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Analysis of Ikea office furniture range from a marketing point of view, including recommendations

March 2015

March 2015

DOI:10.13140/RG.2.2.35478.24643

Authors:

Joël Vuadens-Chan

Swiss Leaders Group

Preprints and early-stage research may not have been peer reviewed yet.

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Student ID number: 1412412

Module name: Class # 1554 – Marketing Management

Assignment title: Final Assessment on Inter IKEA Group

Assignment deadline: 29 March 2015

Effective number of words used: 2486

I confirm that I have read the University regulations on plagiarism, and that this

assignment is my own work.

Page | 2

Introduction

This assessment is on IKEA, which is the “world’s largest multinational, flat-pack furniture

retail chain” (Maon, et al., 2011, p. 4) with 315 stores in 42 countries, 147,000 employees,

716 million store visits, 1.6 billion website visits and 212 million distributed. (IKEA, 2015;

Author, 2015; Inter IKEA Systems, 2014).

Target Market

For this assessment, I will focus on a particular customer segment of IKEA, the furniture for

businesses, called afterwards “IKEA BUSINESS” more particularly for IKEA’s mature and

historical market (222 out of 315 stores – 70%) (IKEA, 2015): Europe. The reason for taking

this particular segment is that this market is sizeable, the total European revenue of office

furniture being 7.55 billion EUR in 2013 (Brouns, 2013; Brouns, 2014) and at the same time

it seems to be a rather small business area for IKEA and has therefore large potential.

Performing mystery shopping, I noticed that most of IKEA BUSINESS range is displayed in

the store, however not labelled as “IKEA BUSINESS”. The home office furniture and IKEA

BUSINESS range are not clearly differentiated, neither in the store, nor on the website or

catalogue. At the same time, no “IKEA BUSINESS” brochures were available in-store and

probably at all in some countries such as Switzerland, and only some simple black-and-white

printed papers were provided to me, downplaying the advantages of the range. It is also

doubtful that a small and medium-sized enterprise manager would walk into an IKEA store to

visit a hard-to-find area of interest to him.

Therefore I consider that there is a need to position, communicate and promote the business

product range in a different way, hence exploiting the full potential of the IKEA BUSINESS

product range.

Page | 3

The target market are the Western European Small and Medium-sized Enterprises selected

as companies having between 10 and 249 employees, which sums up as 1.65M companies

with a total of 21 million employees (Muller, et al., 2014; Confédération Suisse, 2015; de

Kok, et al., 2011). Assuming that 40% of workers are white-collar workers (The Henry J.

Kaiser Family Foundation, 2014) and therefore require a desk, I will use the quantity of 8.4

million workplaces as the target market.

I estimate that a new marketing strategy for IKEA will bring in the next five years 5% of the

targeted companies to buy IKEA desks, chairs and storage for their employees, estimated at

€200 per workplace, a total target revenue is 1.68 billion EUR by 2021, reaching the 15th

place in the office furniture manufacturers market, as per 2013 figures (Brouns, 2013).

The campaign described in this assessment focuses on increasing the revenue in 2017. It

will include sending IKEA BUSINESS catalogues to 1.65 million Western European Small

and Medium-sized Enterprises. Based on IKEA experience with private customers in

Switzerland a rate of purchase of 5.9% can be achieved based on printed material sent by

post (La Poste Suisse, 2010). Based on these assumptions, 97,350 companies will purchase

some IKEA BUSINESS products. With an estimated average of 5,000 EUR per yearly

purchase, the incremental IKEA BUSINESS Western European revenue is estimated to be

486.75 million EUR in 2017. Yearly campaigns between 2018 and 2021 will support the

increase of revenue to a yearly revenue of 1.68 billion EUR by 2021.

Page | 4

3BL Marketing (SMART)

1. People:

As IKEA consider sustainability as “central to our business” (Inter IKEA Systems,

2014), ambitious social goals have been included in this campaign and business

increase. The goal is therefore: “Improve the working conditions of 8.4 million

Western European office workers in small and medium businesses while providing

healthy, quality, stylish and practical business furniture at an affordable price in 2017.

