Introduction
The company was founded by Ingvar Kamprad from Sweden when he was just 17 years old. He initially sold matches and later added ballpoints to his product range. To transport his products, he ingeniously utilized a milk truck owned by the city. As the truck’s route changed, he had to buy an unused factory and transform it into a warehouse. It was during this period that he made his first recruitment – someone who would photograph furniture for inclusion in his product lineup.
During this time, furniture was traditionally regarded as valuable family possessions that were inherited by future generations. However, IKEA emerged as a flourishing brand due to Lundgren’s inventive concepts. Among these was the introduction of flat-packed items, which proved to be unexpectedly triumphant. This approach enabled notable savings in transportation costs and minimized the likelihood of product damage.
Despite facing numerous challenges and likely being the target of envy from several retailers in its vicinity, IKEA attempted to retain multiple manufacturers, but without any fruitful outcomes. Nevertheless, their fortunes took a positive turn when they discovered a new manufacturer from Poland. This occurrence marked a significant milestone in IKEA’s journey due to the exceptional quality of the products and designs. Additionally, the affordability of manufacturing costs in Poland fueled their rapid expansion. Such was their triumph that by the early sixties, Polish manufacturers occupied more than fifty percent of IKEA’s catalog.
Almhult, a small town in Sweden, served as the location for the first IKEA store. This store thrived by selling “car roof racks” that allowed customers to transport products on the roofs of their cars. IKEA’s expansion soon surpassed all expectations, leading to the opening of stores in Norway and Stockholm.
The emergence of new ideas was prompted by various issues, including the heavy traffic caused by IKEA’s popularity in Stockholm. This resulted in long lines of cars outside the store, raising questions about alternative approaches. It was at this point that the concept of “self-service” was introduced, which gained recognition for IKEA. With self-service, customers were able to enter the store and retrieve their own products instead of waiting for delivery. The success of this approach in Germany and Western Europe also helped address problems in Sweden and America. Through extensive market research and consistent expansion efforts, IKEA further consolidated its presence in the furniture industry.
Previously, we discussed the challenges faced by managers in America which included discrepancies between IKEA designs and American preferences as well as political factors. Nonetheless, IKEA has made considerable endeavors to tackle these issues. They have modified the design of numerous products and introduced new product lines aimed at a younger demographic. While we could delve deeper into the history of IKEA and offer more detailed information, it is clear from this explanation that the company has consistently enhanced its strengths throughout the years, eventually establishing itself as one of the world’s largest businesses.
Now, IKEA’s complex history can be summarized as follows: Starting with a boy selling matches, they discovered that wholesale was more profitable. Despite initially being an inexpensive option, they gradually improved their mindset and expanded their small business. Through constant change and continuous progress, they learned from others’ mistakes to attract a larger audience. This allowed them to create a vast empire in the furniture and household market. Whether someone assembles a cabinet themselves or has it delivered, going to IKEA has become synonymous with “miss” or a lifestyle. Their low production and sales costs have transformed a typical purchase into a day spent at IKEA, solidifying their dominance in the industry.
The key aspect of business development, in my opinion, is the founder of IKEA’s acknowledgement that products need to be manufactured at a lower cost than traditional methods. This enabled them to provide affordable prices without sacrificing quality and their distinctive design, ultimately resulting in the success of their furniture sales. It is crucial to highlight this main concept while also enjoying various other activities.
Strenghts and weakness
Strengths:
- Price has a meaning: the proposed positioning of IKEA at first can have a very important, because as we said in the previous question, is a great strength that IKEA can sell good products at low prices
- For saving the problem of distance makes ikea can maintain low prices
- Another of the great strengths we can draw from this great group, which has been working for so many years, is that after a great job, IKEA has gained a great image and quality to its competitors, the brand itself is IKEA success syndrome
The vulnerability of the system lies in its weaknesses.
One weakness that could greatly impact this group is that their products are not suitable for certain markets, like the U.S. Additionally, their current Scandinavian design does not align with the market they aim to target. Consequently, this poses a significant issue unless they can develop advertisements or new production lines to counteract this effect. The distance from the center could also result in increased costs and delays in response times.
Opportunities:
It is operating in a competitive market segment, where only two dominant players exist – regular range retailers and high-end retailers, primarily distinguished by design and range. However, IKEA has the opportunity to carve out a distinctive position that sets it apart by not only offering a wide range of products with attractive designs but also incorporating various factors such as providing relaxation in its restaurants and offering other unique activities, thus achieving unprecedented results. Due to its well-established structure, IKEA can easily establish its presence in any country with a significant number of local consumers, ensuring a successful venture.
Threats:
The main threat to IKEA’s success is the emergence of local competitors adopting similar tactics or gaining cost advantages. This would require IKEA to adjust its trading strategy. Another significant concern is the current issue with the American market, as various documents suggest that the changing American population has reduced demand for furniture. Consequently, this could pose a significant obstacle to IKEA’s business operations.
