Ikea Case Analysis

Case Study Analysis – IKEA IKEA possesses numerous strengths that will help the company gain high value proposition around the globe in general and in the United States in particular. IKEA has been well known for its distinctive self-service store, unassembled furniture with flat packages, and featured amenities as playrooms for children and Swedish cafes. Its success in the United States has visibly shown through the double revenues from 1997 to 2001 ($600 million to $1. 7 billion) (IKEA Invades America case study). By 2002, the United States was IKEA’s third-largest market, after Germany and United Kingdom, (exhibit 3 – IKEA Invades America case study) with 14 stores established, second largest number of stores worldwide (exhibit 4 – IKEA Invades America case study). IKEA displays itself as a unique IKEA â€Å"culture†, in which the minute the customers set their feet in the store, they emerge in the whole new world of furniture shopping with the latest, trendiest interior designs.Everybody could be a interior designer of their own homes for the time they are there, being able to choose from a wide selection of items available for each decorative setting, mix & match themes and color, etc. The store layout is designed in a predetermined path that leads shoppers toward different layouts of the model rooms. IKEA uses price tags with detailed information concerning the product, how to pick them up later at the storage (aisle #, bin #), and color-coordinated cards for design tips throughout the store for customers’ convenience.If customers need to carry on the shopping without their children, they could drop their kids at the childcare facility on the way into the store featuring large climbing structures. If they are hungry, they could stop by the IKEA restaurant with delicious items like smoke salmon or Swedish meatballs. In short, IKEA designs their store to meet every customer’s personal needs. IKEA’s Vi sion Statement about building a â€Å"partnership† with its customers reaches many different needs and dreams within satiable budgets.On a two-way partnership, IKEA gains its uniqueness by having designers create furniture that satisfies the aesthetic, cost, and quality criteria on one hand, and searching globally for suppliers with the most suitable raw materials to maintain the lowest price possible for their customers on the other hand. IKEA’s customers, therefore, are given more choices in their selection of furniture that best suits their interest and vision of how they want to furnish their homes/offices.The innovative flat packaging is one of the key determinant factors of how IKEA attains their low- cost goals for customers, for storage space and cost of inventory are significantly reduced. IKEA also creates a unique experience for their customers in such that instead of having a piece of furniture readily available for use, customers can now gain a more person al touch by putting in some labor to build up their piece of furniture into a complete product.IKEA’s slogan â€Å"Low price with meaning† in the Vision Statement emphasizes the company’s commitment to offer cleverly designed products in low cost and decent quality in order to help â€Å"people improve their homes and create better everyday lives†. Although flat packaging and the experience of self-built furniture are perceived as the distinctive components of IKEA, it will be helpful to expand the services to a wider range of customers who love the products yet refuse to go through the hassle of setting them up.One suggestion is to have an active delivery and assembling team that can deliver the finished product to customers who are willing to pay the extra costs. At IKEA, a product-strategy council consisted of senior managers go through the process of establishing priorities based on consumer trends and creating the matrix to set the product’s t arget retail prices. The matrix includes three basic price ranges and four basic styles, according to Figure B in the case study.Although the matrix is very successful at helping the product managers identify market opportunities and gaps in the company’s product lineup, the matrix is limited in terms of few product styles and price ranges. Hence, the choices in the store would only appeal to a limited group of customers who share the same tastes for interior designs as IKEA’s designers. Yet, I do not think the company should change its product lineup because by doing so, the company would increase its inventory and engineering cost tremendously that would consequently lead to higher products’ prices.The President of the IKEA Group recognizes that the â€Å"Scandinavian design and style is a niche and it is not to everyone’s taste†. Therefore, although the company may seek to appeal to a broader market, it does not want to be just another supplier of traditional furniture. I support this point of view and do believe that IKEA should continue to keep applying its matrix approach in its product lineup. One of the other challenges IKEA is facing in the American market is the guarantee of supplying lifetime quality products.The American consumers who specifically emphasize their demand on the longevity of the furniture would lean toward the specialty retailers that guarantee the lifetime of their purchases instead of IKEA’s