At the same time 1,000 desk will be offered to school in developing countries.” (de

Kok, et al., 2011; Muller, et al., 2014; Confédération Suisse, 2015). The 1,000 desk

are provided on the basis one per company applying to the photo shooting contest in

the campaign (see details under “AIDA+ - Attention” section).

2. Planet:

Similarly, it is important for IKEA to have concrete goals for the environment. The

goals for this campaign and IKEA BUSINESS in general are: “The packaging used

for the IKEA BUSINESS product will be coming 100% from recyclable materials by

2017. The catalogues distributed in 2016 and beyond will have 60% of energy of its

manufacturing coming from renewable energy, while 100% of the paper fibres will be

FSC certified. 50% of the wood used for the IKEA BUSINESS furniture will be coming

from sustainable sources from 2017 onwards. IKEA will offer the possibility to pick up

and recycle 100% of the furniture replaced by the purchased IKEA BUSINESS

furniture”. (Inter IKEA Systems, 2014)

3. Profit:

The campaign’s goal for the revenue increase is “Realising 485 million EUR revenue

on IKEA BUSINESS product range by 2017 and 1.6 billion EUR by 2021, reaching

the position of fifteenth European office furniture manufacturer 2021, while doing so

at least at the same average gross margin as the overall business of Inter IKEA; in

2013 it was 11.78%” (Inter IKEA, 2014; Author, 2015; Brouns, 2013).

Page | 5

Marketing Mix (first 3P’s)

1. Product:

“Our wide range of IKEA BUSINESS furnishing covers everything from desks,

storage solutions and chairs, to lamps and accessories” (Ikea Ireland, 2015) with

contemporary, practical and durable qualities. IKEA claims that “since we know time

is money, we offer several services that make it possible for you to focus on your

business, while we take care of the rest”. (Ikea Ireland, 2015).

Compared to their major competitors, the mass standard office furniture suppliers,

such as OfficeWorld in Switzerland, IKEA BUSINESS range is a little more limited in

choice and several of the product, such as the storage solution, are more based on

wood. It is worth noting that all IKEA BUSINESS products have 10 years warranty

(IKEA Schweiz, 2014), whereas competitor like OfficeWorld only provide 2 years

warranty. IKEA BUSINESS products are compliant with the major quality standard on

office furniture (EN 527-2 et ANSI/BIFMA X5.5-2008) (IKEA Suisse, 2014).

It is worth noticing also that the delivery timing is much faster for IKEA (usually 2-3

weeks) compared to OfficeWorld (quoted as 4-7 weeks). (OfficeWorld, 2015; IKEA

Schweiz/Suisse, 2015)

2. Price:

IKEA’s current price strategy is to provide a range of components and leave it to the

customer to combine them. (IKEA Schweiz, 2014). The delivery and assembly is

quoted separately and made of a base fee and a proportional one (percentage of the

value of the goods). To assess the prices of the IKEA BUSINESS range, we will take

the Swiss market and compare the current price of IKEA BUSINESS in Switzerland

(IKEA Schweiz, 2014) with a comparable company, OfficeWorld (OfficeWorld, 2015).

Herewith is the comparison of some of the key products:

Page | 6

Electrically adjustable

desk (160 x 80)

IKEA OfficeWorld

Price of good (CHF, VAT

incl.)

629 1,349

Delivery 99 Included

Total delivered 728 1,349

Price difference without

assembly

-85%

Price with assembly 935 1,429

Price difference with

assembly

-52%

Table (160 x 80) IKEA OfficeWorld

Price of good (CHF, VAT

incl.)

169 417

Delivery 10 Included

Total delivered 179 417

Price difference without

assembly

-133%

Price with assembly 308 497

Height Adjustable 60-90 cm Fixed 74 cm

Price difference with

assembly

-61.53%

Page | 7

Office chair IKEA OfficeWorld

Price of good (CHF, VAT

incl.)

179 262

Delivery 10 Included

Total delivered 189 262

Price difference -38.66%

Filing cabinet (3 doors) IKEA OfficeWorld

Price of good (CHF, VAT

incl.)

