Harvard University Week 6 IKEA Invades America Case Study Discussion

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Case Study: IKEA Invades America

In 2002, the IKEA Group was the world’s top furniture retailer, with 154 stores worldwide. At that time, IKEA operated 14 stores in the U.S., all of which were tremendously popular despite the self-service burden they imposed on customers. The company’s goal was to grow and have 50 stores in operation in the U.S. by 2013. (As of 2019, they have 48 stores in the U.S.)

Preparation & Analysis

Before this week's class session in preparation for the case study go online and research/take down a few notes for yourself on a strategic marketing concept called “reverse positioning." Ask yourself, how does reverse positioning differ from breakaway positioning studied earlier?

Next, read the IKEA case and complete the following individual assignment. Try to use your newly developed understanding of this concept in your case analysis discussion below.

Individual Assignment: Answer the following questions in an overall 4-5page brief essay format (double-spaced, 12 pt Times or Ariel font, 1” margins). Please write about one page as response to each question.

  1. What marketing-related factors account for the success of IKEA?
  2. Do you agree with the matrix approach described in Figure B of the case? Why or why not? How might IKEA improve upon it?
  3. What positive and negative effects could an “IKEA lite” concept have on the brand? (smaller satellite stores with limited selection of impulse or staple items for sale)
  4. How could IKEA improve its value proposition to make it even more attractive to the U.S. consumer than it already is?

