Strategic Management

Final Project Report

Industry: Home Furnishings & Fixtures

Company : IKEA

By: Anshuk Pradhan

U113072 Sec-B

Table of ContentsQ1. Comparison of business model.......................................................................................................4

Detailed Analysis:..............................................................................................................................4

Ikea’s Concept of cost efficiency........................................................................................................4

Ashley Furniture:...............................................................................................................................5

Godrej Furniture................................................................................................................................6

Q. 2 Activity System Map.......................................................................................................................7

Activity System Map for Low Cost Organization................................................................................7

Activity System Map Analysis:...........................................................................................................8

Activity System Map for Diversified Organization.............................................................................9

Q. 3 Low Cost Providers as well as the leading Organizations with Diversified Product/ Service Providers for India and for the 5 Continents.......................................................................................10

India:................................................................................................................................................10

ASIA:................................................................................................................................................10

North America:................................................................................................................................10

Europe.............................................................................................................................................11

Latin America...................................................................................................................................11

Q. 4......................................................................................................................................................12

4.1.1 PESTEL Analysis...........................................................................................................................12

Political............................................................................................................................................12

Economical......................................................................................................................................12

Social...............................................................................................................................................12

Technological...................................................................................................................................13

Environmental.................................................................................................................................13

Legal................................................................................................................................................13

4.1.2 Porter’s Five Force Analysis........................................................................................................14

Competition within the Industry......................................................................................................14

Bargaining Power of Suppliers.........................................................................................................14

Bargaining Power of Buyers.............................................................................................................14

Threat of New Entrants...................................................................................................................14

Threat of Substitutes.......................................................................................................................14

4.1.3 SWOT analysis.............................................................................................................................15

Strength...........................................................................................................................................15

Weakness........................................................................................................................................15

Opportunities..................................................................................................................................16

Threats.............................................................................................................................................16

4.2 Competitor of IKEA........................................................................................................................16

Introduction of Ashley Furniture.................................................................................................16

Business Level Strategies of Ashley Furniture..............................................................................17

Strengths:....................................................................................................................................17

Weaknesses:................................................................................................................................18

4.3 Complementors.............................................................................................................................18

Q. 5......................................................................................................................................................19

5.1 Comment on the History, Evolution, Growth Rate, Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well............19

History.............................................................................................................................................19

5.2 Growth Overview:......................................................................................................................20

Size of the industry across the world...............................................................................................21

Regional Market Share....................................................................................................................22

Market Outlook...............................................................................................................................23

5.3 Key success factors for any organization operating within the Industry and how is your organization performing on those criteria.......................................................................................23

References:..........................................................................................................................................25

Q1. Comparison of business model A. An International Organization with a similar Business Model

For this comparison I have selected Ashley Furniture as a competitor of IKEA.

B. Domestic Organization with a similar Business ModelFor this comparison I have selected Godrej Furniture as a competitor of IKEA.

C. A Government Organization within the same industryNo example of a government company could be found which operates in same industry.

Detailed Analysis:

Ikea’s Concept of cost efficiencyIKEA, as a basic concept what to keep it costs as low as possible .that is why it is able to

provide to many people an access to affordable contemporary design. At the same time it

provides them with good taste and recognizes value. It tells a life style Kamprads credo of

creating a better life for many is almost evangelical. Ikea’s culture includes steely

competitiveness, relation cost-cutting. It goes deeper even it wants to hit rivals in certain

segments. It helps that frugality is ingrained in the corporate DNA as the obsession with

design. No matter how impaired and appreciated finds its way into the obsession with

design. The cost obsession fuses with the design culture-both are inseparable, no design, no

matter how empires and appreciated finds its way into the showrooms if it cannot be made

affordable. Designess and in house production teams work hard or identify the appropriate

materials and least costly supplers. Ikea work hard to find the right manufacture for the

right product .Simplicity helps keep costs down. Nearly all the big items are flat. Packed

which saves shipping costs and enables shoppers’ to have their own staff home. I kea’s

designers are looking for innovative use for discarded and unusual materials. This low cost

philosophy may be target to global middle class but not the affluent society like the japans

and Americans.

Strategic Pillars in Business Model:

Low Cost Strategy.

Focus on Ready to Assemble Furniture

Bulk purchase and minimal cost production technology.

Innovative marketing strategy

Big stores in suburban areas to capture the market.

Limited or minimal customer support.

Global presence.