249 406

Delivery 99 Included

Total delivered 348 406

Price difference without

assembly

-16.66%

Price with assembly 490 406

Price difference with

assembly

+17%

The delivery cost is included in OfficeWorld’s price, whereas it is charged at 9.95

CHF for small items such as chairs and table, and 99 CHF for large ones (desks and

storage). Both suppliers do not include assembly in their pricing. For IKEA the price

is visible on the website (CHF 100 + 17% of purchase price or 90 CHF additional fee

for urgent requests). OfficeWorld does not quote the assembly on their website and

require the customer to call their customer call centre where an estimation will be

given, confirmed by the delivery company who will eventually charge for the service.

(OfficeWorld, 2015; OfficeWorld, 2015).

Page | 8

Additionally in some countries like Germany (IKEA Deutschland, 2015), IKEA offers a

loyalty system providing 3% vouchers (3% from a total purchase of 2,000 EUR within

2 years, 4% from a total purchase of 5,000 EUR within 2 years and 5% from a total

purchase of 10,000 EUR within 2 years).

I can therefore conclude that the price of the IKEA BUSINESS range are very

competitive, except for the filing cabinets (which are in more attractive built as they

competitors), and for the minimum amount for delivery and assembly. Based on this

conclusion, the price of the goods themselves does not need to be reviewed, only the

way the delivery and assembly are prices and packages with the product, as well as

the addition of volume rebates to encourage the customer to regularly purchase IKEA

BUSINESS furniture.

On the IKEA BUSINESS Website (see “place” below), the prices should be shown in

a different way on the standard website. For specific numbers we will show the prices

for Switzerland, however each country will follow a similar approach. I recommend

the following changes:

 IKEA BUSINESS product should be presented as complete product packages

with some options for changes or addition, instead of a list of components

 A “Mini” price should be quoted with the delivery but not assembly. Delivery

will be 20% of the price of the product with a minimum of 40 CHF.

 A “Maxi” price should be quoted with the delivery and assembly included. The

“Maxi” will be calculated as the “Mini” price with an additional 20% added for

the assembly of 20% of the price of the product. Assembly will be provided at

time of delivery. Products with no needs for assembly (for example an office

light) or minimal assembly (like an office chair) will not have a “Maxi” price.

 An “Eco” option will be provided whereas the current furniture which are being

replaced by the newly ordered one will be picked up and recycled for an

additional fee of 10% of the purchase furniture

Page | 9

 The credits currently used in Germany will be applied to both online and in

store purchases and applied in all countries. When the customers has a IKEA

BUSINESS payment card, payment will be credited to the payment card. If

the customer has no IKEA BUSINESS payment cards, he/she will receive a

gift card.

3. Place:

Most directors and managers of SMEs are not likely to spend time walking all around

an IKEA store just to access that small office furniture section. Therefore the main

location of information and order for business customer are the website and the

catalogue (to be ordered on the website). A professional and complete IKEA

BUSINESS website has to be available for each country with a simple address (e.g.

www.ikeabusiness.co.uk) instead of a sub-site from the main IKEA website. The

IKEA BUSINESS product range will still be available like today on the main IKEA

website and in-store in the current way for private buyers (see Price), however it will

be labelled and branded as “IKEA BUSINESS” range. Also the IKEA BUSINESS

website will have to provide the new pricing approach for business as well as good

quality photo to act as a virtual showroom.

Page | 10

Promotion Plan (AIDA+)

- Attention:

The promotion will start with a contest open to current IKEA BUSINESS

customers (having most IKEA BUSINESS product as office furniture). They

will first take some pictures of their IKEA BUSINESS furniture. An IKEA jury

will review the submitted pictures and select both the 1,000 companies

selected for professional shooting and the 10 top winner with a 1st price of

50,000 EUR, a 2nd price of 20,000 EUR, 3rd to 5th prices of 10,000 EUR and

6th to 10th prices of 6,000 EUR, all to be paid in IKEA voucher after the photo

shooting. Each selected participants (up to 1,000 will be selected) for office

shooting by a professional photographer commissioned by IKEA will receive

100 EUR in cash after the shooting and one desk will be offered to a school in

a developing country for the use by the teacher through WorldVision, a global

development NGO, with the logo of the IKEA customer company and IKEA

logo. A photo provided back to the IKEA customer company as well. The

professional photos will be used for the advertisement called “Vote for the

best designed office”, posted on social medias (Instagram, Facebook). The

best designed office will be also advertised in office publications with the

website and social media links (see “Interest” section). At this stage, the

name “Ikea” will not be mentioned in order to keep the surprise for later stage.