â€Å"commitment-free approach to furniture†. As a result, in order to gain more market share within the American population, the company ought to modify the matrix. IKEA can do so by modifying its pricing bracket to include more high quality products, which allow a specific targeted group of customers more freedom in the process of choosing the most satisfying piece of furniture that meets all of their needs.With the high volume of purchasing products from Europe and Asia, specifically China and Poland (exhibit 5 and 6 – IKEA Invades America case study), the company can certainly increase the quality of their high-end products without much increases in the already low global purchasing prices. Giving the high marketability of furniture retailing ($67 billion in sales in 2002 – Case study IKEA Invades America) and the wide spread in low-end and high-end retailers in the United States, IKEA has very good market opportunities in increasing its growth rate.IKEA provides customers a one-of-a-kind furniture shopping experience that neither the low-end or high-end retailers can provide. Plus, IKEA supplies customers with more attractive products compared to low-end retailers and more options for price-sensitive customers compared to high-end retailers. In addition, with the current economic situation, people will steer away from expensive specialty stores and turn to the economical market.With the company’s low cost product strategy, based largely on the glob al suppliers and internal competitive engineering designs, IKEA could certainly target its marketing toward price-sensitive consumers in the recession to make the company more attractive. One suggestion would be have more IKEA location in college town and statistically ranked pool cities in the nation because low-income population would definitely find IKEA products more appealing than other unattractive low-end retailers. SWOT AnalysisStrengthsOnly organization of their kindScandinavian heritageLow cost with clever designStore layout and catalogues Shopping cultureConvenient for transportationClear instruction and easy-to-assemble| WeaknessesShort lifespanLimited product stylesLimited location for a no-delivery service| OpportunitiesMarketability of furniture retailingPrice-sensitive consumers in recessionWide dichotomy of current retailers| ThreatsDependant on global suppliersEmergence of low end retailersHigh quality specialty retailers| IKEA Case Analysis IKEA has a distinct market segment in the home furnishing arena. It has created a niche market with innovative designs, quality, and low price structure. IKEA has employed the cost leadership and product differentiation strategies through low price structure and innovative designs, respectively. Additionally, the uniqueness of the disposable furniture concept allowed IKEA to capitalize on the first mover advantage (Harrison & Enz, 2005). Behavioral Customer Segmentation for IKEA The behavioral consumer segmentation data provided by Bartlett and Nanda (1996) indicates the demographic profile of IKEA customers and buyer behavior.IKEA’s strategy post World War II, was to target young couples and new families in the low to middle income range by providing inexpensive furniture with durable construction and contemporary lines. The demographic profile presented by Bartlett and Nanda (1996) suggests that the archetypal IKEA buyer is young; middle-class; married; either has no childre n or one child; and lives in a rental. This new target market’s primary determinants to purchase were based predominantly on price (44%); followed by large assortment (16%); and design (14%). Quality; design; and price were the three most important criteria for store choice.Similarly, price; distance; and design were the significant factors leading to consumer attitude toward IKEA. This target market based their decision purchases on information gathered from the IKEA catalog; visits to other stores; and prior visits to IKEA. Contrary to the traditional IKEA consumers’ determinants to purchase and buyer behavior, sustainability is now playing a larger role in consumer spending habits (Datamonitor, 2010). In a recent Customer Satisfaction Index (CSI) analysis IKEA was ranked ninth overall for customer satisfaction, which is largely due to IKEA’s commitment to sustainable initiatives.Of IKEA’s products, 71% are recyclable, made from recycled products, or bo th. IKEA also recycles 84% of the waste the stores generate (Datamonitor, 2010). Comparison of Traditional and U. S. Customers Before entering the U. S. market in 1985, IKEA did not conduct thorough market research on U. S. consumers or U. S. buyer behavior. IKEA assumed that U. S. customers would embrace its way of doing business and the products offered. That was not the case, as IKEA’s furniture; metric measurements; and kitchenwares did not meet U. S. customer’s expectations.The furniture was uncomfortable, as it was designed for the European preference of being hard and rigid. The unit of measure was in centimeters, whereas the U. S. has never adopted the metric system. The U. S. serving sizes are generally larger than the European portions, making the kitchenwares too small for U. S. servings. Likewise, the cabinetry was too small for U. S. appliances. The traditional IKEA customer subscribed to the value proposition that