Ashley Furniture:The major difference in the strategy of both the companies was the target segment that they were addressing. Ashley furniture was never a ready to assemble furniture seller. Rather they were more into good quality but higher prices model, where the customer was willing to pay more price for a model but did not want to compromise on the quality of items. Ashley furniture also had a more detailed section and variety rather than just RTA furniture. As a result of the state of the art designs in the in house production centre. It distinguished it from IKEA.

Business Model of Ashley Furniture

Strategic Pillars in Business Model:

High Customer focus Not restricted focus on low cost but overall focus on quality. Not tagged as “Scandinavian Store “moving in diverse business areas other than

Ready to assemble. Focus on customer satisfaction and provide good customer support. Big stores in sub urban cities to capture demand. Not present globally.

Godrej FurnitureGodrej Interio is India’s largest furniture brand. From manufacturing the humble Storwel cupboard 80 years back to being a vibrant, innovative brand with a diverse portfolio. They love bringing alive your dream space. They emphasize comfort and aesthetics while delivering well designed, fun and functional furniture solutions to you. True to the Godrej mission to conserve the environment, they design products, set up processes and use raw materials that are eco-friendly to do our bit to preserve natural resources. They offer our customers home and office furniture, along with solutions for laboratories, hospitals and healthcare establishments, education and training institutes, shipyards and navy, auditoriums and stadiums. They are present across India through our 50 exclusive showrooms in 18 cities and through 800 dealer outlets.

Godrej Interio is a business unit of Godrej & Boyce Mfg. Co. Ltd. - part of the Godrej Group, one of India’s largest engineering and consumer product groups. Godrej Interio is more of a luxury brand that caters to the interior requirements of upper middle class and upper class households in the country. Unlike IKEA and Ashley Furniture it is not a giant fish in the market because the furniture market is primarily unregulated and unstructured in India. It is still dominated by traditional methods of furniture making.

Godrej saw an opportunity and launched it’s furniture section. It met good response and quickly dominated the market. They also provide dedicated interior solutions to the customers which the other two don’t.

Strategic Pillars in Business Model:

Premium brand. Not a low cost and budget brand for the customers. Latest and modular designs. Caters to young households. Provides other products that go along with furniture like kitchen appliances and

homecare appliances. Not present globally but have good presence across the country. Not at scale which is comparable to IKEA or Ashley Furniture. It does not has large

outlets and stores.

Focus on niche designs and high value assortment. Provide dedicated solutions to the customers.

Q. 2 Activity System Map

Activity System Map for Low Cost OrganizationOne of the most important step of business strategy is to determine its core competences. Core competences are the internal capabilities of your company and they may or may not be valued by the outside world.

IKEA has an original approach to deal with customers: it employs the self-serving method. Customers chose their products, take them out of the shelves and assemble them at home on their own. Although this approach is quite unusual in the furniture business the customers are willing to do that because of the low prices, the easy to handle and storable flat packages and simple constructible furniture. With this limited customer service IKEA safes sales staff and customers don‘t have to wait long to be served.

Activity system map gives a clear picture of the activities of the company. In this clusters of activities and processes which support the core competences are linked. Such a map makes it clear how a company’s activities are interlinked. In the activity diagram the core competencies are shown in dark boxes.

Figure 1: Activity Diagram- IKEA

Activity System Map Analysis:1. Limited Customer Service

a. Limited sales offering and the company covers limited warranty for the goods sold to the customers.

b. The catalogues provided to the customers are detailed and contain information so it reduces the sales assistance required at the showroom.

c. Self-assembling furniture saves the cost of assembling the products and their maintenance cost.

2. Modular Furniture Design

a. The furniture design are in house design and innovative to address the demands of variety of customers. It differs from providing only the conventional products to the customers. The focus is to optimise the space to maximum.

b. It also increases the likelihood of retaining the customers and making them a loyal customer.

c. Easy transport and assembly instructions are provided to the customers.d. The furniture is mostly self- assemble and comes with instructions to assist the

customers. It saves the cost for the company. 3. Low Manufacturing Cost

a. The furniture is mostly self- assemble and comes with instructions to assist the customers. It saves the cost for the company.

b. The company procures the furniture from the long term suppliers which have agreement with the company

c. The company also benefits from excellent operations planning. The inventory management system manages the inventory at optimum levels across the year to keep the costs low. This inventory is managed at the site to reduce the transportation cost to the sites.

4. Self-Selection by Customers a. This is the prime driver of their business as the customers come and select the

furniture of their choice. The sites are located in suburban locations with large parking spaces so that the customers can bring their own vehicles and take the goods.

