The Australian Furniture Retailing Industry and The Strategic Marketing Approach of IKEA

Introduction

This report is the further report based on the initial report of Australian furniture retailing industry. Here, it will be mainly focus on one of the distinguished company in Australia - IKEA - operates in the furniture retailing industry. Meanwhile, it will attempt to analysis the marketing mix of two specific segmentations that be emphasized by IKEA's marketing strategy.

Scope

This report is talking about two market segmentations of IKEA and its current promotional strategy to those different target segments. In examine the two segments, this report focus on seven Ps' from the sellers' view such as product, price, placement, promotion, people, process and physical evidence.

The data mentioned in this report has been collected from some journal articles, the home website of IKEA based on the two segments, and relevant links in its website. Moreover, the secondary data such as text books and annual report of furniture retailing industry have been also used in it.

Limitations

The limitations of the report were lack of experience of data collection, time constraint, and the inability to book an interview with staff work in IKEA. The difficulty of obtain the current marketing strategies has been addressed as well.

In preparing this report, it is assumed that the information gathered related to the topic is correct, and assumed that readers have the basic knowledge of marketing strategies.

Segmentation

Market Identification

Even as Kotler, Brown, Adam and Armstrong (2001, p 10) explains that market is a group of all actual and potential consumers of a product. The core product of furniture retailing industry is furniture and decorations. Customers buy furniture to decorate their working or living place and obtain a better environment. The market of IKEA is all the customers who need the furniture. IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. This group consumer is main market. They also create children furniture for kids. Due to it is global organization, IKEA has international market.

IKEA has tried a new segmentation called "Enjoy Life, Work IKEA". This segment is based on business people who work in Australia. The Ikea marketers divided the market by the people who are work at home or from an outside office. These working people are usually white collars and they are belonging to the middle class of the whole society. The marketers believe that the key to making work a pleasure lies in creating a better workspace, the one designed with freedom, flexibility and fun in mind (http://www.ikea.com.cn/english/range/enjoy.htm). Therefore, IKEA marketers segmented this kind of working people into a particular group. According to Kotler, Brown, Adam and Armstrong (2001, p 294), they segmented the consumer market by demographic segmentation. This consumer market was divided into groups based on occupation and income between twenty-five and fifty-five, male or female and married or not married. Ikea use income and socioeconomic status segmentation targets the affluent consumers.

On the other hand, the marketers of IKEA also have segmented the consumer market into the children's market named as "Children's Ikea". This group of target customers are totally different from the previous one. To IKEA, they believed that children are the most important people in the world. When parents decorate the house, children always have a certain expectation of their room. Therefore, children have the ability of directing parents what kind of the room they like and what they want to buy for the decorations (http://www.ikea.com.au). Therefore, IKEA marketers segmented children as another particular group. According to Kotler et al. (2001, p 294), they segmented the consumer market by demographic segmentation. This consumer market was divided into groups based on age and sex.

Methods and Theories Used to Determine Segments

Market segmentation is the first step in target marketing. It divides a market into several distinct groups of buyers with different needs, characteristics or behaviour (Kotler et al, 2001, p 293). IKEA focuses their customers on working people and children. These two segmentations are dividing according to four theories such as geographic, demographic, psychographic, and behaviour.

Kotler et al (2001, p294) also describes demographic segmentation as "dividing the market into group based on demographic variables". It includes age, gender, family size, family life cycle, income, occupation, education, religion, race and nationality. Those two segmentations both take age, family life cycle, income, occupation into consideration. The first segmentation is divided by family life cycle, income, occupation and education; the second focuses on age, gender and family life cycle.

Moreover, psychographic segmentation is talked about the method of dividing a market into different groups based on social class, lifestyle or personality characteristics (Kotler et al, 2001, p 297). People in the same geodemographic group can have very different psychographic profiles.

Furthermore, the last method of segmentation is behavioural. Kotler et al (2001, p 297) suggests "It is dividing a market into groups based on consumers knowledge of the product, their attitude towards it, the way they use it and their responses to it". It usually consists of purchase occasion, benefits sought, user status, usage rate, loyalty status, readiness stage, and attitude towards product (Kotler et al, 2001, p 295). Those two segments are both measured in terms of benefits sought and user status.

