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Executive Summary
The purpose of this report is to define a target segment for Ikea to target a new
offering to and subsequently develop a new offering to maximise value exchange
between the organisation and its target market. In doing so, relevant marketing models as
well as statistics and graphs will be used to support the report.
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Definition of the Target Segment
A market is a group of customers whose needs are broadly similar (Gabbot, 2003,
pg. 151). An organisation must first define the scope of the market they wish to offer
their goods/services to and once this is defined, they should further segment their offer/s
to provide maximum value to its target audience and the organisation itself. Ikea operates
in a very broad market. Ikea’s mission statement states that they aim to offer “wide range
of well designed, functional home furnishing products at prices so low that as many
people as possible will be able to afford them” (http://franchiser.ikea.com). As Ikea
operates in over 37 countries world wide, this greatly increases the scope of the market
they operate in. Furthermore, by offering a wide range of products that as many people as
possible can afford, demonstrates that Ikea operates in a very broad marketplace.
Moreover, Ikea aims not just to target the college students and young couples that made
them famous, but also people in their 40-50s, who may wish to decorate their offices and
family rooms with durable and inexpensive furniture (Gosselin, 2004, pg. 1).
Segmentation refers diving up the homogeneous customers in the market, into
smaller heterogeneous groups of customers. Segmenting the market can achieve some
very powerful results, thus a great amount of attention to detail must be taken when
segmenting markets and thus strategies must be made to influence primary market
customers (Hochwald, 2000, pg 66). It can result in a growth in sales as a result of
grouping customers based on their reactions benefits, programs and services (“BRAND
STRATEGY BRIEFING: Segmenting opportunity:”, 2004, pg. 52). As Trollinger puts it
“the recipe for success includes knowing your audience, crafting your offers and
effectively executing your program” (2004, pg. 19).
Ikea, one of the world’s largest furniture retailers, is an organisation that greatly
benefits from segmentation. In developing a new offer to the marketplace, they may wish
to target a particular segment of the market comprising of young stylish people. This
segment is a combination of both demographic and psychographic segmentation.
Demographic segmentation refers to diving customers into heterogeneous groups based
on characteristics such as “gender, age, occupation, income, family status, education, race
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and nationality” (Gabbot, 2003, pg. 159), whilst psychographic segmentation refers to
defining segments based on activities undertaken by consumers, interests and hobbies
(Gabbot, 2003, pg. 159). Both forms of segmentation can further be broken down into
more specific forms. Lifestyle segmentation, a form of psychographic segmentation,
involves using characteristics such as “activities, opinions and interests of the target
market” (Gabbot, 2003, pg. 164). Ikea is perceived as having innovative and stylish
furniture, as demonstrated in a recent survey by Tuohy, where a respondent states “I shop
there all the time; it is a stylist's companion!” (2004, pg. 5). Ikea should target this
segment who is interested in style. Moreover, the segment Ikea should target should be
those aged 18-35 (age is a demographic segmentation variable), as it has been the college
students and young couples that have helped make Ikea famous (Gosselin, 2004, pg. 1).
A recent survey by Tuohy demonstrates that the target market desire products that have
these characteristics: look great, stylish, clever, convenience, reasonably priced (2004,
pg. 5). In creating a new offering, Ikea should ensure that the desires of their target
market be satisfied, in order to maximise value exchange.
As Ikea is considered a niche retailer, due to its distinctive modern Scandinavian
design (Gosselin, 2004, pg. 1), it is in the position that where in deciding the target
market, it generally does not have to take into account the actions of competitors, as they
are in a different market to them. However, competitors may decide to broaden their
range of furniture, which may appeal to target segment the new offering is designed for,
although this area is already one of Ikea’s strengths (Gosselin, 2004, pg. 1). However,
Ikea must be aware of customer trends. The target segment on the new offer may no
longer want products that: look great, stylish, clever, convenience, reasonably priced
(Tuohy, 2004, pg. 5) i.e. the product lifecycle would in the declining stage, demonstrated
in the graph below.
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(Gabbot, 2003, pg. 250)
Although Ikea now appeals to 40-50 year olds who may wish to decorate their offices and
family rooms with durable and inexpensive furniture (Gosselin, 2004, pg. 1), this
particular new offering would not particularly appeal to those other than the target
segment.
