Service Strategy of

IKEA
















2013

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Table of Content

1. Introduction
i. History of IKEA 4
ii. Current Situation of IKEA 4
iii. Insights of IKEA 5
iv. Objectives of IKEA 5
v. Time line of IKEA 6

2. Why IKEA as a service organization? 7

3. Marketing Mix of IKEA
i. Product 8
ii. Price 9
iii. Place 9
iv. Promotion 9
v. People 10
vi. Physical Evidence 10
vii. Process 10

4. Service Strategy of IKEA 11

5. Overall Cost Leadership Strategy 12

6. Developing Complementary Services 14

7. Globalization Strategy 16

8. Conclusion 18

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1. Introduction


IKEA is a privately established, international home products franchiser that sells flat
pack furniture, accessories, and bathroom and kitchen items in their store around the world.
The company which pioneered flat-pack design furniture at the affordable prices is now the
worlds largest furniture retailer.

i. History of IKEA

The IKEA concept began when Ingvar
Kamprad who was age 17 years old, an
entrepreneur Smaland province in southern
Sweden, had an innovative idea. So when Ingvar
started his furniture business in the late 1940s, he
applied the lessons he learned in Smaland to the
home furnishing market.

Ingvar Kamprad

Ingvars innovative idea was to offer home furnishing products of good function and
design at prices much lower than competitors by using simple cost cutting solutions that did
not affect the quality of products. Ingvar used every opportunity to reduce costs, and he
scraped and saved in every way possible-except on ideas and quality. The name IKEA
formulated in a very creative way. The initials of Ingvar Kamprad came to first 2 letters I and
K, plus the first letters of Elmtaryd, and Agunnaryd, which are the names of the farm and
village where he grew up.

ii. Current situation of IKEA

As the world largest furniture franchisers they offer specific customer service in many
countries. IKEA concept journey continues with its global operation in 40 countries, with 330
stores and 154,000 workers.

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IKEA Store in Singapore
Initially its operations as a
seller of home furnishing
products, IKEA today diversified
its product into prefabricated
housing and food. Describing their
primary target market, IKEAs
Business idea is to offer a wide
range of well designed, functional
home furnishing product at a low
price. The target market is very
broad. They are aiming to appeal to people of all ages, sexes, geographic location, all who
have one thing in common and that is the price preference.

iii. Insights of IKEA

Vision:
To create a better everyday life for the many people

Mission:
To offer a wide range of well designed, functional home furnishing products at
prices so low that as many people as possible will be able to afford them

Market Positioning:
Your partner is better living. We do our part, you do yours. Together we save
money

iv. Objective of IKEA

To produce cheap and affordable product for the public/ customer and better life for
those who cant afford expensive product.
Absorbing the maximum from the current resource base without harming to the
sustainability of the world.

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v. Time Line of IKEA


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2. Why IKEA as a Service Organization?


IKEA is selling furniture franchiser which is now spread to more than 40 countries so
why learning IKEA as a service organization? IKEA does not sell furniture items to the
customers they just sell a furniture life style to their audience instead of selling what they
produce. It has constructed its store how houses really exist. From that they create a dreamy
house in the customers mind and if a living room this is how it should be. According to the
Service Marketing concepts it is known as the Servicitation, selling a product and a
service concept together.

Not like another furniture retailer, IKEA have its own values so before moving on to
the Service strategy analysis we drafted a model to understand more about IKEA. Based on
how the IKEA has created its value to the customers and its business model we have built up
a model to position the IKEA (Table No. 1).









Table No. 1 IKEA model


IKEA positioned not as a furniture retailer but as a service provider by
providing solutions to the real life problems as it is focusing in making contribution to a
better life for a majority of people.

Business Model
Value
Based
Control
Based
Value
Creation
Logic

Long term
& Multi
Perspective
Short term
& Financial
Value
Service
Dominant
Product
Dominant
IKEA

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3. Marketing Mix of IKEA


The IKEA is the organization which offers wide range of well designed, functional
home furnishing products at a low price. The target market is very broad. There for we can
see that the Marketing mix of IKEA has well defined to creative value for their customers and
retain them for a long time.

As the above chapter proved IKEA as a service organization, the marketing mix 7 Ps
for the IKEA is as Follows.

i. Product

The service products are the heart of services marketing strategy. It include with a
core product which meet primary needs and supplementary elements which value
added/enhance services

When we consider about the IKEA the core product is well designed functional home
furnishing product and supplementary services can be identified as follows. These service
will enhance the value of the service provide by IKEA and will assist to supply the core
product successfully. For an example the element order taking the IKEA has basically
physical and online order taking process. Under that any customer can search from online
about IKEA web site and see information and then order throe home furnishing. The
important thing is it has a specific schedule for their orders, customer can order by seeing the
schedule. It has created according to delivery process of geographical area.

Another example for consultation element, IKEA use basically guidance book which
include how customers can assemble their home furnishing product correctly. In addition that
in the store of the IKEA, there is always consulting sellers to assist customers when they
chose and take purchase decision by consulting them as such as, how to assemble them, what
are the specific advantages.