It should be noted that a certain percentage of the public or customers may not accept that IKEA offers a dynamic model. By “dynamic model,” I mean the “kind of labyrinth” style that is evident as soon as we enter the store. It feels like we are navigating through different sections of a home, all belonging to the same company. As one case nicely explains, we can go into IKEA with the intention of buying just one lamp but end up spending over 500 € on various products that we didn’t necessarily plan on purchasing.
Main strategic problems out of Swot analysis
We have observed in the case that IKEA has faced numerous difficulties due to their intense focus on achieving better outcomes. These problems are not addressed in the SWOT analysis and can be summarized as follows:
- Problems with competitors from the beginning in trying to move forward and only encountered problems, such as attempts to remove it from the market or the impossibility of performance due to other retailers and that made them move to Poland with new designers and suppliers
- We have seen also that there have been problems regarding capital controls as they had in Sweden says that forced them to focus on strategy rather rapid capital acquisition for rapid expansion
- For the competitors, the destructive criticism of the quality that could have IKEA products, and the prices at which the products are sold not supported very well, and it was believed that as IKEA had very low prices, the product quality could not be very good, but after a study on it, was shown to the contrary, was sold cheaply, and with better quality and design that many of the competitors in the industry
- Now finally, we could say, but this would be depending on the aspirations of each, whether it would be appropriate to put the company in public hands for access to capital, and increased it in another way, as we have seen the founder rejected this possibility, since it considered that there would be a lot of pressure that would act independently and comfort IKEA group.
Identification of corporate strategy
IKEA’s corporate strategy aims to integrate various stakeholders such as suppliers, designers, manufacturers, and customers in order to streamline the production process. This integration helps reduce production costs, allowing for lower product prices. The selection of products is based on market studies to determine designs, and then the company decides where to manufacture the furniture. Currently, IKEA produces 10% of its products in-house while outsourcing the rest to manufacturers. Additionally, IKEA focuses on selling products that are easy to disassemble, pack flat, and adhere to standardized measurements as part of their corporate strategy. This approach simplifies storage and transportation processes, resulting in cost reductions.
Success in IKEA is influenced by how the public is treated, with a significant role played by the dynamic and Sweden-inspired local designs. Another vital aspect is the restaurant system provided to customers, enabling them to stay longer in stores without needing to move for meals or breaks. Consequently, this leads to increased customer time spent in each IKEA store.
The presence of IKEA stores is a crucial aspect of the company’s strategy. These stores have a distinct concept centered around empowering customers, and they also offer additional amenities such as restaurants and day care centers. This creates a unique shopping experience for individuals looking for home furnishings. While inexperienced managers may struggle to provide suggestions or recommendations to IKEA, one standout idea that emerges after careful examination is the sale of matches in large quantities. This particular product has been incredibly successful and greatly contributes to IKEA’s reputation as one of the most profitable companies worldwide.
Throughout its journey, IKEA has consistently faced and overcome various challenges. Despite difficulties in the American market, the company has effectively managed issues like financial controls in Sweden. Moreover, competitors initially expressed dissatisfaction with the significant impact IKEA has had on the industry. In order to ensure continuous sales growth, IKEA aimed to eliminate competition, resulting in criticism of their product quality.
Constantly innovating in both technology and market dynamics, IKEA incorporates modern production systems, such as new packaging systems and self-assembly. The inclusion of these systems allowed for significant savings in production costs and facilitated the transportation of products on car roofs, which is an important aspect of their business success.
Despite my main focus being on the company’s highlight and the desire for continuous growth and expansion, this leads to the establishment of new businesses and stores, as well as exploring opportunities in other countries. Consequently, this expansion not only reduces production costs by spreading them across a wider range of products but also enables the realization of more advantages. Presently, IKEA proudly owns more than 200 stores in over 30 countries and demonstrates no indications of halting this progression. Therefore, it is highly probable that the company will persistently augment its market share and introduce fresh merchandise.
While it is difficult to make a recommendation without fully understanding the situation, I think it would not be wise to introduce additional restaurants or expand entertainment options within the store. These actions could distract from our main objective of increasing sales and may not align with our clearly defined corporate strategy. However, later in the case, we see that the founder opposes giving up control of the company to the public. Now might not be the right time to go public as current market conditions could result in a lower valuation, similar to what IKEA is experiencing.
Investing in the Spanish Inditex group, a secure company, would be a prudent choice as it offers easy access to capital from the public. It is unwise for IKEA to solely depend on its current benefits without obtaining investments from interested shareholders who are willing to contribute cash or generate revenues. While this may deviate from the founder’s principles, companies like these prefer operating in an economy with existing challenges.
