Executive is ranked 15th in Market Potential Index

Executive Summary  The following is a marketing plan of IKEA opening a new store in Mexico. The report begins by providing a background on IKEA. It also covers the attractiveness of the market, IKEA’s competitive advantage in Mexico, and the target market and pricing strategy. Some of IKEA’s main markets are in three of the fastest growing markets such as Russia, U.S., and China. IKEA stores sell large products such as furniture, to small products like scented candles. This marketing plan will discuss how IKEA will be molded to fit the Mexican target market, its entry method, as well as its sustainability to fit into a new emerging market. Mexican GDP is $1.77 trillion with an annual growth of 3.9% and an inflation rate of 4.1%. Mexico is ranked 15th in Market Potential Index (MPI) for emerging markets in 2013. It has a labor force of 50.64 million people. The Consumer Price Index (CP) is 53.56. 45% of Mexico is poverty stricken (makes less than $10 per day), 45% middle class, 10% wealthy. Consumer disposable income has grown relatively quickly, rising 8.4% in 2012.  Home furnishings records solid current value growth of 8% in 2012, with sales reaching $77 billion, which is largely due to the improving economy. Local manufacturers in Mexico are turning their attention towards the high-end market. Outdoor furniture leads growth in 2012, with current value sales increasing by close to 12%. Although high-end products are gaining sales share, the bulk of growth in 2012 was from the mass market, with price growth remaining in line with inflation. Home furnishing has a projected forecast period constant value CAGR of 3%.  A shift towards the entry of international chained outlets was seen within home furnishings in Mexico in 2012 as local players sought a new growth market and made investments. Although luxury furniture remains a small niche market, companies have made investments in new retail outlets in Mexico City in order to try to open up the area and drive growth, which currently accounts for the majority of sales. This followed the arrival of new chains and the opening of Zara Home in 2011 and was followed by the opening of the first H&M Home and Crate & Barrel stores in 2013. The success of the high-end market is also reflected in the disproportionally positive performance of outdoor furniture, where sales are mostly limited to consumers that have sufficiently large properties for the furniture to fit.  In 2012, Mexican’s began to increase investments in their homes by replacing old furniture. This provides huge benefits to common household items such as beds and wardrobes, which recorded current value growth of 10% and 11% respectively in 2012.  Outdoor furniture was the fastest-growing area within home furnishings in 2012. The country’s economic improvement has benefitted the wealthy while at the same time the violent situation in Mexico has resulted in many people preferring to spend time in their gardens rather than in public. Manufacturers are also driving the trend by launching fashionable new products such as outdoor beds for couples and other luxurious products.  Household textiles also continued to do well in 2012. With shorter replacement cycles and lower price tags, consumers continue to purchase and replace products such as kitchen and bathroom towels at a growing rate. Also, constant changes in design and the use of licenses with cartoon character and superheroes targeting children keeps product lines fresh and encourages rapid replacement. Over 2012-2017, Mexico’s economy is expected to flourish, leading to positive growth in home furnishing and providing a promising environment for stakeholders. Real GDP is expected to grow at an annual rate of 3.4%, and home furnishing purchases is expected to grow in sales 2.7% more each year. Continued economic reform and the country’s rising status as a manufacturing hub to Latin America promise new opportunities for home furnishing companies in Mexico. Marketing Strategy IKEA will enter the Mexican market through franchising. According to the IKEA website, franchises are granted only to organizations or individuals that can secure a strong market position and market penetration in the Mexican territory and who have extensive retail experience and solid local market knowledge. Opening an IKEA franchise in Mexico City would require a considerable investment by the IKEA franchisee.  As stated before, the new IKEA store would be located in Mexico City where the population is young and universities are present. The street we chose to open an IKEA store on in Av Ejercito Nacional. It is located in the middle of the city where other stores are present like Crate & Barrel and Zara Home. It is also very close to the university. On the western most side of the street is a large open area perfect for an IKEA store.  For IKEA expanding into the Mexican market, they will need to develop a marketing strategy specific to that market. The key IKEA selling points are low cost, unique brand identity, excellent quality, large inventory, and impulsive shopping. What IKEA should focus on when entering the Mexican market is social and ethical responsibility, family experience, and focusing on people with blue collar jobs.  In 1980, IKEA was looking to expand to further markets and did so through franchising. In the 1990s, the IKEA market expanded not only geographically, but in terms of the target market. The company began to design furniture that catered expressly to children. A website was launched to cater to the many markets that were now open, and the children’s line was enhanced on consultation with experts to help develop play areas, room settings, and baby areas within the stores. Kitchen-ware and kitchen areas were also developed in this period.  