Building a Global Home: The IKEA Phenomenon

Categories: History Ikea Marketing Swot Analysis

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History

Ingvar Kamprad, IKEA’s founder, has a very intriguing and impressive life story. Kamprad was a very intelligent young Swedish boy who quickly turned into the 5th wealthiest man in the world. His net worth is now $4.2 billion. At a very early age Kamprad started his selling knowledge. When he was just 5 years old he would buy matches in bulk at a cheap store in Stockholm and re-sell them around his neighborhood at low prices, but enough to make a hefty profit.

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Kamprad’s selling continued and expanded from flowers to greeting cards to pencils and pens throughout the 1920’s. As Kamprads business skills increased he began studying the retail prices of different items in Sweden.

He recognized that furniture prices had increase by 41% in 1935 and realized how profitable this area of retailing could be. In 1943, at age 17 Kamprad received money from his father for his successful studies and used the money to create a business. IKEA was then formed, standing for Ingvar Kamprads initials (I.

K.) and the first letter of the farm he lived on, Elmtaryd (E) and the first letter of the village he lived in, Agunnard (A.) Kamprad created his furniture line in 1948 aiming for furniture that would be affordably priced. He began only selling his furniture through magazine advertisements.

In 1953 the first showroom opened in Almhult Sweden. This was the first time consumers could physically see and feel the IKEA furniture before ordering them. 3 years later the need for flat packs and self-assembly furniture gave rise; one of IKEA’s co-workers had to remove the legs of a table to fit into their car without damaging the surroundings.

(“IKEA Official Page”) In 1958 the first IKEA store was opened in Almhult Sweden. It was the largest furniture store in Scandinavia at the time with 6,700 square meters.

Two years after the opening the store Kamprad introduced the first IKEA restaurant which was located inside the furniture store building. Kamprad expanded his store outside of Sweden in 1963 by opening an IKEA store in Norway. Within ten years IKEA stores were being opened outside of Scandinavian countries and expanding into 3 more continents (“IKEA Official Webpage”.) One of the most recent expansions was into the Dominican Republic in 2010. IKEA is in the process of opening new stores and developing the most innovative furniture products of today.

Store Locations

After IKEA opened in Sweden in 1958, it quickly moved into other Scandinavian countries opening stores in Norway in 1963 and in Denmark in 1969. Throughout the 1970’s IKEA rapidly spread through Europe. The first store outside of Scandinavia opened in Switzerland and quickly after IKEA made its presence in Germany. In 1975 IKEA arrived in Australia and opened its first store in Sydney. Throughout the 1970’s IKEA also opened stores in Japan, Hong Kong, The Netherlands and Singapore. Germany has IKEA’s biggest market with 46 stores in the country. Following Germany is the United States with 38 stores across the country. As of right now, IKEA has not appeared in developing countries, but is still planning for more global expansion (Countries.) IKEA group has continued growing every year and is now a large retail experience with over 123,000 co-workers. IKEA’s employees help generate annual sales of more than 21.5 billion dollars.

The stores locations are placed strategically. The location is near major roads, freeways and public transportation. Although the stores are not normally placed in densely populated areas, IKEA is still successful and reaps high traffic due to the Huff Gravity model. Since IKEA stores are so large and carry a wide range of products, people are willing to travel a further distance to their stores. The largest IKEA store is in Stockholm, Sweden with a size of 55,200 square meters and following behind it is the Shanghai, China store with a size of 49,400 square meters (“IKEA”) In 2011 IKEA announced a plan to build a wind farm in Sweden to help IKEA achieve its ecological goal of running on 100 percent renewable energy.

