In: Economics
CASE STUDY IKEA
The first few years of the twenty-first century were difficult for
IKEA, the U$31 billion global furniture powerhouse based in Sweden.
The Euro’s strength dampened financial results, as did an economic
downturn in Central Europe. The company faced increasing
competition from hypermarkets, “do-it-yourself” retailers such as
Walmart, and supermarkets that were expanding into home
furnishings. Looking to the future, CEO Anders Dahlvig is stressing
three areas for improvement: product assortment, customer service,
and product availability. With stores in 38 countries, the
company’s success reflects founder Ingvar Kamprad’s “social
ambition” of selling a wide range of stylish, functional home
furnishings at prices so low that the majority of people can afford
to buy them. The store exteriors are painted bright blue and
yellow: Sweden’s national colours. Shoppers view furniture on the
main floor in scores of realistic settings arranged throughout the
cavernous showrooms. At IKEA, shopping is a self-service activity;
after browsing and writing down the names of desired items,
shoppers can pick up their furniture on the lower level. There they
find “flat packs” containing the furniture in kit form; one of the
cornerstones of IKEA’s strategy is having customers take their
purchases home in their own vehicles and assemble the furniture
themselves. The lower level of a typical IKEA store also contains a
restaurant, a grocery store called the Swede Shop, a supervised
play area for children, and a baby care room. IKEA’s unconventional
approach to the furniture business has enabled it to rack up
impressive growth in an industry in which overall sales have been
flat. Sourcing furniture from a network of more than 1,600
suppliers in 55 countries helps the company maintain its low-cost,
high-quality position. During the 1990s, IKEA expanded into Central
and Eastern Europe. Because consumers in those regions have
relatively low purchasing power, the stores offer a smaller
selection of goods; some furniture is designed specifically for the
cramped living styles typical in former Soviet bloc countries.
Throughout Europe, IKEA benefits from the perception that Sweden is
the source of high-quality products and efficient service.
Currently, Germany and the United Kingdom are IKEA’s top two
markets. The United Kingdom represents the fastest-growing market
in Europe. Although Britons initially viewed the company’s
less-is-more approach as cold and “too Scandinavian,” they were
eventually won over. IKEA currently has 18 stores in the United
Kingdom and plans call for opening more in the next decade. As
Allan Young, creative director of London’s St. Luke’s advertising
agency, noted, “IKEA is anti-conventional. It does what it
shouldn’t do. That’s the overall theme for all IKEA advertisements:
liberation from tradition.” In 2005, IKEA opened two stores near
Tokyo; more stores are on the way as the company expands in Asia.
IKEA’s first attempt to develop the Japanese market in the
mid-1970s resulted in failure. Why? As Tommy Kullberg, former chief
executive of IKEA Japan, explained, “In 1974, the Japanese market
from a retail point of view was closed. Also, from the Japanese
point of view, I do not think they were ready for IKEA, with our
way of doing things, with flat packages and asking the consumers to
put things together and so on.” However, demographic and economic
trends are much different today. After years of recession,
consumers are seeking alternatives to paying high prices for
quality goods. Also, IKEA’s core customer segment—post–baby boomers
in their 30s—grew nearly 10 percent between 2000 and 2010. In
Japan, IKEA offers home delivery and an assembly service option.
Industry observers predict that North America will eventually rise
to the number one position in terms of IKEA’s worldwide sales. The
company opened its first U.S. store in Philadelphia in 1985; as of
2010, IKEA operated stores in 48 stores in North America. Plans
call for opening at least several more U.S. stores each year
through 2015. Goran Carstedt, former president of IKEA North
America, described his target market by noting, “Our customers
understand our philosophy, which calls for each of us to do a
little in order to save a lot. They value our low prices. And
almost all of them say they will come back again.” As one industry
observer noted, “IKEA is on the way to becoming the Walmart Stores
of the home-furnishing industry. If you’re in this business, you’d
better take a look.” (Keegan & Green, 2014)
QUESTION >>
One of the variables can be the status of their house if they are owning house or renting house. Supposedly, if one owns a house, they may want to go for furniture options which are unique unlike IKEA which sells fewer option in furniture which are similar and can be seen in many households. They may want to invest money to get luxury furniture and even want to customise the furniture according to their colour choice and comfort choice as it is a long time investment for them. But for people who are living in rented space may move every now and then between houses and they need a cheaper option and something which is easier to move while shifting houses. That is where IKEA can play big role while they opt for IKEA furniture as it is both cheap and can be folded back and can be shifted easily.
The second variable is most widely used segmentation variable which is the income level. The comparatively richer section may opt for luxury options. Whereas the lower income level section can opt for options like IKEA . So market strategy can be drawn based on the above mentioned variables after getting data and deeper market study.