Case Study: Ikea Invades America

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Case Study: IKEA Invades America

IKEA has an innovative strategy that has made IKEA Group a top furniture retailer around the globe. What distinguishes IKEA from other furniture retailers is that the stores are entirely self-service and all furniture is purchased unassembled, and furthermore, IKEA strives for a combination of quality and cost-efficiency in the production and sales of items. Additionally, there are features in every store to mitigate the furniture shopping process, including child playrooms and Swedish Cafés. IKEA was founded by 17-year-old Ingvar Kamprad in 1943, the flagship store opened in Stockholm in 1965, and today (as of 2002) there are 154 stores in 22 countries. The company’s success and customer approval rates are exceptional; though there are weaknesses and room for growth in IKEA’s strategy, particularly in the highly competitive and fragmented U.S. market. Strategy, Strengths and Weaknesses

Two aspects of IKEA identify the organizations strengths, one can be summed up in the company’s slogan, “Low price with meaning”, and the second is a superior shopping experience. Ikea’s product strategy is highly effective, and a wide range of furniture stores utilize similar methods. These include deigning products based on consumer trends. In the preparation of a new product, IKEA matches low cost with quality by prioritizing different types of materials for different functions. In the case, the example provided is that stronger and better woods are used on exposed surfaces, such as the top of a bureau, and less exposed, less vulnerable aspects such as inside draws will use lower-grade wood or particleboard. IKEA professionals search markets around the globe for competitive opportunities for materials and production processes in order to minimize costs while maximizing quality. Additionally, since all products are self-assembled by comsumers, they are shipped in flat-packaged boxes which reduced shipping costs to stores by eliminating the need for shipping air. Furthermore, the flat-packaging boxes conveniences consumers, allowing them to easily get their purchases home. Since all products are designed to be self-assembled, there are not a range of products that are very difficult to assemble; since all products are designed with the objective of simplifying assembly. IKEA goes beyond the low-cost high-quality strategy because they also provide range and options to appeal to people of different economic statuses. Product developers establish prices and products using a “matrix” that has four different styles, and three different price ranges. The general styles included Scandanavian (sleek wood), Modern (minimalist), Country (neo-traditional), and Young Swede (bare bones). The prices ranged: high, medium, and low. Furthermore, competitors would be surveyed for their prices on similar items, and IKEA would then use cost-efficiency when developing the items so they can fall 30-50% under competitor prices. The strategy is highly effective in many markets; however, in the U.S. market where the furniture industry is extremely uneven, this competitive product and price mapping technique becomes challenged. In the U.S. the challenge was primarily in matching low prices, when that was the prominent technique among a wide range of retailers in the market. Furniture items were obtained from stores such as Walmart and Office Max. Walmart was the leading seller of furniture items in the U.S., and it is the number one retailer in the world; yet Walmart, along with the other top 9 retailers, accounted for only 14.2% of the furniture market share. When even the leading retailer in the world does not have a potent force in the furniture industry; it poses a challenge for IKEA to gain prominence. Furthermore, among the competition of specialty furniture retailers, the sales strategy was significantly different from IKEA’s. For example, IKEA is complete self-serve...
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