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ii. Price

Payment of service means the price. The IKEA uses reasonable and affordable prices
for their furniture. Costs are cut and way necessary to be able to sell the product for less and
still turn a profit. They use large volumes and flat packaging to cut cost. The transports are
economic from the furnisher via the stores, to the customers, there are expensive than most
competitors, and they are outside city centers to keep price even low.

iii. Place

IKEA is internationally expanded company. They expand their show rooms to
Europe, North America, Asia and Australia. Customers can come and see product in the show
rooms and also customer have to go web side and see product, after delivered to home,
because of online store customers to easy buy product.











Structure of IKEA

iv. Promotion

How we communicate product to customer, mean promotion. IKEA are using TV
advertisement campaigns, catalog and online advertisement. As well as IKEA provide home
delivery service to its customer, shoppers are guide by properly and after sale service to the
customer.


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v. People

Human resources in the organization can be identified as the people. Front line
employees who are directly involve with customer, IKEA has sales people in the front stage.
Who are supports to customer to select furniture product and also provide information about
the furniture product. Back stage customer not directly involves with customer who are make
product or who are executive and top level employees. IKEA has furniture makers and
managing people in back stage.

vi. Physical evidence

Design service escape and provide tangible evidence of service preformed acnes.
IKEA has no of show rooms expansion globally. That show rooms very attractive and family
friendly environment and give the perfect nature of a house. And also IKEA provide
restaurant and safest play area to children. IKEA use in delivering furniture own vehicles.

vii. Process

IKEA selling process mostly depends on show rooms. Customer come and see
furniture, after select furniture and payment, and delivering furniture to customer residual by
using IKEAs delivery vehicle. And also IKEA Company sells tire furniture true online.
IKEA customers have gone online and select product and online payment for furniture, after
deliver the furniture by IKEA.











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4. Service Strategy of IKEA


We have done a critical analysis on IKEA to gain insight on their service strategy.
First thing what we identified about IKEA is that it is not just a furniture retailer but provides
solutions to lot of people for an affordable price. Here the affordable price does not mean low
quality products but it derives lower cost products. So the first strategy in IKEA is the
Overall Cost Leadership. They maintain their cost in a lower level without harming to its
quality.

IKEA as a famous furniture franchiser it faces for a huge demand in every day. So we
analyze how they manage the demand with their capacity. According to the capacity they
have large show room which has optimized capacity allocation. So we thought about the
other side how they manage the demand. They are maintaining a restaurant chain along with
their stores with their inhabitant and also cultural foods. They have used the strategy of
Developing Complementary Services in managing their demand.

IKEA started in Sweden but now it has spread to 40 countries with 330 stores. It is a
global company it has expands the company to every country as it is. It is not a furniture
retailer but a Franchiser which has maintained the same standard for every country. We
identified its Globalization Strategy and the factors they used in entering to these countries.
Before they decide in entering to a country it conducts a research on the feasibility and
sustainability of it. For an example they have once tried to enter to the New Zealand market
but according to the research finding there will be a huge traffic jam in Auckland if they open
a store so they give up the idea.

As the conclusion of the strategies of IKEA they used 3 main strategies to become
successful in shorter time period. They are;
Overall Cost Leadership
Developing Complementary Services
Globalization Strategy Franchiser Multi Country Expansion



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Store arrangement of IKEA

5. Overall Cost Leadership


IKEA have affordable
prices and lower profits
margins with them to treat
majority of people. Without
harming the quality of the
products they minimize the
cost in a lower level to become
the Overall Cost Leader. They
use several practices to keep lower cost level. When we
consider about IKEA the target market is young buyers in
search of stylish and fashionable furniture and house hold accessories at a low cost. For their
customers, the firm offers home furnishing that combine good design, functionally and
acceptable quality at low price. Although low cost is always a priority, IKEA emphasize
several activities to keep it cost low. It also offers some differentiated feature that appeal to
its target customers, including in store play room for children, wheel chairs for customers
use, and extended hours.

Limited Customer Service
IKEA is not a wide range of service provider it only presents the available products
with them and sells if a customer need. They sell packages of furniture items without
assembling it; the customer has to assemble them by themselves. It leads to decrease
assembling cost, storing space and all the other unnecessary costs. Another thing is that the
IKEA does not provide transportation service to the customers if they want they can request
for transport facility. That is why they say We do our part You do your part





Assembling part to customers

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Self-Selection by Customers
With the explanatory catalogs, informative displays and labels they provide the detail
assistance for the customers. So they keep fewer sales staff and give the freedom to walk
around the store and select their item. They have arranged the furniture items in packages and
after customer select item for them they deliver with the assistance of assembling. This
procedures lead for lower level cost and customer satisfaction.

Front Page of IKEA catalog

Low Manufacturing Cost
IKEA use 100% sourcing from their long term partners who have strong relationship
with them. They keep the relationship which worth for both parties and it allows gaining huge
financial benefit for the IKEA. Another significant fact is that the IKEA has their own
plantation in some countries which will be a sustainable benefit for the organization.

