Management: Decision Making and Case Study

IKEA is a world famous furnishing company known for selling Scandinavian-style furniture and other home-based goods. The company has over 230 stores, with operations carried out in over 42 countries with well over 70 000 employees. The stores themselves can occupy 410 million shoppers per year. It is a Swedish based company built on the idea of offering a wide range of well-designed, functional home furnishing products such low prices, that a majority of people will be able to afford them. The IKEA group is currently solely owned by the INGKA Foundation through a holding company, unlisted on any stock exchange.

IKEA’s main competitive advantage derives from low costs, which in part are achieved due to standardized products (JUREVICIUS, Ovidijus, 2013). IKEA has been setting up many new stores in different countries all over the world. While most purchases are still done in the European market (59%), the Asian market has expanded quickly (currently 35%) (IKEA, 2014). This expanded market, caused by growing wealth in Asia, created the option to lower costs even more due to economies of scale. The ability to keep selling standardized products however is decreasing quickly with this expansion of the company. IKEA has experienced first-hand that cultures differ too much to keep the old system of ‘one-size-fits-all’

As explained in the “bargaining power of consumers”, it is hard to substitute the products that are offered by IKEA. This is further intensified by the fact that IKEA has formed a brand perception that makes it stand out amongst its

IKEA-products are extremely popular, there are very few people that never heard about the yellow-blue brand. Moreover, it will (even) be hard to find people that have no products from IKEA in their houses. This makes us wonder: “Why is IKEA so successful?” We will analyze IKEA’s marketing department to answer this question. We think IKEA’s marketing strategies are very unique and therefore an important factor causing IKEA’s success. Our main belief was that IKEA is a company with a great proficiency in pricing. However, after some readings about the company we discovered all the 4p’s of the marketing mix are very well developed and still very innovative. IKEA’s marketing strategies are based on its democratic design statement; “Democratic design brings good design to the many

IKEA pursues sustainability in a big way which is why competitors could learn from their company. IKEA has a wide variety of products under its label. Today, 71% of all IKEA products are recyclable, made from recycled materials, and or both (A.Jefferies, 2009). In addition to this, Ikea recycles 84% of waste generated in its stores. IKEAs sustainability focuses on four components: products and materials, suppliers, climate change, and community involvement. IKEA bases

In order to assess and give recommendations to IKEA, it is important to fully understand the operations and the values that drive the company, ant its philosophy. Since was founded in 1954 by Ingvar Kamprad the Swedish company’s vision of “creating a better life for the many people” inspired them to develop high quality and lower cost products in the furniture business, and almost a decade later, after they consolidate in the Swedish market, they made the decision to expand abroad opening stores in Northway and Denmark respectively (Exhibit 1). With a relatively rapid expansion the company needed to transmit their unique philosophy and created the testament of a furniture Dealer and trained ambassadors to help spread and secure the firm’s values (Exhibit 3). Furthermore, IKEA’s adopted another principle, the company preferred to focus on establish close ties with business partners and supporting their suppliers in a long-term relationship rather than just

In 1951, to reduce product returns, he opened a display store in nearby Älmhult village to allow customers to inspect products before buying. It was an immediate success, with customers traveling seven hours from the capital Stockholm by train to visit. Based on the store’s success, IKEA stopped accepting mail orders. Later Kamprad reflected, “The basis of the modern IKEA concept was created [at this time] and in principle it still applies. First and foremost, we use a catalog to tempt people to visit an exhibition, which today is our store. . . . Then, catalog in hand, customers can see simple interiors for themselves, touch the furniture they want to buy and then write out an order.”2 As Kamprad developed and refined his furniture retailing business model he became increasingly frustrated with the way a tightly knit cartel of furniture manufacturers controlled the Swedish industry to keep prices high. He began to view the situation not just as a business opportunity but also as an unacceptable social problem that he wanted to correct. Foreshadowing a vision for IKEA that would later be articulated as “creating a better life for the many people,” he wrote: “A disproportionately large part of all resources is used to satisfy a small part of the population. . . . IKEA’s aim is to change this situation. We shall offer a wide range of home furnishing items of good design and function at prices so low that the majority of

