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MKT421 Wk 5 Environmental Factors

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Environmental Factors: IKEA
Ingvar Kamprad founded IKEA in 1943 and now it is the world’s biggest retail furniture
provider. Its prices are very competitive and it was the first company to provide products in flat
packages. IKEA has 226 stores around the globe, and earned over $17.7 Billion of revenue as of
august 2005. Its famous catalogue that is released on annual basis, accounts for 70% of total
marketing communication. IKEAs marketing, both global and domestic, is affected by a number
of environmental factors. We will be discussing all those factors, affect of global economic
interdependency, affect of trade agreements and other business practices, and material road and
communication networks. Topics like social responsibility, ethics and actual law, cultural
differences, and foreign corrupt practices act of 1997 will be discussed. Finally, we will go
through effect of political systems, pressure of international relations and effect of technology on
overall business.
Influence of Global Economic Interdependence & Effect of Trade Practices and Agreements
Trade agreements, business practices and the economy help in understanding the
purchasing power of the customers. It means they work with earnings, prices, reserves, loans and
GDP. These factors should be kept in mind when any organization decides to go global. They
should carefully plan their marketing mix in accordance to the target consumers. Pricing is of
prime importance here and should be according to prevalent economics conditions there. IKEA
has presence in either industrial countries or industrializing countries that is why they can sell
their products easily, mainly to middle class that is their prime target.
Importance of Demographics & Physical Infrastructure

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Determining demographic and physical conditions is essential for effective marketing. It
includes gender discrepancy, gender differences, consumer behavior, and cultural and religious
values. Thus, effective marketing mix is not possible without successful profiling of target
market.
Influence of Cultural Differences
IKEA knows economic, demographic and physical infrastructure is essential for its
growth and prosperity that is why they have not opened their outlets in any third world country.
Similarly, they have avoided Latin American countries as well only because of lack of proper
infrastructure. They do change according to changing environment and customer requirements.
For example, they offer different mattress sizes for UK and USA. They equal the competitors
offers in their products but exceed them by giving something extra, keeping in mind the area. For
example, they made bigger sized beds for USA and reduced their prices. IKEA wants to maintain
its Swedish style that is why names of all its products are Swedish. IKEA did not take into
account the target country’s language or culture and kept the same Swedish names. This was a
big mistake. They named a kid’s bed as GUTVIK and this is a very rude name in German. In
another example of adapting to customers, IKEA designers went to check out the homes of
Hispanic Californians in year 2004. They came to know that Hispanics had comparatively large
families and preferred bright and cheerful colors. They changed their showrooms accordingly.
Importance of Social Responsibility & Ethics versus Legal Obligations
Marketing has social, legal and moral responsibilities toward its customers. Marketers
can lie, mislead and misinform the customers. Every business should try to create customer trust
on its products and avoid practices like pressure selling, giving deceptive information, and

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setting abnormally high prices. Many countries have competition commission that keeps an eye
on such practices and specially regulates monopolistic situations. Consumers demand their right
nowadays and companies have to give them what their right it, and laws support them as
consumerism is an organized movement by people and government. IKEA follows the laws of
the country if does business in. for example, when wood chemical issue rose that it was harmful
for customers as well as environment, IKEA responded by talking to its suppliers and changed its
strategies. This was not only to follow the laws; IKEA did it to improve its image as well. We all
know how critically important image of the organization is. A strong image, when used properly,
can easily lead to a company to success. IKEA fulfilled both legal and ethical requirements in
this case and won support of millions of people. IKEA may have high moral ground in Europe
and USA but they did not follow the same strategy in India and Pakistan. They were constantly
faced with child labor issues. It was because they wanted cheap labor and cheaper products and
continued to do so just for the sake of providing cheap furniture to customers.
Effect of Political Systems & the Influence of International Relations
Political system and the laws it makes also affect the marketing activities. Laws regarding
competition, safety of both products and workers, honest business, and credit protect consumers
as well as business. Similarly, laws are there which regulate unfair pricing, unfair consumer
treatment, and monopolies. IKEA and the International Federation of Building and Wood
Workers (IFBWW) have signed an agreement in May 1998 to encourage and endorse worker
rights. Credit cards are accepted at all IKEA outlets that is why credit laws also affect them. Each
country has different rules and regulations regarding credit cards so IKEA has to treat customers
according to the local laws. Similarly, interest rates, buyer rights, and privacy practices, all
follow relevant laws of the country.

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