The next year IKEA made another announcement about the company creating a chain of 100 economy hotels in Europe. However, these IKEA hotels will not follow the same IKEA brand name and will not be furnished with IKEA’s furniture. The list below contains the country and number of IKEA stores present in the country, ranked in order of their opening dates: Sweden (17), Norway (6), Denmark (5), Switzerland (7), Germany (46), Japan (5), Australia (7), Canada (12), Hong Kong (3), Austria (6), Singapore (2), The Netherlands (12), Spain (15), Iceland (1), France (28), Saudi Arabia (3), Belgium (6), Kuwait (1), United States (38), United Kingdom (18), Italy (20), Hungary (2), Poland (8), Czech Republic (5), United Arab Emirates (2), Slovakia (1), Taiwan (4), Finland (4), Malaysia (1), Russia (14), Israel (2), Greece (4), Portugal (3), Greece (5), Portugal (3), Brazil (3), Turkey (5), Romania (1), Cyprus (1), Ireland (1), Dominican Republic (1), Brazil (1), Bulgaria (1) and Thailand (1).

Target Market

IKEA strives to have a wide target market, wanting people around the world of all different demographics and psychographics to purchase IKEA products. IKEA defines its global target market as “young people of all ages” including individuals, families, design exteriors, and hospitality businesses like hotels. IKEAs target audience includes but is not limited to age groups of 18 to 34 and 35 to 49 years old. IKEA focuses on college and post graduate aged individuals. IKEA’s target market contains both sexes. IKEA’s target market typically lives in urban college and metropolitan areas. The salaries of the target market can range from $15,000 to $50,000 and are usually spending their money on technology products (such as iPhones and iPads.).

IKEAs target audience engages in a quick paced lifestyle that may include travelling and moving often, for example moving from apartment to apartment or to an upgraded home. Due to this “mover” lifestyle they are normally looking for a cheap, easy to build product that can be packed tightly. Because of their median income, the consumer is not very status conscientious and is not searching for expensive designer furniture. The shoppers’ personalities are relaxed and/or creative and artistic.

They are considerably fashionable and search for trends, but love to get deals simultaneously. They want to do things themselves (which follows closely with IKEA’s do it yourself product attitude) and care about the environment (Rowe.) IKEA also focuses on budget conscious families. This target market is beginning to start a more domestic lifestyle. The families usually have young children. To satisfy this target market most IKEA stores include a daycare or child-watch section for the children inside the stores. Although this target audience is in a different stage in their life, they still hold similar habits and lifestyle as the previously described target audience (Rowe.)

Product Assortment

(“IKEA Official Webpage”) IKEA sells items ranging in these categories and they even provide customers with the service to help them create their own kitchen, closets and office with IKEA products. Their kitchen services include Total Project Management, Delivery, Installation and more. Their individual kitchen planning start at $199 and their measuring service start at $49. In IKEA retail locations, they also have IKEA Food. They have a restaurant where they sell their own assortment of Swedish food, located inside the IKEA retail store.

Customers can sit down in a cafeteria style dining and enjoy IKEA’s famous Swedish meatballs and Lingonberry drink at amazingly low prices. In IKEA, there is also a Bistro/Exit Café right at the checkout where they sell typical American food, ranging from 75 cents to $4, such as hot dogs, chips, soda, frozen yogurt and more. IKEA also has their own “grocery” section where they sell Swedish food.

The IKEA official website states that the IKEA Swedish Food is “based on Swedish recipes and traditions, the wide choice of food and drink runs from frozen meatballs to sweets and coffee. You’ll save time and money whether you’re making a meal for your whole family or putting together the menu for a party” (IKEA). Their food categories include: Beverages, Easy to prepare, Meat, fish & seafood, Pastries, desserts & cookies, Sweets, chocolates & snacks and Swedish celebrations. The last category has food items such as Swedish Christmas drink, cheese pie, Rhubarb crumble tart, and frozen Saffron rolls.

SWOT Analysis
Strengths

* Low prices: IKEA has a strong concept based on offering a wide range of well, designed, functional products at low prices. They have created a design that is a balance between function, quality, design and price which appeals to customers in tough financial times. Their pricing strategy appeals to consumers both with limited financial resources and those with higher budgets searching for trendy, modern furniture. Due to Porter’s generic strategies, IKEA follows an integrated cost leadership and differentiation strategy. * Product’s ease of assembly: IKEA products come with clear instructions making it easy for anyone to assemble the product without the help of a professional.

