World’s Topmost Furniture Retailer, Case Study Example

About

Today, The IKEA Group is the world’s topmost furniture retailer. It is sprawled in over 41 countries with 38 stores situated in the USA, alone. Revenue of approximately 28 billion Euros was obtained in the last year by catering to an average of 522 million visitors within their 301 stores and 30 franchised units. The store’s online application and website also receive heavy traffic. Unassembled furniture, flat packaging, self-service at stores, Swedish cafes & playrooms for kids within the premises —-These have been the appeal factors for IKEA that have set it apart from its competitors.

Historical Background

An entrepreneurial soul; by the age of 17, Ingvar Kamprad had successfully sold matches, fish, seeds, Christmas decorations and eventually, pencils and ball-point pens, wallets and watches door to door before he started a singular shop in 1943. This business was established from the money his father gifted him for succeeding in his studies. At first, he sold various kinds of household goods at discounted rates. However, in 1947, he decided to focus on his company solely as a home furniture store. In six years, he had established his first furniture showroom which led to IKEA designing its own low-priced furniture just two years later.

IKEA’s first store was inaugurated in 1958 in Almhult, Sweden. It spanned over an area of mere 6,700 sq meters and was still the largest furniture depot in all of Scandinavia. It was, however, the 45,800 sq meters Stockholm flagship store whose design layout served as an initial model for all future outlets. Its trademark design included a child-care center, a restaurant, a bank and a spacious parking space. IKEA soon diversified its market from Scandinavia to Europe followed by Asia and North America. Long since, it has attracted the attention of furniture connoisseurs and plebeians alike. People looking for low-priced furniture, throng to these stores in search of articles that are economical yet stylish. The company has reached prominence in the furniture world not only due to its offbeat marketing strategies but by delivering cost effective products to its consumers and still earning an income of about 29 billion Euros just in the last year.

Work Ethics

The brand is considered one of the most valuable in the world and its founder, one of the richest men alive. Despite the renown, their corporate culture encourages reducing its expenses, all the while improving profitability. Waste is prohibited and employees are notified to conserve electricity by turning off idle devices and implements. Even those high up the ladder are instructed to travel coach or commute via buses instead of taxis. The founder himself has set this humble example. Moreover it is encouraged that the 150,000 or so personnel, regardless of belonging to whichever position in the company’s hierarchy, be on first-name basis with each other. They are hence referred to as ‘co–workers’

Product Strategy

Senior managers whose job is to set priorities for product line-ups constitute a product strategy council. This council evaluates every new product introduced at IKEA based on consumer trends observed locally as well as internationally. Once the priority product is identified, “the matrix” is drawn up by a product developer to set the product’s target retail price. This matrix is set up in 4 basic styles for three different price ranges. The company surveys each price range, within the market, in contrast to its competition and sets up a benchmark in each category. This benchmark enables them to determine their own price point, 30% to 50% lower than their contenders.

It also enables them to pinpoint the gaps in demand for a potentially new product. Market opportunities are identified by product managers, by plotting their current merchandise on a grid and looking for vacant slots. Each and every product type that is sold exists on a price matrix. So there’s one for upholsteries, another for kitchen cabinets and so on.

Cost –Efficiency in Production Process

After the retail price was set, it came about to arrange the suppliers and manufactures that could best arrange the quality within the budget restraints. 1,800 suppliers in 50 countries aid the company in achieving cost efficiency to uphold their standards. The labor is sought out cheap.

Developing countries offer a better chance at cost management so the company is always seeking out suppliers relationships in those regions.

Sometimes, different suppliers are chosen for different components of a furnishing item and those parts can then be assembled in an IKEA store when a customer customizes it according to their choice.

The principle of cost efficiency is upheld even by the engineers who determine which materials are to be utilized in what manner to give the final product a polished look. Furniture surfaces display good quality wood whereas the low stress, less visible parts used lower-grade raw material. The actual design process begins after all these preliminaries. About ten staff designers as well as freelancers are responsible for designing a single product. They too are selected via internal competition after each team submits a design proposal based on a product brief from the management.

The furniture is designed to be delivered unassembled to cut shipping costs. The products are thus, also sold “flat” i.e. in flat packed boxes. This is a useful design application for consumers as well. Their motto in this regard has always been, “We don’t want to pay, to ship air”. Therefore their transport volume is six times less than if it’s shipped assembled. The design aesthetic when compared to previous years has improved greatly. It’s because previously the focus was solely on price if somewhat on functionality. In the last decade or two, this trend has changed for the better. “Low price with meaning” is their new corporate slogan to assert this motivation. Even the most basic of their pieces are now accommodating better aesthetic properties.

IKEA in America

Initially, IKEA did not fare well in the American market. The first store opened in 1985 learned that the customers thought this furniture was an ill-fit for their homes. Their dimensions were different, it didn’t cater to the comfort levels and neither did it compliment their furnishings in size or style. Serving sizes in kitchenware too, did not match the American preference.

IKEA started paying attention to the negative feedback and used the criticism in their favor by accommodating to their needs. The market research helped them adjust their merchandise and customize it to their target buyer’s requirements. They also employed a marketing campaign which invited Americans to change their tastes for innovation. They asked them to choose the out of the box solutions for furnishing rather than their tried and tested options. This tactic succeeded. The ads were hugely popular and led to peaking the people’s interest in this brand.

The rest is history. It is currently the seventh largest retailer of home furniture in America. It has a product range of more than 10,000 items. The IKEA operations are still looking to expand in the thriving US market.