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1. Page 1 Marketing and Services Management TITLE OF ASSIGNMENT: INTERIM ASSIGNMENT BASED ON IKEA CASE STUDY Submitted to Dr. Roy Damary and Dr. Peter McGregor Date 28th…
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  • 1. Page 1 Marketing and Services Management TITLE OF ASSIGNMENT: INTERIM ASSIGNMENT BASED ON IKEA CASE STUDY Submitted to Dr. Roy Damary and Dr. Peter McGregor Date 28th June, 2015 Type of Assignment Individual Submitted by Name of Student Sanjay Vaid Roll No 00436743
  • 2. Page 2 Contents Introduction .................................................................................................4 Marketing Mix: ............................................................................................4 The first P: Product:...................................................................................4 The Second P: Pricing ................................................................................6 The third P: Place.......................................................................................7 The Fourth P: Promotion.............................................................................8 The fifth P: People and internal marketing.....................................................9 The Sixth P: Physical evidence..................................................................10 The Seventh P: Process Management..........................................................11 Analyses of Environment IKEA has to operate...............................................12 Macro level analysis.................................................................................13 The Political Environment:........................................................................13 Economic Environment ............................................................................14 Social Factors:.........................................................................................15 Technology Factors:.................................................................................17 Environment Factor:.................................................................................18 Legal Factor:...........................................................................................18
  • 3. Page 3 Industry level Analysis .............................................................................18 Porter’s 5 forces Analysis:.........................................................................18 Rivalry amongst competing firms:...........................................................18 Threat of new entrant:............................................................................19 Threat of substitutes: .............................................................................19 Bargaining power of Supplier: ................................................................19 Bargaining power of buyer:....................................................................19 Evaluation of the quality and sustainability of the Ikea offering in the context of its marketing mix and marketing environment:....................................................19 Product:...............................................................................................19 Price:...................................................................................................20 Place and Positioning:............................................................................20 Works Cited...............................................................................................21
  • 4. Page 4 Introduction Since its 1943 foundation in Sweden, IKEA has offered functional home furniture and accessories of good design at low prices so that people can afford the same. The author shall do the analysis for Ikea taking in view India as the market; the marketing mix would be universal as Ikea follows standardization process and offers Scandinavian design in its furniture. Marketing Mix: “In practice, the core of marketing is considered as the marketing mix. Dr. Ravi Shankar in his book has cited Neil Borden, who further quotes from an article by James Culliton that a marketer is viewed by a ‘decider’, or an ‘artist’ or a mix of ingredients’ who plans various means of competition” – (Shankar, 2002) (Borden, 1964) (Cullition, 1948) The first P: Product: Product in the marketing context is anything offered to a market for the exchange or consumption. In good markets like that of Ikea, we would say that there is an intangible component to which intangibles like a style, after-sales-services, credit etc., are integrated. Ikea provides highly functional quality furniture at a low price with a goal to “create a better everyday life for the many people” which is their core product. Ikea has a wide range of very well designed home furnishing products and complements these tangible products with intangible service options online order taking process, picking, transferring and assembling the furniture which also the augmented value.
  • 5. Page 5 “Kotler has identified five levels of a product. It is the core and basic which might be the same for most competing products while it’s other level that makes the difference.” (Kotler, Marketing Management: Millennium Edition, 1999) Table 1.1 Five Product level Core Product The fundamental benefit or service that the customer is buying. Basic Product Basic, functional attributes Expected Product Set of attributes/Conditions the buyer normally expects Augmented Product That meets the customers desire beyond expectations Potential Product The possible evolution to distinguish the offer. Gronroos constructed that the services a product offer consists of three levels as shown in figure 1.2 below, the first level is basic service level consisting of core services, supporting services and facilitating services. The second level is of augmented services offering where accessibility, interaction, and customer participation is given equal importance in delivering the service product. The third level is that of market communication of the service offering as in its absence the augmentation services package does not have any relevance to the customer (Gronoos, 1987)
  • 6. Page 6 The Second P: Pricing Pricing is linked to demand any increase or decrease in prices affect demand, similarly prices also tend to increase perceived value, for example, a high-cost product is perceived to be of better quality and better post-sales support and service. The Core Product Supportin gservices Facilitatin gServices The Service Concept Interaction Accessibility ofthe services Consumer Participation CorporateImage Wordof Mouth Marketing Communication Figure 1.2: Image, Communication and Augmented Services Offering.