* Location and design of store (the IKEA store experience): IKEA locations are successful because of the Huff Gravity Model – due to the large size of IKEA, people are willing to go the distant locations where IKEAs are located. IKEA’s store design is very unique. The layout is designed in such a way that makes customers go through the entire store to get to their final purchase. A lot of customers go to IKEA for its unusual experience. * Global positioning: IKEA is available throughout the world and they cater their products to each country they go into. For example, they redesign the size of the beds for the different countries.

American consumers need larger sized bedding differentiating from the European consumers who had smaller, longer beds. * Reputation for products and company: IKEA customers enjoy the modern look of IKEA products because the target market consists of creative individuals searching for trendy products. IKEA’s brand is ranked globally at number 28 and ranked number 1 for sustainable image by Ranking the Brands Overview (Brand Ranking.) * Large catalogue reach: IKEA’s yearly catalogue reaches several countries and easily advertises IKEA products to those customers. Their catalogue is distributed in 36 countries, in 27 languages and in 52 different versions.

Weaknesses

* Product quality: IKEA has been known for having poor quality products. But the need for low cost products means there has to be a compromise between quality and price. * Poor customer service: Because of IKEA’s do it yourself model and very straight forward instructions eliminates the need for a help desk and intensive customer service. Customer service is important to ensure complete shopping experience and ensure repeat business. * Massive store growth- IKEA is experiencing problems in a couple of their home markets. One example is the UK is expanding the number of IKEA store locations but the number of shoppers is not increasing.

This means that there is a constant number of visitors divided by a larger number of retail outlets producing fewer shoppers per store. In the past consumers would travel large distances to visit stores and each store a had a large number of visitors, now the amount of consumers purchasing IKEA products has not increased in numbers but they are able to visit a more local store. These new store locations reduce the footfall per store and sales density (SWOT Analysis IKEA.)

Opportunities

* Financial condition: Because of the current financial condition, consumers are trading down from expensive stores to the low priced products offered at IKEA. * IKEA website: IKEA has an opportunity to grow through expanding their online shopping. IKEA website only has a few items you can purchase and IKEA will ship it to your house or you can pick it up at an IKEA location near you. IKEA could expand their online product offerings and services to increase product sales.

* Smaller stores: IKEA store locations are distant and large and they can take advantage of opening smaller stores in more dense locations where people can buy small home products or buy their Swedish food. IKEA must only open these new store locations in places where the number of customers is increasing, to avoid a reduction in footfall per store like the UK market.

* More stores in the U.S.: IKEA currently has only 38 stores across the country and they could possibly expand this market due to the high percentage of sales the United States gives IKEA. * Capitalize their Green efforts: IKEA can capitalize on their GREEN efforts. Customers’ desire to have less of an impact on the environment and due to the increased demand for cheaper and greener products, IKEA can take advantage of this and develop these products that the market wants. * Bonus/rewards services: IKEA can add bonus/rewards services to increase customer satisfaction as well as increase customer loyalty.

Threats

* Product quality: IKEA products are poorly made and people are willing to spend the extra buck to buy a product of better quality that will last for years. * Competitors: More competitors are entering the low price household and furnishing markets increasing the competition IKEA will have to face. * When the economy strengthens- The recession slows down consumer spending and disposable income reduces. However when the economy strengthens, consumers will be willing to purchase furniture products at a higher price in order to get better quality. IKEA needs to find a way to stay profitable when the economy takes this turn.

Promotion Strategy

IKEA promotes their retail through traditional advertising such as TV commercials, a yearly print catalogue as well as utilizing new ways of advertising such as social media and guerrilla marketing. In the past IKEA’s television commercials were characterized as funny and crazy often stating the slogan “they are crazy these Swedes”. This statement referred to the “crazy” low prices IKEA products were offered for. They would also often have a Swedish guy driving a yellow buggy loaded with IKEA boxes. Presently, IKEA commercials are more simple and modern. The new commercials focus on families in a household setting using IKEA products. These commercials continue with the humorous appeal, but only focus on a few IKEA items, to ensure the customers are more focused on the substance of the commercial. IKEA utilizes social media by holding contests on websites such as Facebook.

