EdExcel Business Studies - Summer 2008 (IKEA Group)

After the success of the last thread started by westlife2005 on the first paper (Business Structures), and now that I'm retaking that, plus the other two, I thought I would start a new thread, and getting some questions rolling again would be benefitical to us all.

So, here are some which Mr. Peter Woodhead, gave us, I'm generating my answers as we speak, so lets all have a crack at them.

1.Analyse the benefits to IKEA of franchisees operating IKEA stores.
2.What are the advantages to a company of having a mission statement and how does this apply to IKEA?
3.What is meant by the term ‘adding value’? How do IKEA and the customer add value to their products? Outline the positive and negative aspects.
4.Give some reasons why some of the world’s most successful entrepreneurs are very frugal.
5.Give reasons why all products have the label Design and Quality IKEA Sweden using examples.
6.Outline the production process that manufacturers producing for IKA will use to produce their products. Outline all production methods.
7.What are the benefits of buying in bulk?
8.IKEA does less research than most multinational businesses. Outline the problems of marketing products on a global market.
9.Impulse buying can cause problems with stock control. Outline all the methods that IKEA could use to make sure its shelves are full and customers do not leave the store disappointed.
Write back with your answers.

Scroll to see replies

Reply 1

westlife2005

Hey James! :smile:

I'm resitting unit 1 too so this thread should come in useful and i'll deffinately contribute! Not away on holiday this time, so will put notes up for each of the different topics and then we can all post our different questions and stuff! :biggrin:

I've seen the Case Study on here - not actually been given it or done any work on it yet because been on Easter holidays and not had a Business lesson since! Got double Business last lesson tomorrow though and seen that my teacher has added it to Moodle now, so should be able to make my first contribution after school tomorrow! :biggrin:

Reply 2

westlife2005

Right guys, got the case study in my lesson today and we went through the first 5 paragraphs, so i'll add stuff up here that we talked about for both Unit 1 and Unit 2 and 3!

Unit 1
Line 3 - owned and run by franchisees - think about the geographical structure!

Line 10 - expand - this implys that their 'aim' is growth!

Line 11 - what we want to do, we can do and will do, together - make sure you revise shared objectives!

Line 12 - 'to create a better everyday life for the many people' - revise mission statements!

Whole of Paragraph 4 - describes the way Ingvar Kamprad works - make sure you revise management/leadership styles!

Unit 2
Line 1 - low prices - think about the pricing strategy!

Line 4 - Ikea opened 18 new stores across the world - this is related to place in the marketing mix!

Line 8 - the quality of products - think about USP (unique selling point)

Line 16 - Together we save money - this means that it is cheaper for the consumer and cheaper for the producer!

Line 25 - the leading home furnishings brand in the world - implys that Ikea is a market leader!

And that's as far as we got dudes - will add more stuff soon!

Reply 3

westlife2005

Some advice aswell what our teacher gave us today after the marks of our mock results, alot of us were staying at Level 1 and 2 and not reaching Level 3:

Questions below 8 marks do NOT require a conclusion.

Questions worth 12 marks or more require a conclusion.

Reply 4

JamesssG

My Answers :smile:

1. Analyse the benefits to IKEA of franchisees operating IKEA stores.

IKEA is a multinational business consisting of 226 stores in 33 countries, most of which are IKEA owned, but several have been sold off to franchisees, and left in their capable hands. There are advantages and disadvantages to IKEA franchising its businesses, and the best way to some up an overall analyse is to first break it down into several different sections.

