IKEA study case: business strategy pros and cons

What do you think of the company’s product strategy and product range? Do you agree with the matrix approach described in Figure B of the case? 5 3Despite the success there are many downsides to shopping at IKEA. What are some of these downsides? IKEA’s vision statement (in Figure C of the case) describes how the company seeks to build a “partnership” with its customers. What do you think of this vision statement? 4The fact that IKEA plans to have fifty stores in operation in the USA by 2013 is an indication of how optimistic the company is about the viability of its value proposition in this country.

Do you think IKEA is being overly optimistic in its growth plans? How would you improve IKEA’s value proposition to make it even more attractive to American consumers? 7 5To achieve the kind of growth IKEA is hoping for, should the company change its product strategy? If so, in what way(s)? What about its product range — are there limitations to the matrix approach?

Should the company expand its product lineup to include a greater number of styles and price points? In what other ways should the company consider changing its product lineup? 8 6If you had to predict, what do you think IKEA’s value proposition and product lineup will look like in ten years? 9 7Industry observers have suggested that IKEA should open up smaller, satellite stores across the United States ( e.

g. in shopping malls, strip malls, etc. ) By offering a limited range of IKEA products, these “IKEA Lite” shops would presumably give consumers who do not otherwise have access to a full size IKEA the opportunity to experience the brand.

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In addition, consumers who do live near a full size IKEA would be able to use these mini outlets to make minor purchases (e. g. purchase a set of mugs as opposed to an entire living room set). Do you agree with this idea? Why or why not? 9 What factors account for the success of IKEA? There are several factors for the success of IKEA. Firstly, IKEA is known for its product differentiation and cost leadership. Although they have high sales revenues they do not become less sensible for cost-cutting which means that they try to save costs in as many areas as possible.

Costs are kept under control starting at the design level of the value-added chain, by packing items compactly in flat standardized emblazes and stacking as much as possible to reduce storage space during and after distribution in the logistics process. Besides, employees are constantly reminded to save energy by turning of the light or computers if they are not being used. Additionally, since the furniture comes unassembled, people have to build up their furniture on their own at home but therefore pay way less money than at other retailers.

Therefore they especially reach price-conscious customers. This actually means that they are operating in a niche market because normally Scandinavian furniture stands for high quality and therefore high prices, but they achieved to combine simplicity, design and space – and of course low prices. Secondly, IKEA’s store concept distinguishes itself from other furniture retailers. Its stores are self-service and feature special amenities such as a childcare center, Swedish cafes and often also stores where you can buy typical Swedish food.

Therefore the shopping experience itself is very appealing to customers. Besides, although the IKEA stores are huge, the store layouts are carefully designed. There is always a light and bright atmosphere and the model bathrooms, living rooms, etc. are decorated in a cheerful and tasteful way. Moreover, it seems that the working atmosphere for employees is very personal and close since they all call each other by their first name, no matter which hierarchic position the person holds. What do you think of the company’s product strategy and product range?

Do you agree with the matrix approach described in Figure B of the case? For us the product strategy including the matrix approach sounds very simple but convincing. By analyzing consumer’s trends first, they focus on their customer’s needs and wishes which always should be top priority. Then, by setting a price with the help of “the matrix”, which consists of three price ranges and four different styles, products developer cannot only compare their product easily to their competitor’s but also seek new opportunities.

Due to the fact that every product category has its own matrix those can be used to identify gaps in the product line-up and therefore product managers can become aware of new market opportunities. Also, by always setting the price 30 or 50% lower than the competitors they are very attractive for people who do not have a lot of money or who are not willing to spend huge amounts on furniture and home decoration. Since IKEA has over 1,800 suppliers to choose from, they are able to balance cost-efficient labor with the company’s product quality standards.

Sometimes different product components are also produced in different countries and the customer can decide at the end which one he wants (e. g. different colors of cushions, etc. ). In addition, it is very smart to use high-quality material for the more visible furniture surfaces and lower quality material for less visible and stressed parts. Besides, it is a smart idea to force its designers to pitch their ideas against each other: By doing this they have a higher variety to choose from and might end up with something more fashionable and special than if the design department had only presented one idea.