When they were opening their new IKEA Malmo store in 2009, they created a Facebook campaign where a showroom picture was uploaded to their Facebook profile and the first people to tag an item won that item (How To? From IKEA). Through the speed of social media, IKEA was able to get their customers to personally promote IKEA. IKEA also has held several contests throughout the years. They have contests such as “What’s your story?”, “The Life Improvement Project”, “Dream Kitchen Giveaway” and several more.

They really enjoy promoting their products by getting their customers involved. IKEA uses customer interaction in many of their promotion strategies. IKEA also has a yearly catalogue that can be sent to your homes or picked up at a local IKEA location. IKEA’s yearly catalogue takes up a large part of their marketing budget because the catalogue is used as a main channel for communication around the world. IKEA’s catalogue is distributed in 36 countries, in 27 languages and in 52 different versions. The catalogues distributed in different countries have the same Scandinavian names but differ in their product offerings which are highlighted on separate pages (Gustafson).

IKEA caters to the different countries where they distribute their catalogues by trying to incorporate the different cultures into their catalogue. On top of sending paper catalogues around town, IKEA likes to go out of their way to show IKEA products in their normal settings but in extraordinary locations utilizing the concept of “guerrilla marketing”. This usually occurs when IKEA is opening new stores. Examples of IKEA’s guerilla marketing include redecorating bus stations with IKEA furniture, redoing a subway bus with IKEA furniture and mounting IKEA furniture off the side of buildings. They make it as extreme as possible because they want to draw in people’s attention and make them stop and have a look.

To promote their store in Tampa, IKEA produced their take on a ‘message in a bottle’ by placing an IKEA playroom inside a giant plastic bottle. In Japan, IKEA transformed a gingko tree-lined boulevard in Tokyo’s shopping district of Aoyama into an open-air museum. They had fifteen box-like structures the size of typical Japanese rooms which were fitted out IKEA furnishings (Capell). IKEA alters their advertising to the match the different cultures and environment for each country, but continues to enforce their unusual extreme promotions to reach a large amount of people and hold their attention. .

Works Cited

Capell, Kerry. "Ikea's New Plan for Japan." BusinessWeek. N.p., 25 Apr. 2006. Web. <http://www.businessweek.com/stories/2006-04-25/ikeas-new-plan-for-japan>.

"Facts & Figures." IKEA. N.p.. Web. 21 Feb 2013. <http://www.ikea.com/ms/en_US/about_ikea/facts_and_figures/facts_figures.html>.

Gustafson, Martin, and Eric Jonsson. "Influence of Culture and National Image on Marketing: A Study of IKEA’s Promotion in Sweden and France." (2008): n. pag. Web. <http://umu.diva-portal.org/smash/record.jsf?pid=diva2:158758>.

"History ." IKEA offical webpage. N.p.. Web. 21 Feb 2013. <http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/history/index.html>.

"How To? From IKEA." IGK Marketing RSS. N.p., n.d. Web. 25 Feb. 2013. <http://igkmarketing.com/ikea/>.

IKEA. Advertisement. IKEA. N.p., n.d. Web.
<http://www.ikea.com/us/en/catalog/categories/departments/cooking/16260/>.

"IKEA." Countries with IKEA Stores. N.p.. Web. 21 Feb 2013. <http://en.wikipedia.org/wiki/List_of_countries_with_IKEA_stores>. "Marketing Teacher." SWOT Analysis IKEA . Marketing Teacher Ltd 2000. Web. 25 Feb 2013. <http://www.marketingteacher.com/swot/ikea-swot.html>.

Rowe, C.. "Scribd." IKEA Marketing Plan. N.p.. Web. 21 Feb 2013. <http://www.scribd.com/doc/65014303/IKEAMarketingPlan>.

ADD BRAND RANKING WORKS CITED