Firstly, lets analyse why a business would wish to franchise its organisation (included in this are many of the benefits). Franchises are usually sold off to franchisees in an attempt to expand the business rapidly. Instead of extra long term liabilities being added to the business, a firm such as IKEA will only have to finance certain aspects of the new franchised outlet, but the initial capital for setting it up, is provided by the franchisor him/her self. This allows IKEA to continue to function without making relatively time consuming and expensive long term goal and financing adjustments. Basically, it will allow IKEA to continue to create revenue from its existing stores, without being concerned about the capital needed to open another. This is a very easy way to expand a business rapidly. However, IKEA will have to provide the franchisee with some support, such as adding the outlet to the existing distribution network in order to obtain supplies, and assisting and producing ideas for the layout and structure of the outlet. Despite this, it makes expansion a much more time and money efficient process. IKEA has already sold many franchises off, in order to expand the business, continuing to do so will add to the market share IKEA holds, as well as developing a reputation and brand image. Expanding the business has many benefits itself, like increasing the amount of the total population who potential are able to purchase IKEA items, forcing individuals to be brand loyal, and repurchase from IKEA, as well as dominating a competitive market.

Another main benefit to IKEA is during the expansion, the recruitment, and administration is done by the franchisee him or herself. In a nutshell this means that recruitment costs, and administration costs, are also cared for by the franchisee. When recruiting staff, it can be time consuming, and IKEA will want to use its human resource team to cater for its already 118,000 employees, and not to be spending time recruiting members for a franchisee. However, it may be suggested by many companies to include at least one member of the main human resource team, in order to make sure the correct type of staff are recruited.

The bad news however, is that a lot of trust is put in the franchisees hands. They will now be trading under a multinational businesses name. It’s no surprise that a business such as IKEA will undergo many interviews with its potential franchisees, to make sure they will be dedicated to the success of the business (encouraged more so by the fact they have no guaranteed salary). Nevertheless, IKEA must be aware that its brand image and reputation are on the line, and any error made on the franchisee’s behalf, will now be made on Ikea’s behalf also. IKEA will also need to be aware of the legal issues binding a franchisee and franchisor. As seen with the Body Shop a couple of years a go, it may turn into a legal battle if the franchisor, in this case IKEA, refuses to support the franchisee to an acceptable or quoted standard.

Therefore, to conclude, IKEA benefits from extremely quick expansion, without the need for additional capital, or further investment from external sources. It allows IKEA to continue to generate revenue, whilst adding another main asset to the company which should help to increase the amount of revenue generated.

2. What are the advantages to a company of having a mission statement and how does this apply to IKEA?

A mission statement may be a phrase, sentence, or document which attempts to sum up a company’s corporate goals (long-term), in a way in which it may create a common purpose for all of the stakeholders for the business. The mission statement serves a different purpose for each stakeholder to a business, and due to the size of the IKEA business, it is very important that it tries to express its goals in terms of customer service, and product providing. Many mission statements are expressed as vision statements in an attempt to stress that the vision set, is not a financial target, but a point at which the business would wish to see itself at some given period in the future. To date, IKEA’s vision statement is: ‘to create a better everyday life for the many people’, whilst its business idea, as stated by the IKEA Group website, is ‘to offer a wide range of well-designed, functional, home furnishing products at prices so low that as many people as possible can afford them.’

For the employees and managers of IKEA, the mission statement aims to motivate and inspire the staff as one, in order to achieve other financial goals and aims. It is assumed that by all being aware of the companies, mission, and that it is continually repeated and explained to the IKEA employees, that they should understand it, and have the motivation and knowledge of what they are doing, to work at a high standard in which they also consider if what they are doing is in the best interest of what is stated in the mission statement.

For the shareholders of a business, the mission statement or vision statement, will reflect what the shareholders of the business, would like the business to achieve in a non-financial way. Many shareholders will believe in short-termism, that profit is the most importing thing of the business, and not the way in which it obtains that profit, but a mission statement cannot express these financial goals of the business, so arguably, the vision statement, is not really a shareholder tool, as existing nor potential shareholders, will be interested in the businesses vision, but in general about the profitability, liquidity, and the financial goals the business hopes to achieve. IKEA in fact have a business idea, which perhaps would appear to be more about the financials of the company.

For the IKEA vision statement to apply to customers, it must carefully yet strongly suggest that what IKEA does is in the best interest of its customs. IKEA have taken this idea a bit further, and stated that their vision is all about the customers, the people who may be potential customers, and everybody else. Their visions statement is aimed at making life better for everybody, an almost impossible vision to achieve, yet for the customer, it would appear that IKEA has its customers in mind with every bit of business the company does, and so, the customers will remain loyal, and repeat custom is more likely to occur.

