What made Ikea such a success

The IKEA story began in 1943 on the east side of the Scandinavian Peninsula in Sweden, when Ingvar Kamprad founded a renowned furniture and furnishings industry, which has now become one of the world’s largest retailers of home furnishings. The name IKEA was formed from the first initials (I and K) of this innovative entrepreneur, plus the first letters (E and A) of the farm, Elmtaryd and the village, Agunnaryd where he grew up as a young man.

The IKEA concept started with a simple, innovative idea to offer home furnishing products priced lower than its competitors, by using cost-cutting solutions that did not affect the quality of its products. Today, through the excellent managerial and marketing strategies adopted by IKEA, it has become a very tangible worldwide industry, with more than 300 stores in more than 35 countries with more that 130,000 employees.

The IKEA vision explicitly states, “To create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”. www.ikea.com

To accomplish this vision to provide well-designed, practical or functional home furnishing products to its target market – the young, and low to middle class consumer, IKEA has implemented a combination of strategies in its operations. These include the 4 P’s of marketing – Product, Price, Pace (Distribution) and Promotion, the SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats) and the PEST Analysis (Political, Economic, Social and Technological).

IKEA’s Product:

IKEA offers a wide range of home furnishing products; it exceeds 1,200 items. This enormous range of products is mainly due to the fact that IKEA outsources its manufacturing. It takes advantage of the cheap manufacturing sources that are available globally. IKEA has developed a Strategic Centre Enterprise where it functions at the hub of an alliance network. This database contains thousands of cheap manufacturers who supply IKEA with the necessary manufacturing that is required for all their home furnishings. Consequently, if manufacturing can be done at a reduced cost to the industry, it will be reflected in the overall price of the completed products.

IKEA’s Price:

The main drive of IKEA is to offer reduced cost through the emphasis of its competitive pricing strategy. This is achieved through approaches such as, bulk-quantity purchasing, securing cheaper manufacturing suppliers, low-cost logistics especially demonstrated in its store locations and a ‘do-it’ yourself approach to the marketing and distribution aspects of the company.

IKEA’s Place (Distribution):

Globally, IKEA possess its own marketing and retailing network. All its locations are equipped with free parking spaces and it has developed an environment which is family-friendly oriented. These locations are outfitted with supervised activity rooms for children. This allows its customers to shop in an environment which offers comfort to the entire family.

IKEA’s Promotion:

Apart from the colourful, attractive features of the IKEA global retail outlets, their main source of promotion and advertising is through its well-designed catalogue. This catalogue is standardised globally and is strengthened by a customer magazine. All the furniture and home furnishings products are displayed in this catalogue.

(Strategic Management, Collin White)

SWOT Analysis

Strenghts:

The global success of IKEA can be directly linked to the fact that it has implemented a low-cost structure in its operations. Its products are priced low so that everyone can afford to purchase them. Through this strategy, IKEA maintains a sustainable business because it seeks to uphold its principle of ‘low cost’ products.

IKEA seeks to treat all its employees the same. The company’s anti bureaucracy style of leadership has instilled a strong corporate culture in its employees. This approach sanctions good work ethics and fosters productivity in any organization.

The IKEA do-it-yourself approach has generated a different and unique experience to furniture-shopping. It has created the environment where customers (the young, cost-conscious ones) do not have to be bothered by salespersons who work on commission. They have the opportunity to choose among the different options whatever they wish to use.

The added amenities that IKEA offers to its customers is highly ranked customer service. IKEA treats its customers as family and this too, has contributed to its global success in the furniture business.

Weaknesses:

On the other hand, the do-it-yourself approach can be considered a weakness for IKEA. Not all its customers will appreciate this method of approach. The higher income customers may prefer to have a salesperson’s assistance or even choose to go to the traditional furniture store.

IKEA’s business approach trades service for cost. This exchange strategy may not be appreciated by all its customers who may think that IKEA does not really care about what its customers purchase. And with all the geographical locations of IKEA, this lack of customer service may begin to taint the IKEA brand.

IKEA does not explore many options of the promotion of its products. Its main advertising medium is its catalogue. This can be considered a weakness in some countries, where its customer base may prefer another form of promotion, such as television or press.

Opportunities:

A major opportunity which IKEA can use as an advantage is the fact that it covers the urban geographical areas. Its young, educated and value-conscious customers are well suited to this strategy of the geographic and demographic trend.

(Marketing Strategy – google books)

PEST Analysis

Statistics

Data has shown that in the first 50 years of its existence, IKEA successfully established 200 retail outlets. Now, in the twenty-first century this figure has risen to 316, with its latest store opening in …….. in 20…

To date, IKEA’s turnover of sales has netted over 23.8 billion Euros. Figures have shown that between 1954 and 2004 sales turnover peaked to 13.6 billion Euros, and then the last 4 years (2006 to 2010) there has been a continuous increase, however between these years the percentage increase has gradually lessened.

An interesting part of these statistics show the IKEA store visits between 1954 to 2010. It is amazing to note that in its lifespan, a total of 699 million customers have visited its stores globally. Again, between 2006 and 2010 there was a continuous increase in customer store visits, however between these years the percentage increase has lessened. That is, even though the net total of customers visiting the stores increased, the annual percentage decreased.

(http://franchisor txtfacts.html).ikea.com)

2011 catalog cover

http://www.ikea.com/ms/en_GB/img/error/error279x279.jpg