Ikea Invades America

IKEA is the worlds largest furniture retailer (in 2002), with sales approaching 12 billion dollars. They operate in 22 countries and have 154 full service distribution stores. IKEA is a highly differentiated service and product provider, emphasizing high-quality product at the lowest prices via non-traditional positioning strategies. In order to provide these low costs, the product came with virtually no customer service and Ð''put it together' and Ð''transport yourself' directions. In addition to these "strictly self-service" outlets, IKEA offered various amenities including, Swedish cafes and playgrounds for kids.

IKEA's decision to enter the US market was an easy one, especially with 67 billion dollars a year in sales and highly fragmented market- the top 10 retailers only combined to make up 14% of market share. The issues that come up out of this decision are the factors that could make or break such a wonderful business model. Aggressively, IKEA plans to have 50 stores in the US by the year 2013. Now whether these lofty goals of a foreign company to achieve in the US market, given their international success- mainly in Europe, still remains to be seen. With proper analysis of the case, one can ascertain that IKEA needed to realign their value proposition with this new market segment, just altering their existing and fully functional strategy to fit the needs of the everyday American and to prepare for growth in a very large market. Value propositions define how product and service features as well as complementary services are packaged and offered to fulfill customer needs, the American's needs in this case.

Relevant Facts and Issues

In order to fulfill the American consumers' needs successfully and ultimately achieve their goals of 50 stores in 10 years, one must identify the failures they committed in their first 2 years in the US market and align the needed change with a growth strategy. Michael Porter's core business processes defined in his value chain were part of IKEA's strategic initiative to enter the US market. IKEA's core competencies consisted of their primary functions: defining all activities in the production and launch of the products at low cost, differentiating the product line and logistics. The secondary activities (and, in retrospect, more important ones when crossing cultural barriers) were defined to support their primary functions: defining your target market, understanding your individual customers' needs and fulfilling the management process. IKEA's purpose was to add customer value in their primary functions, which ultimately required realignment in order to achieve success as noted in

Upon entry, IKEA failed to identify the customer base needs. Under the assumption of what has worked in European countries will work in the US, they maintained their product line and strategy of outsourcing, low cost, and self service. This was mistake number 1- failure to define the customer base, wants and needs, not just low-cost, medium-quality items. In order to furnish the customer with good quality products at a low cost, IKEA must have a deeper understanding of the American consumer and their purchasing behavior, which they failed to do and is vital to the value chain. Ikea's role in the value chain is to organize suppliers and customers to help them further add value to the organization. Customers are informed of what the business plan provides, and what they are expected to add to the final process, which is transporting the product to its final destination and to finish assembly. In a sense the consumer is not just benefiting from value but, creating it as well. This is what differentiated IKEA from the competition and ultimately enabled them to provide at such a low cost. This strategy, on the other hand, will not function if there is failure to achieve the remainder of Porter's core competencies. Mistake number 2 was maintaining their centralized organizational structure. In order to identify local issues, managers need flexibility and lead way in order to be efficient and respond effectively.

Once IKEA identified and understood the consumers (i.e. abandoning metric measured appliances and beds for American standards of size and comfort), they were able to double revenues, from $600 million in 1997 to $1.27 billion in 2002. From this analysis, it is possible to infer that IKEA combined their already successful cost leadership strategy with the properly identified needs of its target market, the American consumer. With this modification of the value chain, IKEA increased revenues and is pointed in the right direction to achieve their growth goals for 2013. As seen in Appendix 1, their projected growth is well into 8% per year, in relation to total projected growth.

In order to achieve these projected figures, it is possible that an even deeper understanding of the American consumer and possibly