For the local community and the government, the visions statement is sometimes used to promote the ethnicity and environmental friendliness of a business, especially when they are a large scale business, such as IKEA. The vision statement fails to do this; however, its vision may be looked upon as an economic opportunity if it is achieved, and most definitely, with great social impact, again, if it is achieved.

The mission or vision statement is emphasised heavily by some business experts as being a tool which is vital to the success of a business, however, in practice, many businesses will place less emphasis on a mission statement, and the idea in which it helps to motivate and encourage employees, and to include all stakeholders to make them feel apart of the business, is often looked upon as being incorrect. Many class the mission statement as a public relations exercise, which is included with many businesses, because ‘other businesses have one’. Businesses like IKEA, which have large amounts of employees of different cultures, background, are less likely to communicate the vision statement over correctly, and so it is barely put to good use. The vision statement of IKEA is very general, and has to be interpreted, to be understood fully. Therefore to conclude, I wouldn’t imagine that a business of Ikea’s size, will implement a vision statement, as much as is stated in many textbooks.

3. What is meant by the term ‘adding value’? How do IKEA and the customer add value to their products? Outline the positive and negative aspects.

Adding value, is usually associated with a company getting its staff well trained, and to create a good experience for the customer, in terms of during the sale, the advisor is very informative, correctly dressed, has a good product knowledge, and is able to respond efficiently to any questions which the customer may have.

IKEA have a slightly different approach to adding value. As far as I am aware, they have only small amounts of staff that are advising during the walk around the many display IKEA rooms in an IKEA outlet. There are no people, as far as a textbook in concerned, who are adding value to the business. When purchasing an item, it is picked up via a warehouse out the back, and the product is typically flat-packed. This means, that no staff have been used to assemble the product, and thus no product advice can be given, and as stated in the case study, the customer is the one who adds the value, but by doing so, the customer and IKEA both save money. In a way, IKEA add unique value to their products, by not adding value themselves, yet adopting the attitude of its origin by which there is a belief in Simplicity, humility, thrift and responsibility are all evident in the lifestyle, attitudes and customs of the place where IKEA began. An example of the Smålanders' way of doing things is not to ask others what you should be doing, but asking yourself and then getting on with it.

There are both advantages and disadvantages of taking this approach to adding value. Firstly the advantages; IKEA have a strong market advantage by producing household items, which are relatively easy to assemble, and at extremely low prices. Customers, who purchase items at low price, are already aware that to make a product cheaply priced, there is always some part of the production process, or sale process missed out. The advantage of leaving out the ‘adding value part’ of the IKEA employee, means that less money is spent on the employees, training them up to a high standard, to make sure every customer receive that added value. The financial saving on training, allows a price reduction per unit for the cost of each item, making it highly competitive, but also, means a loss of a good customer service experience for the customer. However, with modern trends, customers are now looking for cheaper goods, yet which have been produced in an ethical and environmentally friendly way. IKEA appears to have adopted this attitude towards its product, by instead of exploiting the workforce, they are actually exploiting the greed of the consumer, as it shows that many people are willing to pay for poorer produced, cheaper goods, with no sales expert to tell them about the product, than they are too spend money or well produced products, sold to them and inserted into their homes for them, rather than the consumer making them up themselves.

The main disadvantages will highly reflect the profitability of the company. As of now, the consumer comes into an IKEA outlet, and searches around the products, which have been produced for them on the basis that the market reach team believe the consumer needs one of the items at a cheap price. It is then down to the consumer whether they purchase an item or not. Using my own knowledge, I would expect this means that many items, during their product life cycle, never reach saturation, or even growth, and the product life period is relatively short, this may even be true for a majority of Ikea’s products. Fortunately for IKEA, this choice has proven a success up until now, but with growing concerns on environment and ethnicity, Ikea’s approach to not adding value and giving choice concerns me, as there is no indication that the product was produce fairly, especially considering its price. In which case, the adding value aspect of an employee may reassure, or even prolong the life of a product, by persuasion, and good sales technique, as well as following up on sales.

