Ikea Invades America


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Ikea Invades America

  1. 1. IKEA INVADES AMERICA Marketing Management Case 2: IKEA Invades America Bradley Chen, Gee Chuang, Vongdoun Kositsatienpong, Lillian Lin, Jim Pai, Tiffany Wang, Edward Wu, Hans Yoong IKEA Invades America IKEA is one of the world’s top furniture retailers and operates 154 stores in 22 countries. IKEA’s roots lie in Sweden, where founder Ingvar Kamprad grew up. Since he was a kid, he knew that he wanted to develop a business on his own. By age 17, Kamprad formed IKEA by using the money that his father gave him as a gift for succeeding in his studies. IKEA was just a company which sold the basic household goods at the discount prices, but by 1951, Kamprad made a decision to focus only on low- priced furniture. He was operating a mail order furniture catalog under the name IKEA. The business grew, but it had a limitation because customers rarely bought furniture sight unseen. Therefore, in 1953 Kamprad opened the first showroom in Almhult. The business went well but because of pressure from the competition, IKEA was boycotted by the suppliers. So, in 1955 IKEA began to design its own furniture. The new cash-and-carry model freed IKEA and its customers from having to arrange delivery. Furthermore, flat packaging reduced transportation costs. In 1965, IKEA opened its first suburban location in Stockholm. Despite the changing concept, the core mission “selling stylish furniture at low prices” still remained the same. IKEA maintained it by using its size to exert bargaining power over suppliers. After the great success in home country, IKEA expanded further into Europe and then the U.S. The chain opened its first U.S. store in Philadelphia in 1985. Even though Americans were delighted by the low prices, IKEA still faced a big obstacle with regard to consumer preferences. In order to please the American market, IKEA had to make some adjustments (e.g. size of the products), but the company’s hallmark “the distinctly Scandinavian design” still remained constant. Apart from providing the customers the low price with meaningful products, the company also facilitates its customers’ experiences by providing plenty of parking space, restaurants, and childcare facilities. The company has been very successful in the U.S. market; by 2002, the U.S. was IKEA’s third-largest market. Still, IKEA’s expansion strategy has remained conservative. The company has moved slowly through carefully researching new stores’ locations. However, IKEA’s goal was to have 50 stores in the United States by 2013. IKEA Invades America 1 of 7
  2. 2. IKEA Invades America The Four P’s • In the early days price was low and design was not really good, but as time IKEA opened low-priced furniture stores in Scandinavia, followed with Product passed by the company started giving stores in Asia and North America. • Low-priced furniture store. The importance to design also thus furniture consisted of case goods enabling the consumers to get good Looking at the % of sales by Region designs at a very reasonable pricing. we see that there are opportunities of (dressers, tables, dining room suites, This reflected the company’s corporate growth for IKEA in North America and bedroom furniture, etc.) upholstered slogan is “Low price with meaning”. Asia region. First is to focus in the North furniture, ready to assemble furniture, America region since the United States is and casual furniture. • There are separate matrices (including among the top sales contributors to • Most of IKEA’s product has both style and price) for each product IKEA’s revenue. Scandinavian design and style (this type IKEA sold. makes the company unique among If an IKEA store is close to the • It is a favored destination for price consumer it helps in enhancing the other traditional furniture makers). conscious customers. consumer perceived value, this happens • Concept of flat packaging, which made when the consumer can actually come it easier for consumers to transport the IKEA Sales By Region (FY 2003) and see the furniture which they are furniture home. going to buy and also see the other N. America products which is there in the store. • Can be assembled and disassembled 15% easily. Promotion Asia • IKEA designs its own furniture too. Beside high-profile advertising 3% campaign, consumers can visit the actual • IKEA gives importance to the quality of IKEA store, which is also part of their its products. Its engineers decide on Europe promotion strategy. This helps the the materials to be used on the 82% customers to get a broader view on the furniture. product they are going to purchase and • IKEA offers a variety of styles for the IKEA Sales by Countries (FY 2003) encourage them to increase their idea on interested consumer to choose from. other products too. Germany UK • There are around 10,000 different other US France Upon entry to the IKEA stores - the products IKEA offers their consumers Sweden shoppers are guided to move along a which helps build a home that has 8 predetermined path which has decorated room for good living. Ticka alarm model bedrooms, kitchen, living rooms 9 and bathrooms. Furthermore: clocks, Fniss trash cans, and Bumerang clothes hangers are just a 11 • The atmosphere in the store is always few examples. 