A Case Study About Ikea

IKEA was established in 1943 and provided flat packed furniture, kitchen and bathroom fixtures and accessories. It became the largest company dealing in Scandinavian styled furniture. IKEA has stores in 26 different countries, the number of stores has reached an even 128. The catalogue of IKEA is published in 23 different languages. A world renowned seller of furniture, IKEA is known for its stylishly designed and economical furniture and accessories. IKEA also specializes in kitchens and bathrooms. IKEA has focused on creating value for its customers by providing fashionable designs at affordable prices. IKEA has improved the standard of living for many. IKEA is truly universal with store in many countries throughout the world. All of the stores are managed from the head office in Sweden. The strategy of IKEA focuses on quality, affordability and efficiency. Opportunities like globalization, demand, economy and social characteristics have been well utilized b IKEA resulting in its immense growth and expansion.

The strengths of IKEA are its well established brand name, the affordability of its products and the uniqueness of its design. IKEA has based its designs on Scandinavian style. The cost leadership is the strongest attribute of IKEA. The relationship between the suppliers and IKEA are long term and trusting which is another strength. The target of the IKEA is well identified and researched. The changes in the basic product design to suit the cultural sensitivities of different areas as also helped in promoting IKEA. Most of the products are designed to suit the tastes of universal customers but small adaptations can be made in a particular area. The support of IKEA for facilitating innovation has also played a vital role in its success.

IKEA has exploited various opportunities. The opportunities for IKEA include growth and penetration into new markets, attracting new customers by providing value added services and exploring the option of online stores in many areas.

The weakness of IKEA is low provision of customer service. The self-assembly and literally no consultation help during the shopping makes it an unpleasant experience for many customers who are not handy with measurements and requirements. This leaves the customer unsatisfied with the shopping experience.

IKEA Position

Markets are always competitive especially the furniture retail market. The increasing demands of the customers and the recent awareness of green products for the sake of environment have acted as huge pressurizing forces on the industry. Emerging furniture retailers and price affordability has increased the competition. IKEA has strived under this pressure and competition by offering quality products, increasing reach ability and availability, marketing and promotion and reasonable pricing. IKEA has built up its reputation in the market by offering various unique products under one roof, targeting particular class of the society, implementing an exceptional value chain and price control.

IKEA has extended itself to international markets by exploiting the opportunities provided by foreign investment laws. The main inspiration behind IKEA was providing economical furniture that was practical and tastefully designed.

Unlike its competitors, the main priority of IKEA was to provide affordable furniture. To achieve this quality of customer service had to be compromised. In fact IKEA does not even provide assembling of the products. This has considerably narrowed down the target market or IKEA. The market that IKEA caters to is essentially comprised of customers who prefer pricing over quality of service. This has resulted in a dependency on turnover rate of customers for generating profits. This combined with the increased competition in Europe which is the main business hub of IKEA has resulted in improving its value chain. IKEA has adopted the standard of developing and nurturing its relationship with the suppliers. The relationship is based solely on trust and confidence. IKEA works in close collaboration with its suppliers to create standardized work process to improve the quality, cost effectiveness and productivity. The effectiveness at the chain level is also improved by using innovating ideas to enhance the network of distribution.

Product

IKEA has maintained the style of Swedish furniture in its products. All of its products give the vibes of the bright and delicate Swedish life. The major target market of IKEA comprises of the middle class of the world. This market segments has the same buying inclinations and expectations. IKEA reinforced the notion that the expectations of the customers are the same universally. They did so by providing tastefully designed quality products at economical prices. The growth of IKEA is majorly attributed to the style and design of products it offers and the buying inclinations of the customers but not completely. This could be proved using the example of closure of IKEA in Japan or growth of IKEA in North America. American market was risky and challenging. The existing repute of the competitors and the loyalty of their customers posed a greater threat to IKEA. Therefore IKEA could not only rely on the uniqueness of it product and the buying inclinations. The choices and demands varied from region to region inside America. The concept “one suits all” which is the basis for the design of all the products of IKEA was unsuitable and ineffective under such circumstances. IKEA took this challenge by doing extensive research and incorporating minor changes in the basic design to suit the local tastes and needs. Products became flexible but the core idea of affordability and uniqueness was still kept intact. This same approach was adopted by IKEA while entering other markets, resulting in international acceptance of the store and its products.

IKEA understood the need of incorporating customary design touches to the basic product to gain acceptance in various regions. But these adaptations need to be balanced so that the original idea behind the products is not changed and the philosophy behind the conception of the products remains the same.

