huge brand image and captures large market share of Romania, the company has decided to launch new moulded bed products at an affordable prices which can be converted into different forms thus can be used for different purposes. For this, the company has mainly targeted lower and middle income level group which can afford to buy such new products and used them for multi-purposes. As such new product can be used for different purposes thus the lower and middle income level group can able to invest in buying such product instead of spending huge amount on different products. It saves their income as well. The company also targeted travellers. As entering into new market with new product is not easy task as the company faces lots of challenges and problems due to high competition and complex market environment. Therefore, the management of Ikea should required to properly evaluate the internal and external environment so as to compete with affecting factors in more effective and efficient manner. The people of Romania are more conscious about the price the company charged on their products. As they prefer to buy products at an old price due to their low income.

As IKEA company Launching new moulded products in Romania at an affordable prices can easily attract the interest and buying behaviour of customers. Thus, the management need to conduct SWOT and PESTLE analysis in order to find out the influencing factors and accordingly implement corrective actions to cope up with such factors more effectively.

According to the above graph, it has been clearly shown that an organisation who decide to launch new product into new market has more chances to get success in near future. Thus the decision of introducing new product into new market will bring beneficial result to IKEA. Such graph motivated other company's as well to bring new product into new market.

SWOT analysis:

It is conducted with the purpose of identifying their actual strengths and weaknesses so that they can focus on finding an effective ways to improve them all.

Strengths:

Ikea company is dealing with wide range of furniture, kitchen appliances and home accessories due to which they have attained 46th position in the world in terms of brand value according to the Forbes list (Baker, 2014). It has operated 415 stores in almost 49 countries through which they provide their products to large number of customers. In 2015, approx. 36.4 billion are recorded as revenue of company (Burke, 2011). The main strength of Ikea is kind of products they offered as they manufactures and design furniture products as per the direction given by customers. The management always focuses on bringing innovation and conduct research in order to reduce the prices of their products with a motive of attracting large number of customers.

Weaknesses:

As Ikea operated its business in different countries due to which it is difficult to control standards across locations. The company has mainly focuses on charging low prices which sometimes restrict them to provide quality products. The company also faces challenges in communicating and articulating its environmental policies to their customers, shareholders and other stakeholders. The company also faces lots of criticism due to poor treatment of employees, inappropriate advertising practices, non-compliance of government rules and regulations .

Opportunities:

Ikea should required to expand its business to the developing countries which not lonely improves their brand image but also successfully generated huge profits and revenues. The management also need to focus on improving online business through which they can offered wide range of products along with the prices in order to influence buying behaviour of customers. The company has also required to expand their grocery business through introducing more grocery stores in their retailer stores which help them in achieving huge customer base.

Threats:

There are large number of low cost retailers such as Walmart, Tesco etc. who are entering into home-ware specialist markets which increases high competition towards Ikea. As company focuses on prices rather than quality due to which few number of people are attracted towards company's product. Changing in government laws and tax policies also makes negative impact on the prices of Ikea's product.

PESTLE analysis:

It is conducted by company with the purpose of identifying the external factors which can affects their decision of expanding business to Romania. Through this, the management are able to deal with such influencing factors in more effective and efficient manner (Cegliński, 2016).

Political factors: Such factors are related with rules and regulation implemented by government for the purpose of operating business operations more smoothly. As Ikea company has launched new moulded bed product which can be used for multi-purposes in Romania due to which they may difficulties in understanding new laws and tax policies. The company may also get enough funds from different sources as financial institutions, investors etc. shows much interest in providing loans to foreign companies. For example, If the taxation rate of furniture products are more then it will be difficult for company to attract customers mostly lower and middle class people. It will affect their sales figure and reduces revenue (Tuckwell, 2010).

Economic factors: Such factors are related with economy of country which affects the purchasing decision of people. It includes inflation rate, interest rate and saving rate etc. which can influenced company's decision of launching new product in new market. As Romania is a developing country due to which the decision of expanding business in such country will be profitable for company. For example, during inflation the prices of furniture product goes high which affects the buying decisions of customers and during deflation the result will be different (Freng Svendsen and et. al., 2011). Increasing economy will increases the labour cost due to which the company may faces problems regarding hiring employees as it affects their revenues as well.