Page | 11

- Interest

On the advertisement, hashtags #bestdesignedoffice and facebook

“BestDesignedOffice” pages will be shown and directing to a website for

voting where people link their Facebook, Instagram, Twitter, Email and

LinkedIn to the voting website site. The winning office competition

professional photos will also be featured in business magazine and websites

targeting SME companies.

As mentioned in the “Attention” section, the name of IKEA will not be

mentioned at this stage.

“IKEA BUSINESS” catalogues will be sent to all companies having between

10 and 250 employees in Western Europe, reaching 1.65 million companies

with the same messages and with the same photos.

- Desire

The people who linked their social media profiles or entered their email on the

voting site will receive a newsletter with the title “Why not working in an office

like this” giving them access to the “IKEA BUSINESS Website”.

- Action

Access the local “IKEA BUSINESS” website, giving them the possibility to

design their own office and get specific offers that can be automatically

forwarded to another person, like the CEO of the company, division director

or office manager. A contest will be held and the winner of the selection by an

IKEA jury will have its office furniture paid up to 100,000 EUR. The 2nd price

will be 10,000 EUR and the 3rd 5,000 EUR in IKEA vouchers. The same

designs as at the previous campaigns will be again shown but this time with

the IKEA logos. These results of both contests will be presented a press

conferences in all countries, taken care by current marketing team within their

budget.

Page | 12

Promotion Budget & Implementation Calendar

1. Objective-and-task Promotion Budget

In order to win 486.75 million EUR revenue, IKEA will have to spend 7.334 million

EUR, a 1.506%.

Estimation of the cost of online article calculated from the PME Magazine (axel

springer, 2015) full page for two magazine per country and 32 European countries.

2015 2016

Actual Cost Baseline Cost Remaining Cost Cost Variance

0.00 € 0.00 € 7,334,000.00

€

7,334,000.00

€

0.00 €

1,000,000.00 €

2,000,000.00 €

3,000,000.00 €

4,000,000.00 €

5,000,000.00 €

6,000,000.00 €

7,000,000.00 €

8,000,000.00 €

0.00 €

1,000,000.00 €

2,000,000.00 €

3,000,000.00 €

4,000,000.00 €

5,000,000.00 €

6,000,000.00 €

12341234

Cost Cumulative Cost

Page | 13

Name Fixed Cost Actual Cost Remaining Cost C ost Baseline Cost Cost Variance

Project management

and support team

50,000.00 € 0.00 € 50,000.00 € 50,000.00

€

50,000.00 € 0.00 €

Sending letter to IKEA

Business customers

5,000.00 € 0.00 € 5,000.00 € 5,000.00 € 5,000.00 € 0.00 €

Customers taking

photos and sending

them to IKEA

0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 €

Selection of the 1000

best IKEA offices

based on the

customers photos

5,000.00 € 0.00 € 5,000.00 € 5,000.00 € 5,000.00 € 0.00 €

Photo shootings to

maximum 1000

offices

250,000.00 € 0.00 € 250,000.00 € 250,000.00

€

250,000.00 € 0.00 €

Internal order of up

to 1000 desks

100,000.00 € 0.00 € 100,000.00 € 100,000.00

€

0.00 € 100,000.00 €

Shipping of 1000

desks

100,000.00 € 0.00 € 100,000.00 € 100,000.00

€

0.00 € 100,000.00 €

Development of

customer website

and social medias

50,000.00 € 0.00 € 50,000.00 € 50,000.00

€

50,000.00 € 0.00 €

Posting of the photos

on the website and

activation of voting

function

2,000.00 € 0.00 € 2,000.00 € 2,000.00 € 2,000.00 € 0.00 €

Analysis of Ikea office furniture range from a marketing point of view, including recommendations

Figures

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