Running head: CASE STUDY: IKEA INVADES AMERICA

Case Study: IKEA Invades America Eunice Hurh University of North Texas

CASE STUDY: IKEA INVADES AMERICA Case Study: IKEA Invades America 1. What factors account for the success of IKEA?

a. There are three main factors that account for its continual success in the furniture retailing industry: Scandinavian designs, cost efficiency, and product strategy i. Scandinavian heritage is showcased beautifully through IKEAs simple yet unique designs. In the early years, IKEAs designs were functional at best, ugly at worst (Moon, 2004). Now, due to a deliberate focus on adapting a more design aesthetic (Moon, 2004), consumers began appreciating IKEAs furniture for the appeal instead of its functionality. Ingvar Kamprads Scandinavian culture is something that cannot be easily copied, as one must be from Scandinavia to fully embrace its aesthetic (Moon, 2004). Moreover, Ingvar was able to create relationships with local manufacturers in the forests close to his Scandinavian home (Moon, 2004). It was quite possible for IKEAs success story to fall apart if not for the close proximity of those manufacturers in Scandinavia. Also, IKEAs Low price with meaning slogan accelerated consumers to believe these designs were not cheaply made (Moon, 2004). And as Ingvar said, Scandinavian design is what makes [IKEA] unique, (Moon, 2004). ii. The most important factor in IKEAs cost efficiency plan is its flat packaging. In 1956, IKEA began testing flat packaging for tables and legs (Moon, 2004). This obvious idea created more storage space, more items able to be shipped, reduced labor costs, and less reported damages (Moon, 2004). Ultimately, this meant for the consumers a lower priced product

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with easy transportation (Moon, 2004). The company estimated that its transport volume was six times more with these innovative flatter packages (Moon, 2004). Additionally, with the Low price with meaning slogan, consumers were only affirmed in that they were going to receive trendy furniture at the best possible cost. Another cost-cutting competitive advantage IKEA executed was having its customers pick up and assemble their own furniture (Moon, 2004). In order to cut costs for the consumer even more, IKEA used higher-quality materials for visible surfaces and lower-quality materials for low-stress, less visible surfaces (Moon, 2004). This was an important part of IKEAs approach to customer involvement because it kept the prices low (Moon, 2004). iii. A product-strategy council, consisting of senior managers, established priorities for IKEAs product lineup (Moon, 2004). Once product priorities became established, a product developer used the matrix to set target retail prices (Moon, 2004). This matrix set benchmarks of prices 3040% lower than those of its competitors (Moon, 2004). For example, a product like a table would have four category types (sleek wood, minimalist, neo-traditional, bare bones) and three price ranges (high, medium, low) (Moon, 2004). Each type of merchandise had its own matrix and this allowed IKEA to identify product gaps within the lineup (Moon, 2004). This seemingly elementary product strategy implemented by IKEA has proven to show massive amounts of revenue due to its high level of success.

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2. What do you think of the companys product strategy and product range? Do you agree with the matrix approach described in Figure B of the case? a. IKEAs product strategy and product range is laid out in a manner that is easy-toread and avoids any confusion. As simple as the matrix seems, it works. Within the price ranges and styles, there are sure to be some discrepancies, but the matrix does a good job at pin pointing what is lacking as well as market opportunities (Moon, 2004). Since IKEA has established the benchmark price point of 30-50% lower than those of its competitors (Moon, 2004), the matrix can provide an uncomplicated yes or no to the product, manufacturer, or designer. IKEA has also developed the plan of using high-quality materials for visible surfaces and lowerquality materials for low-stress, less visible surfaces (Moon, 2004). This benefits IKEA in its attempt to cut costs for its consumers. IKEAs product strategies are always undergoing constant redesigning in order to provide its consumers with the best product at the best price. 3. Despite its success, there are many downsides to shopping at IKEA. What are some of these downsides? IKEAs Vision Statement (in Figure C of the case) describes how the company seeks to build a partnership with its customers. What do you think of this vision statement? a. The biggest downslide to shopping at IKEA would be remembering that all these products wouldnt last more than a couple years or a moving trip. Customers often discovered that IKEA products fell apart after a few years and had trouble enduring anything as unsettling as a move to a new place (Moon, 2004). Another downslide would be having to pick-up and assemble packages with no help of an

