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IKEA Invades America Case

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    1. What factors account for the success of IKEA? a. Low priced functional furniture, thanks to a strong cost efficiency policy. IKEA’s global sourcing presence and the volumes they trade as the worldwide leader in furniture retail, provide them with economies of scale. b. Scandinavian innovative and democratic designs. c. Unique distribution concept, based on self-service, to make the customer save delivery time and money. All their furniture come unassembled in flat packaging, which reduces storage space, labor costs, shipping cost and transportation damages.

    Thus the company can offer price at least 30% to 50% lower than competition, to people who are willing to assemble their furniture by themselves. d. IKEA offers a pleasing shopping experience the way they set up their stores and arrange their catalogues, with different themes of bedrooms, kitchens, bathrooms etc. that appeal to customers. e. Amenities such as playrooms for children and a restaurant that serves Swedish delicacies increase the convenience and the quality of the shopping experience. . Discuss the product/service strategy and product range The product/service strategy is a unique combination of functionality, affordability and form. This is mainly dependent on the Product/Price matrix which contains 4 basic styles and 3 price ranges. This looks at different competitor’s products and ensures that IKEA sells it at a price point of 30-50 % less than the market price. The manufacturers are selected after establishing a retail price for the product.

    IKEA closely maintains relationship with suppliers from developing countries and creates a sense of competition among them, ensures that there is some internal competition among the designers as well and chooses to best supplier/design depending on the price, functionality and material to be used. IKEA would closely determine what materials go in to product. For instance, they will make sure to use high quality material for the surfaces that are visible and which undergo stress and low quality material on surfaces, which are not visible and low stress, in order to save cost without looking cheap.

    IKEA further uses the Product/Price matrix to identify gaps in their product line thereby finding the market opportunities. The company has 10,000 different products, which means basically all kinds of household items, in order to attract a wide-range of customers. Though, IKEA maintains a limited models range in every product. IKEA does not sell over-decorated products. It rather focuses on well-designed furniture at a low cost. At last, they give each model a Scandinavian name, to shed-light on their identity.

    In a new market, IKEA tailors its product range and strategy according to the specific needs of the customers by performing market research. In America for instance, a market study enabled the company to understand its low sales performance (size, non-metric system, comfort…) and to improve its product strategy in the early 1990s. In addition to adapting its products to the local market, the company also launched various successful commercials to educate their customers on changing furniture more often. 3.

    Critically evaluate the value proposition and positioning strategy IKEA value proposition is its ability to offer low-priced, functional furniture with a distinctive design, on a self-service convenient retail store. This VP is consistently communicated and carried out. IKEA managed to understand what matter most to customer and to insist on these points of difference with competitors: low cost, no delivery delay, functional furniture and convenient store. Then, IKEA was good at communicating this value offered to the target customer. They have a “resonating focus value proposition” (Andersen, Narus & van Rossum, 2006).

    To deliver this value, the success of IKEA is mostly based on its operational efficiency, since cost leadership is enforced at every level of the organization. But they also ensure that they reach a decent level of the customer intimacy (spending time understanding his typical shopper’s needs and wants in each country) and product leadership (innovating new products that suit these needs and are not yet offered by the competition) as well. (Treacy & Wiersema, 1993). We will focus on IKEA operational efficiency: The flat-packaging makes the company save tons of money in shipping and toring their products, as they refuse to “pay to ship air”. They pay a close attention to the shape and the size of every product’s shipping pallet to maximize the number of products that can be shipped in a limited amount of space. Consequently, they profit from the discount as the volume of shipped boxes goes up. Customers assemble the furniture themselves, generally pick up their items from the warehouse themselves to bring them home. This self-service organization helps the company keep prices down, which is critical to customers’ values.

    As IKEA’s vision statement puts it, “together we save money…for a better everyday life”. Aligned with the customer self-service process is a strong internal focus on cost control. Executives fly only economy class, and they don’t have personal assistants, extravagant offices, or access to limousine services. One of the largest cost items is staff, but the company looks for ways to cut its staffing needs by making processes more self-service-oriented. IKEA’s customer and internal values are identical, and they’re so rooted in the company it greatly affects performance management.

    This value proposition resonates to customers’ mind, as the company is very clear as to how it positions itself, doesn’t make any changes or add any services unless it is in line with its current value proposition and communicates efficiently about this offering. The Positioning Statement (Moore & Heilstein, 2009) of IKEA could be: “Among the householders, IKEA is the brand of furniture retailer that provides cheap functional well-designed furniture, because the stores are organized as showroom and self-service. This statement perfectly respects the 6 criteria emphasized on the article: -relevance: consumers do care about prices for households furniture -clarity: this cut-price sensitivity is pretty straight-forward and easy to communicate -credibility: stores and catalogues show the products and their low prices -uniqueness: this strategy, including the restaurant and childcare amenities, differs from all the competitors in the market -attainability: the self-service store and the flat-packaging are meant to deliver this claim -sustainability: they make sure to keep the prices low thanks to their competitive supplier network

    On their international expansion strategy, this value proposition should remain the same but be communicated accordingly to new markets’ characteristics. For instance, they did a great amount of market research before they position themselves successfully in the American market. So far the competition in America has been offering the customer either low cost furniture or designer furniture or an enhanced shopping experience. IKEA had room to promote its concept. To do it, IKEA changed the American trend to updating furniture based on lifestyle choices, thanks to award-winning TV Ads. Though, in 2013 IKEA has only 38 stores in operations, which is less than the objective of 50 stores 10 years ago. IKEA could use a more aggressive promotion strategy.

    IKEA found a way to position the brand as a cost leadership one that gives the customer what they want: “low price with meaning”. The company stays true to tradeoffs that have been making sense to their positioning so far and make the VP impossible for competitors to copy. 4. Predict what IKEAs VP and product line-up will be 10 years from now. We do not anticipate many changes in their strategy. They will still maintain their current successful VP and tweak it according to the market they decide to get into. Though we expect some adaptations such as: -Some product would be even cheaper, thanks to lower shipping costs and innovative materials.

    The products should follow the fashion trends (shape, color, materials), to become popular, trendy and essential for every householder. -Their product-line could be extended to low-value electronic or electronic-oriented widgets (iPhone cover, cords, numerical pictures frame…). -Their furniture should be even more innovative and functional, to save space, as the real estate prices go up and price-sensitive people are likely to live in smaller and smaller places. -The shopping experience could reflect a more modern way-of-life if an electronic device enabled the clients to scan a code instead of writing down the product references with paper and pen. -The online purchase will be encouraged.

    Some people know exactly the products they want when they go the IKEA store, as some products are very popular. In order to save them the shopping time, they would be invited to purchase it online and be delivered (or pick it up). -The international expansion should continue especially in Asia and Latin America. WORKS CITED: Anderson, J. , Narus, J. , & van Rossum, W. (2006). Customer Value Proposition in Business Markets. Harvard Business Review, 84(3), 90–99. Moore, M. , & Heilstein, R. (2009). Positioning: The essence of marketing strategy. [Case study]. Boston, MA: Harvard Business Publishing. Treacy, M. , & Wiersema, F. (1993). Customer intimacy and other value disciplines. Harvard Business Review, 71(1), 84–93.

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