We believe that the product strategy and range works very cost-efficiently and also allows achieving a higher penetration in the market. Since IKEA offers a huge variety, the probability is higher that everyone finds something he or she likes. Also it distinguishes them from other retailers who are not able to offer such a big product range because they have higher costs producing and providing them. Despite the success there are many downsides to shopping at IKEA. What are some of these downsides?

IKEA’s vision statement (in Figure C of the case) describes how the company seeks to build a “partnership” with its customers. What do you think of this vision statement? There are two main downsides to shopping at IKEA: quality, service and missing customization. Since IKEA uses also low-quality material in order to set a low price, it often happens that the furniture only lasts for a few years and that especially while moving flats products can easily break. Secondly, the lack of service when it comes to home delivery or construction f the furniture purchased, is a downside as well. Customer need a big car, be able to understand the construction manual as well as having all the tools at home. Also, IKEA stores are often a little further outside the city so customer need to be willing to drive maybe one hour to get to the store. Although customers know that this is the concept of IKEA they might nevertheless feel overstrained to build up the furniture or do not possess cars big enough to bring their purchased items home. Last but not least, the product range nearly allows no personalization or customization.

IKEA products are for the mass market and therefore are not able to fulfill everybody’s wished especially not for richer people who look for luxury or more unique goods. In IKEA’s mission statement they explain how they want to be partners with their customers. IKEA’s mission is to create a better everyday life by offering beautiful and durable furniture at low prices so that also people with smaller wallets are able to improve their homes. IKEA’s part in this partnership is to finding simple solutions, scrimping and saving in every direction – except when it comes to ideas.

Also, their designers work with manufacturers to find smart ways to make furniture using existing production processes. Then their buyers look all over the world to find the best suppliers with the most suitable raw materials. After that, they buy in a bulk so that they get the best deals and the customers the best prices. The customer’s part now is to go to the store, pick out the furniture and then pick it up at the self-service warehouse. After that they have to get them home themselves and assemble them on their own.

Since this service is not done by IKEA, they do not charge for it and the logical consequence is that IKEA and customer save money together. We think that the mission statement fits perfectly to IKEA’s core concept and core competency. If customers want to pay a low price for more or less quality and fashionable furniture they must be willing to do something for this in exchange. In this case they have to bring their products home and assemble them themselves. The success of IKEA shows that many people are willing to do that in order to pay less than at other furniture retailers.

The fact that IKEA plans to have fifty stores in operation in the USA by 2013 is an indication of how optimistic the company is about the viability of its value proposition in this country. Do you think IKEA is being overly optimistic in its growth plans? How would you improve IKEA’s value proposition to make it even more attractive to American consumers? In our opinion this was not an overly optimistic goal. The past growing trend indicated that there was a high potential in the US furniture market. Since IKEA does not only have monster stores and great prices, it also created a niche.

Furthermore, they analyzed two core problems in the US market and made adjustments: Firstly, they realized that Americans are very likely to stick with their furniture and home decoration for many years and more seeking for a lifetime product instead of something cheap that might only last for a few years. In order to convince Americans to change this habit and be more open for changing furniture more often, they started publishing commercials that were making fun of the American’s unwillingness to part with their furniture. These commercials were quite successful and maybe also lead to the increasing number of customers.

Secondly, they saw that Scandinavian design was something for a small niche market and furthermore that only offering the same products that they had in Europe would not be successful. Consequently they made adjustments to the product range (e. g. bigger glasses) in order to meet the American’s expectations. These changes are important for creating a value proposition and can always be continued. By asking customers for feedback and also what changes they would like to see that are made they can extend their value preposition and reach more customers.

These analyses and preparation were needed to set food in the US market. Since nowadays IKEA has 49 stores in the US (source: IKEA, “Welcome Inside”, 2011) they are very close to reaching their goal and also the USA is the second top selling country after Germany (11%). When it comes to improvements, IKEA could consider to offer furniture delivery and assembly service (the customer would have to pay for that service) to satisfy busy consumers or people that are unable to do the construction themselves.

