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. And still have money left! Most of the time, beautifully designed home furnishings are created for a small part of the population – the few who can afford them. From the beginning, IKEA has taken a different path. We have decided to side with the many.
— IKEA Website
This paper describes the IKEA’s growth phenomenon with respect to its business level strategies and competitive responses. IKEA’s humble beginnings was soon propelled into unmatched growth due to the cost advantages IKEA offered to its customers as well as the tantalizing lifestyle thirst it seeks to quench while maintaining dignity. IKEA focused on the younger and less affluent crowds with its clean Scandinavian designs. IKEA showed innovation as its strategy for maintaining its cost advantage actions. The provision of the delicious Swedish meatballs and the children play areas served to keep the masses of show room visitors linger longer.
IKEA’s Global Marketing Strategy
IKEA was founded by Ingvar Kamprad who was born in 1926 in a small farm called Elmtaryd. Kamprad introduced furniture into the product line in 1947 (Allen, Scott). The IKEA Group is one of the world’s largest home furnishing companies. It operates 165 stores across Europe, North America and Asia. IKEA uses 1600 suppliers (PricewaterhouseCoopers, 2002) for its products designed for functionality, aesthetics as well as for affordability. More recently, IKEA showed up in Top 10 of three of five measurements used to determine the fastest-growing stores of 2007. This strong performance helped the chain, with 31 U.S. stores, jump one spot to No. 2 on the Top 100 with $1.79 billion in furniture, bedding and accessories sales in its fiscal year ended Aug. 31, overtaking Seffner, Fla.-based Rooms To Go(Clint Engel, Furniture Today, June9, 2008). The downturn in the housing markets can barely mask the frugality in the shoppers’ minds as impulse purchases have slowed down considerably. Still, the man behind the company’s global expansion, CEO and President Anders Dahlvig, thinks there are big opportunities for the privately held IKEA Group. Instead of scaling back on overall expansion, the company is shifting its emphasis toward developing markets like China, Russia and Eastern Europe, while staying tough on prices and cutting expenses. “Slowdowns in the economy are not forever,” Dahlvig said. “It’s better to stick with a strategy than panic.”
IKEA’s fundamental values and business level strategies revolve around creating a better everyday life by producing its products with strong consideration to environmental and social standards. IKEA produces less expensive furniture in designs from modern to traditional; IKEA provides value to its customers because most of what it sells requires assembly and is flat-packed, saving the company money in transportation and storage costs. Sofas range from about $399 in cloth to $1,400 in leather. Accessories include $20 mirrors, $10 lamps, $7.99 woks and $3.99 throws in bright colors(IKEA catalog). IKEA exploits its core competencies by consistently designing attractive products that can be produced cost effectively and transported efficiently.
Kamprad’s vision has driven the success of IKEA. He believed that common people would buy more furniture provided the price was low and the quality was good. So, IKEA targeted the less affluent man as opposed to the older and more affluent people as its customer and satisfying the needs of the middle class population was its strategy. In other words, IKEA chose the “broad scope” of customers instead of the “narrow scope” (Hitt, Michael). IKEA has always valued “reach” to its broad scope of customers (Hitt, Michael) as evident by opening large showrooms so that people don’t shy away from buying furniture sight unseen. As a part of the “Psychological factor of customer segmentation” (Hitt, Michael) IKEA strives to produce its furniture cost effectively without conveying the “cheap” feeling, thus addressing the perceptual factors of the customers as well.
The clean lines of Scandinavian design have given IKEA the capability to differentiate its service and product. All the designs are centrally carried out in Sweden by IKEA’s own designers. Another brilliant “valuable” (Hitt, Michael) activity was providing food within the stores so that people enjoyed the delicious Swedish meatballs among other things. IKEA stores also have play areas for children which encourages the parents to linger in the store for longer durations.
IKEA’s cost leadership strategy includes standardization of products for all the stores, with features quenching the customer’s thirst for lifestyle. Some of the cost saving actions taken by IKEA include tightly controlling production costs , of course, as well as some that its customers are happy to help out with, namely purchasing the re-usable IKEA bags and self check out lines. IKEA’s cost leadership position acts as a deterrent for new entrants as the new entrants need to be in large scale in order to be cost effective. At the same time IKEA maintains its strong hold on the suppliers by being able to make large purchases thus reducing the supplier power.
IKEA’s biggest resource is its capacity for innovation and marketing. This feeds the capability for cost leadership. Pioneering the flat storage of furniture was only the beginning of some significant cost advantages. IKEA’s wide distribution of its product catalogs and informative brochures within the stores facilitated self service. IKEA competitors are primarily in the Home Furnishings & House wares Retail industry. IKEA also competes in the Floor & Window Coverings Retail, Grocery Retail, and online Retail sectors. IKEA faces increasing competition from discounters like Wal-Mart even though retailers cannot match the breadth of IKEA’s offerings.
IKEA creates new markets by mitigating the geographic boundaries and expanding into other developing nations like China, Russia, etc. Like many other multi national companies IKEA also learnt with trial and error on how to think globally and act locally. IKEA maintains its competitive advantage by ensuring its product quality in terms of performance, features, flexibility, durability, serviceability, aesthetics and perceived quality. IKEA’s service quality measures perceivably higher than its competitors in terms of timeliness, courtesy and convenience.
In conclusion IKEA’s growth was inevitable given the culture of frugality that Kamprad has infused into the company and its people. IKEA’s business strategy has been sharp in differentiating its services and products and intimidating to its competitors due to its scale of economy. The shopping experience at IKEA is anything but intimidating where customers are encourage to leisurely browse through its numerous “rooms” ranging from kitchens, dining rooms, living rooms, bedrooms to children’s rooms. IKEA has created new markets consistently and is now continuing the venture into countries like China, Russia, etc.
Hitt, Michael. Strategic management Competitiveness + Globalization
Clint Engel, Furniture Today, June9, 2008 IKEA leads the pack in ’07 growth. Retrieved January 22, 2009 from http://www.furnituretoday.com/article/46527-Ikea_leads_pack_in_07_growth.php
Dan McGinn, Jungle Magazine, May 3, 2002. IKEA Case Study : Home, Swede Home. Retrieved January 22, 2009 from http://www.mbajungle.com/magazine.cfm?INC=inc_article.cfm&artid=2110&template=1
PricewaterhouseCoopers. IKEA. Retrieved January 22, 2009 from http://www.pwc.com/extweb/newcoatwork.nsf/docid/2b0202ab2146bfa085256dc00077b480