Promotion

The major strength of IKEA is its establishment as a brand. The name IKEA always reminds people of quality, affordability and uniqueness. These three factors have worked in favor of IKEA using unique marketing techniques and extensive promotion through campaigns. The establishment of IKEA as a “Brand” has reinforced its reputation and gained loyalty from its customers. The devoted customers are willing to come back to IKEA stores even after an of-putting experience. Marketing and promotions have played there role in this context. The IKEA’s ideology of marketing is centered on the cultural norms and traditions of the country it is aiming for. The advertisements, promotions and marketing help to create a bond between the customers and the company. Through these activities IKEA creates awareness among the community about its philosophy and its product.

IKEA has learned the importance of taking into context the culture of the target country while promoting and marketing itself in the target country. This was a friendly message is sent out to the consumers of IKEA and the customers feel connected to the company. IKEA carefully choose name of its product so that they does not clash with the culture of the country and are not considered offensive. IKEA has not changed its policy of self-assembling. This has encouraged self-service among many cultures.

Public relations have also played a vital role in creating the brand image of IKEA. IKEA has promoted environment preservation and showed its responsibility b taking appropriate actions like using word certified wood products and joining hands with World Wide Fund for Nature (WWF). IKEA has understood the importance of creating long term and trusting relationship with its suppliers. It is not unjustified to assume that IKEA faces opposition and rejection from some parts of a culture. But its focus on adapting to the local culture and customer needs has been the main reason for its success.

Price

For the sake of profitability IKEA had to identify its target market that was able to buy its products. The growth and expansion into newer markets deemed it imperative. It was crucial to identify customer who found the products attractive, worth buying and most importantly buyable without breaking their banks. The basic idea of affordability was victorious in developed countries. Due to the differences in exchange rate of money, differences in inflation, differences in tax rates on import and certain policy restrictions, the same acceptance and success could not be expected in every market. Also the cultural adaptations in the products could also result in price hikes. Also the concept of affordability and the price limit of affordability vary from developed to developing countries. To gain acceptance and increase its number of customers IKEA decreased the profit margins on each product unit. This resulted in increased number of customers resulting in an increased total profit.

The variation in price may not be acceptable to many customers. So IKEA used local suppliers to decrease such overhead costs of taxes and exchange rates. This balanced the cost of production but again this threatened to bring out intentional or unintentional changes in the basic concept and philosophy behind the product.

Placement

IKEA’s growth is mainly attributed to its basic design of product and affordability. The consistent design has also lowered the production costs. The main focus of IKEA is to provide economical and affordable products.

IKEA only designs the products and is responsible for its distribution. It does not manufacture. The costs are reduced because of almost zero shipping costs. The products are transported and assembled by the customers themselves. The products are delivered directly from the suppliers to the customers which is more cost effective then first transporting the products to IKEA and then from IKEA to the customer. This has also established a close relationship between IKEA and suppliers. IKEA has collaborated with it suppliers by providing technical help to increase productivity and improve quality. Efficiency has also been improved by using innovating distribution techniques. The close relationship with suppliers has enabled IKEA to monitor their performance. The minimized costs of productions by minimal shipping costs and outsourcing from developing countries have resulted in emergence of IKEA in new markets.

IKEA created a standard named IWAY to ascertain that IKEAs philosophy of maintaining environmental and social standards is implemented and understood within the organization and the others outside the company like suppliers. IKEA has maintained it quality and relationship with supplier even in developing countries and retained its customers even in a strong competitive market.

IKEA’s has emerged as a huge retailer of furniture and related products because of its strategy and branding approach. The increased demand patterns and changing laws and policies related to trade create new opportunities for IKEA but these opportunities hold the same attraction for its competitors. For survival and growth in new markets IKEA utilizes its brand power, product individuality and well known and quality relationship with its suppliers.

For now IKEA should consider the entering the E-trade as it will save the cost of setting up a store and cost of managing it.

IKEA – Value Chain Approach

IKEA understands the importance of creating and maintaining value by performing carious actions and activities in the company. IKEA understands using this value to its advantage in the competitive industry. The efficiency of supply chain, well-organized warehousing, using high quality parts of lower cost and self-service, all of these have resulted in affordable and economic products. The establishment of IKEA as an international retailer and gaining a competitive edge over the competitors was made possible by effective implementation of value chain. IKEA has used the strategy of product individuality, high quality, affordability and uniquely designed products. This along with the customer involvement in the distribution and assembling of the product has resulted in its success and expansion.