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For the exclusive use of C. Donnelly, 2019. 9-504-094 REV: SEPTEMBER 14, 2004 YOUNGME MOON IKEA Invades America In 2002, the IKEA Group was the world’s top furniture retailer. With sales approaching $12 billion, IKEA operated 154 stores in 22 countries and serviced 286 million customers a year. (See Exhibits 1 through 4.) In the United States, IKEA had 14 stores, with plans to open as many as nine more in 2003. There were a number of factors that distinguished IKEA from other furniture retailers—its stores were strictly self-service and featured such amenities as playrooms for children and Swedish cafés, and all of its furniture came unassembled (customers were expected to put together the furniture on their own)—yet there was no question about the company’s success; when a new store opened, it was not unusual for thousands of shoppers to line up on the first day. Company Background IKEA was founded in 1943 when 17-year-old Ingvar Kamprad decided to start a local catalog company using some money his father had given him.1 Initially, the company sold basic household goods at discount prices; in 1947, however, Kamprad began selling home furnishings. Six years later, Kamprad opened his first furniture showroom, and two years after that, IKEA began designing its own low-priced furniture. In 1958, IKEA opened its inaugural store, in Almhult, Sweden; at 6,700 square meters, it was the largest furniture display in Scandinavia at the time. By the time IKEA opened its flagship store in Stockholm in 1965, IKEA had become the favored furniture-shopping destination for price-conscious Swedes. The 45,800-square-meter flagship— which ultimately became the prototype for all of IKEA’s retail outlets—was inspired by New York’s Guggenheim Museum and featured a childcare center, a restaurant, a bank, and enough parking for 1,000 cars. The store’s magnetic appeal was apparent from the start; literally thousands of Swedes showed up on the first day. Before long, IKEA was opening similar low-priced furniture stores in countries beyond Scandinavia, first in Europe, and then in both Asia and North America. (For a more detailed history, see Figure A below.) 1 The name IKEA came from Kamprad’s initials combined with the first letters of the names of the family farm (Elmtaryd) and village (Agunnaryd) where Kamprad was raised. ________________________________________________________________________________________________________________ Professor Youngme Moon prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 Figure A IKEA Invades America Significant Events in IKEA’s Early History (excerpted from the IKEA Web site) Date Event 1926 The founder of IKEA, Ingvar Kamprad, is born. He was raised on a farm called Elmtaryd, near the small village of Agunnaryd. Even as a young boy, Ingvar knew that he wanted to develop a business. He started by selling matches to neighbors from his bicycle. He found that he could buy matches in bulk very cheaply from Stockholm and sell them individually at a very low price but still make a good profit. 1943 IKEA is founded by Kamprad. In 1943, when Ingvar was 17, his father gave him a gift for succeeding in his studies. The gift was used to establish his own business. 1947 Furniture is introduced into the IKEA product range. The furniture was produced by local manufacturers in the forests close to Kamprad’s home. 1951 The first IKEA furniture catalog is published. Kamprad soon made the decision to discontinue all of the other products and focus directly on low-priced furniture, and the IKEA we know today was born. 1953 The furniture showroom is opened in Almhult. For the first time customers could see and touch our furnishings before ordering. 1955 IKEA begins designing its own furniture. There were several reasons for IKEA to start designing its own furniture. But what actually led to this—possibly our best move ever— was quite ironic. Pressure from our competitors caused suppliers to boycott IKEA. This reaction to our early success required us to begin designing our own furniture, and became the basis for future growth. Ultimately, this would lead to innovative design and improved function at lower prices. Then, by lucky inspiration, one early IKEA employee decided to remove a table’s legs so it would fit into a car, and to avoid transport damage. From that point on, we began to think in terms of design for flat packaging. Which led to even further price reductions for our customers. 1956 IKEA begins testing flat packages. Designing products so that they can be packed flat and assembled by our customers greatly reduced their cost. This was obvious from the very first day we took the legs off a table and put it in a car. We can ship more items in one truck, less storage space is required, labor costs are reduced and transport damages are avoided. For the customer, this means lower priced products and easy transportation home. 1958 The first IKEA store is inaugurated in Almhult. 6,700 square meters of home furnishings! At the time, it was the largest furniture display in Scandinavia. 1965 The IKEA store in Stockholm is opened. Thousands of people waited for the opening of our flagship store. The 45,800 square meter store has a circular design, inspired by New York’s Guggenheim Museum. The success created huge capacity problems in serving the customers. By opening the warehouse and letting people serve themselves, an important part of the IKEA concept was born. Source: Used with the permission of Inter IKEA Systems B. V. 2 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 By 2002, IKEA was the world’s most prominent furniture retailer. Although the company was privately held and did not release profit figures, its 2002 revenues approached $12 billion (see Exhibit 1) and its brand was considered to be one of the most valuable in the world.2 Yet despite its success, IKEA’s corporate culture still retained its pragmatic, cost-cutting sensibility. Waste was considered a deadly sin at IKEA; employees were constantly reminded to save on electricity by turning off lights and computers that were not in use, and managers always traveled coach and took buses instead of taxis if possible. In addition, all of the company’s 70,000 employees were on a first-name basis, regardless of seniority or position. As one American who worked in IKEA’s Almhult offices put it, “It’s a little religious or missionary in a sense, but it’s who we are.”3 IKEA’s Product Strategy At IKEA, the new-product development process was overseen