Most case studies follow a prescribed format and structure and can vary depending upon the course in which it is used, such as those discussed next. Check with your instructor regarding his or her preference as to the sections of the case study analysis report. Case study analyses are written as

IKEA is rumored to be a very standardized retailer, i.e., a certain set of marketing strategies is used that are the same around the world. This indeed sets IKEA, operating on markets in Europe, US as well as Asia and Australia, apart among international retailers. Often the theoretical conclusions in international

IKEA in business to generate profit is expanding rapidly in both developing and emerging markets. In an attempt to generate more and more profit it markets, inexpensive products that may originate from sustainable resources but at the same time it encourages excessive consumption, it is often located in remote areas with very large footprint. Products with limited life cycle need replacement more frequently and consumers more often than not end up purchasing far more than they needed when they come to IKEA. It is designed to be consumer friendly, stylish rooms set up for one to visualize placement of furniture at home and if needed available staff to help you in planning and placement of your furniture. Most recently in February 2013, case of embarrassment came from its food service where it was found the “Swedish Meatballs” it served contained horsemeat.

As IKEA stores are located away from the urban areas, many customers may only patronize the stores during weekends. Hence, the store may be relatively quiet during the weekdays and highly packed with shoppers over the weekends. In the case of IKEA, although it adopts the self-service concept in their stores, it actually still maintains a high level of contact with their customers. To ease and facilitate consumer’s shopping, IKEA provides catalogues, measuring tapes, shopping list and pencils. In addition, IKEA stores are designed to have a ‘family shopping experience’ with customer services and facilities such as a restaurant, day care facilities and a Swedish shop. Parents can leave their kids in a supervised play area, or keep their children with them in pushchairs provided (Slack, Chambers and Johnston, 2007). The key point about IKEA is that it is different to the rest of its industry. In typical furniture stores similar products are grouped together and the final delivery of products to customers may take several weeks.

In this business report on the global retail business IKEA, it will cover the nature of business, influences on operations, operation processes, operation strategies and how the business can sustain competitive advantage. IKEA was founded in 1943 by Ingvar Kamprad in Älmhult, Sweden. The business established after and with the money his father awarded him for succeeding in his studies, Kamprad sustained a cash inflow by selling pens, wallets, watches, picture frames, table runners, jewellery and nylon stockings at reduced prices to customers. Although, later on in 1958, IKEA was introduced as a leader of Swedish Furniture Company as they started to produce local furniture by the Swedish local manufacturers, which gained positive attention from their customers. Eventually, developing flat packs of furniture for storage and self assembly, making their signature style of IKEA and turning the small business into a global sensation.

IKEA is the largest furniture chain in the world, and in 2011 the Swedish company operated over 270 stores in 25 countries. In 2011 IKEA sales soared to over $35 billion, or over 20% of the global furniture market. Most of its stuffs believed IKEA will massive growth throughout the world in the coming decade because IKEA could provide what customer wanted: good design, and good made contemporary furniture with an affordable price. In one word, IKEA’s global approach focuses on simplicity, attention to detail, cost consciousness, and responsiveness in every aspect of its operations and behavior. (Jones, 2013)

At the outset, it may be useful to characterise IKEA in terms of the characteristics of demand (also known as the four Vs, see Slack et al. p 20). First, IKEA is clearly a high volume operation – as indeed most international retailers are – which lends to systematising operations but which implies capital intensive processes and therefore cost considerations will be crucial. Second, IKEA offers a large number of products (up to 14000 depending on the country/store) so there is high variety in the

IKEA’s strategy before the mishaps in America could be characterized as going against the norm charting their own path to success using low priced manufactures to secure lower selling prices aimed to target those who were of older age and of middle class standing. Their new strategy was to target those of a younger demographic, young married couples, college students, and 20-30 something singles. By reemphasizing design, promoting through hip quirky advertisements, and encouraging consumers to do away with their old furniture, IKEA revenues doubled in a four-year period. IKEA today has adapted somewhat of a local customization strategy where their store layouts will resemble that of many local household layouts as proven by their success in China where they failed to expand beforehand. They also keep their prices extremely low in some areas as China by sourcing a large percentage of products in the area of operation.