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INSTITUTE OF BUSINESS MANAGEMENT

TITLE
VALUE CHAIN OF IKEA
SUBJECT
MARKETING MANAGEMENT

SUBMITTED TO
MISS SHAHNAZ MEGHANI

SUBMITTED BY
AZHAR HUSSAIN
DANISH KHALIL
HAFIZ IMRAN
AAMNAH YOUSUF
MUHAMMAD TAHIR

THE VALUE CHAIN


Value chain is defined as a tool for identifying ways to create more customer value.
According to this model, every firm is a synthesis of activities performed to design,
produce, and market, deliver, and support its product. The value chain identifies nine
strategically relevant activitiesfive primary and four support activitiesthat create
value and cost in a specific business.
The primary activities are
(1) Inbound logistics, or bringing materials into the business
(2) Operations or converting materials into final products
(3) Outbound logistics, or shipping out final products;
(4) Marketing, which includes sales; and
(5) Service
Specialized departments handle the support activities
(1) Procurement,
(2) Technology development,
(3) Human resource management,
(4) Firm infrastructure (Infrastructure covers the costs of general management,
planning, finance, accounting, legal, and government affairs.)

VALUE CHAIN OF IKEA


PRIMARY ACTIVITIES

INBOUND LOGISTICS

IKEA worked with 1800 suppliers in more than 50 countries always seeking to balance
cost efficient labor with the companys product quality standards. Their designers work
with manufacturers to find smart ways to make furniture using existing production
processes. Then their buyers look all over the world for good suppliers with the most
suitable raw materials. Next, they buy in bulk so that they can get the best deals.

OPERATIONS

Operations in more than 38 countries; 208 company operated stores in 26 countries,


remaining stores operated by franchisees. IKEA does not manufacture its own products.

OUTBOUND LOGISTICS

IKEA doesnt provide outbound logistics because all its transportation is done by the
customers themselves. Using the IKEA catalog and visiting the store, customers choose
the furniture their and pick it up at the self-service warehouse. Because most items are
packed flat, you can get them home easily, and assemble them yourself.

MARKETING

Marketing allows us to reach the many people to explain the IKEA offer to them. IKEA
wants to reach the many people on each local market. This is why we have jobs in
marketing and communication in all IKEA retail countries, even if numbers are limited.
The overall task is to build the IKEA brand and inspire people to come to the stores.
We use various channels outside the store to explain the full IKEA offer, but the starting
point is always our customers needs. The best known channel is the IKEA Catalog,
which is developed by IKEA Communications in lmhult, Sweden. Other important
channels are IKEA websites, publications, brochures, advertising and PR.
Our communication reflects IKEA values both visually and in tone of voice, so marketing
and communications coworkers include art directors and copywriters, interior designers
and project leaders. Together they work with the IKEA catalog, IKEA websites,
publications, brochures, advertising, internal communication and public relations.
Sales
Nearly everything in the IKEA range is available in our stores for immediate take-away,
but service is available when people need it. Sales co-workers are trained in practically
every aspect of their sales area, so they can give customers guidance and answer their
questions. They work in sales teams and have a passion for retail. They also have a
thorough knowledge of the IKEA customer, the IKEA Concept and the IKEA range.
Part of sales co-workers role is to keep the range presentation neat and inspiring and to
make sure that all the information that store visitors need to make a buying decision is
available to them. Above all, sales co-workers are communicators, who listen to their
customers needs and explain product features and benefits with these needs in mind.

SERVICE

We offer the lowest price, ease of shopping, the ability to take your furniture home the
same day and last, but not least helpful, friendly and knowledgeable co-workers
when you need help. If customers prefer to shop without their children, they could
drop their kids off at the company operated child care facility on the way to the store. If
they got hungry, they could stop by IKEA restaurant for a lunch break and if they needed
assistance with shopping, they could stop by a sales desk and speak to an IKEA
representative.
Customer relations co-workers help people find answers and prevent problems. We
want our customers to come back, and the best way to do this is to make each contact
with IKEA a positive experience. Whether it is before, during or after a purchase, IKEA
customers should find our support and services as good as our products. We want them
to trust that there is always a satisfactory solution if a problem arises.

SUPPORT ACTIVITIES

PROCUREMENT

IKEA suppliers and good relationships with them are among our greatest assets.
Purchasing co-workers builds win-win relations with competitive suppliers who care
about people and the environment. Efficient and reliable production with high quality
results and minimum waste are the basis for creating the lowest price. Together we
create optimal conditions and long term cooperation. Purchasing teams are located
around the world and work with suppliers in more than 50 countries. They finding new
suppliers and evaluate and develop existing ones. Together, purchasing teams ensure
optimal production conditions, capacity, product quality and availability. They also
actively support suppliers in their work to improve working conditions and minimize
negative environmental impact. Most positions in this area relate to the IKEA range, but
there are also purchasing roles within IKEA Indirect Material and Services.