As it stands, IKEA is highly successful without the need of adding value. Its cheap prices and ‘do it yourself’ attitude, has been highly successful in allowing consumer to choose the products that are made using pre-active decisions about what the consumer wants. This is also saving large sums of money on market research costs, as the questions are not which product is better, but, what do you want? All that IKEA must be aware of, is the fact that their cheap prices portray an unethical company, which future years, may impact their profitability.

4. Give some reasons why some of the world’s most successful entrepreneurs are very frugal.

To be frugal, is to avoid being wasteful. A frugal entrepreneur may be also classed as an economical entrepreneur. An entrepreneur is someone who has one or many business idea’s, ways in which to make money, and may be described as a ‘risk taker’, as money is usually invested in the idea for it to start.

Money is highly important to entrepreneurs. They spend lots of it, lose and make millions of it, and, if successful, any up investing much of it elsewhere, or in their successful business. To get to a stage like this, the entrepreneur is likely to have spent much of his or her own time preparing legislation, attending meetings, and so on, and therefore, when the business becomes a multinational such as IKEA, the last thing they wish to see, are its employees, or themselves, exploiting what they have worked for, when by using it correctly, they will continue to make more.

Secondly, many successful entrepreneurs do not encourage a ‘thus and them’ approach to business, as it is a good way to demotivate and lower the moral of staff. For the entrepreneur himself, and his executives, to fly around in highly priced aircraft, trains, limos or boats, will appear to put themselves above the many employees of IKEA, although they in fact would be in a hierarchy organisational chart.
To conclude, many entrepreneurs tend to be frugal, as they have always worked towards achieving the greatest amount of profit that they can, therefore, whenever they can save money, and thus increase the profitability and value of the company, then they will, instead of wasting lots of money which they have worked, and risked lots of money and time for, on unnecessary items.

5. Give reasons why all products have the label ‘Design and Quality IKEA Sweden’ using examples.

The phrase ‘Design and Quality IKEA Sweden’ represents the IKEA brand name, and ensures customers of the product, that its design and quality is at a standard of which IKEA sets with its manufacturers. Branding involves having several products under one name, which specify a homogenous standard to the consumer of the product. There are many reasons why branding is used.

Own-label branding, as seen here by IKEA, is seen throughout many large, competitive businesses. It involves a company going direct to the manufacturer to make products under its own brand name, instead of buying from a major brand supplier. This enables the business to sells its own products at a more competitive price in order to gain market share. The manufacturer will also benefit, using excess production capacity. You will find many businesses own brands, come from the same manufacturer as high priced brands, the difference is, the high price brand has already developed a reputation which the customer is aware of, and thus is willing to pay for overpriced goods. This is another reason why IKEA will brand its products, in order to create a reputation, and slowly increase the prices of its goods, and consumers become accustomed to the standards of the product, and the brand name.

A big part of branding is making all consumers of the product brand loyal. By keeping the standards of a product consistent, the likelihood of repeat custom increases, until in the end, the consumer will always choose this brand, as they are aware of its standard, design and quality. In terms of IKEA being a multinational business, a multinational brand means that wherever a potential consumer may be in the world, they will always expect the same quality product, in whatever store they purchase the item from. Once a consumer becomes brand loyal, the hope for the brand is that it is recommended to attract even more custom. From the case study, an example of brand loyalty is the fact that the Canadians still went to IKEA to purchase the Vases, despite their original purchases being inadequate for purpose.

Once a brand is developed and recognised, such as the IKEA brand, it enables the products produced to be developed into different markets, differentiated, as well as expanding on what they have. If a brand is developed, there is less risk into expanding or differentiating, as it is highly likely, that consumers will purchase the item due to the brand name, regardless whether it is a necessity or not. An example of the brand differentiating is Coca-Cola. Despite their original drinks being made with lots of sugar and a ‘secret’ additive, the company expanded into several different soft drinks, to a point at which now it lies as a market leader. Well developed brand named goods will be purchased by consumers just because of a previous purchase, which reduces the risks of changing products, and diversifying the business.