The New Offer Explained
The new offering I believe would be able to facilitate value exchange between
Ikea and its target segment is a combination between two existing offers in which the
organisation currently has on offer. The two existing offers I believe could be
successfully combined are a singe-seat sofa and a reading light. This offering is referred
to as a new use or application offer, which involves the opening up of a new market as a
result of previously undiscovered uses for a product (Gabbot, 2003, pg. 227). The core
components of the offering are: inexpensive furniture, fashion statement, comfort and
style. The packaged components are simply with the seat with the reading light attached
and any boxes the product comes in. The extended components are: convenient store
locations, 6 month replacement warranty and being associated with the Ikea brand. These
components fit in with what Ikea’s target market desires, which includes: look great,
stylish, clever, convenience, reasonably priced (Tuohy, 2004, pg. 5) In order for this
concept to be developed, it must first pass successfully through a number stages, or gates,
which are demonstrated in the graph below
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(Gabbot, 2003, pg. 237)
The first stage is developing the guiding strategy. Guiding strategies are important
as “taking the time to do this in advance can save significant time and money in the
future” (Lieblein et al, 2003, pg. 16). A guiding strategy should provide value to both the
customer and the organisation (Gabbot, 2003, pg. 238). Ikea is constantly developing new
ideas, so their mission statement which states they aim to offer “a wide range of well
designed, functional home furnishing products at prices so low that as many people as
possible will be able to afford them” (http://franchiser.ikea.com), is an excellent guiding
strategy for proving value to both the customer and the organisation. After this gate,
concept development and testing takes place. At this stage initial ideas are tested and
made more real or concrete and how to test the mechanics of the idea are decided
(Gabbot, 2003, pg. 239). In the case of the new offering, Ikea could draw up a few basic
designs of the product, and perhaps create a mock-up (non-working) model.
Once this gate has been passed, the next phase it must go through is developing a
market strategy/conducting a business analyses. This stage is very critical as “thoughtful
planning and research can solve problems for consumers while also increasing the
likelihood of business success” (Turner, 2004, pg. 79). At this stage a strategy must be
developed to bring the offering to the market, whilst conveying to the consumer the value
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of the offering. As a recent article in Employee Benefits Magazine put it, Once you have
defined your customer, how you communicate to them is vital (2004, pg. 10). In Ikea’s
case, their target market desire products that have these characteristics: look great,
stylish, clever, convenience, reasonably priced (Tuohy, 2004, pg. 5). Therefore in
marketing the new offer, customers must be made aware that these characteristics will be
satisfied by the new offering, and thus will perceive value in the offer.
Furthermore, Ikea could perhaps follow in the footsteps of Virgin, in determining
whether the offer is viable or not. All of Virgin’s new offering must contain four out of
the five following characteristics: fun, quality, value for money, sense of challenge and
innovation (Gabbot, 2003, pg. 285). I believe the new offering easily satisfies these 4
criteria: fun, quality, value for money and innovation and thus would be viable to bring to
the market.
Also at this stage, the marketing strategy should be aware of competitors, such as
freedom, and how they will react once the new offering is available to the market.
Businesses must undertake assessment of their competitors and their internal
environment, or else they will be unproductive and inefficient (Tan, 1997, pg. 17). This
could severely hamper the success of a new offering. Brand image, in relation to other
similar organisation in the market, is an important implication which must be taken into
account when conducting the business analysis. A recent Businessline publication states
“to the marketing man, the valuation could well be the premium commanded by the
brand in question over the average or reference product available in the market, and
therefore a representation of current and medium-term profitability” (2004, pg. 1). This
signifies the importance of brand image, as offers by brands with poor value in the eyes
of its target market may severely hinder the introduction of a new offering. For example
when Bic introduced a new line of women’s deodorants, their image of cheap,
unglamorous and disposable goods severely hampered the success of the product
(Gabbot, 2003, pg. 273). A further implication that must be accounted for is whether the
firm has enough resources available to commercialise the product. In Ikea’s case an
annual turnover of $13570 million
(http://franchisor.ikea.com/showContent.asp?swfId=facts1) and hundreds of thousands of
staff world wide are sufficient resources to undertake this new offering.
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Once the marketing strategy/business analysis have been conducted, the offering
must be developed. At this stage, all elements are at a stage where they are able to be
fully tested in the market (Gabbot, 2003, pg. 243). Ikea should develop a working model
of the new offering. A blueprint of the design is made, and any problems, such as
positioning the light on the seat where it cannot be broken, are ironed out. Following this
stage, testing the market occurs. In this stage a large sample of the target market will test
the new offering (the combination of the chair and reading light in one). Testing the
market is important, as it provides “valuable learning about how to maximise the
performance of any campaign” (Kelly, 2004, pg. 1). The new offering must be directly
tested in the target audience (i.e. 18-35 year olds with a knack for style), to determine
whether new offering provides the value that the both the organisation and the customer
seek. The Bank of America is one example of a company who successfully tests their
market. New offering are tested in one branch, and if successful are rolled out to other
branches (Talcott, 2004, pg. 1). The idea behind Bank of America’s testing process is
simple: test a small area of the target market, and if successful commercialise the new
offering. Ikea should undertake this method of testing to determine whether or not the
new offer will be successful.