A failure of any of these activities may have an effect on the core competence, and therefore on the company’s overall success and competitive position.

Once we identify the company’s core competences and contributory activities we may consider market research to help your company align these to the needs of the market. The role of market research is, therefore, to find out what is valued and what is not.

Activity System Map for Diversified OrganizationFor a diversified organization the activity system map will be different as the focus will not be only on cost saving but providing the complete solutions to the customers. The core competencies can be different or same based on the nature of the company. For example we are selecting the Activity System Map for Diversified Business

Extensive Customer support

Quality at affordable

prices

Vast Range of choices.

Non modular and Modular

design

Catalogues and Display

Transportation Provided

Wide Variety and easy

manufacturing

Optimum level of planned inventoryExtensive sales

staffing

Wide range of designs

Wide Variety and easy

manufacturing

Year round stock.

Variety brings customers

Transportation Provided

Impulse and dedicated

buying

Q. 3 Low Cost Providers as well as the leading Organizations with Diversified Product/ Service Providers for India and for the 5 Continents.

India:Low Cost Provider:

Mission: We’ll seek aggressive, but controllable growth, through new product introductions, superior quality and service, and greater manufacturing capacity through innovative process improvements. We will continue to introduce sustainable business practices with materials, products and processes

Vision: It’s all about the people: Customers, Employees, Suppliers and Stakeholders. We will make it easier for our customers to partner with. There will be no such thing as a “special”. Innovative technology will allow us tremendous flexibility in producing office furnishings.

Diversified Service provider: Godrej & Boyce Mfg. Co. Ltd. (Godrej Furniture)

Mission: Enriching Quality of Life Everyday Everywhere Vision: Godrej in Every Home and Workplace.

ASIA:Diversified: Shenzhen Coco Furniture Co.,Ltd

Low cost Providers: Amat-3:

Mission: To satisfy all those users who have chosen Amat to furnish their spaces. To look after the requests and needs of interior design professionals. To create new products with an original design, functional and ergonomic.

Vision: constantly improve our team, the organisation and the production facilities.

North America:Diversified: Ashley Furniture

Mission: Why do more people buy Ashley than any other single furniture brand? Because at Ashley Furniture Industries, we know it takes more than just the ability to make good furniture to become the #1 selling brand of home furniture in North America

Manufacturing process

optimization

Vision: To satisfy the customers’ needs without compromising on the quality of the products and make it affordable for everyone.

Low cost Providers: Target:

Mission: We save people money so they can live better. Vision: If we work together, we’ll lower the cost of living for everyone…we’ll give the

world an opportunity to see what it’s like to save and have a better life

EuropeDiversified: Calligaris

Mission Statement: Quality at a convenient price. This is the image which Calligaris conveys worldwide. By honouring tradition, respecting ethics and working with dedication, Calligaris can truly be said to be a people’s company.

Vision: To be Reliable Ingenious Accessible and Vital from a customer’s perspective.

Low cost Providers: Actona:

Mission: Bringing Home Value” explains how we want to run a company. All of our business relations – suppliers – retailers – must experience Actona Company as a creative partner

Vision: Actona is simply short for Act on “A”, which we normally explain as ”reacting immediately”, “show readiness” or even better “be abreast of the development

Latin AmericaDiversified: Rotta Furniture

Low cost Providers: Renar Furniture:

RENAR - The name was created in 1919 when the European immigrants Rene and Arnoldo frey united their initials and their dreams to build a new life in Brazil.

Mission: The quality of its human resources and the valorization of teamwork are the main principles which orient the development of the total quality production.

Q. 4

4.1.1 PESTEL Analysis

Political • The level of corporate tax and consumer taxation regulated by political authorities of any

country affects corporation’s after-tax income. The rate of corporate tax impacts profits, hence lowering after-tax income. Hence, IKEA regional profits are subject to regional tax laws. However the specific characteristic such as subsidiary model of the furniture retailer also plays a major role in the actual tax rate. It is also learnt that corporate tax rate impacts the structure of the business. IKEA business structure, a subsidiary model propels its subsidiaries to abide by regional tax laws.

• Tariff and trade barriers also impact businesses. Some of the major reasons for imposing tariffs and trade barriers such as protecting local employment, new industries, consumers, retaliation and national security, tariffs increase the prices of imported products into the country. This benefit the local producers who are not forced to reduce their prices, however local consumer pay higher prices. Considering the case of IKEA and its reliance on local manufacturers for its products rather than importing products into the local market, tariffs and trade barriers seemingly have little influence on its business profits.

