IKEA Case Essay
1. ) There are three main factors that account for IKEA’s success in the furniture retailing industry: (a) its unique, Scandinavian designs, (b) its product strategy, and (c) its cost efficiency. a. IKEA’s simple, yet unique designs are undoubtedly a critical factor in its success as a furniture retailing company. In its early years, IKEA’s cost-focused strategy led to its manufacturing of “low-priced furniture [that] was functional at best, ugly at worst” (4). However, over the last decade, the company has deliberately focused on creating products with a more distinct design aesthetic.
Today, consumers appreciate IKEA furniture for its both its functionality and appeal, rather than solely for its functionality. Ingvar Kamprad, the company’s founder, first introduced furniture into the IKEA product range in 1947. He solicited local Scandinavian manufacturers in the forests close to his home to design and build the furniture. The history of Scandinavian influence on IKEA’s products and its company culture was a major factor in its success. b. IKEA’s innovative “matrix” product strategy was also critical in the company’s success.
Its product-development process was “overseen by a product-strategy council, which consisted of a group of senior managers who established priorities for IKEA’s product lineup” (3). After analyzing consumer trends, these priorities were established, and a product developer would use “the matrix” to set the product’s target retail price. The matrix is a grid that consists of three basic price ranges and four basic styles, and within each price range, the company would survey the competition and set benchmarks of prices 30% to 50% lower than those of its rivals (3).
The matrix also used to identify gaps in IKEA’s product lineup, because there was a separate matrix for each type of product the company sold. The “matrix” product strategy was very successful and has generated massive amounts of revenue for the company. c. IKEA’s cost efficiency plan was a huge determinant of its success. In 1956, IKEA began designing products so that they could be packaged flat and assembled by customers on their own. This greatly reduced transportation, labor and storage costs, and it enabled the company to charge lower prices to consumers.
IKEA estimated that its “transport volume was six times less than if it shipped its products assembled” (4). Like Wal-Mart, IKEA emphasized cost efficiency in its company culture. Employees were encouraged to save on electricity by turning off lights and idle computers, and managers always traveled coach and took buses instead of taxis if possible (3). The company focused on cost-efficiency in engineering its products as well. IKEA liked to use high-quality materials on furniture surfaces that were high-stress and visible and low-quality materials on surfaces that were low-stress and less visible to the consumer.
These cost-cutting measures definitely helped IKEA become successful. 2. ) I believe IKEA’s slogan – “Low price with meaning” – perfectly parallels its product strategy and product range. The “matrix” development system seems overly simple, but it has been proven to work. Of course, there are sure to be some discrepancies regarding the competition’s prices, but IKEA’s product strategy and “matrix” system does a good job of targeting potential market opportunities as well as pinpointing areas of improvement and gaps in its product range.
Overall, I think IKEA’s product strategy and its product range are perfectly suited to the company’s culture and slogan. The matrix system allows IKEA to deliver to customers the best possible product at low prices. 3. ) There are definitely some downsides to shopping at IKEA. The biggest downside is the realization that the furniture you are buying probably won’t last very long. Some of IKEA’s products have been known to fall apart after only a few years or during a simple move to another apartment. Another glaring downside is the fact that customers must pick-up and assemble their purchases without the help of an IKEA employee.
Of course, this is part of what makes IKEA unique and what enables the company to charge its low prices. The final downside to shopping at IKEA is the low ratio of sales reps to customers. Ironically, the company’s vision statement proclaims that IKEA wishes to establish a “partnership” with its customers. On a global scale, IKEA has created a partnership with its customers through selling appealing yet affordable products. But on a smaller scale, and more specifically, within individual IKEA outlets, the company has failed its mission.
Its strategy of having consumers purchase products (most likely without the help of a sales rep) and then immediately drive home to assemble them creates a clear disconnect between the company and its customers. Manufacturing functional furniture does not create relationships, it drives profits, and if IKEA truly wants to establish a “partnership” with each of its customers (while creating appealing and affordable furniture), it has to find a way to make consumers feel less disconnected; they have to feel as though they are a art of the brand.
I believe more sales reps could be a good start to fixing this issue. 4. ) I agree with the concept of “mini-IKEA” stores. Implementing “IKEA Lite” shops would expose the brand to a larger and more diverse customer base. IKEA outlets are notorious for being large, cavernous warehouses – a typical outlet consumes 15,000 to 35,000 square meters. IKEA could create more brand awareness by installing IKEA Lite shops in shopping malls or in large, urban areas where retail space is scarce.
Overall, I think it’s a great concept and would serve the brand well. 5. ) No, IKEA is not being overly optimistic in its growth plan of opening fifty stores in the United States by 2013. Many furniture retailers have far more than fifty stores in the United States. Wal-Mart, the leading US furniture retailer, has 4,005 stores in the US, so I think IKEA’s goal of fifty stores, while lofty, is perfectly reasonable and would position the company well to gain a greater market presence in North America.
I think IKEA could improve its value proposition by providing more after-service support and communicating more with its consumers about who its suppliers are, what its working conditions are like, etc. , because Americans value ethical companies and transparency. We want to buy products from a company we can trust. 6. ) I don’t think IKEA needs to change a lot with regards to its product strategy in order to accomplish its goal of having 50 stores in the United States by 2013.
I think IKEA should make the product matrix more detailed to account for the larger US furniture market. By this, I mean break down the designations of “high,” “medium,” and “low” in the product matrix into specific percentages. Going along with this, the company could add more than four styles to its product matrix to allow for more specificity. I believe if IKEA created more specific price points and furniture styles, the matrix system will continue to work and help the company identify gaps in its product line.