E- Business of Ikea

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IKEA is a Swedish based furniture and furnishings company that sells “everything from cutlery to kitchens” (Jones, G 2007). The business revolves around the philosophy of “We do our bit, you do your bit and together we save money”. The company’s success is based on its ability to adapt to change, sensitivity to customers and acting sensibly with suppliers. In 2006, IKEA made plans to expand their e-commerce strategy to allow people from the United Kingdom to purchase goods online (Kemp, E 2006). However, e-commerce has had advantages such as increased accessibility and disadvantages such as increased costs, and by late 2007, IKEA’s Chief Executive Officer and President, Anders Dahlvig announced that there would be no further investment in online stores (Carroll, B 2007). This suggests that the e-commerce site performed poorly (Paul Holding, cited Jones, G 2007).

Values at the core of IKEA
IKEA integrates distribution with sales (Kapferer, J 2007), but in some cases also the manufactures the products. The logistical system, for managing the flow of components into warehouses and transferring the products to its stores, is reputed as one of the most refined in the world (Kippenberger, T 1997). There are 2300 suppliers to the business, located in several continents, such as Europe and Asia (Klevås, J 2005), and all are given technical assistance, help to secure loans, engineering support, and are aided to boost production to global standards (Kippenberger, T 1997). IKEA designers work with producers to find ways to save costs, as well as attempting to avoid waste in their designs, which is consistent with the values underpinning the business model.

IKEA values design for low cost production, bulk buying, flat packaging (Klevås, J 2005), and providing functional products at a very affordable price, while their customers provide self service, home transport and self assembly. This works in favour of both participants in an exchange, as it saves both the company and the customer considerable costs. This cost saving is also a source of IKEA’s competitive advantage. IKEA provides consumers with the most intelligent products at this price point (Comment-leader: Another clever move by Ikea? 2006). The philosophy of “We do our bit, you do your bit and together we save money” exemplifies theses beliefs and helps to communicate this to consumers. Another of IKEA’s competitive advantages is the use of economies of scale (IKEA expansion brings new jobs to communities, economic benefits to cities and affordable furnishings to homes across America, 2004). Economies of scale refers to the notion of increasing efficiency of production as the number of goods being produced increases, which is associated with bulk buying. These competitive advantages are unrelated to IKEA’s e-business strategy.

Combining traditional retailing with electronic retailing
IKEA currently has a multichannel business model (Turban et al 2008), and combines physical retail megastores with electronic retailing. The website was created to support their traditional business activities (Kemp, E 2006) as it permits business to consumer transactions. This is an example of a clicks-and-mortar business, as physical products of furniture and furnishings are being sold, with a physical process of delivering and transferring the products, however there is a mixture of in store sales (physical agents) and online sales (digital agents) (Turban et al 2008). Initially only 70% of the furniture range was available online (Jones 2007), with products such as sofas, bedding and lighting available online, however Swedish food products remain available only in the physical store (IKEA rolls out UK e-commerce site, 2007).

This business model is promising as it allows IKEA to retain its loyal customer base as well as gaining new online consumers. The loyal customers, who visit the physical agents, are able to continue as they usually would, and their expectations remain...
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