• Political stability of any country affects business operations. In the midst of political instability of a country, negatively affects business and consumer perception of the corporation.

Economical • Economic growth of individual markets has its influence on businesses. For example, rapidly

growing economies provide higher standard of living and higher employment rate. As a result, consumers’ disposable income increases and so does their purchase power, ultimately benefiting business profits. In particular with the emerging economies showing high potential of economic growth, provides a promising future for corporation such as IKEA.

• Other factors such as cost of labour also impact business success. In regions such as India and China popular for their low-cost yet skilled labour, provides IKEA with a wide profit margin.

• Inflation rate is another important factor affecting business and consumer experience. For instance, high inflation rate such as in the UK deforms consumer behaviour, destabilising markets and generates avoidable shortages of resources. Similarly, in countries with high inflation rate, trade unions demand higher wages, distorting the entire value chain.

• Market trends should be closely observed to make strategic decisions benefiting the business.

Social • Social factors such as modifications in demographic variables like income, age, family size etc. of

different countries significantly influence the strategic decisions made by the business. As an example, ageing population is less likely to buy furniture whereas younger generation would demand trendy furniture that should also add value to their purchase.

• Demand of certain products is controlled by changes in demographics. As an example, a major shift of rural population to urban areas due to job creation indicates higher demand of less costly products for new families to get settled.

• Cultural factors, fashion trends and consumer behaviour also regulate demand trendier, less bulky, and easy-to-assemble furniture.

• Reduced income levels place furniture purchase at less priority.

Technological • Emergence of technology particularly popular with in the retail sector such as RFID and online

and mobile shopping, has immensely benefited corporations. RFID helps businesses to reduce their cost of operations through inventory shrinkage, smart labelling, self-stocking, efficient checkout process etc.

• Further on easy access to retailer’s online stores provides enormous selling opportunities for the seller. In addition, technological innovations in the retail sector like consumer mobile payment, and mobile gift cards promises consumer to experience easier, and reliable means of payment.

• The increasing popularity and reliance of businesses on social media as an unconventional marketing channel, benefits firms by increasing awareness and reach amongst target market, marketability factor, increased website traffic, ability to develop community and relationship with customers and so forth.

Environmental • Factors such as ethical business operations demonstrating sensitivity and accountability

towards carbon-emission, forestry, community development, and supplier conduct issues are significantly important for business success and sustainability.

• Industrial giants such as IKEA are constantly scrutinised for their contribution towards carbon emission, disposal of hazardous manufacturing waste in the environment, recycling, and supplier behaviour. Therefore local governments ensure that environment can be protected, compelling businesses to meet specific standards to reduce the adverse effect of business activities. Compliance with these regulations is one of the most essential success factors.

Legal • Consumer protection legislations restrict the business in terms of what they are permitted to do

along with adding cost to business operations. This means that products that are manufactured must comply with the consumer protection legislations of respective country of operations. So the additional costs come from changing business practices, compliance with the law, damaged reputation and image within the consumer market etc. that is ultimately borne by the corporation.

• Other legislative requirements such as employee protection, health and safety at work etc. demand proximity of business objectives with the local legislations. For instance, IKEA is lately accused to be contradicting with its Group values, when the Saudi version of retailer’s catalogue airbrushes women model out. Even though the company was complying with local laws against advertising women in Saudi Arabia, nevertheless accusation of contradicting with its Group value is likely to alter consumer perception towards the corporation.

4.1.2 Porter’s Five Force Analysis

Competition within the Industry IKEA has high competition within the industry from Ashley Furniture, Galiform, Wal-

Mart, John Lewis and Homebase. But the global brand name and trust in customers about product quality, cost effectiveness, and immensely popular design has given IKEA a competitive edge.

Growing markets made IKEA diversify its business empire into food and textile industry.

IKEA also went into the mobile industry by offering cheap and flexible non-contract mobile services for its customers, which is very unique and unheard of in this industry.

Bargaining Power of Suppliers

Switching cost of suppliers in the industry is classified as Low Risk as their internal suppliers determine the standards for contracted suppliers so that switching from one to another should not produce high costs. Suppliers have not gotten any major bargain power as IKEA is a well-established brand in the market.

Suppliers tend to gain more by coming into a business relationship with such a high value retailer

the number and size of suppliers is considered a large risk as there are thousands of suppliers available

Bargaining Power of Buyers Buyers have a high power of bargaining. Most often, competition in retail market

gives the buyer plenty of options to choose from based on price, services and design.