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IKEA employee. Although this helps in lowering the ticket price of the products, consumers sometimes do not have the space to take home bulky packages. Neither do they want to be left with no choice other than to assemble furniture with complicated instructions alone. The vision statement states that IKEA seeks to build a partnership with its customers. On a global scale, IKEA does a exemplary job at building relationships with its customers by creating aesthetically pleasing yet affordable designs. However, on a smaller scale, IKEA is a warehouse of products and since they do not give any additional services after a purchase is made, relationships cannot go much further. Creating functional designed furniture creates a profit not a relationship. Nonetheless, the mass continues to enjoy shopping at IKEA due to the low prices and beautiful furniture. In order to preserve a long-lasting relationship, IKEA must learn how to create the lovely furniture, keep inexpensive price points, and constantly come up with advanced ways to help the customer feel less disconnected after purchasing a product. 4. The fact that IKEA hopes to have fifty stores in operation in the United States by 2013 is an indication of how optimistic the company is about the viability of its value proposition in this country. Do you think IKEA is being overly optimistic in its growth plan? How would you improve IKEAs value proposition to make it even more attractive to the American consumers? a. IKEA is not being overly optimistic in its growth plan of opening fifty stores in the United States by 2013. Fifty is not a large number in that similar retail chains such as Crate & Barrel have over 100 stores in the United States (Crate and barrel

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careers, 2012). If IKEA wants to remain top-of-mind for its consumers, more stores need to be built and become accessible to everyone. In order to improve IKEAs value proposition and become more attractive to its American consumer base, it would have to become transparent. American consumers want to know that they are not only getting a great deal, but that they are purchasing from a company they can trust. Being transparent with who their suppliers are, where items are sourced, and the labor conditions of its employees will give IKEA a competitive edge and ultimately lead to an attractive value proposition for American consumers. 5. To achieve the kind of growth that IKEA is hoping for, should the company change its product strategy? If so, in what way(s)? What about the product rangeare there limitations to the matrix approach? Should the company expand its product lineup to include a greater number of styles and price points? In what other ways should the company consider changing its product lineup? a. In order to achieve the growth of 50 stores by 2013, IKEA should not stray too far from its original product strategy plan. If too much is altered, misunderstandings and lack of cohesion may take place within the company. This simple product/price matrix is laid out in a way that works for IKEA, but minute modifications can be made. Since the product matrix doesnt specifically state what qualifies a product as a high, medium, or low price, there can be percentages applied for the price ranges (Moon, 2004). Similarly, the styles can be broken down into subcategories to create more specificity. Adding price points and styles for its product lineup will allow for a more detailed and precise target retail price

CASE STUDY: IKEA INVADES AMERICA (Moon, 2004). These changes, if made, will provide the company with

comprehensive reports on which products are missing in accordance with its competitors in addition to the gaps in price points (Moon, 2004). 6. If you had to predict, what do you think IKEAs value proposition and product lineup will look like in ten years? a. In ten years, IKEAs value proposition would entail better after-purchase services for its customers and larger amount of SKUs with trendy designs. Since IKEA plans for a growth of 50 stores in the United States by 2013, research done on regional demographics will need to be reflected in the product lineup. This could mean an exclusive line of fur rugs for the colder regions or collaboration with local artists resulting in a line of paintings, bedding, etc. 7. Some industry observers have suggested that IKEA should open a number of smaller, satellite stores across the United States (i.e., shopping malls, strip malls, etc.). By offering a limited range of IKEA products, these IKEA Lite shops would presumably give consumers who do not otherwise have access to a full-size IKEA the opportunity to experience the brand. In addition, consumers who do live near a full-size IKEA would be able to use these mini-outlets to make minor purchases (i.e., purchase a set of mugs as opposed to an entire living room set). Do you agree with this idea? Why or why not? a. This is unquestionably an idea that would spark the IKEA fire and allow it to burn across the United States. Although that might seem like disturbing imagery, it is meant to illustrate how this idea could truly initiate monumental revenue for IKEA as well as easier access for its consumers. Smaller ticket items such as the

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Ticka alarm clock, Fniss trashcan, and Bumerang clothes hangers (Moon, 2004) are common household products that if they were offered in a nearby mall, the chances of someone buying them would be greater. These IKEA Lite shops would lessen the overwhelming feeling numerous consumers may feel, since they would not have as many product options located in a gigantic warehouse. Additionally, IKEA would beat out its competitors of general merchandise furniture like WalMart and Target (Moon, 2004) if they created the IKEA Lite shops. Thus, the idea of creating IKEA Lite shops would be beneficial to both the company and the consumer.

CASE STUDY: IKEA INVADES AMERICA References Crate and barrel careers. (2012). [website] Retrieved from http://crateandbarrelcareers.silkroad.com/crate/Home/Careers_FAQs.html Moon, Y. (2004). IKEA invades America. Harvard Business School. Retrieved from https://learn.unt.edu/bbcswebdav/pid-338295-dt-content-rid

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