12 bright and inviting. Price 20 • Customers are free to lounge on the • IKEA became famous in a short span model furniture. of time because of its low-price Place In 2002 IKEA operated 154 stores in • Prices tags are put on the products so furniture concept. 22 countries and served 286 million that the consumer has an idea of the • It tends to pass its cost savings to its customers a year. This is a clear product and plan its budget customers also. The flat packaging indication of how successful a company accordingly. concept of the product not only made is in terms of its location. Location is very it easier for the consumers to take The stores resemble modern theme important to reach out to the consumers. home the furniture but also save the parks, having child care centers and The company is well known to a huge company on shipping which in turn restaurants which serve delicacies such population so whenever a new store is passed the cost benefit to the as smoked salmon, Swedish meatballs, opened, thousands of shoppers line up consumer. and lingonberry tarts. on the first day. IKEA Invades America 2 of 7
  3. 3. IKEA Invades America SWOT Outlook STP Analysis Strengths Segmentation, Targeting, Positioning • Powerful brand image In the United States, the American Furniture Manufacturers Association estimated the furniture sales to be $67 billion in 2002. • Wide range of products and styles The furniture market can be divided into segments described as • Hip, Swedish designs case goods, upholstered furniture, bedding, ready-to-assemble • Cheap and affordable furniture, and casual furniture. • Furniture is easy to assemble and ship A furniture retailer may choose to target the entire furniture • One stop shopping market with the generalized product, promotion, distribution, and • Friendly atmosphere/store layout pricing strategy meant to appeal to everyone, or may go after one segment of the furniture market with a customized strategy or • Facilities: restaurant/daycare center several segments of the furniture market with more than one • Strong global sourcing capabilities strategy. Weaknesses Specialty retailers such as Ethan Allen and Thomasville • Assembling furniture yourself may be unappealing to certain dominate the high-end specialty markets with luxurious products groups of consumers selections and top-notch customers service. However, • Relatively few locations standardization for mass production by major manufacturers, along with the demise of many smaller manufacturers, has • Store layout – a hassle for those who want a particular item only created new opportunities for the success of start up niche • Swedish designs may not appeal to all American markets furniture manufacturers such as Viewpoint, Uniqseat, Body and • Furniture is not built to last a lifetime Built Chair. Opportunities On the other hand, general retailers such as Wal-Mart, Office • Untapped markets (Midwest, Corporate…etc) Depot, and discount warehouses such as Costco enter the low • Educate consumers on IKEA thru advertisements end market with cut-rate pricing strategy. The product selection • Different type of stores such as outlets or high-end labels and sales assistance they offer tend to be unremarkable. • Increase online sales and Internet presence In contrast, IKEA took a different approach. Its new-product Threats development process is lead by a product-strategy council which consisted of a group of senior managers who established • Indirect threats from Walmart, Home Depot, Pier 1 priorities for IKEA’s product lineup. Once a product priority is setup, a product developer will set the product’s target retail price using the “matrix”. The matrix typically consists of three basic price ranges and four basic styles. There is a separate matrix for each product sold. In addition to setting retail prices, the management made use of the matrix to identify gaps in the company’s product lineup. By doing so, IKEA is able target the multi-market segments under-served by other furniture retailers by offering customers a full selection of furniture with functional style at affordable prices. IKEA stores are painted in the Swedish national colors of yellow and blue, a color scheme that is used throughout the store and on bags and signs. The stores are designed to take high levels of visitor traffic. There is also a supervised play area for small IKEA Invades America 3 of 7