Recession has forced retailers to become more competitive in pricing to attract people who are reluctant to spend more for home improvements

Threat of New Entrants The threat of new entrants is low since it is well established as a global icon.

Customer loyalty has helped in improving this competitive advantage in retail market.

IKEA has a huge market presence over Europe, US, Asia and Australia. It is virtually impossible for any new entrant to pose a threat to an already well connected business empire with geographic and product diversity. But it Still faces competition from Target, Grate & Barrel, Wal-Mart retailer.

Threat of Substitutes The threat of substitutes is medium. Though there are a number of substitutes in

home furnishing industry, the low-to-medium income customers tend to stick with IKEA due to the cost effectiveness.

IKEA has been criticized for poor customer service, stock availability, product guarantee and lesser variety.

The all-in-one-shop concept in IKEA is not available in substitutes like B&Q, DFS and Wickes.

4.1.3 SWOT analysis

Strength The key strength of IKEA is application of strategic practices such as optimising

material to reduce manufacturing cost, development of manufacturing plants to optimise use of recycled material.

IKEA is also considered as leading specialist in the retail furniture manufacturing industry, with a strong brand image. The strong global brand targeting key consumer groups, offers uniformity in quality and product range across the globe. The right approach to strike off balance between quality, design, functionality and cost, gives IKEA cost and competitive advantage in the highly competitive market.

Weakness The size and scale of its global business. This could make it hard to control standards

and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA's supply chain, affecting consumer views of IKEA's products.

The need for low cost products. This needs to be balanced against producing good quality. IKEA believes there is no compromise between being able to offer good quality products and low prices.

IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task

Opportunities There is also an increasing demand in green (eco-friendly), and low-priced products

manufactured with sensitivity towards the environments.

IKEA aims to reduce carbon emission, and achieve zero wastage targets coupled with improved relationship with stakeholders, suppliers and consumers, that provides massive opportunities resulting in business sustainability, competitiveness and higher profits

Threats The global recession and suppliers’ issues particularly threaten IKEA. Furthermore, social trends showing lowered entrance of first-time buyers into the

housing market also affect furniture sale. Increasing competition and lowered disposable income are factors that motivate

buyers to purchase low price furniture, even at the cost of compromising quality. Threats such as these, demands the furnishing giant to reform its value chain, and optimise innovative technology in order to provide good quality at lowered prices.

Strategic development in this regard would also raise entrant barriers into the industry, providing possibilities to maintain and increase its market share.

4.2 Competitor of IKEAIkea faces some competition in the furniture market by companies like Ashley Furniture, Galiform, Wal-Mart, John Lewis and Homebase. Out of these Ashley Furniture is the biggest competitor of IKEA.

Introduction of Ashley Furniture

 Ashley Furniture industries, Inc., founded by Carlyle Weinberger in Chicago in 1945 just as a sales operation, is a furniture manufacturing and distributing company, which headquartered in Arcadia, Wisconsin. Now the father and son team Ron and Todd Wanek own the company.

Like many other furniture companies, Ashley Furniture Industries sells its products, such as home furnishing, accessories through two main distributions: one is independent channels; another is more than 400 Ashley Furniture Homestore retail furniture stores. All the stores are either owned by the company or licensed to other businessmen in North America countries, such as USA, Canada, Mexico, Central America and Japan.

The mission to become the BEST Furniture Company reflects its proud past and shows the desire about future. And with over 60 years of innovation, creation and experience in the furniture industry, the company already became the leader in the industry which focuses on

the quality of its furniture products. At present, the company has manufacture plants across the United States and Pacific Rim Countries, mainly in China

Business Level Strategies of Ashley Furniture

The successful strategies can be illustrated as following levels

Low price/ low added value: providing lower price than it can be found elsewhere. Low price: based on a high volume with low margin product to bring cost leadership

as its competitive advantage. Hybrid: Compete on price and seek to keep the margin by controlling the cost of

products. Differentiation without price premium: Competition is principally on perceived

benefits but not on price. Focused differentiation: Using unique qualities without substitution to get premium.

The Strategic Business Unit chose for this research is the living room division of Ashley Furniture. The business model of Ashley Furniture is different from other competitors, by establishing for over 65 years, the main business model of Ashley Furniture is the company design, build and deliver its own furniture, and the company is in control of all aspects to make sure the good quality.The cornerstones of its business models are quality, style, selection, service. They are all the foundations for Ashley Furniture making every decision and the guidelines and principles to help the company achieve the mission statement of being the best furniture company.

