IKEA’s Global Strategy:
Summary of the background and facts
IKEA, a furniture manufacturer and retailer, is nowadays known in almost the entire world.It was founded in 1943 by Ingvar Kamprad as a small furniture store that served local consumers who were looking for good quality and low prices. From the very beginning IKEA contracted with independent furniture manufacturers who were not allowed to sell to other stores. The goal was to design furniture that could be easily assembled at the consumers’ home while keeping quality high and costs low. Inventories were held high and furniture was standardized in order to benefit from economy of sales. Consumers could walk through the store and look at the displayed and assembled furniture. The furniture they chose could be picked up as a kit in a warehouse directly in the store and taken home without having to wait for a delivery.
The main advantages of IKEA’s concept are that they can benefit from an economy of scale caused by standardized products. These standardized products are offered in all stores and can therefore be produced in high quantities. Additionally, each store requires only a few sales clerks whose main responsibility is to display the products attractively and to run the checkouts. At the same time the standardization of the product portfolio enabled IKEA to offer products of very high quality.
These advantages caused IKEA to grow to a turnover of 12.2 Billion in 2003 generated by 76,000 employees working in 175 stores in 36 countries worldwide. IKEA limits its promotion activities to word of mouth, little advertising, and its catalogues which display its current furniture as independent pieces and in attractive settings. By 2003 the free of charge catalogue became the world’s largest publication with 130 million printed copies. IKEA was founded in Sweden and then expanded to Switzerland. From there it entered the German market in the 1970s followed by the Canadian and eventually U.S. market.
Statement of "Core" Problem(s) of the Case
The core problem of this case is to find a successful marketing and promotion strategy that helps IKEA to be as successful in the United States as it is in Sweden, Switzerland, Germany, and Canada. The strategy has to be adapted to the American market and its unique culture. At the same time IKEA’s main company specific advantages have to be maintained: Economy of scales, high quality, and low costs. These benefits are a result of IKEA’s ability to standardize its products and manufacture them in large production lots with the help of contracted local suppliers.
When IKEA tried to enter the United States, it knew that it would have to change its marketing strategy from past experiences in Europe and Canada. The U.S. had much more diverse and spread out population. The culture in the northeast was different from the culture in the south and the culture in the south was different than the culture in the west. It would be necessary for them to come up with a new marketing strategy that would allow them to be successful in all parts of the United States. However, it was not just multiple marketing strategies that created issues for IKEA.
One of the main problems IKEA faced when entering the United States was how they were going to create steady supply chain. It just was not getting products into the United States either cause IKEA had plan on opening stores from Philadelphia to California and that distance alone is bigger than most countries. IKEA had to find a way to supply all of it stores if wanted to truly tap into the potential revenue from the U.S. Once IKEA was able to figure out how to supply the stores it had to make sure that there was an actual demand for the products it was selling.
As the case study points out, when IKEA first came to the United States it did not alter its product to fit the needs of American customers. European style beds were different sizes when compared to the American style beds. Thus, when a customer tried to buy a new bedframe at IKEA they would also have to buy new mattresses and sheets and this caused them not to buy anything at all. It would be cheaper to purchase a bedframe from one of IKEA’s American competitors. In order to counter this IKEA would be forced to alter its product. The solutions to these secondary factors were compounded by the constraints and limiting factors that IKEA faced.
Constraints and Limiting Factors
As with any new business venture cost would be a very big constraint on IKEA. Its business thrives on being able to produce high quality products at a low cost. This would be severely tested when the company decided to enter the United States. The pure size and location of the United States would create issues for IKEA in order to maintain this business model. As mentioned before the company had to be able to produce a steady supply chain. Since the U.S. was so far away from it European suppliers, IKEA would be forced to turn to local American suppliers to meet the demand. It would simply cost too much constantly ship the supplies from Europe and other markets. However, the American suppliers were not up to the same quality as the suppliers that IKEA had used in Europe. In order be successful in the United States IKEA would have to find a way to continue to offer high quality furniture at a low cost.
Alternative Solutions – Danielle Denkhaus
Ikea, who has a strategic intent to furnish the world, found themselves in a position to look for alternative options for value added success in the US. The top area of focus revolves around the supply chain including procurement, suppliers, transportation, and distribution. The U.S. supply chain is the infrastructure of Ikea US and the IKEA concept relies heavily on having furniture kits stocked in house for the consumers to look, see and feel in hopes to make a sale.To be successful, hiring a diverse workforce with a supply chain background would help develop and secure additional supply chain challenges. For starters, a supply chain team would secure forecast data, compared to U.S. furniture supply and demand to keep the stores stocked. The procurement team will research, secure and develop the supplier base driving costs lower and more favorable to maintain fat contribution margins. In addition to the procurement plan, focusing on suppliers within a 300 mile radius of their locations will help drive down transportation costs and lower the impact of the transportation variable costs. Utilizing a state of the art distribution center will help keep product furnished and accessible for consumers.
Another solution to drive results at Ikea is an investment in a market research firm. This investment will help drive product solutions including the wants and needs of their consumer base. In addition, the market research firm will add value in offering innovative solutions, strong pricing specifications and marketing data. Ikea’s use of a market research firm will drive data driven decisions and innovative trends. This firm can help understand what consumers want and need and will help drive value added results.
A forward thinking and long term approach includes an investment in innovation. Ideally, Ikea needs to be looking out 5 to 20 years on what their consumers will want. Technology has made a footprint on the US and incorporating this piece into their future will help secure long term stability. The future of Ikea needs to have advanced furniture to include hidden or solar charging stations, functional multi-use pieces, touch light furniture for bedside tables and sophisticated designs. Overall, investment among supply chain, market research and innovation will be key to long term success in the US.
Implementation of Best Solution
The best solution that should be implemented by IKEA is to create quality products with very original design that provides environmental protection at low prices. Such global strategy and performance of the company will place it a unique position since there is no any other company in its sector that has a global approach. It is recommended that before going on a potential market by opening a new store, IKEA already established a link with a supplier in that market. Using this kind of approach will reduce the risk since the local suppliers will be able to provide valuable information on political factors, legal, cultural, and opportunities or threats that may be faced by IKEA (Boscor and Baratucu 60). It can be observed that prior to the international expansion of the company in Europe and North America, IKEA has made sure that it already established subsidiaries of the company. For the past 20 years, the company has allowed the grant of franchises, which had been often used as vehicle for international expansion. To be able to maintain the standard of quality and logistics to the franchisees, IKEA was diligent in making periodic audit by comparing the franchisee’s performance with the overall performance of the company. The company generated additional profit by requiring the franchisees to pay the franchise fees.
IKEA will maintain to be a successful multinational company for its ability to introduce different products in a traditional furniture industry. At the same, the company was able to create a globally recognized brand that maintains high quality of attractive furniture at a very reasonable and low price. The company should continue to use a combination of strategies by keeping the low cost of furniture and maintaining its high quality. This is what sets apart other similar companies from IKEA since it was able to change the global strategy in a transnational strategy. The company should maintain its optimistic plans in entering new markets and increasing the number of stores in the current markets
Boscor, Dana, and Gabriel Bratucu. “Transnational Strategies Adopted By Furniture Manufacturers. Case Study: Ikea.” Pro Ligno 5.3 (2009): 55-61.