To conclude, branding the product creates brand loyalty, and gives IKEA the chance to diversify its markets and differentiates its product at low risk.

6. Outline the production process that manufacturers producing for IKEA will use to produce their products. Outline all production methods.

There are many ways in which the manufacturers of IKEA may wish to produce its items for the company. Some have greater advantages than others, but we must be aware, that there are probably several manufacturers to the company, as the business size is too large for one manufacturing company, unless that company has several factories, in which case the production methods noted may apply.

Job production is the process by which goods are produced to an individual specification, and are usually for a one off product. For instance, the Millennium Dome building was a job production produced product. Job production usually concentrates on costs, cash flows, and completion dates, as all are dependant upon the other. It is highly unlikely with such are large output that the manufacturers to IKEA will use job production.

Batch production involves the producing of several items in a batch, and maybe several batches, but not continuously. Many aspects are similar to job production despite the unit costs being spread of the batch. Again, it is very unlikely this production method will be used, as the output from batch production is not suitable for a successful multinational business.

Mass (or flow) production, involves products being made continuously, to a standard, and relies on individual assembles in a production line, which will carry out similar tasks every time a product is made. Mass production relies heavily on good marketing strategies, to keep demand at the same rate as supply. This type of production can be demotivating for staff, but for a business like IKEA which sells millions of products a day, a continuous output is needed, in order for demand to be met. It means that the production of the good per unit is cheaper, as it is continually made, specialist one off equipment or labour is not required, many items will be made on assembly lines or be automated, which allows continual production without the need for human assistance, in many case. Thus this is highly likely to be the method of production used by the IKEA manufacturers, due to its high productivity.

Other production methods may include cell production, which is an advancement on mass production, allowing employees to be designated to a specific part of the production process. Again this may be used depending on the motivational theory adopted by the manufacturer, but also has a large output. Just in time production is probably the least likely to be used by the manufacturer, as it means many items will continually be out of stock, as they will be unable to be sent to the distribution centres, and then to the stores in time.

To conclude, mass or cell production is the most productive production method, and thus, to cater for a multinational business, the most likely to be used.

7. What are the benefits of buying in bulk?

Purchasing economies of scale, buying in bulk, benefits a multinational business such as IKEA by saving the business millions of pounds per bulk. The idea is that when a business purchases a bulk of items, the more they purchase, the cheaper the price per unit, thus saving them money. IKEA, with its 9,500 different stores will purchase millions of items to gives to its manufacturers to produce its items.

Another big benefit to businesses such as IKEA is the credit agreements which can be set up when negotiating deals with the suppliers. As the supplies will more than likely be bought in large quantities almost every day, IKEA will try and arrange a prolonged credit agreement, depending on the lead-time of the product, which is the time it takes from purchasing the raw materials to receiving the cash for the product. By doing so, it will improve the business cash flow, as many of the items purchases from IKEA will also be on credit, which may cause issues to the cash flow.

Other types of economies of scale, which involve buying in bulk include, financial economies of scales. For instant, if IKEA wished to obtain capital from a bank, for whatever reason it may be, the size of the company, and the amount of money wishing to be borrowed would mean a lot less risk to the Bank or Building Society compared to a typical Englishman with little collateral. This means the bank charges cheaper interest rates that they would for someone who would struggle to pay it back, thus saving IKEA money.

The IKEA Group is an extremely large and diverse business. Therefore it is highly likely to have many expert managers, looking after large amounts of people, instead of many layers of managers, creating communication issues as well as a lack of motivation from employees. These managerial economies of scale mean that by buying the best, less money is wasted on trainee or under qualified managers.

The IKEA brand will be promoted heavily using TV ads, a website maybe local radio if an IKEA is near-by. However, TV ads and Website only require translation into another language, and that type of promotion campaign is available to everybody. This means large contracts with TV companies can be agreed, again saving the company money. Marketing managers and specialists may also be brought in to continually develop Ikea’s marketing techniques, and by doing do, the business again benefits by purchasing these for the entire business, instead of decentralising marketing campaigns.