In a usual retailing business of furniture the value chain consists of designing the product, manufacturing its parts, assembling of the parts, transporting and stocking, retailing and delivery to the customers. The value chain of IKEA consists of designing, transporting and stocking the outsourced parts and selling them of to customers through retail stores. The customers assemble and deliver the furniture themselves. And the parts of products are created by the suppliers of IKEA. IKEA only designs the furniture and the parts are manufactured by its suppliers. This has resulted in eliminating the fixed costs of maintaining and running a manufacturing facility. The delivery and assembling costs are also eliminated by making the customer responsible for it. These steps have reduced the cost of production to quite an extent.

IKEA has successfully eliminated processes that do not add any sort of value to the product from is value chain. The transportation of the product from supplier to IKEA store does not add any value, so this link is eliminated and the product is directly transported from the supplier to the customer. IKEA facilitates the in store customers by providing papers, pencils and measuring tapes to enable them to shop on their own without any need for help. IKEA ensures that all the required information about the product is provided on the products. This eliminates the need for hiring extra staff for customer consultations. Customers are also facilitated by being able to order b phone. Apart from that all IKEA stores have coffee shops and restaurants to cater to needs of the customer.

Suppliers are an integral part of IKEA. The strategy of the IKEA requires the suppliers to be of better quality while maintaining the costs. The IWAY standard is used to evaluate the suppliers before contracting them. IKEA maintains close relationship with its suppliers and helps them to maintain quality by providing equipment and technical support. IKEA also guides its suppliers to buy good quality and inexpensive materials. IKEA considers it its responsibility to develop standardized manufacturing processes and procedures. IKEA has also contributes to boosting the economy of developing countries by sourcing products from them. Collaboration of IKEA with WWF and UNICEF helps in reinforcing the image of IKEA and shows its ethical values.

Different suppliers supply many different parts. This has increased the need for structured and well organized logistics in order to procure required parts, assemble them and deliver. Warehouses are maintained to achieve this. The order is processed and the information is sent to the closest warehouse and the headquarters in Sweden. The supply and demand is basically achieved through the warehouse, making them an integral part of the supply chain.

The robust relationship between the suppliers and the IKEA has facilitated in increasing the capability and satisfying the customer requirements. Suppliers procure resources for supplying cost effective and quality products to maintain the continuous supply while the customer demands keep mounting. Hence maintain the supply and demand cycle. IKEA has established itself as a trusted brand providing quality products. IKEA has exploited the opportunities to maximize profits and growth internationally. They have supported innovation and invested in it which in turn has helped improve them in every capacity.

Strategies of IKEA :

IKEA has adopted the strategy of analyzing the market trends before opting for expansion. The current economic downturn has deemed it unfavorable to further expand in newer markets. So IKEA is more focusing on marinating its brand image and improving internal processes so that the efficiency can be enhanced. The risks involved are far smaller than the risks involved in expansion.

IKEA has established its name and customer loyalty because of its quality and affordable products and its culturally sensitive promotions. Research done on the strategy of IKEA has shown that the strategy of providing quality, affordable and flexible products have helped IKEA in establishing itself as a trustable band. This strategy poses minimal risk and has helped IKEA in retaining customers. IKEA has invested in researching its target markets, so is in every way to survive in the competitive retail industry. IKEA does not need to introduce major product changes while entering new markets, the small adaptations to suit the local culture has worked well while preserving the original concept and philosophy of IKEA. The approaches to use economical raw materials and efficient processes along with well-designed promotional campaigns have so far worked for the growth and survival of IKEA.

The major threat to IKEA is its budding competitors who can copy the basic concepts of IKEA products (unique design, cost effective, one suits all) and strengthen the loyalty of their existing customers. IKEA needs to develop a well though strategy that can counter this threat.

Another way to improve value chain is to promote decentralization to some extent. The expansion has made the company vulnerable and problems come up which need to be solved at the middle level of management rather than at the top level of management to save time and cost and maintain the work flow. It will improve the process and does not delay order processing.

The provision of unassembled furniture has resulted in reducing the costs by making the shipping more cost effective. Also the customer involvement enhances the value chain. Customer ships and assembles the furniture himself. This reduces the cost by eliminating the shipping costs and cost of assembling the furniture which requires hiring of specialized staff.

The strategies employed by IKEA to develop its capabilities mainly focus on long term goals. IKEA has been able to maximize the profits by increasing the cash flows through increasing the number of customers and reducing the production and inventory costs. The strategy of IKEA is be a market leader in supplying low cost products, selling products that are unique and identify the target group in the marker.

The first strategy requires improving the efficiency of the processes and activities so that the costs of production can be minimized. IKEA can only be a market leader of low cost products if it supplies products that cost less than the products supplied by its competitors. The threat posed by the competitors is greatest of all threats. IKEA has to focus on dealing with it as IKEA keeps on taking risks by expanding into unknown markets.