IKEA also began participating in a number of forestry projects to ensure sustainability, by taking responsibility for developing acceptable practices and policies in countries where IKEA works. Company History  IKEA is a privately-held, international home products retailer that sells flat pack furniture, accessories, and bathroom and kitchen items in their retail stores around the world. The company, which pioneered flat-pack design furniture at affordable prices, is now the world’s largest furniture retailer. IKEA was founded in 1943 by 17-year-old Ingvar Kamprad in Sweden and it is owned by a Dutch registered foundation controlled by the Kamprad family. The company that was originated in Smaland, Sweden, distributes its products through its retail outlets. As of 2013, the chain has 345 stores in 42 countries, most of them in Europe, North America, Asia and Australia.  The IKEA Concept began when Ingvar Kamprad, an entrepreneur from the Smaland province in southern Sweden, had an innovative idea. In Smaland, although the soil is think and poor, the people have a reputation for working hard, living frugally and making the most out of limited resources. So when Ingvar started his furniture business in the late 1940s, he applies the lessons he learned in Smaland to the home furnishings market. Ingvar’s innovative idea was to offer home furnishing products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect the quality of products. Ingvar used every opportunity to reduce costs, and he scraped and saved in every way possible – except on ideas and quality. The name IKEA comes from the initials of Ingvar Kamprad, I and K, plus the first letters of Elmtaryd and Agunnaryd, which are the names of the farm and village where he grew up.  The official IKEA mission statement is so large and global that is seems impossible to achieve, “Our vision is to create a better everyday life for the many people.” The overarching mission statement is backed up, however, by a “business idea” which defines the IKEA brand to its customer and makes the IKEA mission attainable with the masses. The IKEA Business Idea is “Offering 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.” Their marketing positioning statement is “Your partner in better living. We do our part, you do yours. Together we save money.”Core Competencies  Competitors of IKEA in the Mexican market would mainly be the local competitors, who would copy the idea or counterfeit the goods of IKEA. Globally, IKEA’s main competitor is Wal-Mart. Wal-Mart offers products at low prices. However, Wal-Mart is less stylish and IKEA has proven to be more successful in delivering high qualities at a lower price to the customers reflecting on weak competitors.  One of the key competitive advantages IKEA has it its extensive knowledge about the customers. The company understands the purchasing factors that influence customers to buy and implements the best practices to induce that decision. IKEA offers low prices and a huge range of products that look stylish in the eyes of consumers. The company offers a wide product range versatile enough to fit the Mexican market.  According to Interbrand, IKEA is the most valuable furniture retailer brand in the world, valued at nearly $12.8 billion in 2012. The business operates 345 stores in 42 countries and is present in the major world markets. More than 600 million customers visit IKEA stores every year. Worldwide market presence and strong brand reputation ensures that customers will often choose IKEA over its competitors. This is especially true for foreigners moving to Mexico City. They will know the brand and be familiar with it, therefore shop there.  Another reason why IKEA has a competitive advantage is because it has a diversified product portfolio. Unlike IKEA’s largest competitors, the company has fairly diversifies businesses. In addition to its furniture products, the company operates restaurants, houses and flats. Although, firm’s main business is designing, manufacturing and selling furniture it is not so affected by the changing forces in the Mexican market as other furniture retailers. SWOT Analysis Strengths• Powerful brand image. This image is worldwide and makes this especially useful going into a foreign market.• Wide range of products and styles. To fit Mexico’s market, IKEA won’t have to change too many of their products.• Friendly atmosphere/store layout. • Facilities: restaurant/daycare center.• One-stop shopping. Many of the stores in Mexico are specialty stores and only offer one type of product. This can make the lives of Mexicans substantially easier. Weaknesses• Standard products. Mexico’s tastes are exotic and colorful. IKEA’s standardized products attract fewer customer segments. Therefore, the business inability to offer better quality more customized products allows its competitors to fill that niche. • Low quality. Because IKEA’s prices are so low, their quality is low as well. Mexicans take pride in their home and their belongings and low quality furniture could be a downfall for them.• Assembling furniture yourself can be unappealing to the Mexican market. Opportunities• Expanding their restaurant. The current trend of eating healthier food in Mexico has resulted higher demand for healthier food products. IKEA is already successfully managing its food outlets, so this expansion opportunity would be perfectly aligned. • Education for consumers through advertisements.• Use the popularity among young people to expand to college markets. There is a university located in Mexico City, making this target market easily accessible. • Growing the outdoor furniture product lines to fit the Mexican market. Threats• Intensifying competition. • New chain stores opening. Zara Home, H Home, and Crate & Barrel.