IKEA

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Abstract

IKEA is known as one of the leading furniture retailers in the world. A Scandinavian company, IKEA's success is the result of an unprecedented approach to the consumer and to the business world. Its founder, Ingvar Kamprad, understood at the onset of the company's establishment that the needs of the customer would be the prime factor that would drive success. With this thought process, IKEA emerged as a profitable business centered on low-cost, effective product differentiation in the minds of consumers and an extensive product line appealing to the high quality, efficient aspects in society. IKEA's success allowed the company to expand globally, but not without challenges. These challenges were criticized because many cited that the luster associated with the company had vanished. However, IKEA recovered. IKEA remains as viable in the furniture today as it was when the first thought of in the early 1940s.

Executive Summary

This paper analyzes the successes and challenges associated with IKEA specifically looking at the company’s emergence in the world of furniture, the corporate culture and its expansion into the international arena. This paper diagnoses the future of IKEA as to whether the reputation it has maintained over several decades can withstand the growing number of retailers in the furniture industry.

Introduction

Since its inception, IKEA has offered unique products centered primarily on affordability and quality. According to IKEA (2014), the concept is to better the lives of each of its customers through design, function, and quality while creating an array of home furnishing products that speak to the uniqueness of its brand (p.1). When strategizing to create a brand identity, businesses tend to analyze and examine what is missing in the consumer marketplace and seek ways to capitalize on these absences. As such, IKEA and its respective conceptualization of providing consumers with quality merchandise at an affordable price not only captured the marketplace when it first emerged but continues to do so in the 21st century.

IKEA’s Business Strategy: Triumphs & Challenges

Teece (2010) denotes the importance of businesses creating a strategy to establish and diversify who they are both to the employees that work for the business and the consumers that will either purchase their products or partake in their services. The health of a business depends upon the strategy that it sets up and the respective objectives that are created as a result of the strategy. Often referred to as a model, the more extensive the strategy that is created, the more competitive the business can be in the marketplace (p.173-175). Created by Ingvar Kamprad to "serve the needs of the people" IKEA is the result of understanding the needs of consumers and coupling that with affordable prices. IKEA's business strategy is one of convenience intertwined with vertical integration, "uniting a variety of suppliers, coordinating long-run production schedules, and controlling distribution that began in 1953, with the opening of the first showroom" ("IKEA: Scandinavian Style," n.d.). Vertical integration, by and large, affords companies extensive possibilities in reducing their production costs and becoming more efficient in overall modus operandi. Kamprad's capability to tap into the consumer marketplace speaks to the sign of the times in which he lived. Noted as one of "rising consumerism amid the rebuilding boom that would follow the war" ("IKEA: Scandinavian Style," n.d.), the business strategy associated with IKEA was and is straightforward in both effectiveness and cost-efficiency.

IKEA prides itself on practicality. One of the key strengths within the foundation of the company's business strategy is its distribution and coordination dynamics. While Kamprad faced a myriad of dilemmas during the early stages of IKEA, the company found a way to forge new partnerships and subsequently, capitalize on the demand that consumers were seeking. IKEA outsources its manufacturing, uses "normal short-term purchasing contracts with suppliers, and has indirect control of its suppliers" ("IKEA: Scandinavian Style," n.d.). Essentially, IKEA maintains a vigilant attitude toward working with suppliers to carry out its precise strategy of low cost and quality merchandise. Moreover, the strategy is a far-reaching one. Their capitalization of efficient costs as well as exceptional products has contributed to them becoming well-known nationwide.

Twarowska & Kakol (2013) assert that businesses that come to have global marketing strategies are ones that have mastered the coordination and execution of their products. Further, the product has achieved a certain notoriety in the eyes of most, if not all consumers and the business has discovered ways to both appeal their products to the consumer on many levels and satisfy the demands of many international countries. Also, companies that employ and execute a global strategy have successfully integrated moves over a certain amount of time, and established competitiveness in doing so. Companies tend to go expand their operations overseas because they: 1) see the value in doing so to further establish their identity as a brand in the eyes of consumers; 2) there is a technological breakthrough (i.e. social media, e-commerce, etc.) and 3) profits can be increased because overseas operation budgets are reduced (p.1005-1006). For IKEA, global reach to them meant and continues to mean being wholeheartedly vigilant in understanding the shifting currents of the supplier waters that vary by country. In other words, IKEA must continually examine data regarding the requirements for a country it operates in to ensure that the relationships it has established with suppliers remain intact.

Twarowska & Kakol (2013) speak to IKEA's business idea by arguing that they are the only company to fashion itself within the furniture industry as a highly capable retailer. Globalization did not afford itself technically to the furniture industry, but because of the business strategy that Kamprad developed, IKEA could both respond to the growing demands and understand what consumers in a variety of countries would want to purchase. That is not to say that IKEA did not face challenges in the execution of its business strategy. IKEA's product is distinctively small compared to many furniture kits and household items - using efficiency as its business model rather than an enormous size. This presented many problems for countries, especially the United States in comprehending the IKEA concept. When it first introduced itself to the US market, IKEA did not perform as well as many projected that it would (p.1009). This suggests that IKEA’s business strategy while effective in Scandinavia, needing some tweaking when introduced into the global arena.