Therefore, the main business model of Ashley living room furniture used to get competitive advantage is using Hybrid, which means by the methods such as outsourcing a series of its products from Pacific Rim countries to cut the cost of furniture and adding value to the products by quality, style, selection and service.

Strengths:

Good price to attract customers: After the recession of economy crisis in 2008, the price of goods, especially furniture, become the main competitive advantage to attract customers to consume products on company. As the main reason that led to the economy crisis is the subprime lending which is related to the housing industry; and makes a drop in the sales of houses in North America, mainly in US

Variety of products: this means that based on variety of products, Ashley living room furniture is able to survive during the crisis. Even one product fails in the market, there are still other products succeed in the market to make up the loss that cost by the failure of that product. Besides, different kinds of products make those brand loyalty customers to purchase more and also increase the image of the brand. This helps the company achieve

the mission of becoming the best furniture company in North America and even all over the world.

Maintain the gross margin: Obviously, this technique assist the company to maintain the gross margin by controlling the cost of furniture. By using Hybrid strategy, the division still possesses the ability to control the cost of products. On the other hand, by adding more value through design, build and deliver the furniture to the customers, the products of Ashley living room furniture are still attractive.

Weaknesses:

More funds spent on implementing the strategy: In order to supply and offer more furniture products to the customers, more funds will be spent on Research and Development, Design to find more solutions offered to the customers. Besides, the division possesses its own stores which cost much of its capital on investing in purchasing fixed assets, which may become a potential problem to the cash flow of the company.

Competition of the similar products in the company: The Product division provides more than 100 furniture products to customers to find out the most suitable furniture for their living rooms. Therefore, this results in the competition among the products within the same category.

Lack of quality: The business model of Ashley living room furniture depends on the quality of products. If the company concentrates on controlling the cost, such as the outsourcing price offered to those manufacturing companies in Pacific Rim countries, which may affect the quality of products of Ashley living room furniture. Then it will affect the paradigm of the division in the industry and then reduce customer brand loyalty.

4.3 ComplementorsComplementors are businesses that directly sell a product (or products) or service (or services) that complement the product or service of another company by adding value to mutual customers. As the business model of IKEA is such that it manufactures its own products and sells them directly so it is highly unlikely that it will have any direct Complementors. For our analysis we can say that the complementors can be from the industries like

Beddingo Pillow - Du Point, Sleepwell, Sleep innovations, Hudson Etc.o Blanket and Quilt – KESS Inhouse, CC Home furnishing.o Mattress Pads & Toppers – Simmons, Bergose Home Textile.

Décoro Clocks – Horward Miller, Lexington Studioo Candles & Candle Holders – CC Home Furnishings, Oddity Inc.

o Artificial Plants and Flowers – Allstate, Nearly Natural.o Desk Lamps, Side Lamps Table Lamps.

Accessories o Kitchen Accessorieso Bathroom Accessorieso Cookware and Bakeware tools

Storage & Organizationso Kitchen storage. Pot Racks, Toys Rtorage.

Cleaning and housekeeping items o Floor cleaning items – Lizol, Dettol, Mr. Clean Etc. o Vacuum cleaners and Carpet Cleaners – Various companies manufacturing

them

This list is not exhaustive and products can be added based on the usage of the furniture. As the vast variety of the furniture offered by the stores this will have many complementors.

Q. 55.1 Comment on the History, Evolution, Growth Rate,

Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well

IKEA designs and sells ready-to-assemble furniture, appliances and home accessories. Ready-to-assemble furniture (RTA), also known as knock-down furniture (KD) or flat pack furniture, is a form of furniture that requires customer assembly. Ready-to-assemble furniture is typically packaged in a kit form with the pieces packaged in one or multiple boxes. The kit may contain a number of flat parts, fasteners, fixings, and other parts that are needed to assemble the furniture. A furniture assembly industry has grown up around ready-to-assemble furniture and consumers can engage a service provider to come to their home and assemble the furniture they have purchase. As of January 2008, the company is the world's largest furniture retailer.

