Originating in Sweden, within the early 1940’s, the IKEA home furnishing stores became world renown for offering stylish furniture for home and offices at a very low cost. In the beginning growth stages of the company, IKEA continued to keep its products and operations international and to not customize its products to local markets. By doing this, IKEA was able to continue doing what helps the company to achieve competitive advantage; minimizing costs.
As the years progressed and the furniture company grew internationally, IKEA introduced the popular furnishing brand to the United States. Bringing IKEA to the United States poses a few issues the world’s top furniture retailer. Now with successful operation in its US locations, IKEA must strategically manage how to differentiate to achieve position and advantage within the US furniture market, successfully balance standardization and adaptation strategies within the global and US markets, managing pricing and product strategies, and implementing certain aspects of the company’s vision statement.
• Differentiating to achieve position and advantage
• Standardization vs. Adaptation strategy (Global market vs. US market)
• Unsustainable backward pricing
• Long lasting vs. short term quality life of products
• IKEA’s vision statement implications
Discussion of the Key Issues
Some of the factors that account for the success of IKEA include the company’s ability to deliver a wide variety of furniture and house-ware products that appeal to a vast majority of consumers; as well as maintaining a level of affordability for almost any consumer. One of the ways that IKEA was able to achieve this great success was by great management of their supply chain, which ultimately minimized their costs. IKEA standardized its operations and products internationally and the company managed to have what could be a very costly part of the value chain performed by the customer (furniture assembly and delivery) (Moon, 2004).
With these successes, IKEA has opportunity to achieve an even greater position and advantage within the Unites States. This could be possible by the company heeding to the suggestion of many industry observers to open a number of smaller, satellite stores across the United States in shopping malls, strip malls, etc. offering a limited range of IKEA products. Industry observers believe that these IKEA “lite” stores would give the consumers who do not have access to the full-size IKEA stores the opportunity to experience the brand. In addition, consumers who live near a full-size IKEA store could use these smaller stores to make minor purchases such as mugs or dishes as opposed to an entire living room. This venture could become very beneficial for the furniture because they’d be adapting to one the trends with US shoppers; which are shopping and the availability of “quick stores” or “one stop shops”. Not only do consumers of today want options but they want things quickly and as easily as possible.
IKEA is also faced with the issue of implementing standardized and adapted strategy programs within the United States. Because IKEA is an internationally based company and have chosen to venture into the US market with some of their store locations, they must strategically consider what parts of their marketing plan will be altered to fit United States conditions; if at all (Moon, 2004). A standardized marketing plan will basically be consistent across the board, usually guaranteeing low prices. This type of strategy may deliver lower marketing costs and some consistency in brand image, but it will ignore things like trends in what the customers want and need .An adapted marketing plan takes the customer’s wants and needs into consideration and tailors the plan and applies it each target group(Moon, 2004).
In order for IKEA to achieve some of the growth that they are hoping for, it is necessary for the company to consider altering its product strategy to a degree. It is a great strategy that IKEA offers their customers such an array of different furniture styles to select from; people like options. However, most of the design is derived from Scandinavian or European trends. IKEA should incorporate more American designs for its product strategy within the US. IKEA’s matrix approach can also be reconsidered, in order to provide a greater number of styles and price points. IKEA’s price matrix limits the company to remaining within a certain level of creativity in design that they may be able to offer their customers.
For instance, there can be a style that exists that doesn’t have Scandinavian influence, but rather, an American influence, and it is priced a little higher because this line may come with the option of being assembled for the customer. IKEA could also consider the idea of altering their product line by utilizing local designers that live within the US and have Caribbean or Italian heritage-influenced design style. Part of considering this comes from the fact that IKEA does hold a responsibility to add the manufacturing of furniture in the United States, particularly if store expansion does take place.