by a product-strategy council, which consisted of a group of senior managers who established priorities for IKEA’s product lineup. These priorities were based on consumer trends, as identified by the globe-trotting council members. Once a product priority was established, a product developer would set the product’s target retail price using what the company referred to as “the matrix.” The matrix consisted of three basic price ranges and four basic styles (see Figure B below). Within each price range, the company would survey the competition to establish a benchmark and then set its own price point 30% to 50% lower than those of its rivals. Figure B IKEA’s Product/Price Matrix STYLE Scandinavian (sleek wood) Modern (minimalist) Country (neo-traditional) Young Swede (bare bones) high PRICE RANGE medium low Source: Case author. There was a separate matrix for each product type IKEA sold—that is, a price matrix for sofas, a price matrix for kitchen tables, and so on. In addition to being used to set retail prices, the matrix was used to identify gaps in the company’s product lineup. By plotting the company’s current product offerings on the grid and looking for empty spaces, product managers could readily identify market opportunities. 2 In 2002, InterBrand, a marketing research firm, ranked IKEA 44th on its list of the world’s most valuable brands, ahead of Apple, Pepsi, MTV, Harley-Davidson, and Xerox. See “The 100 Best Global Brands by Value,” . 3 Quote from Lisa Margonelli, “How IKEA Designs Its Sexy Price Tags,” Business 2.0, October 2002. 3 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 IKEA Invades America Once IKEA had established the target retail price for the proposed product, the company would then begin selecting a manufacturer to produce it. IKEA worked with 1,800 suppliers in more than 50 countries, always seeking to balance cost-efficient labor with the company’s product quality standards. (To save money on labor and production, the company was constantly on the lookout for opportunities to build supplier relationships in developing countries. See Exhibits 5 and 6 for details.) IKEA would circulate a description of the proposed product’s specifications and target cost to its suppliers and encourage them to compete for the production package.4 In some cases, different product components would be sourced from different suppliers; for example, a supplier in Poland might produce a chair’s cushion while a Chinese supplier might produce its frame. The two pieces would only come together in the store, when a consumer would select each piece individually. Meanwhile, IKEA’s engineers would determine what materials would be used to make the product. Here too, the focus was always on cost efficiency: the company liked to use high-quality materials (e.g., expensive wood) on furniture surfaces that were visible and most likely to undergo stress, and lower-quality materials (e.g., lower-grade wood or particleboard) on surfaces that were low stress and less visible to the consumer (e.g., inside the drawers). It was not uncommon for a single wooden product to contain as many as five different parts of the tree. Once a price point was established, a manufacturer was in place, and the materials decided upon, the actual design process would begin. Although design was handled in-house, IKEA would once again use internal competition to select a designer. The company would circulate a product brief to its designers; this brief would include the product’s price, its function, the materials to be used, and the manufacturer’s capabilities. (IKEA had a pool of about 10 staff designers, but it also used many freelancers.) After designers submitted their design proposals, the company would select the best one. Because the company’s furniture was designed to ship disassembled, all of its products were transported “flat”; that is, in flat-packaged boxes. This flat packaging not only made it easier for consumers to transport the furniture home, it also saved the company on shipping (one of the company’s mantras was, “We don’t want to pay to ship air”5). In fact, the company estimated that its transport volume was six times less than if it shipped its products assembled. Even after a new product ended up in IKEA’s stores, the design process was not necessarily finished. It was not unusual for IKEA to redesign a product multiple times, with a single purpose in mind: To maximize the number of products that could be squeezed onto a shipping pallet. Of course, these redesigns would often increase the product assembly burden on the consumer. However, the constant focus on shipping frugality also meant that, with each new redesign, a product’s retail price could remain stable over time (or even go down) while its shipping costs went down. Low Price with Meaning In IKEA’s early days, the company’s focus was primarily on price. Because of this, while IKEA enjoyed much early success, its low-priced furniture was functional at best, ugly at worst. As one design expert put it, “If you look at the history of IKEA, in the early years their design was quite horrible.” In the last decade, however, this had changed as the company had gradually but 4 IKEA owned some of its suppliers, but even these company-owned suppliers had to compete against independent contractors for IKEA’s business. 5 Quote from Lisa Margonelli, “How IKEA Designs Its Sexy Price Tags,” Business 2.0, October 2002. 4 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 deliberately adopted a more distinct design aesthetic. “They became more and more interested in design,” the expert noted. “Today if you go to IKEA, you always will find some pieces which are good designs and very reasonable in pricing.”6 The company’s corporate slogan—“Low price with meaning”—captured this commitment to offering tasteful, cleverly designed products that did not make customers feel cheap. Even the most basic products were now fashioned to reflect the company’s philosophy of “democratic design.” (See Figure C below for IKEA’s vision statement.) And while no one in the company would claim that IKEA furniture was built for longevity—indeed, customers often discovered that IKEA products fell apart after a few years and had trouble withstanding anything as disruptive as a move to a new apartment—most of IKEA’s customers were nonetheless delighted by their unique combination of form, function, and affordability. Figure C IKEA’s Vision Statement: “Democratic Design: Low Price with Meaning” A better everyday life. 