HistoryOriginally RTA furniture was known as KD for knock-down and unfortunately the products came apart almost as easily as they were put together. Substantial improvements in construction methods and hardware have heightened product quality to its present consumer friendly status of the 1980s. While RTA furniture has a long history in Europe, the early introductions into the U.S. market were poorly constructed compared to today's products. The original products were vinyl-wrapped particleboard television stands and bookcases which sold for under $40. The products were purchased as short-term,

disposable furniture, but the value was still good for the price paid. The industry realized that long-term survival would entail increasing quality, design, and function. Improvements have enabled composite board to be printed with wood grains or coloured with coatings of paint or mela- mine. Since assembly is not required and the machinery is automated, RTA furniture is produced with less labour than conventional furniture. The initial investment in equipment is recovered through reduced production and labour costs. Packaging the product in boxes is the most labour intensive step.

5.2 Growth Overview: 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. 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 world's furniture production. The production value of this industry in this region is around € 82 billion. Considered to be a labour-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 EU production. This is followed by Italy (21.6%), France (13.5%) and the UK (10.4%).The Canadian Furniture Industry is the 5th largest exporter of furniture in the world. The major furniture producing countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore, Thailand, Korea, Taiwan and India. In the context of global furniture trade, Asia shows healthy signs of growth with respect to its other international competitors. Asian furniture has always been popular in developed 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 as a furniture production centre, a circulation centre as well as an exhibition centre in the world. 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 unorganized 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.

Profitability:

U.S. furniture imports increased 7.7% in 2013 to a total of $19.7 billion, according to the most recent numbers from the U.S. International Trade Commission. This year’s increase follows a 9.1% gain from 2011 to 2012; a 0.3% bump between 2010 and 2011; and an 18.8% leap from 2009 to 2010.

Imports from China reached $11.6 billion last year, an increase of 7.4% over the country’s 2012 figures of $10.8 billion. China comprised 59% of the total furniture imported into the United States in 2013, 5.2 times greater than the No. 2 importer Vietnam.

Imported furniture from Vietnam jumped 11.5% to $2.2 billion, while shipments from Canada were $1.1 billion, an increase of 7.4%, and imports from Mexico grew 10.7% to $965 million. Indonesia rounded out the top five importers to the U.S., bringing in $601 million worth of product last year.

Indonesia just edged out No. 6 Malaysia, who realized an 8.7% decrease in shipments to $599 million.

U.S. furniture factory shipments were $23.2 billion in 2013, up 4.8% from the previous year, per Smith Leonard’s latest survey of residential furniture manufacturers and distributors. Data from industry analyst Jerry Epperson shows that 65% of total upholstered furniture is made in the U.S., while 36% of all case goods are made in America.

The analysts forecast the Global Furniture market to grow at a CAGR of 3.53 percent over the period 2012-2016. One of the key factors contributing to this market growth is the boom in Real Estate industry. The Global Furniture market has also been witnessing the production of eco-friendly furniture. However, the shortage of timber supply could pose a challenge to the growth of this market.

The report, the Global Furniture Market 2012-2016, has been prepared based on an in-depth market analysis with inputs from industry experts. The report covers the market in the Americas, Europe, and the APAC and MEA regions; it also covers the Global Furniture market landscape and its growth prospects in the coming years. The report also includes a discussion of the key vendors operating in this market.

5.2 Size of the Industry across the world and the country where the organization is operating

Size of the industry across the worldThe worldwide bed and bath furniture industry is expected to reach almost $28 billion by 2015, according to Global Industry Analysts. Market growth will be fuelled by recovery in the housing sector, with increased construction activity leading to higher consumer demand for home decoration products. Developing markets such as Latin America and Asia-Pacific are expected to record rising demand over the coming years for colourful, vibrant bed furnishings.

Premium high-end beds made using materials such as hand-tufted horsehair, memory foam, silk, latex, flex, cashmere and lamb’s wool will be in growing demand over coming years. The baby boomer generation in particular will opt for premium beds, attracted by their superior

comfort level. Manufacturers are responding to this demand by offering a wide range of luxury beds and mattresses. Luxury towels are also in greater demand, with consumers willing to pay extra for stylish colors and more fashionable designs.

The worldwide lamp market is expected to exceed $40 billion by 2017, reports Global Industry Analysts. Factors fuelling market growth include urbanization, rising global population, and the phasing out of incandescent bulbs across several nations sparking demand for alternatives such as CLFs and LED lamps. Demand for lamps in other applications including LEDs in mobile devices will also drive demand.

Companies are focusing on the benefits of new technology innovation to offer consumers energy savings, cost reductions and more environmentally friendly lighting solutions. This shift has led to a decline in demand for conventional lighting options like electronic ballasts and T12, HID fixtures, but has spurred a subsequent rise in demand for integrated systems and solid-state technologies, including T8 and T5 fixtures and lamps.