The last primary issue that IKEA faces is that of backwards pricing. What IKEA basically did in their pricing method when manufacturing their furniture, is deducting the cost from what customers are willing to pay to produce in the most cost effective and profitable way. The company did this by setting a target cost for its proposed product and having their suppliers in over 50 countries compete for the lowest production costing method. IKEA’s product strategy is very savvy, in a sense that it derives from the consumer trend R&D information gathered by a strategically selected group of IKEA senior managers; known as the product-strategy council (Moon, 2004).
This type of product strategy is a very well formulated one in that it creates the opportunity for the company to focus heavily on every aspect of their products; particularly on exactly what their consumers want, which the company knows due to the assignment of a specialized team of senior mangers that provide that vital information. The fact that IKEA has such formally complied information from the product-strategy council, the company is able to offer product range to the customers. This differentiated approach makes four different styles of furniture (Scandinavian-sleek wood, Modern-minimalist, Country-Neo traditional, and Young Swede-bare bones) available at three different price ranges (high, medium, and low); ultimately offering the IKEA consumer with 12 different styles and prices ranges of furniture to make a selection from (Moon, 2004).
For each product type sold at IKEA, there is a price “matrix” that exists. Once IKEA’s product-strategy team set a criterion price for the products, based on the research findings of consumer trends, the company decides to finalize a retail price of up to 50% lower than those of their rivals (Moon, 2004). Because IKEA’s main competitive advantage is offering quality furniture at low prices, it is smart for the company to incorporate a lower price point than their competitors for their products. The price matrix allows IKEA to maintain what their customers want and expect; which are low prices for furniture, ultimately allowing the company the stay aligned with their vision statement.
A secondary key issue that comes about with the IKEA case is the implications of the company’s vision statement. IKEA’s vision statement several things from what process is used to manufacture their products, to how the company seeks to build a partnership with its customers (Moon, 2004). IKEA’s vision statement is very honest, in that it illustrates for its customers exactly why they go about producing and designing the way that they do. The vision statement provides a brief understanding for how the company is able to keep costs low and continue to deliver quality low priced products for its customers. Even with such success and such a clear vision statement, there are some downsides that do exist with shopping at IKEA.
For some, shopping in such a large, warehouse like building for furniture and house wares, may seem a bit overwhelming; even with affordable pricing of most of the products. A consumer may have to desire to shop for IKEA’s smaller items such as cups or an alarm clock, without having the competition of such a huge selection of furniture to view as well. Another downside to shopping at IKEA could be the inconvenienced feeling for some that they must try to correctly assemble the furniture that they have just purchased from the store. It just may be more attractive convenient to some customers to have the option of having the furniture that they’ve just purchased to be assembled for them.
This next poses the key issue of quality life of IKEA’s products. Another downside to shopping at IKEA is that the products are not built to be long lasting. In fact, IKEA believes that furniture is not made to last forever and that it should be replaced and changed around (Moon, 2004). It is ethical for IKEA to sell furniture that doesn’t last a long time because the company clearly reveals how they go about manufacturing and designing their furniture, by using the most cost-efficient route in doing so. IKEA’s customers are generally well informed customers and if a customer purchases from their stores without knowledge of the quality life of IKEA’s furniture, the customer has failed to take advantage of all of the information that the company provides to its customers. IKEA should not be responsible for making customers aware that their furniture isn’t intended to last a long time because that possibly lessen the perceived value of the company’s products more than it needs to be.
IKEA’s plans to grow in the United States to 50 stores by 2013 does show that the company is overly optimistic in what their value proposition is in this country. In order to make their value proposition more appealing to Americans, the company could start be showing Americans that the company cares and pays attention to what they want and need. This could be accomplished through an adaptive marketing strategy; with the plan being implemented for each specific target group. Predicting what IKEA’s value proposition will be within the next decade, it would definitely include a more customized approach that somewhat adopts American customer trends. Some of these trends could include more selections of furniture styles and designs and having the option for furniture assembly and/or delivery.