Question

Scaves
Scaves is one of Scandinavia’s largest furniture manufacturers, and sells their
furniture designs all over Europe and beyond. The company was founded in 1934 in
north-western Norway. From their small base in Sykkylven set amidst deep fjords,
and mountains, the company has gone on to become an international success story.
From these humble origins, the firm has become an international success story, selling
furniture in 19 countries including USA and Japan. The company is famous for its
‘Stressless’ brand of leather recliners. This product range has become the cornerstone
of the company’s success. It sells their extensive furniture range under a number of
different brands such as ‘Stressless’ recliner chairs, the ‘Scaves’ sofa collection,
‘Sbane’ mattresses, and ‘Soko’ beanbags. Scaves uses a variety of different brands to
cater for different markets and consumer segments, but the Scaves name is always
associated with these sub-brands, and the company is always trying to enhance brand
association and awareness. It feels that by consumers seeing the Scaves brand name, it
acts as a sign of great product quality. Scaves has developed into a one of Norway’s
most well known international brands.
Jon Scaves, started the company with three employees, and initially pioneered the
selling of mattresses with springs loaded inside the mattress. This was developed into
the “Sbane” mattress brand. Over 70 years later, this brand continues to be sold.
Gradually the firm expanded their range to include other furniture. Now the firm
encompasses a range of sofas, recliners, ottomans, tables, chairs, mattresses, and other
furniture accessories. It achieved international success and prominence through its
landmark and distinctive recliner designs. Through its history it has experienced highs
and lows, nearly experiencing bankruptcy, and having to face large lay offs. This
evolution has seen the firm use a variety of sales structures, seeing different phases of
expansion and retrenchment. Now the firm is powering ahead, through developing its
international sales, and capitalising on the strength of its recliner range.
Table 1: Scaves at a glance
Headquarters are based in a beautiful mountainous region in Ikornnes, which is an
area called Sykkylven, Norway.
Its slogan - “The Innovators of Comfort”
Founded in 1934.
Has revenue of 2,292 million (NOK) or €282 million in 2005.
Profits of 303 million (NOK) or €37 million
Employs 1,545 staff.
Has a total of seven factories in Norway. The company has invested heavily in state
of the art machinery, including automated robots.
The firm now has the capacity to produce over 2,000 ‘Stressless’ seats a day.
Scaves products are available through a network of furniture dealers in over 19
countries including Germany, UK, France, Russia, Japan, Canada, USA, and Poland.
Over 82% of the firm’s products are destined for foreign markets
Its main vision is to become a leading brand name supplier of home furniture in
domestic and international markets. It believes in offering customers, a great quality
premium product at great value for money. In promoting the range, Scaves uses studio
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merchandising, showcasing a variety of Scaves products in a typical real life setting.
Here samples of the product range are shown to full effect, where prospective buyers
are encouraged to take “the Scaves comfort test”. Scaves designs products with
a focus on comfort, design, and function. Any of the product range has to
entice customers, and make it distinctive from competing furniture ranges, especially
in competing against low cost suppliers. Scaves offers 10-year guarantees on its
internal mechanisms, which is a testament to its quality. The firm uses furniture
designers to come up with new designs that make the range modern and highly sought
after. Similarly, the firm works closely with textile suppliers to ensure their colours,
designs are fashionable for modern consumer tastes. This is particularly important
with the firm’s sofa ranges that can easily date.
The ‘Stressless’ brand is the company’s core brand. It was originally designed back in
1971. Its functional design, unique base support, adjustable headrest, 360 degree
rotation, free standing footstool and overall comfort offered to users proved a winning
combination. The company vigorously defends its unique design, winning copyright
infringement cases against would-be furniture copycats. These recliners are offered in
three sizes, small, medium, and large. One of the main selling points of the
‘Stressless’ recliner is that the chair is highly adjustable to provide maximum lumbar
support and comfort. It uses the strapline of the ‘ultimate recliner’ to support the
‘Stressless’. Furthermore the firm sells a range of ‘Stressless’ accessories to
compliment the recliner such as table attachments, and height adjusters. It offers the
recliners with four different categories of leather, with different finishes, and these
can then be chosen in a wide variety of colours. Scaves customers can choose from
over 50 different leather colours, and 7 different wood grain effects. The level of
customisation is a key selling point that entices would-be customers, and allows the
firm to charge premium prices. These recliners like most of the product range are
priced at the premium end of the market. A recliner can retail for anywhere between
£1,200 (€1,725) and £1,800 (€2,675).
The ‘Stressless’ recliners account for 79% of total sales, the mattress range 9%, the
sofa collection another 9%, while the remainder makes up other Scaves furniture
products. It hopes to break into new markets such as creating suitable furniture for the
home cinema phenomenon, selling a range of sofas and recliners suitable for home
cinema enthusiasts. The company has changed with the times offering a new feature,
called “safe” on certain models allowing the leather upholstery to be removed like a
duvet cover, so that it can be washed and cleaned. The company has also developed
corner and sofa units for its recliner series. These developments have strengthened the
company’s product portfolio, showcasing the ‘Stressless’ brand philosophy.
Its closest comparable competitors in the market are the American famous La-Z-Boy,
and Italian Natuzzi product range. Other recliners are not strongly branded, yet are