  • 7. Page 7 In setting price objective, several factors related marketing strategy should be considered: First is the plan the market position of the product. “Gitlow suggested that price not only influences the market position but also significantly affects customers' perceptual positioning. It is therefore important to keep market/customer position in mind while deciding on pricing strategy. (Gitlow, 1978) Secondly, the stage of the lifecycle of a product is important for setting price as during the introductory stage if the demand is high and no or low completion prices can be high which is a skimming policy similarly if the demand is low and competition is higher than market penetration policy can be used for lowering the price. Also, the elasticity of demand needs to be considered if the demand is sensitive to change in price. Thirdly an in-depth understanding of competition needs is to be conducted in terms of brands, substitute products, and complementary products. Lastly, we need to consider the strategic role of pricing in the overall marketing mix for example, Ikea can introduce package deals and discount which can enable customer use their products this might be a losing proposition in short but in the long run this would increase customer mindshare and likely hood of them buying the IKEA product due to experience they had with the products they bought with discount or in package deal. Ikea offers reasonable and affordable price for the furniture, they use large volumes and fa packaging to cut cost. The Third P: Place There are 2 methods to sell channel and direct, direct, traditional channel involved distributors and multi-brand or exclusive retail stores, but new age retail channel also includes online internet
  • 8. Page 8 based selling via intermediaries like amazon, eBay, Argos, Tesco etc., direct channel is Ikea own stores, Ikea own website through which they offer B-to-C online product as well. Ikea has over 360 stores in around 50 countries; In July 2014, Ikea opened its foremost store in India in the town of Hyderabad and is expected to open stores in Bangalore, Mumbai, and Delhi soon. Ike Smaland is a play zone is in every Ikea store. Parents leave the kids at the entrance to the park and pick them up following their return. This allows undivided attention from parents and they experience products and get navigated around the store in by the store employees The Fourth P: Promotion The Promotion is also called the marketing communications mix, consisting a blend of advertising, sales promotion, public relation, personal selling and direct marketing. Ikea uses both pulls and pushes strategy. “In the service sector, there is a direct contact between the person who provides the service and the consumer, therefore, some amount of promotion should be targeted at the employees so to motivate them to serve the customer better. In such communication, the objective can also be to educate the employee about how to handle operational problems and customer handling so as to increase their performance level. The other set of the audience is similar to that of goods where the target audience may not necessarily be the buyer or user, but also the influencers, decider or user of the buying cycle” (Shankar, 2002) Apart from TV advertising, newspaper, brochure Ikea also conducts internet marketing advertising on various sites and social media. Ikea also pays a lot of importance to environmental
  • 9. Page 9 and ethical issue; they cooperate with UNICEF, Worldwide fund for nature (WWF) which contributes a lot to building a favorable corporate image and good public relationship. The ‘Ikea Catalogue’ is a list issued yearly by Swedish home furnishing retail merchant IKEA. First issued, in the Swedish Language in 1951, the list is deemed to be a principle promotion tool of the company and as of 2004, consumes 70% of its annual marketing budget. Worldwide, approximately 208 million copies of the catalog were printed in the year 2014 with 62 different versions of the catalog created in 43 countries. The Catalogue is now available online as well. The fifth P: People and internal marketing “Judd, in 1987, came with yet another ‘P’, people. Judds argument was that it is the employees, which represent the organization to the customer. If these employees are not given training on how to go about face-to-face customer contact, the entire marketing effort may not prove to be effective.” (Judd, 1987) Strategic Objective of Internal Marketing Overall Objectives To develop motivated and customer-conscious personnel Strategic level Objective To create internal environment the supports customer-consciousness and sales-mindedness amongst the personnel through supportive: Management methods Personnel policy Internal trading policy Planning and control procedures. Source: (Gronross, 1981)
  • 10. Page 10 Ikea has a well-trained and motivated Frontline and back-end team, the front line team engages with customers directly in person, over phone or face-to-face this includes the sales team, which helps the customer decide and help buy the furniture, the phone based support and sales and on- site assembly team for customers who chose the not do it your self-option. The Sixth P: Physical evidence G Lynn Shostack once observed. “A physical object is self-defining a Service is not.” And therefore the marketing task in service industries is “definitions for the service what the service cannot define for itself.” (Shostack G. L., 1987) Although a consumer cannot see a service, but definitely he can see various tangible clues of the service offer like facilities, communication, material, objects, employees, other customers, price, etc. On the basis of his perception of the tangible clues, the customer makes the purchase decision. In services marketing, both peripheral and essential evidence is significant as they aid in providing the tangible experience of service to the consumer. Peripheral evidence can be possessed as a part of the service purchased while essential evidence, on the other hand cannot be possessed. McGrath added two more Ps: Physical Facilities and Process management, his argument in support of these P’s was that the physical facilities are important in facilitating the delivery of
