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 “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 Vision Statement about building a “partnership” with its customers reaches many different needs and dreams within satiable budgets.

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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 personal touch by putting in some labor to build up their piece of furniture into a complete product.

IKEA’s slogan “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 “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 target 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 “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 “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 global 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 Analysis

StrengthsOnly organization of their kindScandinavian heritageLow cost with clever designStore layout and catalogues Shopping cultureConvenient for transportationClear instruction and easy-to-assemble| WeaknessesShort lifepLimited 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|

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