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! Most of the time, beautifully designed home furnishings are created for a small part of the population—the few who can afford them. From the beginning, IKEA has taken a different path. We have decided to side with the many. That means responding to the home furnishings needs of people throughout the world. People with many different needs, tastes, dreams, aspirations… and wallets. People who want to improve their homes and create better everyday lives. It’s not difficult to manufacture expensive fine furniture. Just spend the money and let the customers pay. To manufacture beautiful, durable furniture at low prices is not so easy. It requires a different approach. Finding simple solutions, scrimping and saving in every direction. Except on ideas. But we can’t do it alone. Our business idea is based on a partnership with the customer. First we do our part. Our designers work with manufacturers to find smart ways to make furniture using existing production processes. Then our buyers look all over the world for good suppliers with the most suitable raw materials. Next, we buy in bulk—on a global scale—so that we can get the best deals, and you can get the lowest prices. Then you do your part. Using the IKEA catalog and visiting the store, you choose the furniture yourself and pick it up at the self-service warehouse. Because most items are packed flat, you can get them home easily, and assemble them yourself. This means we don’t charge you for things you can easily do on your own. So together we save money… for a better everyday life. Source: Used with the permission of Inter IKEA Systems B. V. In addition, most customers found the IKEA shopping experience to be immensely appealing. Over the years IKEA had refined its retail approach, building off the success of its original flagship store in Stockholm. Although its stores tended to be cavernous—a typical outlet consumed 15,000 to 35,000 square meters—the store layouts were carefully designed. Upon entry, shoppers were gently coerced into a predetermined path through cheerfully decorated model bedrooms, kitchens, living 6 Alexander von Vegesack, director of the Vitra Design Museum in Germany, who in 1999 mounted an exhibit on the history of IKEA, quoted in John Leland, “How the Disposable Sofa Conquered America,” The New York Times, December 1, 2002. 5 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 IKEA Invades America rooms, and bathrooms. The atmosphere was always bright and inviting, and customers were free to lounge on the model furniture as they made their way through the store. Huge price tags adorned the goods, and color-coordinated cards offering design tips were displayed in information kiosks located throughout the store. In many ways, the stores resembled modern theme parks, with their childcare centers featuring large climbing structures and flamboyant playthings and their restaurants serving delicacies such as smoked salmon, Swedish meatballs, and lingonberry tarts. As Anders Dahlvig, IKEA’s group president, put it: Many competitors could try to copy one or two of these things. The difficulty is when you try to create the totality of what we have. You might be able to copy our low prices, but you need our volumes and global sourcing presence. You have to be able to copy our Scandinavian design, which is not easy without a Scandinavian heritage. You have to be able to copy our distribution concept with the flat-pack. And you have to be able to copy our interior competence—the way we set out our stores and catalogues.7 Furniture Retailing in the United States In the United States, furniture retailing accounted for $67 billion in sales in 2002.8 The furniture market consisted of case goods (dressers, tables, dining room suites, bedroom furniture, etc.), upholstered furniture, bedding, ready-to-assemble furniture, and casual furniture. The first two categories (case goods and upholstered furniture) each accounted for roughly 45% of all furniture shipments; the other categories together accounted for the remaining 10% of the furniture market. The market itself was highly fragmented; in 2002, the top 10 furniture retailers were responsible for just 14.2% of market share. (See Exhibit 8 for details.) Within this market, there was a wide dichotomy between low-end and high-end retailers. The low end included general discount retailers such as Wal-Mart, office supply stores such as Office Depot, and discount warehouses such as Costco. (Wal-Mart was America’s number one furniture retailer, in large part due to its huge retail footprint—it was the largest retailer in the world.) These general merchandise retailers tended to aggressively promote their furniture products on the basis of price; this cut-rate pricing meant that margins were extremely low in these channels. The low end also consisted of smaller shops that offered cheap furniture to price-sensitive customers; many of these shops targeted college students and others on a tight budget. The environment in these stores usually reflected their low-price focus—they were generally dreary and dingy, with haphazard product displays and inconsistent, poorly managed inventories. In all of the low-end channels, sales assistance tended to be poor to nonexistent, and product selections tended to be limited to utilitarian furniture that was either dull or altogether unattractive. In contrast, most high-end specialty retailers offered luxurious store environments designed to conjure up aspirational images of affluence, prosperity, and comfort. These specialty retailers— which included both single-brand retailers such as Ethan Allen and Thomasville as well as multiplebrand retailers such as Jordan’s Furniture—typically offered various payment options and easy credit to make it easier for shoppers to commit to a big-ticket item. Customers visiting these stores were usually serviced by high-touch sales consultants who could assist with measurement and product 7 Quoted in Christopher Brown-Humes, “An Empire Built On a Flat-Pack,” FT.com (London), November 23, 2003, p. 1. 8 Based on data gathered by the American Furniture Manufacturers Association (AFMA), an industry trade group, as described in Amrit Tewary, “Household Durables,” Standard & Poor’s Industry Surveys, November 6, 2003. 