To extend its business strategy and become successful in other countries, Kamprad's strategy of lifestyle solutions started to change. Consumers understood IKEA's premise - low cost, high-quality product, but needed an additional element to get on board the proverbial bandwagon. This prompted IKEA to expand its product lines over many decades and subsequently, "increase sales and profits" ("IKEA: Scandinavian Style," n.d.). Additionally, IKEA would encounter several imitators once it decided to expand to other countries because it was able to take the perspective of all consumers once it examined the details of each company it emerged in.

IKEA & Innovation

Chesbrough (2010) describes the need for businesses to continually come up with new ideas and ways of engaging the consumer so their product does not become stale. Good business is simply having the capacity and capability to assess and reassess their initial business strategy to remain viable in the eyes of the consumer - and in turn, the business world (p.355). When faced with problems, IKEA started changing several core features of its business model to satisfy the evolving consumer tastes. Many critics observed that IKEA "had abandoned its maverick methods and relinquished its innovative edge. They detected a loosening of the company's strict core values" ("IKEA: Scandinavian Style," n.d.).

In its global expansion, IKEA began to look at ways it could become more attractive and appealing to non-Scandinavian consumers, as it “magnified the problems and the need for flexibility [due to] cultural differences” ("IKEA: Scandinavian Style," n.d.). IKEA’s products are dependent on an efficient market and because of this, consumers couldn’t necessarily see the various procedures associated with their products. This prompted IKEA to shift their design a bit – not substantially, but minimally to comply with the cultural differences.

Innovation in business sometimes predicates that a company must identify what is and is not working as far as their product base. It can be argued then, that IKEA in expanding their product lines were innovative despite the problems they encountered because they were willing to make particular adjustments to their line without damaging the core of their brand, which is “a little bit of Sweden” ("IKEA: Scandinavian Style," n.d.) in each item they sell. Thus, it was more of how the consumer could benefit from IKEA as opposed to why IKEA could benefit them. This shift in strategy in dealing with the consumer has afforded IKEA repeat business from consumers worldwide.

The IKEA Environment

IKEA is one of the most dynamic companies that individuals can work for. With the premise of "creating a better everyday life for the majority of people," ("IKEA: Scandinavian Style," n.d.) this suggests that both the external and internal environments illustrate their commitment and devotion to betterment. Regarding the internal, since IKEA focuses on the customer's lifestyle, it is unsurprising to discover the considerable attention they give toward their workers. One particular example is their anti-bureaucracy week which "places executives on stock-room and selling floors, tending registers, answering customer queries, [and] unloading merchandise from trucks" as well as the loyalty program and home visits program that allow the employees to educate consumers on how IKEA can better their lives ("IKEA: Scandinavian Style," n.d.). Each of these examples reveals IKEA's determination to honor what its workers do and their capacity in being devoted to changing the consumer lifestyle. This also suggests that the organizational management of IKEA does not think of themselves as ‘higher’ or more equipped than its workers because they are willing to get into the working environment and do what the workers do.

As far as the external environment, IKEA appeals to just about every consumer that wants efficient furniture that is intricate in its design and not overly expensive. IKEA designed its stores to engender the ultimate shopping experience for the customer. There is a notable convenience layout - and one geared toward leisure for children in a playroom, a restaurant that families can stop in midway through their shopping experience and charming showrooms that display their products. IKEA models its products as must-haves and because of this fact alone, the external environment is stimulating and engaging.

Romaniuk et al. (2007) posit that brand differentiation is important and can have lasting implications for a business. Specific marketing techniques and methods can be used to discriminate a product from one another in addition to the price. Companies must spark a central position in the marketplace in the eyes of the consumer, so individuals and families do not see brands as the same. Consumers expect that marketing and advertising of a product will be motivational and present them with the features of the product and why they need to have it. There needs to be a unique selling characteristic present in a companies' brand differentiation to both allure the consumer and to begin developing brand loyalty (p.42-44). For example, Coke and Pepsi, although selling soft drinks, must distinguish themselves in the marketing efforts so they continue to be appealing. Likewise, IKEA, being a furniture retailer must establish its brand identity based on being unique to the consumer.

IKEA has continued to maintain a place in the marketplace because it is so distinct. Other furniture retailers have tried to overpower the appeal of IKEA by creating a similar type of business model but have failed at their attempts. That is not to say that IKEA does not have competition. When the company first established itself in the United States, as aforementioned, it encountered significant issues because of the size of the furniture. In addition to this, the company toggled between being a global brand or a local one. This allowed for competitors to try and appeal to the consumer marketplace in a similar fashion using push marketing and other techniques. Some consumers are not overly gleeful about the products that IKEA offers because they are somewhat limiting. The “company’s delay in bed size designation to the familiar king, queen, and twin drove U.S. customers bonkers because ‘160 centimeters’ meant nothing to them” ("IKEA: Scandinavian Style," n.d.). While their product line has since adapted, consumers became fed up with the delay and began gravitating toward other retailers.

