James Postels
MKTG 342
February 10, 2011
IKEA Case
Summary
The Swedish home furnishing company IKEA was founded in 1943. Their headquarters
are located in Almhult. Since 1943, they have expanded into three main regions which include:
North America, Europe, Asia, and Australia. Today, within these regions are a total of 253
outlets, based in 37 countries. IKEA’s model revolves around their various suppliers and
customers. IKEA’s various local manufacturers are in charge of shipping the components to
IKEA’s large distribution centers. The unassembled pieces are then packaged and sold
throughout IKEA stores worldwide. IKEA’s products are distinctive because they expect
customers to become “prosumers” and assemble the products themselves. This method is used to
empower their customers.
IKEA’s history of expansion into other countries and their unique ideas put them ahead
of their competitors. Their strategic plans focus on global market infiltrations, while many of
their competitors do not want to take the risks of doing business globally. While other companies
prefer to deliver ready and built products, IKEA differentiates itself by delivering unassembled
and ready to build products. This unique idea has helped IKEA penetrate many international
markets. Since the penetration of the American market in 1985, it appears that they had to adapt
many of their concepts in order to survive.
Problem
Will IKEA’s unique ideas and concepts continue to be successful in the future?
Alternatives
1. IKEA and has shown much success in global penetration, in theory they can continue to use the
same concepts and ideals that the company was founded on to be more profitable in the future.
2. IKEA should change some portions of their business strategy in America in order to adapt to the
current industry trends in order to avoid taking unnecessary risks.
3. IKEA should treat each market it infiltrates differently by adapting the concepts of other
companies within to their own.
Analysis of Alternatives
Alternative #1
Getting into the U.S market is a challenge for any company wanting to achieve global
market penetration. IKEA has taken up this challenge and since 1985 has been competing for
market share in the United States. IKEA has several advantages throughout its concepts and
ideals. For example, having local partners that supply and manufacture the bundled goods, is the
cause for lower prices for consumers, usually 30 percent to 50 percent lower. Also, their unique
concepts make consumers prosumers. Customer service is also a competitive advantage within
the industry. Sometimes it takes time to get assistance, and in order to get specific types of
assistance, like shipping for example, additional funds are required.
Since IKEA’s entry into the US market they have done well thus far. The American
market however, has forced IKEA to change some of their products. In order to focus on their
target customers IKEA will need to adapt their products to their needs. So far, they have had to
adapt one product. If IKEA wishes to enter into more markets they’ll need to also adapt and
change to these markets.
Alternative #2
IKEA has already established concepts and ideals and adapting will be difficult. They
currently have showrooms and offer a variety services that prove profitable. However, there is
room for improvement. If IKEA adapts to American companies by producing assembled
furniture they can obtain additional market share by attracting a new market. In addition, they
can adapt and change their concepts to infiltrate smaller markets in local communities. In doing
so, they can reduce costs in the showrooms while increasing attraction to their brand.
IKEA also imports many materials from its various manufactures. In 1987 they
established a warehousing facility near Philadelphia and since then, have expanded from one to
six facilities throughout the US. IKEA deals with many suppliers and manufacturers. From my
experiences, sometimes dealing with many companies can decrease the quality of goods.
Establishing new relationships with suppliers in the U.S. or Canada could lower costs, increase
quality, and create new competitive advantages for IKEA.
Alternative #3
IKEA’s mission is to, “offer a wide variety of home furnishings of good design and
function at prices so low that the majority of people can afford to buy them.” Since 1985, they
have been targeting young, highly educated, white-collar workers, and they are not concerned
with status symbols. While focusing on young ages and lower prices, IKEA is missing out on a
much larger market. This passive aggressive marketing could hinder their company’s
advancements into the US market. Although this method may have worked in previous countries
IKEA will need to adapt to the methods of other businesses and expand on them in order to
maximize their market share.
Currently, IKEA’s operating margin is only ten percent. Various other furnishing
companies currently hold the rest of the market share. In order to maximize the exposure of their
company they can establish relationships with second and third party shippers. Also, in order to
decrease costs, instead of production outsourcing they can do retail outsourcing. This would
decrease costs and dip the company into other various markets.
Recommendation
Out of the three alternatives mentioned on the previously, it seems most favorable to
proceed with the first alternative. Since 1985, IKEA has established its presence successfully
among its intended target market in the US. Currently, their operating margin is at ten percent. In
addition, they are currently dipping into other markets by offering services, such as, pay for
assembled products, shipping, and food services. This not only benefits those other companies
involved but increases exposure for their company. The biggest strength that IKEA has is in their
unassembled furniture. This is what gives them their competitive advantage.
Since IKEA owns only ten percent of the market, there is still much room for expansion.
Focusing on the same concepts and ideals could delay US and future global penetration.
However, IKEA has done well thus far and no change is really needed. It’s foreseeable that
IKEA will continue to expand globally, change and adapt, and continue to be profitable. This
will occur naturally without them having to dramatically change their business strategy or focus
on infiltrating different target markets.
The two other alternatives would force IKEA to change some of its core concepts and
ideals. Alternative three would focus on penetrating other smaller markets. Doing so however,
would not guarantee positive results and IKEA is already taking risks in the U.S. market.
However, if they are successful they could attain a larger portion of the U.S. market in the
process. Furthermore, in alternative two it’s mentioned that, “IKEA deals with many suppliers
and manufacturers and sometimes the quality of goods are debatable. Establishing new
relationships with suppliers in the U.S. or Canada could lower costs and create new competitive
advantages for IKEA.” Establishing relationships takes time and resources. While this would be
beneficial to the organization in the long run, IKEA already has trusted local manufacturers and
suppliers all over the world already.
Implementation
IKEA has already had to change and adapt to the various countries it currently resides in.
In this regard, having to change and adapt is inevitable and they’ve done this various times. The
customs, concepts, and ideals they obtain are then applied to other countries globally. To
continue being successful IKEA should be aware of change. However, they shouldn’t fear
change and reevaluate their concepts because of it. In order to be successful IKEA should
continue with their current strategy, while changing and adapting to the changing customer base.