An overview IKEA, founded in Sweden in 1943, is the World’s largest home furnishings retail chain. It achieved international expansion in three major phases and now operates large warehouse showrooms in Sweden, Norway, Denmark, Holland, France, Belgium, Germany, Switzerland, Austria, Canada, the United States, Saudi Arabia, and the United Kingdom. It also has smaller stores in some other countries.
IKEA’s mission is to offer a wide variety, good design and good values for “young people of all ages”.The furnishings giant has remained determined to maintain a standardised product strategy — which still remains the core of the IKEA approach. By following the approach, IKEA maintains a predominantly universally accepted product range with local minor adaptations.
IKEA’s mission is to offer a wide variety, good design, good value, for “young people of all ages”. The furnishings giant has remained determined to maintain a standardised product strategy. IKEA itself does not own manufacturing facilities. The manufacturers are subcontracted.And it only owns distribution and designs furniture. This allows IKEA to follow a cost leadership strategy through high volume production and standardised items. IKEA consumers expected to supply their time for assembling work after purchase, thus becoming a part of the IKEA concept becoming “prosumers”.
2. 1Case Question: What has allowed IKEA to be successful with a relatively standardised product and product line in a business with strong cultural influence? Did adaptations to this strategy in the North American market constitute a defeat to their approach?The key reason behind IKEA’s breakout success was because if its customer focused approach. The focus on customers’ needs has been achieved because they were not selling through dealers. This allowed them obtain feedback directly from customers. Moreover, IKEA does not deem itself as just a retailer. But rather, it operates as a central hub of a number of services. According to the case, the customers in the countries IKEA entered through international expansion were not tied to traditional furniture image.
Rather, they preferred good value, simplicity and the idea of contributing by giving their time in assembling stage. IKEA’s strategy to provide a wide variety available at one place with the assurance that customers would find something suitable, nice and simple as well as practical and of good value drew huge amounts of customers. The perceived wide variety of designs and good quality were also appealing factors. The concept was easy to promote worldwide. A catalogue with layout with minor adjustments to meet regional differences was used.Combined effects from all these practices contributed to the making of IKEA’s “universally accepted” formula. IKEA in the USA While IKEA entered the US market in 1985, it was greeted with limited success.
It later planned more expansion in 1987. Some compromises – namely with the Europe’s standardised product strategy – had to be adapted for the US. Other adaptations were also made in service delivery and processes to meet the customers’ expectations. Despite the alterations, IKEA’s streamlined and contemporary “Scandinavian” style also remained mostly unchanged.Economies of scale were still being achieved. The key characteristics that defined the IKEA concept were therefore preserved. Rather, initial hiccup in the US market taught the global furniture giant to be more flexible and adapt to the local tastes when needed.
Therefore, it can be argued that minor adaptations do not amount to a defeat to IKEA’s original approach. 2. 2Case question: Which features of the “young people of all ages” are universal and can be exploited by a global/regional strategy?The characteristics of the “Young people of all ages” stand out as universal are the contemporary, modern and innovative designs targeted towards the customers who are “young” at heart; who are not tied to the traditional image of typical furniture designs, relative to their cultures. Exploiting these characteristics with a global/regional strategy is the core of IKEA Concept. Relative to their domestic markets the perceptions can be more or less easily matched with their expectations; hence, there can be some minor regional differences in how these globally shared features can be exploited.IKEA tries to find its customer base in consumers who perceive themselves as practical, modern or non-traditional or a mix of all those at the same time. Rather than being tied down to the traditional furniture image and designs relative to their culture, they are more inclined to prefer designs that are “good”, “modern” and “streamlined” — exactly what IKEA offers in its collections.
In their minds, simplicity and practicality are likely to be of much greater importance than “traditional”. Willingness to contribute time/work in order to gain in achieving a better value is another feature shared universally for this type of customer.The whole experience of IKEA shopping includes viewing, evaluating, choosing, pick-up and self-delivery, self-assembly and finishing work, which also encompasses the other, associated choice of convenient facilities (i. e. kids playing area, Swedish restaurant etc). All that combined produces the experience perceived by this type of customers as more modern, creative and interesting than the “traditional” choice. 2.
3Case question: Is IKEA destined to succeed everywhere it cares to establish itself? IKEA’s probability of success in different settings would depend on how flexible this concept is in various different countries’ conditions.Entering the US market was a big lesson for the furniture giant. It had to compromise its universal standards to draw American customers. While the IKEA concept was only slightly modified without compromising the original formula, the organisations may have to be more flexible in other regions. Considering IKEA’s experience at the US market, it would be a reasonable to argue that taking this concept further and further globally would have limitations that could not be easily met everywhere. A good example of the case would be if a certain price for a bed is considered as a good” in the USA or in the UK market, the same product would have to be sold at a lower price in some other countries in order to match the similar customer expectations. Furthermore, more furniture can be locally produced thus increasing the flexibility of this aspect but this might appear as stretching the universally standardised assortment element of the IKEA concept.
To preserve the original formula whilst maintaining the profitability as a measurement of success, it would be vital for IKEA to establish a critical mass of potential customers.It would not only be important for these customers to like the concept, but also to be able to afford it and perceive it as “good” value. Therefore, in most developed countries, the IKEA concept may succeed. However, to expect the same amount of success for countries with erratic economic situation, extreme fluctuations in currency exchange rates, hyperinflation or with rigid importing quotas and restrictions. The problem would also apply to countries where the local people holds high values for traditional furniture designs that would be different from those of IKEA’s.All the above scenarios point towards the fact that the retail chain can have more chances of success if the IKEA concept is slightly modified at a regional level when required. However, this may potentially make them depart further from their original formula that marked its initial success.
In conclusion, IKEA’s original formula can be preserved in most countries worldwide with or without minor modifications. However, it would be unreasonable to expect the same approach to be successful everywhere. Of course, crossing that line may be another way to achieve global success but may divert the organisation from the original concept.