Logan Lewis
Marketing 432
Ikea Case
The IKEA Concept began when Ingvar Kamprad, an entrepreneur from the Smaland
province in southern Sweden, had an innovative idea. Ingvar started his furniture business in
the late 1940’s and built the company around the traits native to his heritage which include:
hard work, frugal living, and making the most out of limited resources. The name IKEA was
developed by Ingvar by using his initials, I and K, plus the first letter of Elmtaryd and Agunnaryd,
which are the names of the farm and village where you grew up as a child. Today the IKEA
trademark has established itself as the leading home furnishing brand in the world with more
than 300 stores scattered throughout 35 countries while employing more than 130,000 coworkers.
17-year-old Ingvar began the company with a simple catalog that focused on selling
basic household goods at discount price. As the company began to develop Ingvar expanded
his merchandise by acquiring and selling home furnishings. The IKEA Group went from catalog
to showroom and then eventually opened its first inaugural store in Almhult, Sweden in 1958.
The company began developing and designing it’s our line of furniture based around simple
Scandinavian designs. IKEA opened its first flagship store in Stockholm, Sweden in 1965 with a
focus on providing price friendly home furnishing. The companies booming success eventually
lead to the opening of stores in Europe, Asia and North America. The factors that account for
the success of the IKEA brand is comprised of many internal strengths that include cost efficient
and innovative production and distribution, product strategy, Store design, and internal and
external competition.
The internal strengths of the company were all build around the companies cost cutting
strategy. At IKEA waste was considered a deadly sin. In order for the company to offer quality
furniture at a low price they needed to reduce cost in any area possible. IKEA employees were
trained to turn off lights and computers that were not in use, and managers traveled coach and
took buses instead of taxis if possible. These small steps are a huge part in the ability of IKEA to
maintain their low-cost based strategy. 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.
This concept is what led to the new product development process.
The IKEA product strategy is overseen by a product strategy council, which consist of a
group of senior managers who establish priorities for IKEA’s product lineup. These priorities are
based on consumer trends, which are identified by the globetrotting council members. The
product strategy is arranged by a product developer who sets a target retail price using a
method the company labeled “the matrix”. The matrix consists of three basic price ranges and
four basic styles. The company sets prices by surveying the competition to establish a
benchmark and then sets its own price point normally 30% to 50% lower than its leading rivals.
The company has a separate price matrix for each product type that they sell. The matrix tool is
used to not only set prices, but is successfully used to identify gaps in the company’s product
lineup. Plotting IKEA’s current product offerings on the matrix grid and looking for empty
spaces visualizes existing market opportunities that the product managers can take advantage
of. Along with the matrix tool, IKEA uses unique packaging, production, and distribution
methods to increase their ability to offer huge savings to their consumers.
To assure that IKEA was the getting the most out of every dollar spent they work with a
range of 1,800 suppliers in more than 50 countries, always seeking to balance cost-efficient
labor with the company’s product quality standards. IKEA production process included
circulating a product description, specification, and target cost to all its suppliers and encourage
them to compete for the production package. To further their saving the brand would
sometimes produce different pieces of furniture sets through numerous suppliers; the pieces
would then come together in the store when a consumer selected that particular item. The
IKEA engineers method of production included using high quality materials on furniture
surfaces that were visible and most likely to undergo stress, and lower quality materials on
surfaces that were low stress and less visible to consumer. Following the same competitive
approach IKEA would use internal competition to select a designer for their products. The
company would again circulate a product brief to its designers that included price, function,
materials used, and manufactures capabilities. After designers would submit their proposals
the company would select the best one and use that for production. Combined with the
production methods is a packing process engineered to further pursue to cost savings concept.
IKEA furniture is designed to be shipped disassembled; all of its products are
transported “Flat” or in flat boxes. The flat packaging serves two major purposes for the IKEA
Company. Flat packaging allows IKEA to ship products on the ground rather than through the
air, and the flat packaging makes consumer transportation of items more convents. IKEA also
packages items in a fashion that will allow them to maximize the quantity of items for shipping
pallet. This constant focus on shipping frugality secured IKEA’s ability to keep their product
price stable or even at times reduce the cost of products as shipping prices went down.
Creating a SWOT analysis can help generate and understanding of where the company stands
on a corporate and business level.
Strengths
Weaknesses
Opportunity
Threats
Affordable Products, Buying Power, Low
Distribution cost, large market share, global
business, efficient packaging, low operating
expense, purchasing power
Product life span, quality, product assembly,
foreign suppliers, material cost, lack of US
US expansion, partnerships, new product,
merchandise sales, advertising, bundles
Retail stores, material cost, shipping expenses
(gas price), new competitors, product
acceptance.
IKEA’s corporate strategy began as a primary focus on price. This strategy gave the
company a start but also created some problems in which they needed to address to assure the
survival of their business. Its low priced furniture presented itself as functional but the life span
and durability of the products was extremely poor. The corporate strategy decided to make a
change and began to focus on product design as well as keeping their merchandise affordable
and available to a wide range of consumers. IKEA corporate slogan is “Low price with
meaning”, which captures the company’s new focus. Their focus was a commitment to
providing tasteful; cleverly designed products that did not make customers feel cheap. This
approach had customers satisfied with a unique combination of form, function, and
affordability. The IKEA business idea is to offer a wide range of home furnishings with good
design and function at prices so low that as many people as possible will be able to afford them.
This reflects how the company organized its business level strategy.
The company’s business level strategy is to provide the customer with a how to shop for
IKEA furniture. IKEA website gives customers a “how to shop” guideline which advises
customers to be prepared. Being prepared means making a list of anything you may need for
your home, taking measurements of spaces you want to fill with furniture, and making sure you
have room in your vehicle to transport the products home. Other than the pre steps listed
above the businesses provide everything from pencils, paper, tape measures, store guides,
catalogs, shopping carts, shopping bags, and strollers at the front of their stores. Although this
self serve image seems to fit the company it can also have a negative impact and create some
problems.
IKEA’s customers are assumed to be in a partnership with the business. The partnership
between IKEA and its clients entails a simple understanding that is if you as a customer can pick
up your purchases and assemble them at home IKEA as a company will continue to keep prices
low. This strategy has many downsides. Because they focus on self assembly and customer
incapable of transporting and building their own furniture cannot shop at IKEA. Also customers
who purchase good from IKEA and cannot assemble them properly will not experience the
quality desired from the products resulting in lack of satisfaction and could destroy and future
purchases of their merchandise. Another downside to the shopping experience at IKEA is lack
of sales representatives. A customer unfamiliar with the way IKEA conducts business could
easily misunderstand the concepts IKEA represents and have bad shopping experience also
creating a bad image for the company.
As IKEA continues to expand into the global market I would recommend that they
advertise in more Medias in order to give and understanding to customers of how their
business operates. Also I believe IKEA could benefit by offering a program where IKEA staff
could transport and assemble furniture for customers who are unable to complete the task on
their own. This service could come with additional fees but it will also allow IKEA to reach a
new type of customer such as elderly people, and people with disabilities. My final
recommendation would be to expand the IKEA line further into the United States. For the
number of stores present the United States figures show that they occupy a large percent of
sales for the company. Expanded into the U.S will further increase their sales percent and
possibly match the performance of their already established Europe sales.
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