Social factors: This is related with factors including behaviour, culture, attitude and interest of society related with buying products. Thus, such factors changes frequently due to which the company may faces challenges in maximising their buying behaviour. For example, every customers required different and unique design of their furniture due to which the company should required to perform accordingly. As Ikea decide to introduce moulded bed which can be converted into various forms such as chairs, sofa etc. thus it attracts the interest and behaviour of those people who are more conscious in spending their income (Garma and Bove, 2011).

Technological factors: It is related with factors which includes advanced and latest technology which are used in producing quality products. As Ikea focuses on reducing prices rather than providing quality products thus they mainly consider to adopt updated technology. Therefore, implementation of cost-effective techniques and tools will help them in producing quality products. For example, IKEA should required to focus on using online marketing tools through which they can provide an option for customers to purchase wide range of products online. IT enhances their sales figure and revenues as well (Frow and et. al., 2015).

Legal factors: It is related with government legal laws and legislations which may either restrict company to introduce new product in Romania and promote them. There are some regulations which need to comply by new company such as IKEA while entering into new market. Non compliance will brings existence of business in new country into danger (Chakravorti, 2011).

Environmental factors: This is the factor which is related with climatic conditions thus need to be consider by the management of Ikea while manufacturing products. As Ikea decide to enter into Romania market with new products thus it may increase the chances of affecting environment in negative manner (Wang, Chen and Chen, 2012). Following are some aspects which need to be consider by the management of Ikea are Climatic condition and weather of nation and Standards and laws implemented by government with the purpose of protection of environment.

Identifying threats and weaknesses on the basis of above PESTLE factors

Threats: Mostly the government imposed high taxes on products and services provided by foreign companies in terms of charging VAT, excise duty etc. due to which the price of products are increased. Thus, it becomes difficult for IKEA to sell their new products at an affordable prices due to which they unable to attract large number of customers.

Weaknesses: Entering into new market requires huge amount of funds thus IKEA may find difficulties in raising funds from different sources. Some people having allergy of using deodorant products due to which they usually not prefer to spend money on such products.

After conducting PESTLE and SWOT analyse, it has been recommended that management of IKEA should required to focus on quality along with the price of product. It can be possible only when they should concentrate on implementing various features in order to provide comfortableness to the customers. As the company produce moulded bed which are mostly used by travellers, lower and meddle income level group thus need to focus on attracting them through following various promotional strategies.

Task 2

2.1: Assessing the modes of market entry

There are different modes through Ikea can able to enter into new market with new products more successfully and ensure them to survive in new market for longer period of time. For this, the need to first contact with other established companies in Romania with a motive of getting support from them in order to enter into Romanian market (Lee, Hsiao and Yang, 2010). There are different modes of entry which are briefly described as below:

Acquisition: It is most effective way of entering into new market which ensures company to get beneficial result on selling new product in country. It is the process in which one firm take over or acquire another company who are facing continuous losses. It can done when the owner of firm thinks that there are no scope is future as well to generate profit due to which they may decide to sell their business to other company who focused to get identity in country as quickly as possible. Ikea is one of largest retailer multinational company which has generate huge revenues every year. Therefore, they may find no difficulties in purchasing such company of Romania who has attained good position in Romania market. Acquisition required to follows specific laws and standards which are listed as below:

There are three laws which ned by be comply by John Lewis which are as follows:

  • Section 7 of the Clayton Act
  • The Hart-Scott-Rodino Antitrust Improvement Act of 1976
  • The Exon-Florio Amendments to their Defences Production Act of 1950

Joint venture: It is the process of merging two existing companies of similar nature through contractual agreement with the purpose of expanding business to different countries and achieve huge profits and revenues. A contractual agreement contains the risk, return, ownership and governance which are shared by them in agreed ratio. Therefore, Ikea should required to focus on merging with such company which are well-established in Romania through which the company can easily get identity of their new product in new market and thus sustain for longer duration (Mas‐Ruiz, Ruiz‐Moreno and Ladrón de Guevara Martínez, 2014).

Legal procedures of Joint Venture in Romania

Letter of Intent: During bilateral transactions, a letter of intent has been discussed which contain following relevant information about acquisition:

  • Sharing profit/loss ratio
  • Terms and conditions
  • Types of warranties that should be given
  • Non-compete covenants that may be given
  • Confidentiality

Exclusive agreement: This agreement give the right to both parties to negotiate exclusively for a period of time with the merged party in relation of the acquisition of the target company.

