Our group will illustrate IKEA’s general development in chronological order. We analyze its’ different strategy in corresponding stage, and look into IKEA’s future development. Part 1:IKEA’s initial development 1. Sources of IKEA’s successful entry in Sweden: Ingvar Kamprad saw a great opportunity when the furniture prices increased 41% faster than household goods between 1935 and 1946, and started selling low price, good quality and simpler design furniture primarily to the younger generation of customers who wanted to buy furniture for their first apartment.
The tradition in Sweden was to sell expensive, long lasting (family heirloom) furniture, which after the war was too expensive for people. Instead of locating small stores in the central –more expensive part- of the city, he positioned his warehouses in the suburbs, which was a more cost efficient location which also allowed customers to park their cars.
Also, because the furniture cartel banned Kamprad to sell directly to customers at shows and persuaded the manufacturing cartel to stop supplying furniture, IKEA started to sell with the help of catalog and started to supply from a different supplier, which allowed him to reduce his prices even more. He also introduced less expensive raw materials and a less-formal working environment. 2. Management process in the Europe-wide operation: In the Europe-wide operation process, we think the most challenging task for IKEA is to find a most effective and appropriate management structure.
When IKEA was only a start-up company in Sweden, a multi-level structure is OK because in the expansion stage, clear definition of different departments was not required. However, with the accelerated expansion, establishing a more mature structure turned out to be quite necessary, for it’s the base of management process. Therefore, during the early 1980’s, the company gradually shifted from an upside-down triangle structure to a triangle structure (see Exhibit 7). We think this kind of structure is effective because of the improvement of the management efficiency.
Thanks to the optimization of the structure, IKEA could react more quickly to the market change, and adjust its strategy more flexibly. But inevitably, it would be a greater challenge to the manager, Ingvar Kamprad. 3. Ingvar Kamprad’s role in IKEA’s development: As the founder of IKEA, Ingvar plays a very important role in IKEA’s development. In the early days, as a founder, he plays the role of decision-maker. Most of the decisive strategies of IKEA, such as how to plan its expansion route, are brought up by Ingvar Kamprad.
But as the company grew bigger, Kamprad’s role in the company also changed. He realized the importance of company culture, so he raised his special management philosophy for IKEA, including the stress of simplicity, attention to detail and cost consciousness. The company gradually established its own IKEA culture, which is unique, open and creative. And consequently, Kamprad shifted from a founder to a cultural leader of IKEA. Part 2: Importance & Challenges of IKEA’s Internationalization In this part, we use 4P model to analyze the benefits (illustrating the importance) and challenges.
1. Product: Firstly, in the developed countries, IKEA positioned itself as a furniture supplier facing the ordinary customers and is welcomed by the low and medium income families. While in China, as the furniture suppliers who can offer low prices is competing rather fiercely, IKEA turned to the relatively rich level of customers in big cities . To be more specific ,the position of IKEA in China is “the white collar workers who desire good quality but could not afford a high price”. And it turned out working well for IKEA.
Besides, IKEA has a typical Northern European style which features as “simple, natural, green, and delicately designed”. The style is totally different from the traditional furnishing style. Such diversified competition strategy is very vital in IKEA’s expansion. Also, various styles of products in IKEA could meet the needs of people with different tastes. 2. Price: IKEA always stands for essential products priced to be accessible to the majority of the people. And this brand position doesn’t change during the process of internationalization.
This price-control strategy goes throughout the entire procedure, from the low-cost design with new material and technology to the effective global production management and logistics system. That’s also the reason for IKEA’s prevalence all around the world. But on the progress of taping Chinese market, IKEA encountered great difficulties. Although IKEA is famous worldwide for providing low-priced durable products, its prices are comparatively high for this emerging economics.
The cost advantage it enjoyed in developed countries yields to the local furniture stores in China which can have easy access to cheap material and labor. As an adjustment to the market situation, IKEA started by selling the middle-range-price products only and aimed at the local families with a monthly income of 6000 RMB. And the self-service concept which saves cost wasn’t generally accepted in China. So IKEA also provided assembly and delivery service for the traditional Chinese consumers. 3.
Place: Internationalization is very important to IKEA, as the domestic (Swedish) market is very small, and in order to stay competitive, they had to expand internationally as well. In order to be cost effective, IKEA uses flat packages which the customer have to complete by themselves, which saves not only space in the warehouse but the cost of labor. Also, IKEA locates its warehouses in cheaper, densely populated districts instead of the suburbs, however, it pays attention that to provide consumers large parking areas and pulic transportation lines nearby.
IKEA pays special attention to ,erchandise classification and positioning. In IKEA stores it is possible to use the children’s playground and eat in the cafeteria- these all add value to the IKEA-concept”. 4. Promotion: Catalog is the centerpiece of the company’s product promotion policy, which was viewed as the principal means of educating consumers to the IKEA product line and concept. Its catalog features on products and possesses unified style worldwide to ensure the similarity of global thinking. It is proved to be a great innovation. Many consumers take the catalogs as their decoration guide.
Another characteristic of IKEA’s promotion is the experience marketing strategy it used to display products. IKEA wants to create a unique ambience making consumers feel warm and relaxed. But when the store layout was introduced to U. S, American consumers felt as if they were caught in a trap when shopping in IKEA. One of the most frequently asked questions was how to get out. To narrow this cultural gap, IKEA produced a three-step plan, explaining how to shop and installed much quicker check-outs because Americans didn’t expect to queue as long as Europeans.
IKEA also introduced lots of water fountains since Americans like drinking water while shopping. Part 3: Challenges ahead for IKEA We consider the challenges for IKEA from 4 dimensions that converted from the five-force model. 1. IKEA itself: The key word is balance. How IKEA balances its culture values with new culture’s shock brought by its rapid growth and geographic spread. The expansion and international staff’s participation may lead to the loss in IKEA’s concept and culture. In addition, the concern
also lies in the balance between the globalization and localization. Since different area has its own tradition, to what extent IKEA could yield in order to better adapt to the new market like US or China remains the question. If IKEA yield too much, the core value will shrink and IKEA may no longer be itself. In opposite, if IKEA solely insist on its culture and design, will it be able to break the new market? 2. IKEA’s buyers: During IKEA’s expansion, its target consumers are situated in different economic and political environment where various policies are implemented.
This is a risk for IKEA thus sufficient preparation such as planning customized schedule for specific market. Other than policies, tax and exchange rate are also risk factors in IKEA’s buyers since they’re unfixed. Once the exchange rate or tax in a certain country fluctuates, the price of IKEA’s products here will change correspondingly. If the change is relatively huge and for instance the price gets higher, it will be a big challenge for IKEA since its core competitiveness is its low price. 3.
IKEA’s suppliers: Considering IKEA’s rapid expansion and production cost, IKEA will buy raw materials of its products locally. Thus the price of the raw materials is a risk since the products’ price has a positive correlation with raw materials’. In addition, the quality of raw materials provided by local suppliers should be concerned since IKEA is famous for its high quality. 4. IKEA’s competitors: For IKEA, the headquarters need to pay more attention to its competitors especially after its business model matures, for its marketing strategy can easily be copied.
It usually didn’t take long for imitators to appear. Therefore, IKEA should try every means to improve its brand awareness, thus seizing more market shares. Just take IKEA’s development in the US for example. When it first entered into the US market, IKEA met a California-based retailer that imitated IKEA’s concepts exactly. On this occasion, IKEA had to accelerate its expansion plans hastily to preserve its image. So if IKEA want to avoid its potential competitors, it’s important to dominate the market in the initial stage.