  4. 4. IKEA Invades America children, a baby care room, a restaurant and a small food store where Swedish food items can be purchased. Thus, IKEA is able IKEA’s Problem to transform the traditionally daunting furniture selection Durability experience into a pleasant one. IKEA’s company slogan is “Low price with meaning”. In order to reach this goal, IKEA has to compromise on quality of the A typical IKEA store is based on an out-of-town shopping furniture. IKEA products usually fall apart after a few years; complex and comprises a large two storey retail space which has therefore, no one in this company would claim that IKEA furniture been designed to exhibit a number of stylish “room sets” on the was built for longevity. Although IKEA provides lots of choices on upper level, and houses “the Warehouse” and a section called the style and color, some customers may not want to see the item Marketplace” on the ground level. Each room set is designed to they bought break down so quickly. As a result, IKEA should pay show how a completed room can look when furnished with items more attention on how to find the best combination of price, from the IKEA product range. IKEA sells a wide range of furniture quality and design. for every room in the house including home office furniture, kitchen units and bathroom fittings. In addition, customers are Design for Americans’ Daily Lives offered a wide range of soft furnishings, pictures, curtains and At the beginning of IKEA’s business in the United States, they blinds, lighting and smaller items such as kitchen utensils that are discovered that Americans did not like their products. Apparently, available for purchase in “the Marketplace”. its beds and kitchen cabinets did not fit American sheets and appliances, its sofas were too hard for American comfort, its Its product range offers choice for a wide range of customers at product dimensions were in centimeters rather than inches, and every life-stage and a choice of products and styles suitable for a its kitchenwares were too small for American serving-size range of accommodation types – from “empty nesters” living in a preferences. These problems were solved after applying the small flat through to “full nesters” living in a spacious family home. results from market research. Still, it highlighted the importance of Profiles of segments can be built from geographic, demographic taking care of the specific demands of your target customer. IKEA and lifestyle data. IKEA achieves differentiation through distinctive should put target customer’s life styles and culture into serious styling at a relatively low price that is maintained through long consideration when designing new furniture. experience of IKEA’s skillful designing, purchasing, cost controls and a low cost service concept based on self-service and home Style Selection From The “Matrix” assembly. IKEA furniture style selection was limited according to the IKEA’s positioning in the marketplace is interesting because the “matrix” which is shown in below chart company has: systematically redefined the roles, relationships and organizational practices in the furniture business. The result is an Style/Price Price Medium Low integrated business system that invents value by matching the various capabilities of participants more efficiently and effectively Scandinavian than was ever the case in the past. This strategy has been extended into the relationship between Modern IKEA and its customers. Customer relationships are based upon the customers' Country acceptance of a new view of division of labor in which the customers now undertake key tasks traditionally performed by manufacturers and retailers: the assembly and delivery of the Young Swede products to customers’ homes. The value delivered to the customer is well designed, quality products priced anywhere from 25 percent to 50 percent below competitors’ offers. There were four styles with three price levels. Could this matrix satisfy all major customers? The limited style might have problems appealing to a wider customer range, since one of IKEA’s core competencies was uniqueness in design. IKEA Invades America 4 of 7
  5. 5. IKEA Invades America More IKEA Lovers? Advantages IKEA aims to open 50 stores in United States by 2013. To do A global advertising campaign to educate or even just to this, IKEA will require a stronger ability to attract a broader public expose consumers to Swedish designs may carry great benefits. to support consistent sales growth. IKEA currently describes its typical shoppers as lovers of travel, fine food, good wine, First, IKEA can publicize their brand image. Through massive innovative consumer technologies and risks. Can IKEA keep the broadcasting, IKEA is forcing its brand name into consumers’ same growth rate if they limit their customer base? Scandinavian everyday life. This strategy will improve its brand recognition while design definitely makes IKEA unique. But to appeal to a wider promoting Scandinavian designed furniture. range of shoppers in the U.S., IKEA needs a good solution to put Scandinavian touches and American lifestyles together. Secondly, after widespread acceptance and adaptation to Swedish designed furniture, IKEA can focus on producing its most dominant product. Hence, IKEA can achieve economies of scale