Founded in 1943 by a poor Swedish farmer named Ingvar Kamprad, IKEA is now one of the largest furniture retailers in the world. From its inception, Kamprad wanted to create cheap, quality furniture that everyone could afford. That formula led to IKEA’s early success in Sweden and has carried over until today. To its customers, IKEA is not just a store but a way of life, which may be evident through the cult-like following the company has achieved.
When talking about the four P’s of marketing (product, price, place, promotion), there are few companies in the world that have mastered this concept better than IKEA. IKEA has been able to recognize the demands of its shoppers and create compelling products that meet those demands at a reasonable price. Its products are sold at unique stores that serve strategically important, geographic markets. This paper examines the factors that have made IKEA such a big success and offers some recommendations for future growth in the United States.
Today, IKEA has over 240 stores in 35 countries and has revenues of over $26 billion. Its revenues double every 5-6 years and the company is now expanding to growing markets like China, Japan, and Brazil. The future of IKEA looks brighter than ever. For a brief snapshot of IKEA’s current sales around the world see Appendix 1. In 1985, IKEA decided to invade America. Faced with this early failure, IKEA retooled its furniture to fit American tastes. IKEA soon became the fastest growing furniture retailer and the 14th largest furniture retailer overall in the United States.
IKEA executives needed to find a balance of how to create new furniture offerings without losing its unique design and corporate soul. By examining IKEA’s marketing strategy and answering a series of four questions, we have developed recommendations (see Appendix 2) that we think will lead to IKEA’s continued growth and success. 1) What are some of the ways that furniture retailers have sought to overcome these purchase obstacles? : a) identifying a product that consumers like, b) visualizing the product in the consumer’s home, and c) getting the product in the consumer’s home?
In furniture sales, there are two general strategies: the low-end and the high-end. The low-end offers cheap, utilitarian furniture that is dreary looking. Cheap furniture is marketed to people such as college students who have a small budget. The cheap furniture is also displayed in poorly lit showrooms that offer little to no customer service. High-end furniture stores compete on quality and service. The high-end offers a large selection in each style and sub-style of furniture, which results in the showroom having a large inventory. The broad, variety strategy virtually guarantees that a customer’s preferred style will be available.
The high-end stores also have high touch sales associates to help customers with product selection and furniture measurement. Sales associates are trained to educate their customers; such as explaining the life spans of different materials. They also reassure customers that their furniture will last a life time. Visualizing a piece of furniture in a person’s home can be very difficult. The high-end furniture stores have beautiful showrooms that are elaborately decorated to help the customer visualize where they can place new furniture or how they can redecorate their home.
High-end stores also offer interior design services. Most retailers offer credit to make high-end furniture more affordable. All retailers offer home delivery, sometimes free, to make the transition as painless as possible for the customer. As an added bonus, retailers offer to assemble the furniture in the customer’s home. Sometimes, delivering the furniture also involves rearranging furniture, as well as removing and discarding old furniture. Providing these services makes the purchase of new furniture an easy and worry-free process. 2) Explain IKEA’s reverse positioning strategy.
IKEA created a matrix used to prioritize product lineup and price. (See Appendix 3) Primarily the matrix is used to set a target retail price and select a product style. With the matrix system, IKEA is able to identify product line opportunities and gaps; creating a well rounded store. IKEA has avoided the image of the low end furniture store by displaying furniture in brightly lit showrooms. These showrooms help customers envision how the furniture interacts with the allotted space. Plus color coordinated cards provide design tips and information kiosks are on hand to help customers.
All of these features reinforce IKEA’s self service ethos without making the customer feel abandoned. In IKEA’s case, the firm rejected the standard business models for both high-end and low-end furniture stores. IKEA’s furniture is composed of cheaper parts that are not visible and are not under high stress through use and a higher quality material is used for the visible parts or parts under high stress. This gives IKEA’s furniture a higher end look while keeping their costs low. IKEA’s reverse positioning kept prices low, while eliminating many services thought essential to a higher-end store.
The company replaced them with unique services for its category: a bright, inviting showroom, furniture that was attractively designed, a child care center, a restaurant serving Swedish meatballs, and brightly colored house wares and clever toys. As a result, IKEA successfully avoided the feel of the low-end retailers, and customers “find the IKEA shopping experience to be immensely appealing (Moon, “IKEA Invades America,” 5). 3) What are some of the various product/service attributes that IKEA has chosen to withhold from its customers?
IKEA seems to incorporate a hybrid strategy focusing on both cost and differentiation. IKEA attempts to price in the low to midrange category. IKEA does not build its furniture to last a lifetime, which in-fact flows well with its ad campaigns focused on letting go of the semimetal value Americans often place on furniture. IKEA products are known for falling apart after a few years; however, its customers are typically satisfied with the look, functionality, and affordability of IKEA products (Moon, 2004, p. 5).
Its focus is on cost-efficiency, so the company uses higher-quality materials on visible surfaces and lower-quality materials elsewhere. High-end stores compete on quality and “high touch” experience and selection. Nearly all types of furniture stores offer delivery services. However, IKEA successfully eliminated many of these attributes. IKEA products are designed to be transported unassembled in flat boxes, which keeps shipping costs low and prevents IKEA from having to deliver/assemble furniture for customers (Moon, 2004, p. ).
Customers are responsible for transportation of their furniture and assembly of their furniture. Although this step may seem like its decreasing the consumer experience/perceived product value; it’s actually keeping the customer involvement level high. Moreover, the competitive pricing offered at IKEA is attributed to letting customer build their own furniture, which keeps costs to a minimum. Formerly, IKEA only produced a few different designs; however, this has changed in recent years.
In order to be consistent with IKEA’s self-service ethos and to keep costs low, the ratio of sales assistants to customers is kept low. The low number of sales associates can have a negative effect on the consumer experience. To handle furniture questions, customers are provided with product descriptions and measuring tape so they can make their own measurements. 4) What are some of the areas that IKEA has managed to achieve cost efficiency by implementing a number of firm-specific operation processes? A number of cost effective operating processes have been implemented by IKEA.
In furniture design, IKEA engineers often select cheaper/low quality materials for less visible areas that experience minimal stress and expensive materials for visible areas that undergo stress. This aids IKEA in producing durable, good-quality products at low costs. IKEA has worked with over 1,800 suppliers in over 50 countries and often uses suppliers from developing countries. To keep costs down, IKEA usually purchases in bulk and often orders various components of a given product from different suppliers. IKEA is strict with employees about waste; it enforces minimal travel budgets and requires them to save electricity.
IKEA keeps a small staff in stores and provides self-serve trolleys to aid consumers in loading their vehicles. Typical furniture retailers require a larger staff and/or incur shipping costs for delivery of their bulky, already assembled products. Flat packaging allows IKEA customers to transport their purchases home and eliminates the expense of home delivery. IKEA’s flat packaging strategy is another firm specific operating process. The strategy was inspired by an employee who, in 1955, removed the legs off a table to fit it into a customer’s car.
This strategy requires designers to keep in mind the amount of space their products take up in their unassembled form. Flat packaging also helps prevent damage to the products during the shipping process. IKEA will often redesign their products multiple times to achieve space optimization and reduce shipping costs. Space optimization typically lowers prices for consumers; however, it may lengthen the assembly process. IKEA should continue to incorporate cost cutting activities across the board so long as the consumer experience remains positive.