sold through well-known large retail chains such as DFS, Argos and Ikea. Some of
these large retail chains have tremendous buying power and market prominence,
selling their own label branded furniture. Many of Scaves competitors are small to
medium sized suppliers, mainly based in Asia. Their distinct advantage is cost. Far
East furniture suppliers have helped drive down furniture prices, and helped
democratise leather furniture. The company envisages that to remain successful, it
must consistently build the brand, invest in product development, and have a strong
distribution network. Through this commitment it can achieve higher margins that
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make its future more sustainable.
To reduce costs Scaves tries to standardise components. It endeavours to garner
economies of scale through large volumes, especially when it competes with low cost
manufacturing sites such as in Far East Asia. Its production philosophy is focused on
continuous quality improvement initiatives, delivery precision, and the optimisation
of the company’s manufacturing resources. In an effort to get greater production
efficiencies, the firm is aiming to reduce the number of models it offers to customers,
whilst achieving higher volume sales on core Scaves products. The company has 32
different ‘Stressless’ recliner models, and 12 different ‘Stressless’ sofa models.
Table 2: The Objectives of Scaves
1. Have a return on total booked assets of min. 25%
2. Have a return on sales of min. 15%
3. Have an asset turnover of min. 1.7 times
4. Have an equity ratio of min. 40 – 50%
5. Have a gross margin in the Stressless business segment of min. 49%
6. Have a gross margin in the Svane business segment of min. 40%
7. Have a gross margin in the Scaves Collection business segment of min. 40%
8. Have an annual growth of 5 – 10%
The company sells its products through selected retail chains and independent
furniture dealers. The company sees further growth in new international markets such
as Italy, Portugal, some Eastern European countries, and Asia. The firm is an export
driven firm with over 82.1% of products exported abroad. The company uses a
network of company owned sales offices to establish a network of specially selected
distributors in foreign markets. Typically retailers include retail chains and
independent furniture dealers. The furniture range is sold exclusively through these
retail dealers, and is not available on the Internet. Scaves believes that customers want
to ‘touch and feel’ furniture before buying it. The tangible nature of furniture buying
is very important. Dealers have samples of different woods and finishes, which
customers can order. The selection of reputable dealers in international markets is
seen as crucial. Dealers are chosen based on suitable geographic distribution
coverage. Scaves view is that they have to form mutually beneficial partnerships with
its dealers that encourage dealer motivation to stock and support Scaves marketing.
Not all of the Scaves range is available internationally. Its truly international brand is
the ‘Stressless’ recliner, with 95% of all ‘Stressless’ recliners being sold in export
markets. Its ‘Sako’ beanbag furniture range specially designed for kids and the
‘Sbane’ mattress is extremely popular in Scandinavian markets, having a 70-year-old
brand heritage.
The company has a presence in over 19 countries. Scaves has even opened
a showroom in Las Vegas. Scaves has a variety of international websites designed to
promote the brand. The look and feel of these websites is generic, yet all the sites
have local content. No prices are published on their website or on dealer websites.
The company encourages dealers to use the Scaves brand on dealer Internet sites
also. The company focuses their marketing strategies on strong point of purchase
displays, and local advertising campaigns in conjunction with their dealer network.
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Building up the distribution base for Scaves internationally is vital. A key activity in
securing greater distribution coverage is forming and cultivating relationships with
dealers. The company uses international furniture fairs to secure new dealers, and
showcase their product range to prospective dealers. The range and number of dealers
vary depending on the international market targeted. For example, to expand in Japan,
Scaves uses a network of 400 dealers, where it directly assumed ownership of the
sales channel, by taking over the activities of an importer who had previous
responsibility. In the USA, there are over 375 furniture dealers with 550 outlets that
stock Scaves. Sales growth for Scaves products is continuing to grow in all
international markets achieving between 5%-10%. However, challenges are on the
horizon including mounting cost pressures, exchange rate fluctuations, pressure on
retailer margins, enhanced competition, and copycat products.
Many international furniture dealers are motivated to stock Scaves due to the
strength of the Scaves brand name, the product range, its heritage, its popularity
within the market, and most importantly its margins! In addition to providing a
dealership contract, Scaves provides dealers with additional training programmes for
retail sales staff, branded marketing material, Internet marketing support, and studio
solutions showcasing the product range. Any marketing activity is designed to
promote Scaves brand identity, and to encourage footfall to their dealer network. Both
the strength of the product and its pricing are important. Scaves feels that an effective
supply chain can help encourage consumer purchase behaviour. Scaves tries to ensure
short lead times for products to be delivered, and that promised lead times are met.
Product is typically flat packed to their dealer network, whereby dealers look after
final assembly and delivery of the product to consumers. Scaves want to create a
reputation as a reputable supplier of furniture. The timely delivery of flawless
products is vital in achieving this reputation. Any complaints are handled as
expeditiously as possible.
Through their advertising the company tries to emphasise – “The Comfort Test”, and
uses the slogan “The Innovators of Comfort”. This is their core positioning strategy,
which has been tremendously successful. Will it continue to yield dividends into the
future?