The strategy of providing unique products is based on formalizing a customer base solely based on uniqueness of design of product provided by IKEA. The products that are unique from the usual range of products available in market are offered at higher price but this clash with the lows cost leadership strategy of IKEA. So IKEA provides products that are differentiated from its competitors at an affordable cost. Now the problem is that the customers might not realize that the product is unique for this purpose a god marketing strategy needs to be adopted to promote the product in the right way.

The third strategy is to identify target markets that will be provided with low cost and unique products.

The company has clearly stated in its mission statement that the main objective is to provide affordable but quality products. This shows that the strategies of the company are well aligned with its goals. This is very important step for success. The goals of the company need to be reflected in its strategies. The quality and affordability results in low cost leadership. IKEA involves its customers in the value chain. This incorporation supports the uniqueness and differentiation strategy. Also, it shows that the particular market targeted by IKEA is comprised of middle class people. For achieving leadership in costs it is necessary to produce a quality products, research the competitors, reduce cost of production and make cost a part of the culture of the company.

The cost leadership is an important strategy for IKEA as it is closely related to its mission statement. IKEA has achieved leadership in the cost by providing the customer with products of exceptional quality, the parts of these products are out sourced from the suppliers from around the world resulting in a competitive edge over others, reduced costs and retail outlets with easy reach.

Improved efficiency of the process has also enabled IKEA to be cost leaders. IKEA has established lower profits for higher sales. The aim of IKEA to provide quality of value and affordability has translated well to its customers. IKEA has proved the common view of the people that the cost leadership means compromise of quality and service to be totally wrong. In fact IKEA has changed this perception. IKEA has established that the quality is dependent on the input of raw materials and efficiency of processes involved in converting this input into final output. Minimizing cost does not necessarily decreases the quality but increase the effectively and efficiency of the processes involved.

IKEA has carefully developed its strategies to gain the competitive edge in the global industry of retail in furniture. The efficiency of the valu chain has been increased by collectively focusing on the customers and suppliers. The provision of quality and standard product through processes that are centralized has also added to the success. IKEA should focus on the demands of the market it chose.

IKEA has also provided an option of shopping online and by phone. This has increased the accessibility but customer can not actually touch or feel the product. The online shopping has been triggered by the current standings of e-commerce in the industry. But has it impacted the number of sales of IKEA can not be judged for sure. Customers can be lured into shopping online because of the strong brand name of IKEA. They will not doubt the quality of the product. Still, online shopping conflicts with the basic philosophy of IKEA that the customers should be able to know the feel of the products and touch the products before purchasing them in order to judge the quality.

IKEA realizes the importance of innovation in its distribution networks. The method used to deliver the product from the supplier to the customer needs to be low cost, direct and should not harm the environment. The flat packing of furniture has resulted in efficiency and space saving. Resultantly more goods can be transported at one time. The process of logistics needs to be revamped continuously in order to maintain the low costs. Also efficient delivery results in customer satisfaction. Customer satisfaction means fewer returns, thus reducing the shipping and storage cost of the returned item. Not to mention the cost of the actual product that will be salvaged at a lower price.

IKEA’s culture focuses on all the processes major or minor regardless of their importance. The focus is on the processes that lead to design that are later on produced by the suppliers which are then purchased by the customers. A rigorous and constant attempt to modify and improve the whole value chain is required to make the strategies of IKEA successful. The exceptional strategy of IKEA has resulted in its attainment of current position in the market.

Conclusion:

The value chain of IKEA comprises of primary activities and secondary activities. The Primary actives include marketing, production, logistics and support after sales. The secondary activities include the processes that are required to carry out the primary activities. The secondary activities can include procurement processes, supplier management etc.

IKEA has enhanced and changed its value chain from the usual value chain for the furniture retailing industry by involving customers and suppliers in the value chain. The basic requirement of providing qulaity and affordable products is based on procuring suppliers that are willing to provide parts that re good in quality but have reduced costs. The center of operations of IKEA at Sweden involves it self with its supplier to work in close relation so that the suppliers can be provided with the assistance to improve processes and rendered with equipment to satisfy the quality requirements of IKEA. This relationship with suppliers not only improves the quality but also the value chain.

There is a strong possibility that penetration of IKEA into current and new markets results in lowering the profits for a short period of time. This along with the cost of establishing a new retail store and minimal available investments can have a negative impact on IKEA. Also the laws and policies of the newer markets might not be favorable for IKEA.