Non-disclosure agreements: A non-disclosure agreement is commonly used with the purpose of protecting confidential information relating to acquisition. It is prepared with motive of binding both parties in legal manner.

Franchising: It is the process of an agreement made between two companies in which one company allowed other company to use their name, logo after getting agreed amount of payment. A contractual agreement contains the terms and conditions regarding using their name, logo, trademark. In present case, Ikea decide to enter into Romania market with new product therefore they need to focus on communicating to well-established company of Romania who has attained strong brand image in Romania market and convince them to provide them support in establishing in market of Romania. As Ikea has lost its reputation after people knowing that the company has producing low quality products. Thus, with the help of using other company's name they can easily attract lots of people (Claudiu, 2011).

Laws and Regulation through which IKEA should enter into new market through such mode:

Franchise Disclosure: It is document which every franchisee need to pass to investor before 14 days of signing an agreements and contracts.

Franchise registration: Through this, the franchisor can protect their investors through following disclosure laws.

Notice laws: It is kind of notice which must be filed with the state which contains names of business as well as owner. Notice contains the willingness of franchisor to sell its business. They also required to submit an application form to federal laws and regularities pertaining to franchise businesses.

Relationship laws: These laws manage the relationship between franchisee and franchisor through consider following matters:

  • Notice period of termination
  • Grounds for avoiding franchise contracts
  • Equal treatment among all franchisees by franchisor.

From above modes of entry, it has been recommended that For IKEA which is established company of UK should required to opt acquisition mode of entry as they generate huge revenues thus faces no difficulties in acquiring other established company on Romania.

2.2: Most appropriate mode of entry into new market

Acquisition is an effective and profitable mode of entry into new market with new product as it becomes easy for company to enter into new market without following so much legal formalities. In given case, Ikea decide to launch new product in Romanian market thus acquisition mode should required to adopt by them as well in order to get beneficial result to company in near future. As Ikea is one of biggest retailer multinational company which has generated huge revenues every year. Therefore, it will be easy for them to acquire other well established company of Romania who is facing continuing losses from last many years. The management of Ikea need to first communicate with them and form a contractual agreement in which all terms and conditions are mentioned (Mitchell, Wooliscroft and Higham, 2010) Through choosing such mode of entry, Ikea can get several advantages which are as follows:

  • It helps in reducing costs due to economies of scale.
  • As the local companies gets tax reliefs or exemptions whereas outside companies are required to pay huge tax on their local business enterprise as well as foreign income tax. Thus, it help Ikea to get tax relief after acquiring local companies of Romania.

Legal procedures of Acquisition in Romania:

Letter of Intent: During bilateral transactions, a letter of intent has been negotiated which contain following relevant information about acquisition:

  • Purchasing price
  • Terms and condition to closing/completion
  • Types of warranties that should be given
  • Non-compete covenants that may be given
  • Confidentiality

Exclusive agreement: This agreement provide the right to buyer to negotiate exclusively for a period of time with the seller in relation of the acquisition of the target company.

Non-disclosure agreements: A non-disclosure agreement is commonly used with the purpose of protecting confidential information relating to acquisition. It is prepared with motive of binding both parties in legal manner.

Task 3

3.1: Segmentation

Market segmentation is the process of segmenting people into different groups on the basis of their taste and preferences which help company in focusing and identifying needs and requirements of each segment more critically. R&D team are responsible to conduct research with a motive of identifying common needs and preferences and segment them into one group. In context of Ikea, before introducing new product into Romania market they need to analyse the market situations through market segmentation. It can be further understood by following points:

Geographic: It refers to the division of market on the basis of geographical locations. The management of Ikea first need to focus on choosing such location where the demand of furniture are more and thus adopting marketing strategies to attract them towards their product. Sometimes the rural areas are ignored while covering different areas of country. As Ikea offered low-priced products which can easily attract people of rural areas. This will help in increasing the revenue of company (Pervan and Bove, 2011).