Case Questions
1. What are the important aspects of the market environment of Scaves?
2. What are the main issues facing the company?
3. Based on available information and company commitments, what strategic direction
would you propose for the company?
4. What is their customer target?
5. What is their competitive advantage in the market?
6. What is their marketing approach?

Answer 1

1. Scaves started its business in the year 1934 as a furniture manufacturer. it has the core idea of quality and customer comfort. so all its popular products like stressless, scaves sofa, sbane, soko are well recognized in the world furniture market. it always put stress on its innovation and customer's demand. it creates its studios and a comfortable and approachable compare to any other brand. its slogan " the innovators of comfort justifies its product value due to its continuous modification of product according to customer choice region choice and competitors challenge. it never compromises its quality at any situation so the production and providing services to the customer never changed so the market environment may be changed due to the regional /country changes but the core concept of its service never changed. it faces various competition in terms of cost, in terms of copycat, or any other trade or product-related issues but it never let down its value. so the moral strategy and dedication makest its market environment safe and stressless.

2. The main problems that the company faces are:

a) cost competition, which makes it more burdensome. the local and small manufacturers are providing fewer quality products at a lower price so it hurts the value of real products.

b) copycat, it is a very common problem that puts the customer in the confusion of original and duplicate.

c) pressure on retailer margins, where the  local manufacturers have already the advantage of local touch so they can capture a market portion in the name of regionality and the culture.

d) limited verify on the basis of the region, due to that it could not present its extensive range of products and prices to the customer due to the limitation.

e)exchange rate fluctuations are troublesome. An international transaction is not always the same due to fluctuation in exchange rate so it affects the profit margin.

f) enhanced competition is the obvious scenario due to open market competition. like 82% of its products be enough competition.prepared for export so gradually its foreign market themselves have their own high brand product that gives a tough competition.

3. According to the commitment of its services, the scaves already have a unique strategy that protects its product from imitation and it is also providing company guaranty of 10-year wich itself distinguish this product from others. It has given its online marketing from its own website and also through its dealer's website it has kept a strict rule not to display of price. their policy of touch and feel needs to be the focus and the main attracting point. In my suggestion, if it will go for a survey of market and try to have an idea of the customer then it will be easy to find out the range of customer as well as most suitable product availability according to their budget. By doing so they can compete with the local regional base manufacturers.

4. TheScaves mainly focused on its international customer as its 82% of the product are getting exported so it is focusing to acquire a greater portion of the furniture market in a foreign country. the best policy. it provides different product range with different price having its own uniqueness, that creates the brand value.

5. The competitive advantage of the Scaves is the few no. of competitors internationally. Italian Natuzzi and American La-Z-Boys these two companies are main competitors whereas other companies do not create that much trouble in terms of market sharing.

6. with a strong market value it gives its customer the most comfortable service of touch and feels the comforts of the product and durability also focus on the price range and product quality maintenance at low cost. Its marketing strategy include its deler importance and their advertizement in their dealers website to capture the local interest. Not displying the price of the product is one of the part of its marketing strategy to make the customer more enthusiastic about the product.