TECHNOLOGY

IKEA is a global company that is constantly developing. IKEA IT supports this


development by providing solutions that keep the flow of information efficient. IKEA IT
co-workers are solution oriented, creative team players with a genuine interest in the
overall success of IKEA as a home furnishing company. They supply quick, lean and user
friendly services rather than just technology.

Working throughout IKEA, IT offers countless opportunities to simplify, streamline and


improve every aspect of IKEA operations. While most of the specialized IT jobs and
projects are based in IKEA IT centers, IT support functions exist in all parts of the
company.

HUMAN RESOURCE MANAGEMENT

IKEA companies need down-to-earth, straightforward people who want to help us fulfill
the IKEA vision to create a better everyday life for the many people. Our Human
Resources teams lead the work of attracting and inspiring co-workers and creating a
stimulating and enjoyable work environment. They are keenly aware that the continued
success of IKEA businesses depends on the continual development of IKEA co-workers.
Human Resources work in all parts of the company and in every country where we have
markets. We look after recruitment and training, benefits management and succession
planning. Human Resources is also responsible for safeguarding and strengthening the
IKEA culture, which is based on a specific set of values values that help us develop
together and transform the IKEA vision into reality.

FIRM INFRASTRUCTURE

Creativity among employees is highly valued in IKEA and the company is full of stories of
individuals taking the initiatives; from Gillis Lundgrens pioneering of the self -assemble
concept to the store manager who let customers go into the warehouse to pick up their
own furniture. All these improve the efficiency of the company. Kamprad, the founder
and head of IKEA, is a takes the subway to work, drives a 10-year-old Volvo and avoids
suits of many. This is his form of commitment to efficiency and this form has become a
part of the IKEA DNA. Managers do not fly first class and share hotel rooms. This is their
company-wide commitment to efficiency.
Kamprads management style is informal and non-hierarchical. The offices do not have
an open plan and private offices are rare. The culture is egalitarian and everyone is
called a co-worker, and first names are used throughout. Everyone is treated equally in
the company. IKEA regularly stages anti-bureaucracy weeks during which executives
work on the store floor or tend to registers. All these help employees to cooperate
among the functions.

Summary
IKEA is the worlds largest furniture retailer (in 2002), with sales approaching 12 billion dollars.
They operate in 22 countries and have 154 full service distribution stores. IKEA was founded in
1943 when 17-year old Ingvar Kamprad decided to start a local catalog company, opened its first
inaugural store in 1958 in Almhult, Sweden. By 2002, IKEA was the worlds most prominent
furniture retailer and was considered to be one of the most valuable in the world.
Waste was considered a deadly sin at IKEA; employees were constantly reminded to save on
electricity by turning off lights and computers that were not in use; and managers traveled via
buses instead of cars and taxis. As soon as a product priority gets established, A matrix is
created which consisted of three basic price ranges and four basic styles and after conducting a
little survey, company would establish a benchmark and sets price 30-50% lower than its rivals.
The matrix was also used to identify gaps in the companys product lineup. IKEA worked with
1,800 suppliers in more than 50 countries, and looks for cost-efficient labor with the companys
product quality standards. Different product components would be sourced from different
suppliers in different countries. IKEAs engineers would determine what materials would be
used to make the product. Once a price point was established, a manufacturer then decides the
actual design process and internal competition to select a designer begins. IKEAs furniture ship
disassembled and transported flat in flat-packages boxes which ultimately saves the shipping
cost and it is also easy for the consumers to transport the furniture home.
The companys corporate slogan Low price with meaning- captured this commitment to
offering tasteful, cleverly designed products that did not make customers feel cheap. Most of
IKEAs customers were nonetheless delighted by their unique combination of form, function and
affordability. The atmosphere of the store was always bright and inviting, and customers were
free to lounge on the model furniture as they made their way through the store.
In the US, furniture retailing accounted for $67 billion in sales in 2002. The furniture market
consisted of case goods, upholstered furniture, bedding, ready-to-assemble furniture, and
casual furniture. The first two categories accounted for roughly 45% each of all furniture
shipments, the other categories together accounted for the remaining 10% of the furniture
market. IKEAs success in America had not come easily. After opening its first store in
Philadelphia in 1985, the company discovered that Americans did not like its products. By the
mid-1990s, the companys fortunes in the United States had begun to improve, and from 19972001 the company was able to double revenues in the United States, from $600 million to $1.27
billion. By 2002, United States was IKEAs third-largest market (after Germany and Britain).
For IKEA customers, shopping at IKEA required some preparation. Everything else customers
needed to shop at IKEA was available at the stores entrance. Moreover, Customers were not
only expected to transport their purchases home, they were also expected to assemble their
purchases on their own. The companys total product range consisted of about 10,000 different
products. IKEAs goal was to have 50 stores in operation in the United States by 2013.

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