Demographic: It is the process of dividing market on the basis of age, gender, marital status etc. of customers. Through this, the management of Ikea are able to make an effective plans to provide them designed furniture according to their preferences. Mostly, the travellers and people living on rental basis will easily attracted towards new moulded bed introduced by Ikea in Romania as such product carry easily and cover limited space.

Psycho-graphic: Under this segmentation, the division of customers has been made on the basis of their different taste and preferences which changes frequently. Therefore, the management of Ikea should required to first identify the preferred design of furniture and accordingly implement demanded changes.

Behavioural: Under this segmentation, the company segmented the customers on the basis of personality, behaviour, lifestyle etc. As the people of Romania are more conscious about the price they paid for products thus Ikea can easily attract them through charging low prices on their furniture products.

Example of IKEA IN ROMANIA:

IKEA has previously hosted a restaurant with 550 places and greenhouse of 800 sq m, alongside an Ikea Cafe. Through this they can achieve huge success which motivates them to expand their furniture business to Romania as well in order to generate more revenue and profit.

As it has been clearly seen from above graph that the growth rate of IKEA in Europe is more as compared to other countries. Thus, the decision of expanding business to Romania will bring beneficial result to company in near future.

3.2: Targeting

Target market refers to group of customers on whose needs and preferences are considered by company with the purpose of maximising their level of satisfaction. In context of Ikea, they mainly targeted lower and middle income level group who can afford furniture products only when the company charges low prices. As Ikea charged low prices on their product which can easily afford by them. As the company also introduces new furniture products which can be used for different purpose thus purchasing one provides various benefits to customers. Therefore, price conscious people can easily attracted towards purchasing company's new product (Sharma and et. al., 2010).As from above graph, people living in rural areas are more likely to buy furniture products as compared to the people of rural areas. Thus, IKEA should required to focus on targeting rural people areas in order to increase the sales figure of products and services and generate huge revenues.

From the above graph, it has been easily observed that customers shows much interest in business which deals in manufacturing products who enter into their market for providing quality products and services.

Task 4

4.1: Porter Generic Strategy

There are basically three strategies which has been implemented by the management of Ikea in order to analyse market environment so as to determine the factors which affects Ikea to expand its business in new market. Such strategies are defined as follows:

Cost leadership strategy: As entering into new market with new product is not easy task as it required large amount of funds to invest in different business functions. Such functions includes operational activities, management activities and other functions which need to be consider by the management. Thus, to control cost incurred in performing various business functions the management of IKEA should required to take following actions:

  • Implementation of advanced technology and tools through which they can produce quality products at minimum cost of production.
  • Using Management Information System in IKEA which facilitate employees to make an effective decision and budget for future business activities (Management Theories & Concepts at the Workplace, 2018)

Differentiated Focus Under this strategy, the IKEA thinks differently in order to achieve competitive advantage in market. As Ikea provides moulded bed at an affordable prices which can be converted into different forms thus it makes them different from their competitors and the chances of shifting new customers towards buying new product of IKEA will be more. Thus, focusing on producing different products in attributes as compared to the rivals will help in gaining huge customer strength.

Focus strategy: IKEA should required to implement strategies to particular group of customers and focuses on their needs and requirements in relation to their products. As Ikea is large in size due to which it becomes easy for them to capture needs of large number of customers. The management of IKEA need to focus on cost from cost leadership and focus on differentiation as both will help them in managing cost incurred in business activities and generate huge revenues. Focus on managing cost will help in reducing cost of production whereas focus on differentiation will help company in achieving competitive advantage.

Differentiation strategy: The strategy should be made by the management of IKEA relating to improving the value of products as compared to their competitors. It can possible through implementing unique features in their furniture which help in shifting new customers towards company's product.

From above all strategies, the management of Ikea need to focus on cost leadership strategy in order to control and manage cost through using different tools and techniques.

Conclusion

It has been concluded from the above project report that before deciding of entering into new market with new product the company should first properly evaluate the internal as well as external environment in order to find out the factors which affects their decision. The management of Ikea should required to conduct SWOT and PESTLE analysis through which they can able to remove hurdles which restricts them to expand business in new market.

References

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  • Garma, R. and Bove, L.L., 2011. Contributing to well-being: customer citizenship behaviors directed to service personnel. Journal of Strategic Marketing. 19(7). pp.633-649.
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