furniture was a soft good versus a hard g ood. This value proposition was in contradiction with the mindset of the U. S. onsumer, making it necessary for IKEA to rethink its marketing strategy. IKEA launched an advertising campaign targeting U. S. customers at the same time it entered the U. S. market. Its tagline for U. S. consumers was, â€Å"†¦to take a more commitment-free approach to furniture† (Moon, 1996, p. 8). IKEA’s intention was to convey to the U. S. population that it was not necessary to hang on to furniture for decades. The simplicity and low price point IKEA offers affords consumers the opportunity to replace furniture and opt for a new look at a significantly lower price point than at conventional furniture, appliance, or kitchenware stores.IKEA was essentially making fun of U. S. consumers and the desire to keep furniture for decades. Traditional consumers understood that the value proposition offered by IKEA meant no in-store sales assistance; limited variety; unassembled furniture; and no delivery. This did not meet any of the expectations of the U. S. consumer. Hence, the revenues at IKEA in the U. S. were flat, taking almost ten years before increasing. IKEA has since focused on organic slow growth and low risk in the U. S. as it was a new market (Module 2, Lecture 1, n. d. ). This allowed IKEA time to do more market research on U. S. ustomers and expand manufacturing facilities. IKEA has done a great job in leading customers to pull its products into U. S. homes (Module 2, Lecture 2, n. d. ). IKEA has learned to meet U. S. customer needs by studying consumer preferences and behaviors based on interactions (Module 2, Lecture 1, n. d. ). This information provided demographic and consumer behavior data by store location and region of the United States, allowing IKEA to meet or exceed the loyal customer expectations. Given that, IKEA has built a U. S. cult following and state of mind that is centered on low prices, zany promotions, and contemporary designs (Capell , 2005).U. S. Strategic Growth Opportunities for IKEA IKEA was making a huge push into four major geographic markets in the late 1980’s. They were Eastern Europe, Italy, the United Kingdom, and the United States. Any one of these large geographic locations would need exponential resources and one would have to wonder if IKEA was opening itself up to incredible risk. This hard line expansion poses a major strategic challenge. The major strategic concern was the changing target market segment. IKEA rode the post war baby boom wave to become successful.The target market segment of low-income married couples had shrunk and the original IKEA customers, the baby boomers, have become older and more comfortable. IKEA is continuously striving to differentiate its price, products, and services to keep them in line with a first mover competitive advantage and ahead of the market trends to the point that they may be setting the standards for furniture and related product expectations (Ha rrison & Enz, 2005). However, the United States’ target market segment proved to be more difficult; as the U. S. consumers were used to having furniture delivered, and preassembled.Additionally, the U. S. consumers and IKEA’s other target markets all preferred traditional rather than modern furniture, with the exception of consumers in Denmark and Holland who buy modern design furniture. At IKEA, the furniture product mix is comprised of 70% modern with the remainder being traditional (Lee, 2005). For IKEA to be successful in the U. S. market it would need to tweak its product lines and strategic plans in an effort to achieve growth. In order for IKEA to achieve strategic growth in the U. S. it will need to get the buy-in of senior management to change its product line-up.The lack of senior management buy-in has been proven in many studies to be a leading factor in not attaining growth (McGrath & MacMillan, 2009). IKEA will need to hire a consultant to perform a SWOT a nalysis to determine the internal strengths and weaknesses as well as the external opportunities and threats. In addition, utilizing a TOWS matrix derived from the SWOT analysis would prove beneficial (David, 2009). The TOWS Matrix is designed to assist managers with matching the attributes of IKEA with the various opportunities and threats that exist in the environment.It also allows for the development of corporate strategies than can be implemented, thus maximizing marketplace positioning. The four types of strategies that can be formed based on the TOWS Matrix are: SO, which use the firms internal strengths to maximize opportunities; WO, which looks at improving weaknesses by taking advantage of external opportunities; ST, utilizes the company’s strengths to avoid threats; and WT, which are strategies designed to assist in the development of defense tactics to help reduce internal weaknesses and avoid external threats (David, 2009).The crucial information obtained from th e SWOT and TOWS Matrix will prove to be invaluable to IKEA if it wishes to grow in the United States as well as globally. The snap shot of information will help tell IKEA what it must become to U. S. and global consumers in order to grow strategically. Failure to capture and understand this information could keep IKEA from growing in a large geographic market.