IKEA Invades America Case Solution

1. What factors account for the success at IKEA?

IKEA is known for its unique products with a focus on a specific target market. Variety of the product range allows customers to choose products according to their specifications. IKEA designs its own furniture range and focus the designing strategy on three aspects

1. Affordability,

2. Compactness and

3. Attractiveness.

It follows a no waste strategy which enables the company to make affordable products for the customers. IKEA attracts its customers through innovative and high budget advertising, focusing on the locality to be targeted. Once in store, customers tend to buy impulsively due to the compact design and affordability of the products available. The products are flat packed and can be easily transported from the outlet to customer’s destination, resulting in more convenience for the customers.

IKEA outlets have been designed to promote family shopping experience by introducing child care centers in every outlet. Furthermore, customers can dine in the outlet’s restaurant; they can avail banking facilities within the outlet, and enjoy a large parking space for more than 1000 cars. IKEA has managed to create a brand name through the effective use of foresaid features, and many customers use its products due to brand loyalty.

Summarizing the key success factors of IKEA as follows:

• Low cost- flat packaging

• New designs- own designs

• Variety of styles

• No waste strategy

• Social ethical responsibility

• Impulsive shopping strategy

• Child care centre to encourage families

2. 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?

IKEA enables customers to select from a set of variations of the same product type which helps the company to appeal a greater segment of the market. According to the company’s product strategy, it offers low cost products with a wide range of variety in order to cater to the needs of its customers. It divides its furniture product range into four categories namely, Scandinavian, Modern, Country and Young Swede. Every specific type of product comes with its own particular price. This clearly shows that IKEA targets different sections of the community according to their specific taste and likeliness. In addition to that, products are adapted according to the need of continuously changing market.

According to the matrix approach described by the company, it offers four types of styles for the same product with every product further divided into three price segments. This type of pricing strategy is best suited for a business like IKEA’s as its major strength is product variety at an affordable cost. Customers have an option to select from a broad range of products and even the customers having limited financial resources are satisfied due to the pricing strategy of every particular type of product i.e. High, medium and low.

3. Despite its 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 customer. What do you think of this vision statement?

IKEA has a product range of furniture which does not last longer than the products offered by other retailers in the furniture industry. One of the major downside of shopping at IKEA is that, no matter the products are priced at a lower level, but this is done at the cost of product’s life. Furniture is normally considered to be a lifelong product, which means that if the products last for a few years, it would be considered as a downside to the company.

Secondly, IKEA stores run on self service basis, which means that customers have to select, pick up and assemble the packages on their own without the assistance of IKEA employees. Customers may find it difficult to handle bulky packages and assemble products with perplexed instructions provided with them.

According to the customer partnership related vision statement, IKEA expects its customers to bear with the hassle of handling and assembling of the packages and maintain the product price at a lower and stable level. This type of vision statement enables IKEA to develop a relationship with its customers and create a sense of partnership and responsibility within them.

4. The fact that IKEA hopes to have fifty stores in operation in the United States 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?

IKEA has successfully created its market share in the United States by designing its strategy according to the target market. The company applied some of the basic marketing strategies such as commercial based advertising; to make the advertisements most effective, IKEA used high profile actors, directors, and comical ideas in the making of commercials. This resulted in a major revenue increase of the company, making it able to open more outlets in the United States. If IKEA keeps on bringing innovative ideas for advertising its products, and keep the products according to the needs of its customers, then their target of reaching fifty stores by 2013 can be accomplished in an effective manner. One of the prominent trademarks of IKEA is the continuous expansion of the company in the form of its outlets. So, opening up fifty stores by the end of 2013, can result in a positive outcome for the company.

IKEA should focus on improving its customer service and adding on more services such as home delivery and consultant service. It can also improve and work on its Customer relationship management department in order to keep the American customers to itself. Discounts and price reduction schemes can attract a great number of price conscious customers.

5. To achieve the kind of growth that 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?

IKEA has been following the cost leadership strategy in order to target price conscious customers. In addition to that, it allows customers to choose from a range of stylish furniture within their budget. Hence, IKEA could use this product strategy in the future for a better performance of the company and as yet, it does not have to change it. It would help the company to stay on a given path and direction. However, the change in consumer needs should be incorporated in the strategy in order to make it sustainable. The matrix approach used by IKEA explains its product range and price brackets in which each type of product falls. However, it does not clearly states the criteria of products to be put into the category of high, medium and low price brackets. Furthermore, the price categories can be increased to make the products fall into the appropriate category.

The company can expand its product lineup and increase the number of styles by adding sub categories in order to make the products more specific. Price points will allow the company to sell their products at precise market retail price. Hence, it is recommended to expand the product lineup, and offer a variety of products at market specific price.

6. If you had to predict, what do you think IKEA"s value proposition and product lineup will look like in ten years?

Value proposition is a statement describing the reason behind the buying behavior of the customer. The basic purpose of IKEA’s value proposition is to convince a buyer (potential) that the products offered by the company will add more value as compared to other competitors in the market. IKEA has four prominent types of furniture in its current product lineup namely Scandinavian, Modern, Country and Young Swede.

In a period of ten years from now, IKEA would be in a better position to introduce products according to the demographics of the targeted market. Research on the demographics and customers need is an essential part of the expansion program of the company. The company will also incorporate customer relations management and after purchase services to make the brand name strong in the market. IKEA will be on expansion strategy and more stores will be opened in the time of ten years from now. The company will have to make its products diverse while keeping a stable price to sustain in the market of increasing competitors.