6 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 selection; many stores also offered interior design services for consumers interested in a more complete home makeover. Because the specialty retailers competed heavily on selection, they tended to boast of huge inventories; even the single-brand stores carried dozens of different styles. For example, it was not uncommon for these retailers to carry six to 10 styles of a given product type (e.g., American, Contemporary, Asian, European Country, etc.) and then to carry six to 10 sub-styles within each of these styles. This meant that a customer interested in a dining room table of the “American” style could choose from a variety of sub-styles such as Colonial American, American Country, Mission, Southwestern, and Shaker. Specialty retailers also competed heavily on quality and service. With respect to case goods, salespeople were trained to educate consumers about quality markers such as grains of wood, construction techniques, and so on. Similarly, with respect to upholstered products, they were trained to educate consumers about the durability and longevity of different types of textures and fabrics, as well as inform them about add-on features such as stainproofing. The salesperson’s goal was always the same: To reassure customers that the furniture they were buying would last a lifetime. This was particularly important given that Americans were notorious for their reluctance to buy new furniture—the conventional industry wisdom was that most Americans hung onto their sofas for much longer than their cars and tended to “change their spouse as often as their dining room table, about 1.5 times in a lifetime.”9 Finally, almost all furniture retailers (including many low-end retailers) offered delivery services, sometimes free of charge, sometimes for an additional fee. (Because furniture was usually sold in assembled form, it was difficult for customers to transport the furniture on their own.) As part of this delivery service, most retailers offered to set up the new furniture in the customer’s home even if this involved rearranging existing furniture; they would also cart away the old furniture if the customer wanted to discard it. By offering these delivery services, retailers could guarantee that, once customers purchased a piece of furniture, all they had to do was wait a few weeks for it to be delivered, at which time the furniture would be set up in their home without their having to lift a finger. IKEA Invades America It was in this context that IKEA competed in the United States. IKEA’s success in America had not come easily. After opening its first U.S. store in Philadelphia in 1985, the company discovered that Americans did not like its products: apparently, its beds and kitchen cabinets did not fit American sheets and appliances, its sofas were too hard for American comfort, its product dimensions were in centimeters rather than inches, and its kitchenware was too small for American serving-size preferences. As one manager recalled, “People told us they were drinking out of the vases.”10 However, by paying close attention to customer complaints, IKEA had been able to address these problems, relying on market research to adjust its product lineup and merchandising. 9 Christian Mathieu, external-marketing manager for Ikea North America, quoted in John Leland, “How the Disposable Sofa Conquered America,” The New York Times, December 1, 2002. 10 Ken Nordin, previously IKEA’s sales and marketing manager for North America, quoted in John Leland, “How the Disposable Sofa Conquered America,” The New York Times, December 1, 2002. 7 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 IKEA Invades America At the same time, IKEA had launched a high-profile advertising campaign designed to get Americans to take a more “commitment-free approach to furniture.” Josephine Rydberg-Dumont, the managing director of IKEA of Sweden, explained: When you think of your own life, there’s a time for several different lifestyles. That old, traditional stuff is making us feel the other way, that things can’t change, that taking responsibility for your things is more important than taking responsibility for your life. It’s O.K. to replace them, to get rid of them. We don’t think we’re going to live one way always. Our feeling is: It’s just furniture. Change it.11 As an example, one IKEA ad campaign called “Unboring” had featured a series of television commercials poking fun at Americans’ unwillingness to part with their furniture. The best known of these commercials had been an award-winning ad directed by Spike Jonz, a director best known for his film “Being John Malkovich.” The spot (simply titled “Lamp”) had opened with a discarded lamp sitting forlornly on the sidewalk in the rain and had concluded with an actor turning to the camera and saying, “Many of you feel bad for this lamp. That is because you are crazy. . . . ” By the mid-1990s, the company’s fortunes in the United States had begun to improve, and from 1997 to 2001 the company was able to double revenues in the United States, from $600 million to $1.27 billion. By 2002, the United States was IKEA’s third-largest market (after Germany and Britain, see Exhibit 3), and its 14 U.S. stores were servicing close to 30 million American customers a year (see Exhibit 7). As another indication of IKEA’s success, the company’s in-house restaurants were now the 15th-largest food chain in America. As for its American customer base, IKEA described its typical shopper as the sort of person who traveled abroad, liked taking risks, liked fine food and wine, had a frequent-flier plan, and was an early adopter of consumer technologies such as Walkmen, laptops, and cell phones. (Incidentally, IKEA described its least likely customer as the type of person who collected guns.)12 Shopping at IKEA For IKEA customers, shopping at IKEA required some preparation. As the company’s Web site advised: “Be prepared. Make a list of anything you may need for your home. . . . Take measurements of spaces you want to fill with furniture. And be sure there’s room in your car. You’ll need it.”13 Everything else customers needed to shop at IKEA was available at the store entrance: pencils, paper, tape measures, store guides, catalogs, shopping carts, shopping bags, and strollers. All of the stores were self-service, so if customers found smaller items they wanted, they could place the item in their shopping carts. If customers wished to purchase larger items, they could jot down the item numbers; they then needed to pass through the IKEA warehouse to pick up their flat-packed items before proceeding to checkout. (Self-serve trolleys were available to help customers carry their purchases from the warehouse to the checkout counter to the car.) Customers were not only expected to transport their purchases home, they were also expected to assemble their purchases on their own. According to the Web site, “Picking up your purchases is an 11 Josephine Rydberg-Dumont, managing director of IKEA of Sweden, quoted in John Leland, “How the Disposable Sofa Conquered America,” The New York Times, December 1, 2002. 