IKEA Case Analysis

Williamedia Shephard
Jack Welch Management Institute
Professor Leo Giglio
JWI540
July 21, 2013
 Executive Summary

In 1943, IKEA was founded by Ingvar Kamprad a 17 year old who decided to start the

company with money he received from his father. This paper will provide an analysis of how the

company used customer segmentation as a marketing tool to expand the growth of the company

internationally. It will compare the traditional approach used in Sweden versus the American

market and a description of the strategic growth opportunity in the U.S.

Introduction

IKEA is one of the largest furniture retail organizations in the world founded in 1943 by

Ingvar Kamprad. The privately held company employs over 100,000 employees that offers

ready-to-assemble furniture. The company targets the working class there are 326 IKEA stores

spread over 38 countries and produce over 100,000 products in their stores and online. IKEAs

well-known brand name srcinated a marketing model concept that shows its strengths.

However, targeting so many different kinds of customers brings about certain weaknesses and

threats such as local competition, increasing the amount of product recalls, barriers to enter the

market and the higher requirements of the new markets by increasing its online sales and

utilizing renewable sources, IKEA will still have a competitive advantage over its competitors.

The company has a constant concept of offering inexpensive furniture. In order to attract more

customers and present an ideal home environment. IKEA advices its customers to come

prepared and they will supply everything else they need. IKEA heavily supports the concept of

self-serve which is an important part of their approach to customer involvement.

IKEA has created a market for creative and innovative designs, high quality, and low

affordable prices. IKEA has employed the cost of leadership and product differentiation

strategies. IKEA differentiated itself because their products were different when comparing

them to conventional products in the market. They defied the market because the style and

design were very simple.

The key issues involved in this case would be innovation, customer segmentation, cost

leadership and strategic growth. Its success in the retail arena also seems to require companies to

be innovative, adaptable, entrepreneurial and opportunistic, particularly when they begin to

exclusive and reliable flat-pack Swedish designed furniture at bargain prices. (Reynolds, 1988)

When the name IKEA is recognized or mentioned, people think of how they have

captures the market with their innovative ways. They have always been innovators during their

marketing campaigns in the community. The product innovation was based on the simplicity of

the design and the concept easy assembling of the furniture and its high quality. Their strong

belief in low-cost quality furniture helped to lower prices throughout the market. This strategy

gave them the competitive advantage.

IKEA has lead the furniture industry with low pricing which does not appeal to their

competitors. This is where they make such a difference in the furniture industry. IKEA is

committed to having a good relationship with their suppliers, and customers. With this in mind,

they are able to purchase good quality, economically produced designs that are bought in bulk to

keep cost down. By making their furniture flat packaged they are able to cut down their

transportation and assembly expenses. (Chopra, 2009)

Sustainability is the key to IKEA’s growth. Their goal is to create a better everyday life

for as many people as possible while using their resources wisely, inspiring and enabling people

to live more sustainably, and supporting human rights, including children’s. (IKEA.com) they

believe that by creating affordable products that will cost less and help their customers use less
water, energy and less waste. With this train of thought, they will be able to help consumers

become independent users of energy and their resources. Another reason for growth, is their

commitment to improve life for their employees, employees of their supplies, and the worldwide

community as a whole.

In FY12, we agreed on our new sustainability strategy – we call it “People & Planet

Positive” – which sets new goals for us to meet by 2020. The plan is part of our long-term

growth strategy and will make us more sustainable. But we will only grow in a balanced way, by

expanding from our own resources. In other words, earning the money before we spend

It. This is also why we own the land and the buildings where we operate whenever possible.

(IKEA.com)

Behavioral Customer Segmentation

customers and buyers behavior, IKEA adapted a post-World II strategy that targeted young

couples and new families in the middle to low income range by providing affordable furniture

that was durable and contemporary. Barlett and Nanda suggests that the typical IKEA buyer is

young, middle-class, married and have children living in an apartment. The market’s primary

target’s purchases were predominately based on price (44%) followed by assortment (16%) and

design (14%). Price, quality and design were their principle reasons for choosing to shop at

IKEA. Distance, price, quality and design were also considerations of consumers when thinking

about IKEA. It was also noted that those included in the target market based their purchase

decisions from information gathered from the catalog.

