In the month of November 2018, IKEA is operating in more than 52 countries with 424 outlets. This immense global presence means that IKEA is subjected to pestle forces. There are many external environment factors like political, economic, social, and technological and many other factors affect brands and businesses.
IKEA is known its high quality products at affordable rates and in order to respond to the changing market environment, conducting Ikea PESTLE analysis is imperative. The reason is that these pestle analysis factors hold significant importance because it impacts the brand position and profitability in the market.
According to Ikea website there are 208,000 co-workers worldwide. Ikea employees are well trained and have better knowledge of social responsibility and environmental issues. If it comes to Ikea competition, there are different levels of brands like competition with International brand, national and local brand who also offer customized furniture.
Here I will perform Ikea pestle analysis to understand its external environment forces. I have also performed Ikea swot analysis, give it a look.
How Political Factors Affect Ikea
IKEA has been involved in various issues on political grounds. IKEA admitted in 2012 that it used prison labour in East Germany in the decade of 1970s and 1980s for producing its products. Although, the company extended a public apology to affected people however, this event created a significant political controversy in the world.
The issue of supply chain disruption is another political issue affecting Ikea. In the recent few years, India and China have lowered barrier for entry of foreign brands which led to an increased presence of the brand in these markets. IKEA plans to enter and dominate the emerging Asian market. As these barriers are lowering, big brands like IKEA will battle to enter these markets. Additionally, the supply chain activities of IKEA can also be disrupted because of political instability. For example, a huge part of IKEA’s supply chain is in Europe and any political instability will affect supply chain activities significantly.
China consider Taiwan as integral part of Chinese territory. Recently Ikea faced huge criticism from Chinese media and public after noticing Ikea package boxes that showed Taiwan and China as separate countries. There are other political forces that can affect Ikea and other furniture brand include the level of corruption in the country, bureaucratic approach and political decision making and mind set.
How Economic Factors Affect Ikea
As IKEA is operating in more than 52 countries, it is important that the regulations of each country should be followed. Global economy is the major predictor as to how profits and revenues businesses will earn in international markets. Moreover, the global economic recession resulted in a decline of people’s purchasing power. IKEA has managed its product prices quite well which helped it in managing the pressure imposed from economic fluctuations.
Strong dollar is another economic factor that can influence Ikea. The strong dollar has the potential to hurt revenue stream of companies like Ikea, Walmart, Apple, Nike and many more. Ikea customers in China, India, for example, will unable to pay for its products.
Ikea was known for low prices for several year. Customers who wanted a stylish and inexpensive furniture wares they suddenly think of Ikea. This economic factor affects Ikea pricing strategy for several years when they wanted to increase prices.
How Social Factors Affect Ikea
Prior to entering any market, understanding its social and cultural factors is important. IKEA may not have always got this aspect right. For example, the brand was under fire when it photo-shopped women pictures in Saudi Arabia and from removing a lesbian couple from its magazine in Russia.
In addition to this, social trends is also an important factor to consider and can have a deep impact over sales. When there is a trend of a particular style in the market, the brand should focus upon that trend to compete in the market.
Think of a product on an ecommerce website and suddenly you will be curious to find the reviews and feedback in first place. Search on Google “ikea reviews” and you will find many one star review.
How Technological Factors Affect Ikea
Digital technology allow Ikea to reach customer and provide a better shopping experience in a more cost effective way that don’t need to open new brick and mortar retail stores. Moreover, the brand is also utilizing augmented reality for improving its customer satisfaction level. This is mainly associated with the fact that better customer experience leads to improved customer service.
You can easily find your country, most relevant offerings and home décor on www.ikea.com. Ikea website can also help you to find a closest store to your place. If you are a housewife or hate to go out in the traffic you can place an order online which is also very easy and convenient.
How Environmental Factors Affect Ikea
Environmental factors are those external factors now associated with sustainability and any company, in order to sustain, should focus upon its environmental concerns. In this way, not only costs will be reduced but will also improve Ikea brand image. IKEA has invested in Climate by investing $1 billion in renewable energy. The company also aims for their in-store energy to be renewable completely. This can be done by investing in wind and solar panels. Furthermore, the brand is also shifting its material such as cotton and wood should be obtained from sustainable sources.
How Legal Factors Affect Ikea Brand
Legal issues are always a big threat for businesses as laws and regulations are different and one single hassle with the law can prove to be costly. IKEA, in the past, have faced cases of tipping over and deaths in the past because of its furniture. This devastation has impacted family and communities. Under such situations, IKEA should be assured that the products being sold are safe or else lawsuits will occur.
Although, the company may recover in terms of monetary, however, the damage done to the reputation of the company may not be fixed easily and in the near future. When such issues are created it is important for IKEA to assure that its products are safe. In addition to this, laws may vary from one country to another and penetrating its businesses within those laws have been quite tough for the company.