12 Based on IKEA’s internal market research, described in John Leland, “How the Disposable Sofa Conquered America,” The New York Times, December 1, 2002. 13 IKEA Web site: < www.ikea-usa.com>. 8 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 important part of IKEA’s approach to customer involvement. Specifically, if you can do simple things like pick up your purchases and assemble them at home, we’ll keep prices low.”14 In terms of product selection, IKEA sold many types of furniture, but its style selection was limited according to the “matrix.” As the Web site explained, “We don’t have everything. We don’t have the very extreme or over-decorated. We only have what helps build a home that has room for good living.”15 IKEA also sold every manner of household item, including dinnerware, rugs, lamps, and clocks. The company’s total product range consisted of about 10,000 different products; many of these items featured bold colors and whimsical product names: Ticka alarm clocks, Fniss trash cans, and Bumerang clothes hangers. If customers preferred to shop without their children, they could drop their kids off at the company-operated childcare facility on the way into the store. If they got hungry, they could stop by the IKEA restaurant for a lunch break. And if they needed assistance with shopping, they could stop by a sales desk and speak to an IKEA representative. The ratio of sales reps to customers was quite low, however, consistent with the company’s self-service ethos. Looking Forward IKEA’s goal was to have 50 stores in operation in the United States by 2013. Already, IKEA was the fastest-growing furniture retailer in the country and—excluding general merchandise retailers such as Wal-Mart, Office Depot, and Sam’s Club—it was the seventh-largest furniture retailer in the United States.16 (See Exhibit 8.) As one analyst put it, “Not only does IKEA have monster stores and great prices, it has also created a unique niche. It’s the quintessential power retailer in America.”17 Dahlvig added, “The more stores we build and the more we increase our market share, the more we have to find ways to appeal to a broader public. Scandinavian design and style is a niche and it is not to everyone’s taste. But we don’t want to be just another supplier of traditional furniture. Scandinavian design is what makes us unique. We have to find a balance.”18 14 IKEA Web site: . 15 IKEA Web site: . 16 Amrit Tewary, “Household Durables,” Standard & Poor’s Industry Surveys, November 6, 2003. 17 Howard Davidowitz of Davidowitz & Associates, a retail consulting firm, quoted in Lisa Margonelli, “How IKEA Designs Its Sexy Price Tags,” Business 2.0, October 2002. 18 Anders Dahlvig, president of the IKEA Group, quoted in Christopher Brown-Humes, “An Empire Built On a Flat-Pack,” FT.com (London), November 23, 2003, p. 1. 9 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 IKEA Invades America Exhibit 1 IKEA Group: Sales Over Time Year Euros Dollars 2003 2002 2001 2000 1999 ~ 1993 €11.3 billion €11.0 billion €10.4 billion €9.5 billion €7.7 billion ~ €3.8 billion $12.2 billion $11.9 billion $11.2 billion $10.3 billion $8.3 billion ~ $4.1 billion Source: Compiled from IKEA Web site: . FY runs from September to August. Exchange rate used: €1 = US$1.08. Exhibit 2 (FY 2003) IKEA Group: Sales by Region Region % Sales Europe North America Asia Source: 82% 15% 3% Compiled from IKEA Web site: . FY 2003: September 2002 to August 2003. Exhibit 3 IKEA Group: Top Five Sales Countries (FY 2003) Region % Sales Germany United Kingdom United States France Sweden Source: 20% 12% 11% 9% 8% Compiled from IKEA Web site: . FY 2003: September 2002 to August 2003. 10 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 Exhibit 4 IKEA Group: Store Locations (as of August 31, 2002) Location Australia Austria Belgium Canada China Czech Republic Denmark Finland France Germany Hungary Italy Netherlands Norway Poland Russia Slovakia Spain Sweden Switzerland United Kingdom United States Source: No. of Stores 4 5 4 9 1 3 4 1 13 30 2 7 9 5 7 2 1 3 13 6 11 14 Compiled from IKEA Web site: . 11 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. 504-094 IKEA Invades America Exhibit 5 IKEA Group: Purchasing by Region (FY 2003) Region % Purchasing Europe North America Asia Source: 66% 3% 31% Compiled from IKEA Web site: . FY 2003: September 2002 to August 2003. Exhibit 6 IKEA Group: Top Five Purchasing Countries (FY 2003) Region % Purchasing China Poland Sweden Italy Germany Source: 18% 12% 9% 7% 6% Compiled from IKEA Web site: . FY 2003: September 2002 to August 2003. Exhibit 7 IKEA Stores in the U.S. (as of August 31, 2002) Location Philadelphia Washington – Woodbridge Baltimore Pittsburgh New Jersey – Elizabeth Los Angeles – Burbank New York – Long Island Los Angeles – City of Industry Los Angeles – Tustin Houston Los Angeles – Carson Chicago – Schaumburg San Francisco – East Bay San Diego 2 Opened Size (m ) June 1985 April 1986 September 1988 July 1989 May 1990 November 1990 May 1991 May 1992 May 1992 July 1992 November 1992 November 1998 April 2000 September 2000 14,900 28,000 18,700 15,700 32,700 22,500 20,500 13,300 13,500 14,600 19,900 40,000 25,500 17,700 Source: Compiled from IKEA Web site: . 12 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019. For the exclusive use of C. Donnelly, 2019. IKEA Invades America 504-094 Exhibit 8 Leading U.S. Furniture Retailers (ranked by 2002 sales of furniture and bedding) Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Source: Name Wal-Mart Rooms To Go Ethan Allen Levitz La-Z-Boy Office Depot Sam’s Club Federated Department Stores Berkshire Hathaway (incl. Jordan’s) Costco Staples Havertys Value City IKEA Pier 1 Imports JC Penney Kmart May Department Stores Art Van Rhodes Office Max Thomasville Home Furnishings Lowe’s Big Lots W.S. Badcock Adapted from Amrit Tewary, “Household Durables,” Standard & Poor’s Industry Surveys, November 6, 2003. 13 This document is authorized for use only by Christopher Donnelly in MRKT 4055 taught by Anthony Fruzzetti, Johnson & Wales University from Sep 2019 to Nov 2019.
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Running head: THE INVESTIGATION OF IKEA COMPANY

