Ikea Current Event

Background

Ikea was founded in 1943 when Ingvar Kamprad was given the Ikea name by his father. Ikea stands for; Ingvar Kamprad elmtaryd Agunnaryd, the son's first and last name and the farm and village where he grew up. The first Ikea sold small items such as pencils, table runners and nylon stockings, all for exceptionally affordable prices. Ingvar knew he had found a system that worked, by 1945 he had expanded. Ingvar started advertising in local newspapers and began a do-it-yourself mail order service, where goods were transported by the local milk van to the train stations. In the early 1950's Ikea published a magazine discovering that customers wanted more, forcing Ikea to innovate. In 1953, the first "hands on" Ikea furniture store was opened to the public in Almhult, Sweden. With many competitors in the area Ingvar quickly noticed that the customers wanted more. Ingvar met their demands by innovating his showcase to reveal the three key demands his customers wanted; function, quality and low prices (www.Ikea.com/company_history).

In 1955 suppliers of Ikea furniture started to reject Ikea, due to the demands of the competitors. After suppliers refused to do business, Ikea was forced to start manufacturing their own products. As luck would have it this led to innovative designs and improved function at a lower cost. Further yet, Ikea designers were able to make pieces that easily fit into convenient sized packaging, ultimately eliminating the delivery service (www.Ikea.com/company).

Since, Ikea has expanded its group into 90,000 coworkers and operates in 44 countries. When it comes to purchasing, Ikea has 46 service offices in 32 countires, with coworkers in each office monitoring production. The monitoring makes it possible for Ikea to test new ideas, bargain prices and check quality all while keeping an eye on social and working conditions among suppliers. Ikea states, "Being close to our suppliers, around 1,300 in 53 countries, is the key to rational, long term cooperation" (www.Ikea.com/facts_figures). Today, every Ikea store offers the same great atmosphere and products. Not only do they offer quality products at low prices but also they culturally diversify and follow the trends of every culture they enter.

Strategic Attempt

As the most successful global mass-market retailer, Ikea has created and implemented a strategic plan unique and profitable to their firm. Building their core competencies on a foundation laid out by Ingvar Kamprad, Ikea has formed a new lifestyle for shopping. Ikea's strategic mission is to provide every customer with a state of mind that revolves around contemporary design, low prices, wacky promotions, and an enthusiasm that few institutions can muster (Business Week).

Ikea is celebrated for their cool, chic designs and contemporary style furniture, but it is the low cost benefit that is this corporation's greatest advantage. Consumers are rushing for the chance to shop at a "one stop sanctuary for coolness." Providing everything from dining tables to candlesticks, Ikea has incorporated style and fashion into all their products and made them affordable enough for a renter. Ikea's ability to continually lower prices annually, almost unheard of in today's business market, is undoubtedly their secret to maintaining a sustainable competitive advantage. Ikea aims to lower prices across its entire offering by an average of 2-3% each year. For example, in 1999 the Klippan sofa was sold for $354. Today it is sells for $202.

Promotional strategy is another core competency Ikea has a handle on. Taking a non-traditional approach to promoting store openings, Ikea has had an in store lock down where customers have had to sleep in the store for three days and participate in activities to win a $2000 gift voucher. Other promotions include; VIP shopping opportunities, where they let you in before the actual store opening, and large sum gift vouchers ($1,000-$5,000) given away to the first x amount of customers to arrive at the store. These promotions have been so successful that people have been known to camp out in front of the store up to a week before it opens.

Another of Ikea's core competencies is their ability to create a positive atmosphere and create enthusiasm within each store through effective design. Since the store is designed in a circle, the concept for the store layout allows one to see all the merchandise in the entire store by simply moving one direction. The aisles are wide to allow for merchandise inspection and constant flow of traffic, merchandise is fully assembled and displayed for viewing and product testing. Ikea also houses a restaurant, kids playroom, and staged room displays to allow for better visualization and overall atmosphere. Ikea's work structure for employees also helps set the atmosphere and showcase employee dedication and enthusiasm. On a regular basis Ikea hosts Anti-bureaucracy Week, during which executives work on the shop floor and tend to the registers.

Customizing local markets to reflect individual cultures is another of Ikea's core competencies that have allowed them to be able to hold on to a large market of global lower-middle to middle class consumers, something that even Wal-mart has yet to accomplish. And with just 5-10% of the furniture market accounted for in each country Ikea operates in, there is plenty of room for growth. "Awareness of our brand is much bigger than the size of our company," states CEO Anders Dahlvig.

Restraining Conditions or Limitations

Effectively reaching the global segments which include relevant new global markets and existing markets provides both opportunities and challenges for Ikea. One of the strategies being used in to penetrate these markets is a cost leadership/product differentiation strategy. One example of differentiation is the PS Ellan dining chair, which can rock onto its hind legs without tipping over, is made of a wood-fiber composite, and can be broken into six pieces making it easier to ship and assemble. Ikea is working hard to be the cost leader in all the markets they do business in as well. "Designing beautiful but expensive products is easy. Designing beautiful products that are inexpensive and functional is a huge challenge", says Josephine Rydberg Dumont, president of Ikea of Sweden (p. 102 Business Week). No design will make its way into an Ikea showroom if it is not deemed affordable. The 12 full-time designers work along with 80 freelancers using a trial-and-error process that takes up to three