IKEA is very well known as the world’s largest home furnishing retail chain which was founded in Sweden back in 1943. Originally started as a mail order company, now IKEA has expanded its operation to more than 32 countries having more than 175 outlets. IKEA operates large warehouse showrooms in 16 countries and operates smaller stores in another 9 countries. Germany is IKEA’s largest market followed by the U. S. IKEA’s mission is to “offer a wide variety of home furnishing of good designs and function at prices so low that the majority of people can afford to buy them.
IKEA’s target market is the young, highly educated, liberal in their cultural values, white collar workers and not especially concerned with status symbol. IKEA products have a universally accepted assortment around the world. IKEA’s strategy is based on cost leadership where most of their manufacturing activities are outsourced to low-labour countries and they follow a high volume production of standardized items which provide an economy of scale. But IKEA concentrates in the design of their product where the designers work to build savings-generating features in the production and product itself.
IKEA encourages its customers to be “prosumers” where most of its product will be self-delivered and self-assembled by the customers But they do provide the delivery and assembly services at an extra cost which IKEA usually hire the local companies to provide those services. IKEA tries to provide a wholesome experience at its stores with the availability of additional services such as babysitting areas and cafeterias. IKEA’s management believe that the ‘designer-to-user’ relationship provides them with an adaptive fit.
IKEA offers prices that are 30 to 50 percent lower than fully assembled competing products. This is a result of large quantity purchasing, lower-cost logistics, store location in suburban areas and the do it yourself approach to marketing. IKEA’s promotion is mainly centred on the catalogue and the company’s advertising goal is to generate word-of-mouth publicity. IKEA’s strategy positioning is unique where they have engaged in long-term planning and have achieved economy of scale, which some companies even with merging forces have failed to achieve.
IKEA first step foot in the U. S. in 1985 after carefully assessing the market. With the overwhelming success that followed, the company invested in a warehousing facility near Philadelphia. But it was not all some sailing for IKEA where they had some issues with the preference of the U. S. customers conflicting to the present European centric furniture. With the issue in mind, IKEA has made some adaptation and have redesigned almost a fifth of its product range to suite the taste of the Americans.
With this done, IKEA’s approach is still to market the streamlined and contemporary Scandinavian style to North America by carrying a universally accepted product range but with a mind of products lines and features that appeal to local preferences. DISCUSSION 1) What has allowed IKEA to be successful with a relatively standardised product and product line in a business with strong cultural influence? Did adaptations to this strategy in the North American market constitute a defeat to their approach? In order for us to answer this question, we first have to understand the “IKEA Concept”.
It offers a full range of furniture with wide variety, good design, good value, for “young people of all ages”. It follows a strategy of cost leadership through high volume production and standardised items where almost all of the manufacturing is outsourced to low-labour cost countries and IKEA concentrates on design and distribution activities. So with that being said I would like to say that the key reason for IKEA’s success is that they are customer focused as they have always been keeping close contacts with the customers by not using distributers to do their sales.
By doing this they could receive immediate feedbacks and complaints about their products and services. They also have reduced the cost or I would say have given the money back to the customers by not providing assembly and delivery services. These services were on a need to basis only. The growth of IKEA was also subsidised by the change in preference by global customers where many of them were not tied to a traditional furniture image and wanted change. This preference coincided with the expansion activity of IKEA to venture into other European market and the U.
S. market. IKEA’s customer wanted practicality, good value, simplicity, and liked the idea of contributing by giving their time in assembling stage. The customers also liked the concept of the wide variety of available furniture at one place providing the assurance that “something suitable can be found, will be nice and simple, practical and of good value”. These factors combined with the perceived wide variety and good design was appealing in many countries to a similar customer market segment. These factors made IKEA universally acceptable.
I personally feel that adaptation is a must if a company wants to take their product global. This is to cater to the taste and preference of difference culture, race and geography. So I feel that IKEAs adaptation in the North American market does not constitute a defeat to their approach. If we take a closer look, most of the Scandinavian style was still preserved though with minor local adaptations to suit the customer preference. This is good for customers worldwide where the taste, quality and design of the furniture could be matched worldwide.
Either in the U. S. or any other countries economies of scale were still being achieved therefore the main characteristics of the Ikea concept were still preserved. 2) Which features of the “young people of all ages” are universal and can be exploited by a global/regional strategy? From my understanding the concept of “young people of all ages” basically defines the customer base that IKEA is trying to target which are the ones who like to perceive themselves as either practical or modern or non-traditional.
By definition, they are not tied to the traditional furniture image and design but are more inclined to prefer what they perceive of Ikea’s design as “good”, modern and streamlined. They give more importance to simplicity and practicality than being “traditional”. These type of people could be located in large numbers across many countries therefore perceived as universal. IKEA targets customers who like shopping for “good” value. Most of them feel good about contributing their time/work and are likely to get some sense of satisfaction out of assembling the furniture and finishing work.
Willingness to contribute time/work in order to gain in achieving a better value is therefore another feature shared universally for this type of customer. IKEA targets people who perceive themselves as young and modern who would like viewing, evaluating, choosing, pick-up and self-delivery, self-assembly and finishing work of their furniture. This type of customers also seeks more entertainment from shopping than just simple purchases and expects the perceived wide variety of choice and other facilities to be available all in one place.
The concept of “young people of all ages” by IKEA could be tailor fitted to the needs of different age groups from different location and therefore could be said as an universal concept. 3) Is IKEA destined to succeed everywhere it cares to establish itself? This would depend on how flexible this concept is in various different countries’ conditions. It was mentioned that the Ikea concept could be slightly modified regionally without compromising their original formula.
This was also explained in the example where modifications are undertaken with a view to preserving this concept whilst focusing on the overall profitability rather than the margins. In order for IKEA to succeed in various different regions, it would have to make the necessary changes (without affecting the original concept) to the product line and especially the pricing of the products. For example if a bed sold in the U. S. for USD$400 or in the UK was considered good value, the same product would have to be sold at a lower price in some other countries in order to match the similar customer expectations.
Lowering the margins per unit sold can be justified with the overall profitability of the regional shop or the sum of Ikea outlets in a particular country, but this cannot be applied everywhere, as the differences can sometimes be greater than acceptable. In addition to this, more furniture can be locally produced thus increasing the flexibility of this aspect but this might appear as stretching the universally standardised assortment element of the Ikea concept. IKEA’s success would also be depended on the economical nature of the country.
For example if IKEA sets up a store in a developed industrial world and free trading markets, the IKEA concept can succeed. However, it would be unreasonable to expect the same case in the countries with extreme fluctuations in currency exchange rates, hyper-inflation or with rigid importing quotas and restrictions. IKEA also would face difficulty if they enter a market where the customers have a more traditional taste and do not want to change to a more contemporary taste.
In conclusion, I would like to say that IKEA could be successfully in many countries world-wide with or without minor modifications whilst balancing the regional differences and sometimes even utilising them to preserve the original Ikea concept. However, it would be difficult to say that IKEA’s concept would be successful everywhere. There is a limit to the number of possible ways of adapting this concept without compromising it in order to successfully establish Ikea in great many countries.