Furthermore, they could extend their product range with products that have a higher quality and therefore longer durability to satisfy quality-conscious consumer segments. To achieve the kind of growth IKEA is hoping for, should the company change its product strategy? If so, in what way(s)? What about its product range — are there limitations to the matrix approach? Should the company expand its product lineup to include a greater number of styles and price points? In what other ways should the company consider changing its product lineup?

They should only change their product range when it comes to making adjustments in order to accommodate to American habits and standards. For example, to offer products that are bigger in size to fit in the American Homes. So far there are of course limitations to the matrix approach because it only offers three kinds of prices and four different styles and no “in-between-products” are possible. Nevertheless, in our opinion they should not change that because if they offer a greater number of prices and styles they will compete stronger with the high-end and low-end competitors.

Although IKEA has reasonable prices they cannot and should not compete with low-end retailers such as Walmart, etc. because the margins would become lower. Also they do not have the service in order to compete with high-end stores. Therefore they should also stick with their four styles and not overwhelm the customers with all kinds of sub-styles etc. like those companies do. They state themselves that it is part of their philosophy not to have everything nor extreme or over-decorated items, but they have what helps to build a good home for a nice living.

Nevertheless they offer many home products next to furniture, such as dinnerware, lamps, decoration, etc. Consequently shoppers can find everything they need in order to prepare a cozy home. All in all, we think IKEA should stick to their mission but obviously it makes sense to adjust a few features and details in order to appeal to American customers. The numbers these days show that IKEA was right to stick to their concept and therefore they achieved the growth they wanted. If you had to predict, what do you think IKEA’s value proposition and product lineup will look like in ten years?

We believe that the value preposition and product line up will not undergo extreme changes. Since IKEA has a successful product strategy they do not need to change their core competency or create other competitive advantages. Obviously, in the upcoming years there will be new trends that IKEA has to implement in their product range and they also have to face the growing e-commerce market. This is why IKEA should start thinking about also selling their products online. This would also make it easier for customers since the delivery would be done by IKEA.

Since this Harvard Case is from 2004 there have been some changes in the last years. In 2012 IKEA launched their first e-commerce site for the Russian market which experience high approval due to its combination of emotion, information and interaction. In this context interaction would mean for example that people can decorate and design their rooms online with a simulator that shows how each IKEA product would fit to different styles or living conditions. Industry observers have suggested that IKEA should open up smaller, satellite stores across the United States ( e. g. in shopping malls, strip malls, etc. By offering a limited range of IKEA products, these “IKEA Lite” shops would presumably give consumers who do not otherwise have access to a full size IKEA the opportunity to experience the brand. In addition, consumers who do live near a full size IKEA would be able to use these mini outlets to make minor purchases (e. g. purchase a set of mugs as opposed to an entire living room set). Do you agree with this idea? Why or why not? One the one hand it would be a good idea to start up satellite stores in location where access to nearest IKEA Superstore is more than an hour’s driving.

A research into the areas demographics and spending habits could serve as an indicator whether a satellite store would be successful in the long term or not. Opening new IKEA satellite stores in smaller towns would also lead to higher brand awareness. This could serve as a way to advertize their global presence. Furthermore, an IKEA satellite store could carry smaller items which do not require much of the floor/ storage space but should include the virtual display and its detailed information so as to promote the IKEA brand. The smaller products could be displayed in a showcasing fashion to appeal the buyers.

In addition they could show in smaller stores how the items there could be combined with bigger products (such as furniture) in order to inspire people and make them drive to the bigger stores to purchase the products. On the other hand, the unique shopping experience that usually is created in the big stores due to the carefully designed store-layouts, the Swedish’ restaurants and child care center would get lost. Customers who went for the first time to IKEA into a satellite store would get a complete different brand image than someone who goes to the flagship stores. Therefore IKEA’s unique points-of-difference would be lost.

Furthermore, there is the threat that people would no longer connect IKEA with furniture but only with small home decoration products. This could lead to a decrease of sale in the bigger stores. Summarizing, we would therefore say that in order to install satellite stores there must be detailed analyses how big the demand would be and which customers would be likely to visit these stores – if they are familiar with the IKEA concept or if they are “newbies”. ——————————————– [ 1 ]. Cf. : http://www. e-commercefacts. com/news/2012/06/ikea-e-commerce-video/index. xml, seen on the 25. 11. 2012