Marketing Mix

According to McDonald and Tideman, (1993, p 1), the marketing mix is the term used to describe the tools and techniques used to implement the marketing concept. When a company has decided on its entire competitive marketing strategy, the marketing mix is being set which described as 4 Ps (Kotler et al, 2001, p 69). However, McCarthy, Perreault, and Quester (1998, p 42) have a more explicit explanation on marketing mix, they suggest that "A set of controllable variables which the organization puts together to satisfy a target group". A representative marketing mix involves a product, provides at a price, combine some promotion to inform potential customers, and a way (place) to meet those customers (McCarthy, Perreault, and Quester, 1998, p 42). Nevertheless, in service marketing, there are three extended elements considered by marketers. People seem the core benefit in the whole marketing mix, because all the marketing mix is focus on people such as customers, potential customers, and even employees. Moreover, there are another two Ps for services marketing such as process and evidence. These two Ps are the extra emphasis on the importance of people (McColl-Kennedy, and Kiel, 2000, p 328). The marketing mix helps marketers get hold of their target customers.

Seven Ps include product, price, promotion, place, people, process, and physical evidence in the whole marketing mix. Moreover, people, process, and physical evidence are three specific elements in service marketing.

McColl-Kennedy, and Kiel (2000, p 45) explain a product as "A bundle of attributes (benefits) that a seller offers the potential buyer to satisfy buyer's needs or wants". It is the combination of goods and service (Kotler et al, 2001, p 69).

Price is the amount of money customers have to pay to gain the benefit (product and service). The final agreed price is a reflection of the customer's perceived value of the products and the competitive atmosphere in the market (Barnes, Meyer, McClelland, Wiesehofer, & Worsam, 1997, p 249). This is a really important issue for both marketing managers and consumers (McCarthy, Perreault, and Quester, 1998, p 46).

Then, the third one is promotion which means activities that communicate the value of the product and persuade target customers to buy it (Kotler et al, 2001, p 69). Promotion activities can be grouped into advertising, personal selling, sales promotion and publicity (McColl-Kennedy, and Kiel, 2000, p 46).

The fourth P is place which described as "The marketing channel used and the physical delivery of logistics of getting a product to market" by McColl-Kennedy, and Kiel (2000, p 46). It includes objectives, channel type, intermediaries, locations of stores, and so on (McCarthy, Perreault, and Quester, 1998, p 44). "Placement involves company logistics and marketing activities concerned with making and distributing the finished product to target consumers" (Kotler et al, 2001, p 69).

The extended marketing mix includes people, process and physical evidence. They are used in consumer marketing. It is defined by Kotler et al (2001, p 342) as "The products bought by final consumers for personal consumption". Due to furniture retailing industry belongs to consumer market; these three Ps should be taken into consideration. Therefore, it focuses on staff, managers, and all employees in the service industries.

The first one is people. As Barnes et al (1997, p 250) described that "The people involved in every transaction have a major role to play, and can be a major force in the customer's decision processes."

Then, process has been defined as "Process comprises the actual procedures, mechanisms and flow of activities used to perform the service" (McColl-Kennedy, and Kiel, 2000, p 328). This refers to the actual documentation involved in the purchase, the stages of negotiation, the simplicity or complexity of making it happen (Barnes, Meyer, McClelland, Wiesehofer, & Worsam, 1997, p 250).

The last P is physical evidence which explained by McColl-Kennedy, and Kiel (2000, p 328) as "The environment in which the service is delivered and where the firm and the customer interact; and any tangible components associated with the service". For example, brochures, reports, letterheads, business cards, facilities, and even the colours used in the decor of the service area (McColl-Kennedy, and Kiel, 2000, p 328).

The products for "Work IKEA" include computer tables, home office chairs, home office desks, organisational tools, storage boxes and work lamps. The computer table is designed to accommodate your computer monitor, CPU, keyboard, mouse, printer, and all of your other workspace needs. All the parts are in one unit and it can fits snugly into the corner. IKEA work chairs are adjustable in height and have castors to best suit your workspace. The organizational tools include letter tray, pen holder, magnet board and cable reel. IKEA storage boxes come in many sizes, materials and colors to suit your many storage needs. Label the outside of your boxes as a convenient reminder of what people have stored away inside. Also IKEA work lamps add style and function to your workspace.

As well known, the price that IKEA charged on the products is the comparatively lower than other furniture retailers in Australia. The price is much lower than FREEDOM, its biggest competitor. The price of working chairs is around $100-$300 and the price of computer tables is around $100-$500 (http://www.ikea.com.au). According to (2003 IKEA catalogue), if the customer find a lower price at other retailer within 30days on an item which bought at IKEA, they will give refund plus free meal in IKEA restaurant. This make customer buy with confidence at IKEA get lowest price.

During the nearly these years, IKEA has done many successful promotions to their target customers so that its business has attracted more and more consumers. The most well-known is IKEA Catalogue. Every year, IKEA will put out a catalogue to the local resistants to introduce the latest products in store. IKEA also established its websites all over the world. People can know the every details of the office furniture at home instead of go to store. IKEA also do the advertisement on the television to promote the products.