Reply 5

westlife2005

James - how did you come up with such good answers matey - any advice on how i can make my answers better like that?

Reply 6

JamesssG

They obviously aren't as good in the exam. These are like model answers, they contain every bit of information. Your question should be, how do we turn these into exam answers, which is what I am unable to do.
My best advice is to write out revision notes for each section of marketing... going through the specification is uaully the best way to do this. I do it for all subjects, unfortunately, this is the one I'm worst at in exams, so I haven't done it for Business, but I do have lots of notes on it, 3 revision guides, using the internet all the time esp tutor2u.
:smile:

Thanks for the compliment though.

Reply 7

westlife2005

Do you have many notes for Finance? I have loads for Marketing and Production - but not many for finance at all?

Do you reckon i should ask my teacher if i could answer some practice questions and whether she'd mark them for me?

Reply 8

Jitman

Damn this thread is doing it.. Good discussion so far.. I'm doing this case study too for unit 2 and 3.. Basically my teacher ain't even given us the case study but i've already downloaded it and trying to make some notes..
Has anyones teacher bought the summer toolkit from:
tutor2u.net/acatalog/Edexcel-AS-Business-Studies-Toolkit-Summer-2008.html
apparently they really good

Reply 9

Jitman

westlife2005

Westlife2005 can you please put your marketing and production notes up..? I'm more worried about that unit then unit 3..

Reply 10

westlife2005

Jitman

Westlife2005 can you please put your marketing and production notes up..? I'm more worried about that unit then unit 3..

Course i can matey - i'll get them typed up and will post them up here later tonight!

Reply 11

Jitman

westlife2005

Course i can matey - i'll get them typed up and will post them up here later tonight!

Cheers fella..! Appreciate it a lot..! Looking forward to it

Reply 12

JamesssG

We've got the tutor2u tool kit, I haven't even looked at it yet, plus the price is very high, so we've all had to pay towards it. £3 to pass an exam though, not bad...

Reply 13

westlife2005

JamesssG

We've got the tutor2u tool kit, I haven't even looked at it yet, plus the price is very high, so we've all had to pay towards it. £3 to pass an exam though, not bad...

Yeah, we've got that too, not sure whether it's gonna be printed off for us, but got the lesson tomorrow so will find out then - however i've noticed it has been put up on our moodle thingy!

Just in the middle of typing up my marketing stuff!

Reply 14

westlife2005

Ok - i've typed up some of my marketing stuff for the dude in here who needed notes for marketing - i do have some from last weeks lesson, but not got round to them yet and will probably have some more from the lesson tomorrow so will get them up by tomorrow evening at the latest! :wink:

Marketing.doc73.2KB

Reply 15

teenvista

I have uploaded whats been written in TSR about Business Studies - Summer 2008 and Edited a bit. You can see it on

http://docs.google.com/Doc?id=ddh7h6xk_146fmw7ffd8

And for people who do Unit 4 I have a set of short notes (Which i found on TSR(ThankS TSR :biggrin:

)

http://docs.google.com/Doc?id=ddh7h6xk_148fzb3c3g4

Reply 16

westlife2005

Have a kind of answer here:

State two marketing objectives of IKEA (2)
A marketing objective is a goal which a business must achieve in order to meet their wider business objectives. A quote from line 10 is “duty to expand”, this shows that one of their marketing objectives is growth.

If anyone else can find another one, that will complete the answer!

Reply 17

Jitman

westlife2005

Cheers mate.. Got me started in the right direction.. I prefer Unit 3 to be honest.. Don't like unit 2 much..

Reply 18

westlife2005

No probs lad!

Anyone here done anything on economies of scale???? I went and missed my Business lesson today so my teacher said i have to revise economies of scale so i've kinda read up what it is, but have no idea how it would be applied to IKEA!!!!

What economies of scale would IKEA recieve?

What are the benefits of economies of scale to IKEA?

What are the drawbacks of economies of scale to IKEA (don't know if there is any)