Customer and Ikea

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CASE 1 : IKEA : FURNISHING THE WORLD

SUMMARY

IKEA is very well known as the world’s largest home furnishing retail chain which was founded in Sweden back in 1943. Originally started as a mail order company, now IKEA has expanded its operation to more than 32 countries having more than 175 outlets. IKEA operates large warehouse showrooms in 16 countries and operates smaller stores in another 9 countries. Germany is IKEA’s largest market followed by the U.S.

IKEA’s mission is to “offer a wide variety of home furnishing of good designs and function at prices so low that the majority of people can afford to buy them. IKEA’s target market is the young, highly educated, liberal in their cultural values, white collar workers and not especially concerned with status symbol. IKEA products have a universally accepted assortment around the world.

IKEA’s strategy is based on cost leadership where most of their manufacturing activities are outsourced to low-labour countries and they follow a high volume production of standardized items which provide an economy of scale. But IKEA concentrates in the design of their product where the designers work to build savings-generating features in the production and product itself.

IKEA encourages its customers to be “prosumers” where most of its product will be self-delivered and self-assembled by the customers But they do provide the delivery and assembly services at an extra cost which IKEA usually hire the local companies to provide those services. IKEA tries to provide a wholesome experience at its stores with the availability of additional services such as babysitting areas and cafeterias. IKEA’s management believe that the ‘designer-to-user’ relationship provides them with an adaptive fit.

IKEA offers prices that are 30 to 50 percent lower than fully assembled competing products. This is a result of large quantity purchasing, lower-cost logistics, store location in suburban areas and the do it yourself approach to marketing. IKEA’s promotion is mainly centred on the catalogue and the company’s advertising goal is to generate word-of-mouth publicity. IKEA’s strategy positioning is unique where they have engaged in long-term planning and have achieved economy of scale, which some companies even with merging forces have failed to achieve.

IKEA first step foot in the U.S. in 1985 after carefully assessing the market. With the overwhelming success that followed, the company invested in a warehousing facility near Philadelphia. But it was not all some sailing for IKEA where they had some issues with the preference of the U.S. customers conflicting to the present European centric furniture. With the issue in mind, IKEA has made some adaptation and have redesigned almost a fifth of its product range to suite the taste of the Americans. With this done, IKEA’s approach is still to market the streamlined and contemporary Scandinavian style to North America by carrying a universally accepted product range but with a mind of products lines and features that appeal to local preferences.

DISCUSSION

1) What has allowed IKEA to be successful with a relatively standardised product and product line in a business with strong cultural influence? Did adaptations to this strategy in the North American market constitute a defeat to their approach?

In order for us to answer this question, we first have to understand the “IKEA Concept”. It offers a full range of furniture with wide variety, good design, good value, for "young people of all ages". It follows a strategy of cost leadership through high volume production and standardised items where almost all of the manufacturing is outsourced to low-labour cost countries and IKEA concentrates on design and distribution activities.

So with that being said I would like to say that the key reason for IKEA’s success is that they are customer focused as they have always been keeping close contacts with the customers by not using...
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