IKEA Invades America

By Chintham Ashish (009)

Arokia Rexton (028)

Early years of IKEA

IKEA was founded in 1943 in Sweden. The ultimate aim of IKEA remained to produce stylish

Scandinavian furniture at the lowest cost possible. Following the success in the home country,

IKEA expanded further into Europe and then the U.S. Even though Americans were delighted by

the low prices, they were not satisfied with the design aspect. IKEA had a target of establishing

50 operation stores in US by 2013. The shopping experience at IKEA is made easy by the vast

parking space, restaurants and child care facilities. The company successfully established itself in

the US market and it was the 3rd largest market for it.

IKEA’s Marketing Mix

Product

Easy to assemble and dismantle, easy to transport due to flat packing.

Scandinavian designs- Point of differentiation.

Product line consist of around 10,000 products,

Price

Low cost, low price and Scandinavian stylish furniture. Cash and carry system.

Place

In 2002 Ikea operated in 154 stores in 22 countries and served 286 million customers.

Promotion

Stores were made in such a way that the customers can visit the stores and see all the variety of

offerings which would suit them. They were allowed to sit on the furniture and experience the

IKEA products. This was a main promotion tool used by IKEA apart from high budget

advertisings. The stores resembled theme parks and had restaurants, childcare facilities to pull in

the customers.

Problems Faced by IKEA

Quality of Furniture

IKEA is more focused into price than quality. IKEA’s offer of ‘low price with meaning’ has

reduced cost where ever possible therefore a compromise is made on the quality. IKEA’s

furniture are not know for lasting over a longer period. On the other hand Customers are not

ready to witness their recently brought furniture falling apart. This might cause a bad word of

mouth to spread in due course and the customers might think twice before visiting IKEA stores

for their second purchase.

Focusing on quality will definitely affect the price levels of the products. They might miss their

offer of 25 to 50 % lower price than the competitors. Care has to be taken so that proper mix of

materials is used so that the life of the products is increased. An optimal level has to be arrived

upon where there is a reasonably longer life time for the products with reduced costs.

Design of Furniture

When IKEA opened its stores in US, the Americans were not satisfied by the product comfort

level and the dimensions. IKEA’s sofas were harder than America’s existing sofas. The dining

tables and the beddings did not match the size of American coverings. IKEA’s dimensions were

in centimeters, whereas inch was the standard unit of measurement in US.

This problem was rectified after doing a market research understanding the lifestyle of

Americans and their expectations about the furniture.

Matrix Approach

IKEA followed the matrix approach, where in the products were designated with two dimensions

namely the style and the price factor. Since IKEA is having no specific target group it has to

satisfy the entire customer segment. But the styles offered are limited to only 4 types i.e.

Scandinavian, modern, country, young Swede.

We would suggest IKEA to consider expanding the matrix in terms of the style dimension so that

the increase in variety would in turn pull in more number of customers. This would facilitate

IKEA’s aggressive growth target of opening 50 stores in US by 2013.

Though IKEA is known for its Scandinavian designs, it is going to be very difficult to capture

the market with this POD. It should also consider of having a mix of designs or fusion of

designs. For example Modern Scandinavian designs.

Strategies for future growth

Although IKEA was having a steady growth till 2012, its future growth opportunities seem to be

narrow.

IKEA says young and modern people who would like to try new products are its customers for

example students and newlyweds. Focusing on this customer segment, though constitutes a good

sale, in order to expand rapidly IKEA has to focus on other customer segments also. Introducing

some typical US classic model furniture would invite customers who love the traditional

furniture also.

This strategy also has a dark side. It might affect the economies of scale and lead to coast

increase which in turn leads to price increase. It might also affect the company’s uniqueness of

offering Scandinavian designs. Therefore care must be taken not to dilute the company’s

uniqueness and the brand name not being affected.

IKEA might come up with campaigns such as rebirth of designs where older designs are

renovated with a fusion of new designs, not altering the traditional look. It might try these new

designs and products portfolio expansion under a different brand name so that IKEA known for

its Scandinavian still remains unaffected even if the venture fails.