SUMMARY

IKEA is a one of the world’s topmost brand in the furniture retailing market. According
to the data given its sale has increased 200% from the year 1993 to 2003 in Euros and in
Dollars each. The figures majorly speak about the market of Europe as it established
itself as a Scandinavian Company and it gives a sale up to 82% of the total sale. IKEA
has a located store in three different continents i.e Europe, Asia and North America. The
major factor that distinguished IKEA from any other competitors like Walmart, Rooms
to Go, Office Depot was its uniqueness of low price, global sourcing presence,
Scandinavian design, and last but not the least is distribution concept.

Q1. What factors account for the success of IKEA?

Targeting the customers on the

Segmentation is done on the basis of Geography,
basis of preferences,
Positioning it as a low
Demographic, modification
price,
Product delivery friendly in
distinction
brand, commitmentdesign.
free approach to furniture.

There are number of factors which accounted for the success of IKEA in the home furnishings.
However, after starting its first store in Philadelphia in 1985, the company had to face some
problems like Americans did not like its products, its product dimensions were in centimeters
rather than inches, etc. so by paying close attentions to customer complaints and with the help of
high-profile campaign advertising, IKEA had been able to solve such problems. The main factors
are:

 Low Price: The vision and mission of the company is clear regarding what value
proposition it wants propose in the market with a corporate slogan- “ Low price with
meaning” by reducing the staff as the products are free to be chosen on the individual
capacity, purchasing in bulk so the initial cost is reduced, deriving simple solution which
involves cost of ideas and saving in every direction.
 Packaging: Flat packaging concept of IKEA is unique in the market which reduces the
cost of the product and storage capacity which ultimately makes it easier for the
customers to handle the product in future prospect. It offers unique combination of the
furniture according to the requirement of the customer in different form, function and
affordability.
  Purchasing Power: Globally presence of more than 1800 suppliers distributed in
countries not only makes it cost efficient but also increases the product quality. It’s major
supplier in Asia is China which accounts for 18% of the purchasing units.
 Designing: It designs its product in such a way that low quality raw material is used in
the areas which are not visible and high-quality raw material are positioned on the major
visible areas. For this IKEA has a pool of 10 designers and even hire some free lancers
for the proposal of design.
 USP:. People must come prepared, if the requirement of larger item was there, they
would pick up from warehouse and for smaller item self service was there, Child- care,
IKEA restaurant, IKEA representative were some unique proposition it offered to its
customers.
 Showroom Ambience: The store layouts were carefully designed, on the entrance there
were decorated bedrooms, living area, kitchen, etc which catches the attention of the
customers.

Q2. What do you think of the company’s product strategy and product range? Do you agree with
the matrix approach described in figure B of the case?

Cost
Differentiation
Leadership(IKEA)

Focus

· Product Proposal: Once the product specification and target cost is proposed to the suppliers,
they compete for the production package. Parts of the same product is also sometimes sourced
from different suppliers

· Product material: IKEA uses high quality materials for products which would probably undergo
stress and lower quality materials for surfaces which are less visible and undergoes less stress.

· Product design: An internal competition is held in order to select the best design for a specific
product.

· Product packaging: Flat packaging is what IKEA used to make it easier for consumers to
transport products home and reduced company’s shipping cost.
IKEA has a huge product range amounting to more than 10000 different products in the market.

The matrix used by a product developer of IKEA consists of four styles - Scandinavian, Modern,
Country, Young Sweden and three price range – High, Medium, Low. This matrix not just looks
simple but also makes it easy to set the product’s retail price. Once a product is defined within
this matrix, it can be compared with the existing competitors and as per IKEA’s benchmark of
setting a price 30% - 50% below its rival IKEA can offer the best price to its customers within
each price range. Apart from this, since every product has its own matrix, it helps identify gaps in
its product line based on market opportunities and accordingly introduce new variant within a
product type with the lowest price possible.

Q3. In what ways would you improve IKEA’s value proposition to make it attractive to a larger
base of consumers? What will IKEA look like in 10 years?

 Focus on regional culture: To increase the customer base IKEA should focus on
regional culture and expectation of customers rather focusing on Scandinavian style of
design. The local buyer’s preference differs from region to region so to sustain the market
it needs to modify its products according to the local market.
 Online Sale: As the world is moving from brick and wall to online space, it needs to
understand the importance of operating in immediate space and removing the marketing
myopia. It can offer its designs selection online to the customers where IKEA cannot
reach.
 Performing Market Research: the company should perform market research of
purchasing trends on existing customers demographics and potential customers
demographics who are not the customers of the company.
 Design with Durability: As the American customers are very conscious about the
longevity of the furniture they purchase, so the company should keep it in mind and
design and manufacture that furniture which are aesthetic and durable.

Sale of IKEA over time in Billion Dollar According to the graph stated above, it
14 contemplates that the IKEA’s sales has grown over
12 200% from last decade but at a negative growth
10
8 rate since 1993 to 2003. The growth rate from
6 2002-2003 is 2.62%, so it might sustain and grow in
4
2
the next ten years but it will have to take new
0 initiatives to gain more customer base.
1993 1999 2000 2001 2002 2003
Euro Dol l ar