Place is about the marketing channel and distribution used of obtaining products. In Australia, IKEA has located its stores in Sydney, Melbourne, Brisbane and Perth. There two stores in Melbourne. One is at Richmond, the other one is at Moorabbin. These two stores are very big and just open.

IKEA not only concentrates on consumers, but also pays attention to its employees. Because, a well trained personnel can offers a better service to the customers. Therefore, they have dedicated time to get recruitment and trained them. When customers satisfied with the services provided by IKEA, they will choose it again.

Process is the whole procedures which use to perform the service (McColl-Kennedy, and Kiel, 2000, p328). IKEA has a very convenient and fast process for consumers to gain their want and need. It is famous that IKEA use self-serve method. People can find office furniture in a certain area and then go to market hall to get the products. After that, they can go to checkout to pay for the goods. IKEA store also provide home delivery if the customer can not bring the goods themselves.

Physical evidence is all the tangible parts such as brochures, facilities and even the colours used in the decor of the service area associated with the service (McColl-Kennedy, and Kiel, 2000, p328). For example, IKAE provides a very good store condition to the consumers. The store gives people an image of simple and modern. The store provides many show rooms for the customers to experience the office furniture whether it is comfortable or not. The show room for the office work at home also gives you some idea of constructing the work place. Their physical evidence can lead customers clearly recognise IKEA to distinguish it with other brand.

TV Ads Yearly hand out catalogue, information on website, frequency ads on TVEasy to get information

PlaceStores Information, products, show roomsReceive good service

PeopleStaffTraining: formal, polite, professionalBeing satisfied

ProcessChoose products, take product in market hall, check out Easy, relaxedly, Finish all steps in store

Physical evidenceGood hardware Tangible thing that associated with serviceclearer recognise, distinguish it with other brand

The products for "Children's IKEA" include bed linens, space saver, beds and storage boxes. The bed linens for children are designed colorfully and it is more attractive for children. The furniture for children is safe, durable and created with kids' needs and imaginations in mind. Also it is designed to grow with them. Kids' storage box will provide more space for them to save with storage and also the more room the kids have to play. IKEA also have toys for children. The toys are tested and approved to withstand the roughest of child's play (http://www.ikea.com.au).

The tenet of IKEA is based on the idea of lower price and better quality. The price o the products for "Work IKEA" are very cheap. Most of the work people can afford these prices. The price for children's furniture is not very expensive. The bed linens for kids are around $60-$150. The kid's bed is around $100-$300.

During the nearly these years, IKEA has done many successful promotions to their target customers so that its business has attracted more and more consumers. The most well-known is IKEA Catalogue. Every year, IKEA will put out a catalogue to the local resistants to introduce the latest products in store. The annual catalogue is distributed in middle of September at each year and is valid for a full year. Prices are guaranteed not to increase while the catalogue is valid. In it, you will discover furnishings, accessories and room settings along with detailed information on materials, colures, sizes, product care and prices. That way you can plan your next visit to IKEA all from the comfort of your own home. The catalogue is free. The content for children is: children's furniture, lamps and toysIKEA also established its websites all over the world. People can know the every details of the office furniture at home instead of go to store. IKEA also do the advertisement on the television to promote the products.

Place is about the marketing channel and distribution used of obtaining products. In Australia, IKEA has located its stores in Sydney, Melbourne, Brisbane and Perth. There two stores in Melbourne. One is at Richmond, the other one is at Moorabbin. These two stores are very big and just open.

The staffs in IKEA are warm and patient. Because of well trained personnel, they can offer a better service to the customers. Therefore, they have dedicated time to get recruitment and trained them. When customers satisfied with the services provided by IKEA, they will choose it again.

IKEA has a very convenient and fast process for consumers to gain their want and need. It is famous that IKEA use self-serve method. People can find office furniture in a certain area and then go to market hall to get the products. After that, they can go to checkout to pay for the goods. IKEA store also provide home delivery if the customer can not bring the goods themselves.

IKAE provides a very good store condition to the consumers. The store gives people an image of simple and modern. The store provides some playground for children to play. The store provides many show rooms for the customers to experience the office furniture whether it is comfortable or not. The show room for the children's stuff at gives kids good image on the furniture and attract them to ask their parents tobuy for them.

Conclusion

This report has done a research of two specific segmentations of IKEA"s customers and their various marketing mix. Through the research, the seven P's have been examined through the people who work at home and children. They have different behaviour; therefore, IKEA provides different marketing mix to satisfy these two groups of customers. This report clearly examines the importance of segmentation to the whole customers and potential customer for a company. It supports marketers concentrate on the target customer and establishes some beneficial programs to those customers. Meanwhile, the marketing mix helps marketers analysis the characteristic that one group of people has and plan effective methods that exert in the target customers.