The Investigation of Ikea Company
Student
Institution Affiliation
Date

1

THE INVESTIGATION OF IKEA COMPANY

2

What marketing-related factors account for the success of IKEA.
IKEA is still one of the best-performing companies in the United States of
America (USA). Since its establishment, the firm has been using multiple factors that
contribute to its success. Critically, IKEA is different as compared to other furniture
accompanies, in that it believes in production of goods products at a reduced price and
also the availability of customer care clients ready to offer after-sale services such as
transportation of various furniture to different destination free of charge (Moon, 2004).
Three main factors contribute to its success, and these factors make the company
unique from others, they include the following: low price on products, the art of selfservice and the unassembled nature of their furniture. It is essential to present a
valuable discussion on the factors for greater understanding.
The company is famous in producing quality furniture and selling them at
relatively reduced prices. It makes the company stand out as compared to Walmart's
store, which is a bit expensive in terms of the rates charged on goods. The concept of
reducing prices of products appeals to all people in different social classes, for example,
both upper, middle, and lower classes are capable of purchasing any product since they
can afford given the prices is affordable. Low prices of the furniture attract many people
leading to increased demand for the good to satisfy them. Consequently, the company
is forced to produce more furniture leading to the enormous collection of revenues and
plow back profits. The art of self-service appeals to many clients of the IKEA company.
Customers al...


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