The final stage is the commercialisation of the product. This is where the new
offer will be launched into the market place. When the new offering is launched, it is
important to gauge the reaction of the market i.e. how will the target segment and
competitors react to the new offering. As Ikea is seen as an innovator, it may take time
for the target market to uptake the new offering. According to Gabbot, only 2.3% of
people are seen as innovators (Gabbot, 2003, pg. 253), therefore only 2.3% of the target
market would likely take up the new offer in the immediate stages after its launch. This is
demonstrated in the graph below.
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(Gabbot, 2003, pg. 253)
Although the value of the offer is exactly what the target market wants, the initial uptake
of the product does not necessarily indicate success or failure of the new offering.
Furthermore, there is the possibility that although the offer has the necessary components
to facilitate value exchange between the organisation and the target segment, the market
may not be ready for the product. However, this does not mean that the offer should not
be re-introduced at a later date, as the old saying goes ‘there is nothing more powerful
than an offers whose time as come’.
In addition to the reactions of the target market, the reactions of competitors must
be gauged. As Ikea is an innovator, the timing of the introduction is important as “rival
reactions undermine the durability of first mover advantages” (Lee et al, 2000, pg. 23).
Competitors may introduce similar offerings, and research has shown that “first movers
suffer at the time of new product imitations” (Lee et al, 2000, pg. 23). Finally, in order to
succeed, Ikea must devote a significant amount of staff in the commercialisation of the
product, as “organisations that succeed in the development of new offerings devote more
than twice as many people to the launch as do organisations that fail (Gabbot, 2003, pg.
246). With staff numbering in the hundreds or thousands, Ikea should have no significant
problems in devoting enough staff to the launch of the product to ensure that it succeeds.
Conclusion
In conclusion, Ikea should target 18-35 year olds with a knack for style in
developing the new offer. In addition to ensuring that the core, packaged and extended
components of the offering meet the values desired by the target segment, Ikea must
ensure that they take into account the reactions of the market to ensure that maximum
value exchange occurs between the organisation and the target segment.
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References
“BRAND STRATEGY BRIEFING: Segmenting opportunity”, Brand Strategy, June, pg.
52.
“COMMUNICATION: Targeting your offer”, Employee Benefits, May, pg. 10.
Gabbot, M. (2004), “Introduction to Marketing: A Value Exchange Approach”, Pearson
Education Australia, Frenchs Forest.
Gosselin, K. (2004), “To its furniture store rivals, IKEA's not a threat yet”, Knight Ridder
Tribune Business News, 31 Jul, pg. 1.
Hochwald, L. (2000), “Tuning in to the right channel”, Sales and Marketing
Management, Vol.152, Iss. 3. pg. 66.
Inter Ikea Systems B.V.,
(http://franchisor.ikea.com/) Accessed (10 Sep 2004).
Inter Ikea Systems B.V.,
(http://franchisor.ikea.com/showContent.asp?swfId=facts1) Accessed (11 Sep 2004).
Kelly, P. (2004), “DM practitioners can't ignore the case for testing”, Marketing, 5 Feb,
pg. 18.
Lee, H., Smith, K., Grimm, C., Schomburg, A. “Timing, order and durability of new
product advantages with imitation”, Strategic Management Journal, Vol.21, Iss. 1. pg.
23.
Lieblein, R., Wevodau, S. (2003), “Lessons learned from past acquisitions”, National
Underwriter, Vol. 107, Iss. 23. p. 16.
Talcott, S. (2004), “The fun factor bank's test branches ditch tradition”, Boston Globe, 30
Aug, pg. 1.
Tan, V. (1997), “Changing the mindset is top agenda today”, Business Times, 20 May,
pg. 17.
Trollinger, S. (2004), “Get on the Horn”, Target Marketing, Vol.27, Iss. 8. pg. 19
Tuohy, W. (2004), “Are you being served?”, The Age, 8 Sep, pg. 5.
Turner, S. (2004), :Powerhouse Marketing Plans”, Library Journal, Vol.129, Iss. 11. pg.
79.
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