through mass production and quality improvement through specialization by implementing this strategy. Perhaps the key benefit of employing a global advertising campaign to educate and influence consumer preference for Scandinavian designed furniture is the innovation of a new “fashion” in furniture styles. If one considers the furniture market as similar to the clothing industry, one can observe that both markets follow unique trends in styles. These trends not only dictate how products are designed, but also determine which company will dominate the industry. By starting a “fashion” in the furniture industry, IKEA can become the leading Swedish furniture provider in all regions. This effect will raise the entry barriers for new entrants into the industry, while forcing current competitors to seek change into unfamiliar territory. Disadvantages One major disadvantage of such strategy would be its enormous costs. By providing a continuous global advertising IKEA’s Possible Solutions campaign, IKEA would not only incur advertising costs, but also high marketing and research costs. However, this drawback could also be argued as the reason that such strategy is unique to IKEA. 1. Customer Education IKEA is perhaps the only furniture store with such size, scale, and Educate customers to embrace Scandinavian Design marketing power to take on such an ambitious project. And with success in influencing consumer preferences, IKEA can reap the IKEA’s key concern is trying to find a balance between creating accompanying benefits. furniture that carries unique Scandinavian designs and making them appeal to a broader public. After analyzing the furniture giant, we believe that IKEA should use its effective and influential 2. New Designs advertising strategies to transform customers to better embrace Localize the designs to appeal to Americans its unique Scandinavian designs. IKEA has demonstrated in the past, that through a high-profile advertising campaign, it can IKEA has been achieving international expansion due to its successfully alter Americans’ perceptions of “same furniture for a success in offering a wide variety of well designed furniture at a lifetime” to “commitment-free approach to furniture”. reasonable cost. IKEA's goal now is to have 50 stores in operation Consequently, it would not only be feasible, but also essential for in America by 2013. In order to meet this aggressive target of IKEA to direct global furniture preferences toward its Scandinavian expansion, IKEA has to modify their design, service, and dominant designs through a massive advertising campaign. management strategies to appeal to a broader public. IKEA's IKEA Invades America 5 of 7
  6. 6. IKEA Invades America strengths are affordable price with fascinated design, cheaper and easier transportation for products, customer involvement from Our Solution product selection to final assembly, and amenities such as in- house restaurants and childcare centers in the stores. In order to The Best of Both Worlds maintain its aggressive growth strategy in America, IKEA can Stick to your roots, but put your customers first! modify their designs on a regional level without compromising their original Scandinavian vision. Their main quot;low price with “The more stores we build and the more we increase meaningquot; approach to design and management can be our market share, the more we have to find ways to preserved, but the new product line should be tailored to broader appeal to a broader public. Scandinavian design and regional tastes and preferences. style is a niche and it is not to everyone’s tastes. But Through careful and minor service adaptations, IKEA can we don’t want to be just another supplier of traditional achieve balance and will not defeat its original vision. To start, furniture. Scandinavian design is what makes us IKEA should form a team of experienced and local marketing unique. We have to find a balance.” specialists to closely monitor what appeals to the Americans. It is - Anders Dahlvig, IKEA CEO important for the marketing team to conduct surveys among local residents and make sure their perceptions will match their expectations. Also, by paying close attention to customer IKEA’s problem is clear. Their current product offering, though complaints, IKEA can target these problems and adjust its solid and successful until now, is proving much too narrow as their product line-up and service. markets and store locations continually expand. In order to truly reach their goal of 50 U.S. stores by 2013, they must learn to IKEA can also maintain their popular product range and make modify their portfolio of products and customize their offerings minor local adaptations like opening outlet stores. IKEA's furniture based on location. A firm can not simply create a product X and was designed to be assembled by its customers. This not only jump into markets A, B, and C. IKEA must also develop products gives people the notion of contribution by participating in the Y and Z to really