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IKEA ITS A BIG COUNTRY; SOMEONE HAS TO FURNISH IT
IKEA, the worlds largest home furnishings retail chain, was founded in Sweden in 14 as a mail-order company and opened its first showroom ten years later. From its headquarters in Almhult, IKEA has since expanded to worldwide sales of more than $ billion from 11 outlets in 4 countries (see Table 1). In fact, the second store that IKEA built was in Oslo, Norway. Today, IKEA 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 has smaller stores in Kuwait, Australia, Hong Kong, Singapore, the Canary Islands, and Iceland. A store near Budapest opened in 10.
The international expansion of IKEA has progressed in three phases, all of them continuing at the present time Scandinavian expansion, begun in 16; West European expansion, begun in 17; and North American expansion, begun in 174. Of the individual markets, Germany is the largest, accounting for 7.5 percent of company sales. The phases of expansion are detectable in the worldwide sales shares depicted in Figure 1.
We want to bring the IKEA concept to as many people as possible, IKEA officials have said.
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TABLE 1 IKEAs International Expansion Year Outlets Countries
154 1 1
164
174 10 5
184 66 17
188 75 1
10 5
1 11 4
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THE IKEA CONCEPT
Ingvar Kamprad, the founder, formulated as IKEAs mission to offer a wide range of home furnishings of good design and function at prices so low that the majority of people can afford to buy them. The principal target market of IKEA, which is similar across countries and regions in which IKEA has a presence, is composed of people who are young, highly educated, liberal in their cultural values, white-collar workers, and not especially concerned with status symbols.
IKEA follows a standardized product strategy with an identical assortment around the world today, IKEA carries an assortment of thousands of different home furnishings that range from plants to pots, sofas to soup spoons, and wine glasses to wallpaper. The smaller items are carried to complement the bigger ones. IKEA does not have its own manufacturing facilities but designs all of its furniture. The network of subcontracted manufacturers numbers nearly ,100 in 6 countries. IKEA shoppers have to become prosumers-half producers, half consumers--because most products must be assembled.
Manufacturers are responsible for shipping the components to large warehouses, for example, to the central one in Almhult. These warehouses then supply the various stores, which are in effect miniwarehouses. The final distribution is the customers responsibility.
IKEA does cooperate with car rental companies to offer vans and small trucks at reasonable rates for customers needing delivery service.
Although IKEA has concentrated on company-owned, larger-scale outlets, franchising
has been used in areas in which the market is relatively small or where uncertainty may exist as to the response to the IKEA concept. IKEA uses mail order in Europe and Canada but has resisted expansion into it in the United States, mainly because of capacity constraints.
IKEA offers prices that are 0 to 50 percent lower than fully assembled competing products. This is a result of large-quantity purchasing, low-cost logistics, store location in suburban areas, and the do-it-yourself approach to marketing. IKEAs prices do vary from market to market, largely because of fluctuations in exchange rates and differences in taxation regimes, but price positioning is kept as standardized as possible.
IKEAs promotion is centered on the catalog. The IKEA catalog is printed in 1 languages and has a worldwide circulation of well over 50 million copies. The catalogs are uniform in layout except for minor regional differences. The companys advertising goal is to generate word-of-mouth publicity through innovative approaches.
The IKEA concept is summarized in Table .
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TABLE The IKEA Concept Target Market
Young people of all ages.
Product IKEA offers the same products worldwide. The countries of origin of these products are Nordic countries ( %), Western Europe (1%), Eastern Europe (15%), Others (15%)
Distribution IKEA has built its own distribution network. Outlets are outside the city limits of major metropolitan areas. Products are not delivered, but IKEA cooperates with car rental companies that offer small trucks. IKEA offers mail order in Europe and Canada
Pricing The IKEA concept is based on low price. The firm tries to keep its price image constant.
Promotion IKEAs promotional efforts are mainly throught its catalogs. IKEA has develped a prototype communications model that must be followed by all stores. Its advertising is attention getting and provocative. Media choices vay by market.
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IKEA IN THE COMPETITIVE ENVIRONMENT
IKEAs strategic positioning is unique. As Figure illustrates, few furniture retailers anywhere have engaged in long-term planning or achieved scale economies in production. European furniture retailers, especially those in Sweden, Switzerland, Germany, and Austria, are much smaller than IKEA. Even when companies have joined forces as buying groups, their heterogeneous operations have made it difficult for them to achieve the same degree of coordination and concentration as IKEA. Because customers are usually content to wait for the delivery of furniture, retailers have not been forced to take purchasing risks.
The value-added dimension differentiates IKEA from its competition. IKEA offers limited customer assistance but creates opportunities for consumers to choose (for example, through informational signage), transport, and assemble units of furniture. The best summary of the competitive situation was provided by a manager at another firm We cant do what IKEA does, and IKEA doesnt want to do what we do.
IKEA IN THE UNITED STATES
After careful study and assessment of its Canadian experience, IKEA decided to enter the U.S. market in 185 by establishing outlets on the East Coast and, later, one in Burbank, California. IKEAs six stores on the East Coast (Philadelphia; Woodbridge near Washington, D.C.; Baltimore; Pittsburgh; Elizabeth, New Jersey; and Hicksville, New York) generated $7 million in 1. The overwhelming level of success in 187 led the company to invest in a warehousing facility near Philadelphia that receives goods from Sweden as well as directly from suppliers around the world. Plans call for two to three additional stores annually over the next 5 years, concentrating on the northeastern United States and California.
QUESTIONS
1. What accounts for IKEAs success with a standardized product and strategy in a business that is usually described as having some of the strongest cultural influences?
Consider, for example that an American buying IKEA beds will also have to buy IKEA sheets, because the beds are in European sizes.
a. Most (small) local furniture stores in the US offer a tremendous assortment of fabrics for the furniture they sell. IKEA stores are big (and therefore involve high costs of operation) and do not offer that same extent of assortment. On the surface of it, this doesnt sound like a formula for success. How does IKEA get around this.
. Which features of the young people of all ages are universal and can be exploited by
a global/regional strategy?
. Is IKEA destined to succeed everywhere it cares to establish itself? If not, where would they have trouble?
4. From having visited an IKEA store, what unique marketing features do they employ that you do not see in other furniture stores?
5. How do economies of scale fit into the IKEA concept?
http//www.ccm.edu/redwards/IKEA.html
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