Solid-state lighting controls facilitate more-efficient energy use, thereby reducing overall energy costs. Due to the higher price of technology, companies first target high-end markets when launching newer products such as LEDs and CFLs, which are popular for their superior energy efficiency and power.

Regional Market Share The US carpet and rug industry is set to record strong growth over the coming years, with demand expected to reach a yearly rate of 8% between 2010 and 2015. By that time, industry volume should reach close to 17 billion square feet, according to research from Freedonia. Growth will be largely fuelled by recovery in the US housing sector and wider economy. Expansion in the battered new residential construction sector will also help drive demand for area rugs and tufted carpet. Increased construction in the US will see consumers and businesses alike opt for new carpet and rug products to furnish their homes and offices. Growing consumer confidence and increased discretionary spending will see demand from the residential sector grow, while the nonresidential sector will be a source of demand due to expansion in commercial and new office space. Replacement markets will similarly reflect economic recovery. Nylon, the most used fiber in the manufacture of carpet and rug products, is likely to remain the leading choice over the coming years. However, polyester fibers are becoming more attractive due to high petroleum prices and improved fiber quality, making them more appealing than polypropylene fibers.

The Indian lighting fixture market generated close to $1.3 billion in 2011, according to figures from CSIL. More than 15% of India’s production of lighting fixtures is for export, reaching a total of $215 million in 2011 – or a 2% decline on 2009 figures. India has been becoming a bigger manufacturer of industrial and outdoor lighting products, though much lighting for the consumer market is imported.

Market Outlook The global market for home furniture and decoration was negatively impacted by the housing crisis as homeowners cut down drastically on non-essential spending, postponed home improvement and decorating projects, and delayed buying new homes. Due to recovery in the housing sector and in the wider global economy, demand for home furniture and decoration has begun to turn around. With employment figures improving and levels of disposable income rising, property owners are more readily investing in their homes.

5.3 Key success factors for any organization operating within the Industry and how is your organization performing on those criteria

The marketing mix starts with product strategy. Product covers more than the physical goods the company wants to sell. It is the goods-and-service combination the company offers to the target market. Thus, IKEA offers a whole range of products, almost everything you need for your home. The same category of products, for example, sofas, IKEA designs

models with different features. Some sofa models are even provided with different covers to choose from. IKEA is positioned as selling at affordable price and offering reasonable quality. In order to cut down the costs, IKEA does not wrap its products fancily but with simple and environmental friendly material. Here we see again the societal marketing concept takes into effect. Concerning services, IKEA encourages its customers to do-it-yourself (DIY) but it also provides technical help if needed.

Price is the amount of money charged for a product or service, or the sum of all the values that customers give up in order to gain the benefits of having or using a product or service. As shown in Figure, in terms of pricing, changing list price is complemented by offering discounts or allowances and altering the payment period or credit terms. Every now and then, IKEA reduces the price of certain products because if they are popular among customers then IKEA can make a bigger order, which leaves the profit margin wider so suppliers can quote lower offers. The company also offers various payment options and credit terms to choose from for the customers. Hence, IKEA handles pricing quite well that its pricing policy emphasizes customer values and integrates with the other 3Ps.

Place includes company activities that make the products available to target customers. Related activities are listed in Figure, such as channels, coverage, assortments, locations, inventory, transportation and logistics. Over the years, IKEA has established an efficient network of delivering its products from the suppliers to its customers. Several logistics hubs around the world are now transporting the products to different countries and territories. IKEA‘s flat packs play an important role in transportation to keep the costs low. Locating the shops in the suburbs of cities also helps to cut down the costs.

Like the marketing mix, promotion is a mix of tools as well. It is also called marketing communication mix, consisting of the specific blend of advertising, sales promotion, public relations, personal selling, and direct-marketing tools that the company uses to persuasively communicate customer value and build customer relationships. Ideally, the company integrates the above tools to communicate well with its customers. Apart from advertising on TV, newspaper and delivering brochures with the latest offers to people‘s home, IKEA pays a lot of attention to environmental and ethical issues. IKEA‘s cooperation with NGOs such as UNICEF and World Wide Fund for Nature (WWF) contributes a lot to building a favourable corporation image and good public relations. In a word, an effective marketing program blends all of the marketing mix elements into a coordinated program designed to achieve the company‘s marketing objectives by delivering value to consumers.

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