succeed in the new markets D, E, and F. This assembly stage, but also saves the company on shipping. tactic, however, is only one side of the coin. However, because of its lower quality material, some products are easily assembled, but extremely difficult to disassemble. This The “balance”, which IKEA CEO Anders Dahlvig wishes to becomes a problem if customers want to return the product after obtain, requires that IKEA remain focused on their distinctively it has been assembled already. If there are outlet stores, IKEA can Scandinavian designs. As interests in this niche style wane, it is not only sell sale products for even less than its original retail price, IKEA’s duty to reintroduce and re-market their national style to the but also sell returned or refurbished items that are still in good world. The designs are solid and the products are practical, and working order. The stores can also sell lightly damaged items or the public is merely losing sight of this fact. This puts IKEA in a floor models. Overall, opening outlet stores can boost sale volume favorable position to leverage its strong marketing and effective and also reduce the inventory for the company. advertising operations to renew interest in all things Scandinavian. Just as they revolutionized the way we think about a piece of The other way is to enlarge customer groups and differentiate furniture’s life cycle, they can also spark a sort of rebirth to the products. IKEA describe its customers as young and modern designs that made them famous people who like trying new products. They are usually local students and newlyweds with limited incomes. To enlarge its Our solution therefore is to combine a renaissance of interest in targeted customer groups, IKEA could design some classical or Scandinavian design with a focused expansion into new looks and traditional looking items to attract markets with more mature styles that are most familiar to the American markets. This unique tastes and higher dispensable income levels. Furthermore, IKEA strategy will clearly allow IKEA to remain true to their heritage by focuses only on home furniture at present. To aid expansion and maintaining focus on their current designs, but will also help them growth into new areas, IKEA could also design more styles of appeal to a much broader public, leading to increased sales and office furniture and similar products to attract the large volume market share. corporate customers. IKEA Invades America 6 of 7
  7. 7. IKEA Invades America Implementation Conclusion The implementation behind this This unique solution takes advantage solution is relatively straightforward. To of IKEA’s already proven success with ensure concurrent focus on Scandinavian marketing and selling the Scandinavian designs and expanding styles, IKEA design, and leverages their marketing needs to proceed on the following two prowess as evidenced through earlier paths simultaneously: campaigns. Few, if any, furniture retail stores have the powerful brand image 1. IKEA should research and develop a and loyal following that IKEA possesses, powerful marketing campaign to and nearly none are able to communicate reintroduce the American public to the their messages and influence the benefits of Scandinavian design. The consumers as effectively. focus should be on the simplicity and “We have to find a balance.” functionality of the products coupled with Furthermore, major competitors with - Anders Dahlvig, CEO IKEA the added value of being an overall very larger sales revenues have done well so stylish choice. It is necessary to promote far by offering products with primarily a sense of chicness and sensibility, all of American designs. Yet IKEA is ranked which is attainable at an extremely 14th in the U.S. by offering a niche style affordable price. Educate the consumer! only. 2. At the same time, IKEA should begin By branching into new designs, IKEA is investigating the habits of American adding a completely new arsenal of furniture shoppers. IKEA needs to get a products into their lineup, which provides feel of what styles and designs typical consumers a much wider degree of customers feel the most comfortable choice. By combining consumers’ with, and find a reasonable way of specific tastes with the pleasant and incorporating these products into their affordable IKEA shopping experience, existing framework. They should also they are bound to see renewed interest in conduct focus groups to get a better idea their retail stores. In giving the American of what people are looking for, and also consumers what they’re used to, IKEA hire American designers to produce will be able to tap into and compete in a attractive new products to add to the huge market which had previously been lineup. Know your consumer, and give unattended to. them what they want! IKEA The IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. And still have money left! - from IKEA’s Vision Statement, “Democratic Design: Low Price with Meaning” IKEA Invades America 7 of 7