IKEA has been able to re-establish itself in the eyes of consumers, expanding its reach to the consumer marketplace regarding catalog marketing – and store openings, maintaining its initial brand strategy of being for the consumer first and foremost. IKEA after all, "was the first retailer to acknowledge through advertising the broadening in definition of family to include multi-racial, multi-generational and single-sex family arrangements and to promote its openness to all families" ("IKEA: Scandinavian Style," n.d.). In addition to this, IKEA is one of the few, if only, brands in the furniture industry that uniquely reflects convenience and low-cost. Moreover, IKEA’s product line continues to evolve because of the relationships the company has with suppliers and designers. It can “fill the constantly changing needs in the lives of individuals and families” ("IKEA: Scandinavian Style," n.d.). Kamprad unequivocally took note of the needs of consumers at the time IKEA was first established and parlayed that into an uncompromising and unprecedented brand.

IKEA Organizational Structure & Issues

IKEA's organizational structure is one of precise detail and creation. The company prides itself on being careful in the execution of mission and vision seemingly to keep its reputation well established. The organizational structure "resembles the IKEA flat box, with only four layers separating the CEO and the cashier on the sales floor" ("IKEA: Scandinavian Style," n.d.). One of the most interesting aspects of IKEA is that it is built on a sustainability initiative. While this is a differentiating feature compared to other retailers, they factor into the organization's structure in that they do not like to waste anything in their overall dealings with the consumer and their business.

The current CEO of the company, Mikael Ohlsson, states that they "found a way to ship in one-half the container space, thus shaving £100 from the price - and sharply reducing carbon-dioxide emissions while transporting it" ("IKEA: Scandinavian Style," n.d.). The culture of the company then is one of waste not, want not - to prevent continual carbon emissions during transportation since the company does a significant amount of business online. As with several retailers of furniture, IKEA operates both in-store and online. Consumers can purchase products in both areas; thus, the sustainability attribute helps equally because of the manufacturing of the product that is shipped to the regular store, and the shipping of the product of the consumer if the consumer opts to purchase online.

IKEA traditionally has been stated to be an opaque organization in terms of its financial state. The rationale for this depending upon what is examined is fluid, but it is a historical dynamic for the company to operate as such. “Full public disclosure of information such as sales, profits, assets, and liabilities appeared for the first time in 2010 on the heels of a Swedish documentary. The ability to maintain such [opaqueness] dates back 30 years” ("IKEA: Scandinavian Style," n.d.). Analysis of this fact describes a shrewd company that has managed to protect itself from others discovering the components that make it work and “minimize the potential for takeover” ("IKEA: Scandinavian Style," n.d.). Also, it suggests that the company can continue its secretive nature because it was able to maintain an opaque nature for several decades and chose to reveal certain pieces of information not because it was forced to, but because it wanted to.

The Future of IKEA

IKEA's future lies in maintaining the customers it has garnered along the way. Its cost-effective and convenient premise produces considerable brand loyalty because the furniture has a reputation for holding up and lasting. This speaks volumes in the minds of consumers because it builds brand loyalty. IKEA recognizes brand loyalty establishing the IKEA Family Club, "in order to strengthen ties with existing customers and build long-term relationships. Family club members assist in sharing values and ideas and providing co-creating value for everything from product development to improvements in stores and service" ("IKEA: Scandinavian Style," n.d.). The family club is yet another example of the proficiency by which IKEA functions – a combination of shared collectiveness with the consumer and management that identifies with the everyday man and woman.

With such an emphasis on the consumer, it stands to reason that IKEA will not only maintain its reputation but also increase it significantly over the next few decades because its simple approach to business is distinctive from other retailers. The company is known for its longstanding ordinary technique in both operations in the internal environment and the externalities of product differentiation and consumer marketing. The company gives new meaning to the business world expressly defining and redefining not only how to operate in the business world, but how to establish fascinating relationships with consumers based on understanding what they want and need.

References

Chesbrough, H. (43). Business model innovation: Opportunities and barriers. Long Range Planning, 43: 354-363. Retrieved from http://www.businessmodelcommunity.com/fs/Root/8oex8-Chesbrough.pdf

IKEA. (2014). Retrieved from http://www.ikea.com/us/en/

IKEA: Scandinavian Style. (n.d.). Integrative Case 3.0, 579-582.

Romaniuk, J., Sharp, B., & Ehrenberg, A. (2007). Evidence concerning the importance of perceived brand differentiation. Australasian Marketing Journal, 15(2): 42-54. Retrieved from http://marketinglawsofgrowth.com/resources/17122.pdf

Teece, D. J. (2010). Business models, business strategy and innovation. Long Range Planning, 43: 172-194. Retrieved from http://www.econ.upf.edu/~lemenestrel/IMG/pdf/2_teece_on_bmi.pdf

Twarowska, K., & Kąkol, M. (2013). International business strategy - Reasons and forms of expansion into foreign markets. Active Citizenship by Knowledge Management & Innovation - Management, Knowledge and Learning International Conference 2013. Retrieved from http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-349.pdf