There is a contrasting difference in the purchases made by the traditional customer and

their new target market purchasing behavior. The concept of sustainability is playing a major
role in their spending habits. (Datamonitor, 2010) IKEA has ranked high in overall customer

service and satisfaction which is mainly due to their sustainable initiatives. IKEA’s products are

recyclable or made from recyclable materials. They also recycle 84% of all the waste their stores

generate. (Datamonitor, 2010)

Comparison of Traditional and U.S. Customers

IKEA did not conduct a thorough research on U.S. consumers before entering the U.S.

market in 1985. They assumed that the U.S. market would readily embrace their business

concept and the products they offered. The problem they faced was that the furniture was

measured in metric measurements instead of inches and feet and their kitchen products did not

meet the U. S. customer’s expectation. When the furniture was tested by their American

customers it was not pleasing. There were complaints that the furniture was uncomfortable and

designed to big and rigid. The U. S. customers were not adjusting to the unit measurements for

the furniture or kitchenware. The cabinetry was too small for American appliances. The

traditional (European) customer liked the fact that the furniture was hard versus soft. The

furniture was contrary to what the U. S. customers were used to. IKEA had to rethink its

marketing strategy. They launched a new marketing campaign targeting the U. S. customer

while entering the U. S. market. Their slogan for the U. S. was “…to take a more

commitment-free approach to furniture” (Moon, 1996). Their intent was to convey to the U. S.

was that it doesn’t have to hold on to furniture for years before replacing it. They stressed their

affordable prices and quality of furniture but in many ways it appeared that they were make fun

of the U. S... Their traditional customers understood what they had to offer but the U. S.

customers did not receive the concept of unassembled furniture and it severely affected their

revenues.
 It took ten years for the U. S. customers to accept the IKEA concept. They had to focus

more on organic slow growth and low risk. During this period of slow growth, IKEA had to go

back and do further research on the U. S. market and expand its manufacturing facilities. They

have successfully learned to meet the U. S. customer needs.

U. S. Growth Opportunities

Since the 1980’s, IKEA has made a tremendous push into four major geographic markets.

These markets are Eastern Europe, Italy, the United Kingdom, and the United States. Going into

these markets posed a major strategic challenge to IKEA. Their major strategic concern was

changing the target market segment. They prospered during the baby boom wave. Their target

market had shrunk now that the baby boomers are older and comfortable. IKEA continued to

differentiate its prices, products, and services to keep in line with the first mover competitive
advantage. Being ahead of the market trends to the point that they began to set new standards for

furniture and other related products (Harrison, 2005) but the U. S. market was still very difficult

to penetrate. The U, S. customer was accustomed to having the furniture preassembled and

delivered. This was not a part of the IKEA concept. For IKEA to be successful in the U. S.

market, they had to revamp their product line and strategic plans in order to achieve the desired

growth.

For them to achieve their targeted growth in the U. S., senior management would have to

agree to change the product line. The lack of senior management approval is a leading factor in

companies not attaining their growth. IKEA had to hire consultants to help determine their

internal strengths and weaknesses along with the external opportunities and threats. After

overcoming these obstacles, IKEA’s growth in the U. S. market soared. They are now the

leading furniture retailer in the U. S. aside from general merchandise retailers such as Walmart,
Sam’s Club, and Costco. It was their goal to have 50 stores in the U. S. by 2013. They now

have 338 stores worldwide.

Conclusion

IKEA has become a monster organization since its inception in 1943. Their concept is

based on the principle that customers should choose, collect, transport and assemble the products

they purchase. They believe that customer involvement contributes to them being able to

provide low prices. They have been successful because of customer awareness. They have

established a principle aiming to sell products without hazardous materials. They have helped to

raise the standards and increased the prosperity of developing countries because they have placed

their manufacturing in these countries. The global strategies of the organization is low cost and

diversification.
 References

Bartlett, C. & Nanda, A. (1996). Ingvar Kamprad and IKEA. Boston, MA: Harvard Business

School Publishing.

Chopra, R. (December, 2009). IKEA Case Analysis. Retrieved from

www.slideshare.net/riddhimachopra/ikea-case-study, July 20, 2013.

Datamonitor, (2010). Inter IKEA Systems B. V. Business Source Premier. Retrieved from

http://search,ebcohost.com

David, F. (2009). Strategic Management: Concepts and Cases. 12th edition. Upper Saddle

River, N.J.: Pearson Education, Inc.

Harrison, J. S. & Enz, C. A. (2005). Hospitality Strategic Management: Concepts and Cases.

Inside IKEA. (2013). Retrieved from www. ikea.com

McGrath, R. & MacMillan, I. @2009). Discovery-driven Growth: A Breakthrough process to

reduce risk and seize opportunity. Boston, NA: Harvard Business School Publishing.

Moon, Y. (2004). IKEA Invades American. Boston, MA: Harvard Business School Publishing.
Cutting costs and protecting