Ikea Invades America Case

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Ikea Invades America

1. What factors account for the success of IKEA?
a.Low priced functional furniture, thanks to a strong cost efficiency policy. IKEA’s global sourcing presence and the volumes they trade as the worldwide leader in furniture retail, provide them with economies of scale. b.Scandinavian innovative and democratic designs.

c.Unique distribution concept, based on self-service, to make the customer save delivery time and money. All their furniture come unassembled in flat packaging, which reduces storage space, labor costs, shipping cost and transportation damages. Thus the company can offer price at least 30% to 50% lower than competition, to people who are willing to assemble their furniture by themselves. d.IKEA offers a pleasing shopping experience the way they set up their stores and arrange their catalogues, with different themes of bedrooms, kitchens, bathrooms etc. that appeal to customers. e.Amenities such as playrooms for children and a restaurant that serves Swedish delicacies increase the convenience and the quality of the shopping experience.

2. Discuss the product/service strategy and product range
The product/service strategy is a unique combination of functionality, affordability and form. This is mainly dependent on the Product/Price matrix which contains 4 basic styles and 3 price ranges. This looks at different competitor’s products and ensures that IKEA sells it at a price point of 30-50 % less than the market price. The manufacturers are selected after establishing a retail price for the product. IKEA closely maintains relationship with suppliers from developing countries and creates a sense of competition among them, ensures that there is some internal competition among the designers as well and chooses to best supplier/design depending on the price, functionality and material to be used. IKEA would closely determine what materials go in to product. For instance, they will make sure to use high quality material for the surfaces that are visible and which undergo stress and low quality material on surfaces, which are not visible and low stress, in order to save cost without looking cheap.

IKEA further uses the Product/Price matrix to identify gaps in their product line thereby finding the market opportunities. The company has 10,000 different products, which means basically all kinds of household items, in order to attract a wide-range of customers. Though, IKEA maintains a limited models range in every product. IKEA does not sell over-decorated products. It rather focuses on well-designed furniture at a low cost. At last, they give each model a Scandinavian name, to shed-light on their identity.

In a new market, IKEA tailors its product range and strategy according to the specific needs of the customers by performing market research. In America for instance, a market study enabled the company to understand its low sales performance (size, non-metric system, comfort…) and to improve its product strategy in the early 1990s. In addition to adapting its products to the local market, the company also launched various successful commercials to educate their customers on changing furniture more often.

3. Critically evaluate the value proposition and positioning strategy IKEA value proposition is its ability to offer low-priced, functional furniture with a distinctive design, on a self-service convenient retail store. This VP is consistently communicated and carried out. IKEA managed to understand what matter most to customer and to insist on these points of difference with competitors: low cost, no delivery delay, functional furniture and convenient store. Then, IKEA was good at communicating this value offered to the target customer. They have a “resonating focus value proposition” (Andersen, Narus & van Rossum, 2006). To deliver this value, the success of IKEA is mostly based on its operational efficiency, since cost leadership is enforced at every level of the...
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