What factors account for the success of IKEA?
Ikea’s Success can be attributed to many factors, but can be classified into two broad categories: product differentiation and cost leadership.
Ikea’s simple yet elegant yet elegant Scandanavian designs reflect solid consumer awareness, as its designs resonated well with the consumer.
In our opinion, IKEA’s cost leadership was the strongest contributor to its success. Its MORE FOR LESS positioning strategy appealed both to consumers and itself. Through innovative cost cutting methods, IKEA differentiated itself successfully from its competitiors (Ethan Allen, Thomasville, or Jordan’s Furniture), who compete heavily on selection, with numerous product types boasting substyles, which lead to huge inventories, on top of offering delivery and set up services to consumer homes. The most significant cost innovation involved outsourcing significant cost drivers directly to the customer, culminating in its Flatpack model of flat packaging and final assembly by the customer.
What do you think of the company’s product strategy and product range? Do you agree with the matrix approach described in Figure B of the case?
The company’s product strategy is that of overall cost leadership under Porter’s Four, targeting a broad target at lower cost. Constantly trying to lower their production and distributive costs, they can afford to partake in below-market pricing as shown by their target of pricing products up to 50% lower than competitors. Their product range is extensive, appealing to a large variety of people. With their top management constantly looking out for new priorities in relation to consumer trends, they not only remain modern but remain very practical in usage.
There are many advantages to using the matrix approach. This includes identifying gaps in the company’s product lines to identify and target new market opportunities. Having a matrix for each product type also makes it much easier to accurately estimate a product’s costs and eventually price and profit of a product. We agree with the matrix approach, but acknowledge that there are limitations to this approach which will be discussed later. Despite its success, there are many downsides to shopping at IKEA. What are some of these downsides?
Would not appeal to people without creative juice – who simply want already built furniture. Troublesome: To obtain the various parts of furniture, one would have to literally walk through the whole IKEA store, which wastes time.Would not appeal to people who may find it hard to follow a instruction sheet after all that trouble
IKEA’s Vision Statement (Figure C) describes how the company seeks to build a “partnership” with its customers. Evaluate this vision (or mission) statement? The vision/mission staatement of “Democratic Design: Low Price with meaning” is market oriented and defined in terms of satisfying basic customer needs (low prices), and is meaningful yet specific(especially in a country that prides itself as “the cradle of democracy” To achieve the kind of growth that IKEA is hoping for, should the company change its product strategy? If so, in what way(s)?
What about product range – are there limitations to the matrix approach? Should the company expand its product lineup to include a greater number of styles and price points? In what other ways should the company consider changing its product line?
Predict what you think IKEA’s value proposition and product line will look like in 2020. Currently, Value proposition of IKEA’s product is the availability of contemporary design furniture at rock bottom prices. We believe that this deep-rooted nature of the brand will likely still be present in 2020. The product line however, is likely to undergo upward product line stretching,. IKEA’s key concern is finding the balnace between unique Scandanavian designs and making them appeal to a wider publc, and we forsee the product line expanding to include more customized designs.We especially forsee multibranding of IKEA, with classical/traditional items to appeal to marekts with more mature tastes and higher disposable income. Some industry observers have suggested that IKEA should open a number of smaller satellite stores (e.g., in shopping malls, strip malls, etc.). By offering a limited range of IKEA products, these “IKEA Lite” shops would presumably give consumers who do not otherwise have access to a full-size IKEA the opportunity to experience the brand. In addition, consumers who do live near a full-size IKEA would be able to use these mini-outlets to make minor purchases, such as cooking utensils and decorative items. Do you agree with this idea? Why or why not?
What do you think of the company’s product strategy and product range? Do you agree with the matrix approach described in Figure B of the case? In order to keep with its slogan, IKEA has had to compromise on product durability for low cost. While this has worked to some extent, we feel IKEA needs to do more to to find the best combination of price, quality and design.
Ikea’s product range is solid
IKEA’s core competencies are in uniqueness in design. The matrix approach might have problems appealing to a wide customer range, with only four styles and three price levels
To achieve the kind of growth that IKEA is hoping for, should the company change its product strategy? If so, in what way(s)? What about product range – are there limitations to the matrix approach? Should the company expand its product lineup to include a greater number of styles and price points? In what other ways should the company consider changing its product line?
While the current product strategy has served them well, basing products on consumer trends might no longer be enough to keep its growth at the level it currently is at. Instead, of being so generally, it might be time to be more focused on place instead of just consumer trends. Based on exhibit 1, sales growth has been constantly decreasing. This could mean that the current market of US and Europe is matured. As seen in exhibit 8, after so much investment into advertising, IKEA still only ranks 14 in the leading U.S. furniture retailers list. The vast number of shops in Europe, seen in exhibit
4, also shows how it is a market leader in that market with little room for growth, showing signs of being a cash cow. Therefore, we propose that the U.S. and Europe markets, being cash cows, should be harvested, reducing cost and maintaining current sales. With the income that is generated, funds should be poured into opening shops in markets with potential growth (question marks) like those in Asia, specifically, China. Based on exhibit 2, only 3% of their sales are in that growing market. Exhibit 6 also shows that China is one of their main purchasing countries which mean that the opening of shops there could actually mean reduction of shipping cost if the products are sold there.
There are limitations to the matrix approach including the fact that its focus is on the current business and not on future planning. The current styles and prices in product lineup is sufficient to compete in almost every market. However, in the Asian market, the matrix might not be that useful. It would be quite difficult to compete in Asia with price being the differentiating factor. While the current product lineup should be maintained, instead of marketing it as lowest cost, market them as Scandinavian goods at affordable prices. While there is the possibility of ethnocentrism and self reference criterion in play, IKEA’s brand name should be able to draw enough customers to boost its own sales.
Courtney from Study Moose