  • 11. Page 11 services. (Macgrath, 1986) Figure 1.3 The three Elements of Service Evidence “As per Berry and Parsuraman physical environment is one of the three elements. The other two elements are communication and price as shown in figure 1.3. There three elements are not mutually exclusive, but rather they influence each other.”(Berry & Parasuraman, 1991) Ikea has no of showrooms across the world the product design, the facilities, the ambience, the facility design, the social factors like behaviors, number of services, personal, and children playing area, recreation facility like restaurants, quality and quantity of other customer, it own vehicles that deliver the product all of them lead to physical evidence influencing customers, employees, and influencers. The Seventh P: Process Management The importance of process management is that it assures service availability and consistent quality. Price Communication Enviroment
  • 12. Page 12 Ikea selling process is less complex and has some divergence in term of options for customers to buy online or directly from store and option of delivery or assemble services for products. The process is standardized. “Shostack describes process in two ways: The first way is as per steps and sequences that constitute the process and she termed it as ‘complexity of processes. The second according to the exceptional latitude or variability of those steps and sequence, which she called ‘divergence’. Any service process is a combination of both complexity and divergence.” (Shostack G. L., 1987) Analyses of Environment IKEA has to operate The business environment if often divided external macro environment, the external industry environment. Exhibit 1.4 Drivers for global strategic perspective
  • 13. Page 13 Macro level analysis The Macro level environment consists of Political, social, economic, Technology, Environment and Legal factors (PESTLE). The retail sector is India is expected to be worth US$ 675 billion by 2016 and its fractured and disorganized nature means that it's huge potential for consolidation or entry of an outside player. The Political Environment: The government can have a major impact on business by imposing regulations, the level of taxation, import duties, and provide subsidies to certain firms. Business strategies are now also affected by global institutions like World trade organization and regional economic blocks like The European Union, NAFTA, and the Association of South Asian Nations (ASIAN) Free Trade Area (AFTA). (Geogrge & Mellahi, 2011) Hence, multinational firms need to pay attention to a complete set of important political issues, regional economic integration, government legislation, political risk, tax policy and corruption. The Foreign Investment promotion board has given approval to IKEA to invest INR 10,500 Crore and they plan to open 25 stores in 10 years, they have already opened a store in Hyderabad and new stores are expected in Mumbai, Delhi and Bangalore soon. http://articles.economictimes.indiatimes.com/2014-09-17/news/54024673_1_furniture-retailer- new-stores-large-format-stores India is both a sourcing country as well key market for IKEA and with India is a labor abundant country the government would like Ikea to invest in India, which creates employment and for
  • 14. Page 14 IKEA India is the second largest country in terms of population and growing hence a key market. Also, India has been sourcing market for Ikea for 25 years. India and the EU are working towards Bilateral trade agreement (BITA) for which frame has already been agreed and government of India is now at an advanced stage talk with the European Union (EU) to conclude BITA, commonly known as EU-India Free trade agreement. Since Sweden is part of the EU, which is the country of Origin of IKEA it stands to benefit from the bilateral trade agreement. Economic Environment Changes in economic business environment can influence a firm’s expansion. Exchange rate, cost of production, cost of capital, inflation and cost of living, working –age population, unemployment, Debt – internal and external, Income distribution, Urban verse rural income, labor cost, poverty, productivity, Balance of payment are to be considered while analyzing economic environment. Other factors that are to be taken into consideration are Gross National income, Gross Domestic Products, Per Capita Conversion, Rate of change, Purchasing power parity, Degree of Human development, Green Measure of GNP (Daniels, Radebaugh, Sullivan, & Salwan, 2009) - Indian GDP in 2014-15 is US$ 1.68trillion - Gross Value added at basic price is 7.5 percent. - Per Capita Income for 2014-15 is US$ 1166.48 - Growth in per capita income is 6.1 percent.
  • 15. Page 15 - Purchasing power parity: 7,996.6 US$ ranked 3rd in the world and 6.4 percent share of global GDP on a PPP basis. - Population 1.2 billion - External Debt (end-December 2014) – US $ 461.9 billion - Long-term debt – US $ 376.4 billion - Short-term debt – US$ 85.6 billion. - Reserves: US$ 355.4593 billion - Cumulative Foreign Direct Investment inflow: US$ 373.163 Billion (Between April 200 to April 2015) Income level of Indians is increasing and they aspire for the better quality of life; spending by average Indian is more than ever before. India is also a high potential market for luxury retail furniture and for office furniture which is a large market due development work happening in India and 100 new smart cities proposed by the government of India. India also provides for low cost labor, raw material, production and supply chain which can be used for exports by IKEA as well as its mainland is well connected via train and road to its seaports and has land routes to Asia Pacific, Central Asia, Persia, Middle East as well. Social Factors: Social factors are extremely important for marketers to understand before they plan and enter a market. Information related to population, age group, cultural values and attitudes, accepted
  • 16. Page 16 norms, education, social institutions, manners and customs, ethical dimension, religion, Languages, Hofstede index -power distance, individualism, masculinity are important to gather before making any marketing plans and market entry strategy. Regional Languages in India: Assamese, Bengali, Gujrati, Hindi, Kannada, Kashmiri, Malayalam, Manipuri, Marathi, Nepali, Oriya, Punjabi, Sanskrit, Santali, Sindhi, Tamil, Telugu, Urdu. Hofstede Index for India: - Power distance 77 - Individualism 48 - Masculinity 56 - Uncertainty Avoidance 40 - Long term orientation 51 - Indulgence 26 Population Facts: - Age Group 15- 19 – 9.7% (Source: Ministry of Home affairs) - Age group 20-24 – 8.7% - Age group 25-44 – 27% - Age group 45-64 – 13% - India, Middle class: 267 million people. India has rising middle class and 48.7% of the population is working adults, hence there is high potential demand, the furniture retail segment is getting organized and currently there are multi-
  • 17. Page 17 brand outlet c
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