IKEA (Research Paper Sample)

Summary
This is a six page paper on IKEA, a Swedish furniture retail company. It looks into the reasons why IKEA has continued to be successful despite stiff competition in the furniture retail industry. The paper also discusses the social and environmental issues that IKEA has faced during its operation. IKEA has faced two major problems; child labor and environmental pollution. The paper outlines how this affected its business and the measures that were undertaken to deal with these issues. The paper relies on eight sources and is in APA format.
Running head: IKEA
IKEA
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IKEA
Introduction
IKEA is a Swedish furniture retailer that was founded in 1943 by Ingvar Kamprad, who sold small items such as binders, ballpoint pens and cigarette lighters. The business grew tremendously and IKEA started offering locally made furniture. The furniture was positively received by customers and the company started receiving catalogues and creating self assembly and flat pack furniture to minimize storage space. The first store by IKEA was opened in Almhult, Sweden and more stores were opened in other locations such as Germany, Denmark and Norway. Currently, IKEA is a company with a global presence as 279 of its stores are found in 36 countries. The group owns 247 of these stores within 24 countries while in16 countries; the stores are handled by franchisees (Warc.com, 2012).
Kampard used catalogues to persuade people to attend exhibitions held by the store, where they would get to see the real furniture and place orders afterwards. This principle still applies as the store largely uses catalogues to tempt customers to visit the stores and make a purchase. Kampard success brought about several challenges as local cartels dealing with furniture prevented manufactures from supplying IKEA with raw materials. Kamprad had to look abroad especially Poland for new suppliers and developed a close working relationship with them. IKEA prospered and started offering affordable, quality furniture to customers allover the globe. IKEA brand now offers furniture, home appliances and accessories ranging from chairs, houses, desks and foot warmers under one roof. IKEA has also opened a chain of restaurants that offer various traditional Swedish delicacies such as meatballs, cream sauce, hot dogs, potatoes, lingonberry jam and juice (Warc.com, 2012).
Marketing Strategy Adopted by IKEA
Although there is a lot of competition in the furniture retail market, IKEA has remained relevant by offering a wide variety of quality home furnishings at low affordable prices. IKEA understands that low prices are not appealing to customers, unless they correspond with good value for money. The firm’s goods are differentiated by design, style, low prices and space efficiency. IKEA products emphasize more on functionality, without neglecting superior design. IKEA corporate slogan emphasizes on low prices that have a meaning, which is a commitment to give customers well refined and high-class products. IKEA offers customers a wide selection of furniture that are easy to utilize, attractive and suitable for the mass market.
IKEA utilizes cost efficiency to achieve its tremendous success. The firm keeps the customers and manufactures cost at the lowest level possible (Ikea.com, 2011). IKEA arranges competition among its suppliers and this helps the firm in getting materials at lower prices. There is also competition among the internal designers and freelancers to ensure the products made are of superior design and materials. IKEA packs its product in flat packs and this reduces storage and transport costs. IKEA outlets operate on self service model and only fundamental customer care is given, cutting down on the staff needs of the company. Customers are expected to assemble and transport their products upon purchase and this helps in minimizing cost (Ikea.com, 2011).
IKEA has also strategically planned all its enormous retail outlets. All stores follow a one-way layout and this helps the customers in touring the entire store. Customers tour the store and select the furniture that appeal to them after careful viewing and analysis. After making a selection, customers are directed where to collect the product and finally pay for it at the cash register. Most IKEA stores open for long hours and some operate for 24 hours thus the customers can shop at their own convenience (Ikea.com, 2011). IKEA display stores also offer other value added services to customers such as grocery stores, child playrooms and restaurants.
Environmental Issues Affecting IKEA
During the late 1980’s, IKEA experienced its first environmental challenge. In Denmark, there was an increase in environmental awareness and the government initiated a policy to reduce the utilization of formaldehyde in building goods. IKEA widely used formaldehyde in the manufacturing of particle boards used in most of their furniture. The particle board helped IKEA in cutting down on cost and they had to find a way to resolve this serious problem that challenged their market share. Tests ran on some of the furniture with the particle board ascertained that the formaldehyde emissions were higher than those laid down by the Danish Environmental Law (Owens, 2009). The government fined IKEA and this case was highly publicized since the government wanted to emphasize the importance of the new regulations. IKEA suffered greatly from this negative publicity and its sales dropped drastically. According to a report, there was a 20 percent drop in Denmark alone.
IKEA had to act quickly to avert any other loss arising from the use of formaldehyde by suppliers. This was quite challenging as most of the company’s suppliers were from different nations that lacked environmental restrictions and thus they continued using formaldehyde (Norton, 2007). The use of formaldehyde was traced to the glue companies that sold the suppliers the binding agent. IKEA worked closely with the glue companies to try and fix this problem and win back the customers trust, as well as improve the tattered public image of the company. However, in 1992, tests by a Germany paper found that formaldehyde used in IKEA products was more than the legally allowed limits (Owens, 2009)
This second incident was a wake up call for IKEA as the company saw the need to address a variety of environmental issues. This would be a strategic goal to promote social responsibility, win back customers trust, and avoid any other environmental issue which would cost the company a substantial income. IKEA opted to start working closely with several environmental groups to solve the environmental problems that the company faced (Norton, 2007). IKEA worked closely with Forest Stewardship, Greenpeace and World Wildlife Fund (WWF) to create a sustainable and environment friendly business. IKEA launched The Natural Step (TNS), which is a committee that looked into the environmental problems that touched IKEA and how they would be solved. It formulated an environmental plan that became a part and parcel of the corporate culture. This policy later on became the Environmental Action Plan that describes the practical measures that the company would undertake to deal with any environmental issues (Owens, 2009). This plan is periodically updated to deal with any environmental issues that arise in any area of the company’s business unit. This comprehensive plan implementation falls under several categories including transport, consumable materials, suppliers, building material, customers, materials and products and materials and products (Norton, 2007).
IKEA has also followed standards put forward by environmental groups such as not accepting any wood from natural forests. It has also partnered with other environmental groups to fund programs that aim at conserving the environment. Recently in 2011, Mike Ward, the US IKEA president spoke during the climate week held in New York. He emphasized that sustainability was a core business strategy for the company and it had formulated a long-term strategy of using renewable energy in its buildings and stores. IKEA had already installed over 40 solar panels in some of its stores in the world and 11 of these were within USA. IKEA also outlined some of its green initiatives that included, planting more trees and banning the use of plastic bags in its stores among others (Ikea.com, 2011).
IKEA and Child Labor
IKEA also faced social issues when it was accused of using child labor. A documentary film showing children working for IKEA in Pakistan was aired by a Swedish television in 1994. IKEA was widely criticized and condemned by various international organizations for using child labor. Child labor came about as a result of globalization, since IKEA relocated to countries with cheap labor to cut down on cost. These third world economies included countries such as Nepal, India and Pakistan that faced several human right issues, and IKEA inherited these problems upon setting foot in these countries. An example is India, where according to the Human Right Watch; the number of children laborers is estimated to range between 60 million and 150 million. 200, 000 of these children worked in the carpet industry (Barlett et al., 2006).IKEA subcontracts manufacturers from various places in the globe to get supplies and this makes it hard to keep track on all sub-suppliers and suppliers. Although, this strategy makes it possible for the company to change suppliers at a minimal cost, it makes it difficult to track child labor especially in those sub-suppliers working in the looming industry at family level. In 1995, a German television threatened to show a film on children at Rangan industry in India that supplied looms to IKEA. IKEA was facing a serious social issue that needed to be handled properly to avert the loss of cu...