Modular Furniture Design
IKEA use in-house design focused on the manufacturing cost and capabilities of the
customers, they do not outsource designer from outside as they need to match the designs
with the cost and consumer expectation. This allows them to gain a competitive advantage by
decreasing the cost.



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6. Developing Complementary Service


Development complementary service is one of the demand and capacity management
strategies. The important thing of this strategy is diverting waiting customer as profitable
customer. Every firm has some waiting time/Queue when delivering their service. But the
important thing is a firm can manage their demand by using complementary service strategy
to reduce the waiting time and manage it to gain profitable advantages. According to its
customer will feels that they are not in the queue, but they are enjoying the waiting time.

According to it we can categorize IKEAs main complementary service element as
follows.
Large & unique store
Supervised play area for children
IKEA restaurant caf.

The IKEA store is most important and
attractive thing of the IKEA. It has to be in
order to offer comprehensive range of
product that people can take home
immediately and enjoy the same day, as well
as to inspire people in realistic room setting
and real life home.
Swedish Meatball

IKEA have used unique store to facilitate complementary services by encouraging
the visitors to take their time and get comfortable with IKEA home furnishing solution and
product is realistic room setting and real life home to sit ,lie down, open & close drawers, to
compare styles, prices & imagine the possibilities. The goal is that everyone will enjoy their
visit to an IKEA store by consuming complementary services as mentioned below.

If the kids dont want to shop, they can play in the supervised area. it may be hard to
get them to leave, but they can be tempted with a treat from the IKEA .

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Restaurant and caf, visitors can reward
themselves for successful shopping with a plate of
Swedish meatballs and buy a bag of meat balls
from the unique IKEA Swedish food market in the
exit area for the most IKEA stores .Because
Swedish meat balls is very popular fast food type
among people. So IKEA as identified that
opportunity as a complementary service option.
Appeal given to the customers

So we can identify that the IKEA have unique competitive advantage to manage
demand by giving the feeling that customers are dont want to be waiting in the queue. They
have converted their waiting time profitable manner by their differentiated complementary
service strategies.
















IKEA Restaurant & Cafe




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7. Globalization Strategy


IKEA operating in 41 countries, IKEA is a global destination store for home
furnishing, appliances, ready to assemble furniture, home accessories and kitchen products.
It is the worlds largest furniture retailer with more than 301 stores and 30 franchised units.
The largest market for the company is Germany with 44 stores followed by the United States
with 37 stores. IKEA applied Multi-country Expansion Strategy, so use same setting for
every county.

IKEA has plans to open its first stores in Croatia and Serbia in 2013, as well as a third
warehouse outside Barcelona, Spain in December. IKEA's plans for an India launch remains
in question as it awaits government approval.











IKEA standardization

Service Globalization Factors

Customer contact
Customer contact is front line operations. IKEA experiences many country-specific
advantages. First, IKEA's location in Europe made it relatively painless for the company to
spread throughout the rest of Europe. Along similar lines, IKEA has been able to send
employees who know the local language of foreign locations to set up stores, bringing the

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IKEA philosophy and standard practices along with them. IKEA also embraced its advantage
of its heritage, focusing on quirky advertising in North America.

IKEA try to keep the center of the company relatively lean, and not make too many
decisions centrally that would be better made in stores or factories close to customers and
suppliers. Therefore, they must have a strong group of co-workers who can make the right
decisions to support their strategies.

Customization
IKEA has standard setting for every country, so they have standard service policy.
However they had faced similar problem previously when it entered the United States. The
company initially tried to replicate its existing business model and products in the US. But it
had to customize its products based on local needs. American customers, for instance,
demanded bigger beds and bigger closets. IKEA had to make a number of changes to its
marketing strategy in the US.

Cultural adaptation
IKEA consider about cultural adaptation, so they use different method for different
culture specially their catalogs and advertising. Their biggest advantage was Ikeas culture
and value. Culture is extremely important at Ikea, even more so than at other companies.
IKEA work hard to ensure that as new people come in, they understand who they are and
what they are trying to do. The people who work there genuinely want to be here and share
Ikeas core values of cost consciousness and humility. As an example, in the 2013 IKEA
catalogue distributed in Saudi Arabia, women have been deleted from the picture.

Complexity
As for engineering capability, they continue to design most products themselves.
Their product designers dont just sit in an office with a computer. They work in their
factories, and in the factories of their suppliers, designing products with the engineers there,
to help make them more efficient to produce.




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8. Conclusion


IKEA is formulated by a great entrepreneur Ingvar Kamprad in 1940 in Sweden. He
had a creative idea in furniture items which leads him to become the excellent brand in
Sweden. It is now the largest furniture retailer in the world with plenty of innovations and
wide range of designs. In figures it has 330 stores in 40 countries with 154,000 employees.

This furniture franchiser does not just sell furniture items but sell a solution to human
lives. It sells prosperous life styles to the customers for an affordable price. With the lower
cost and lower margins they set up reasonable price which majority of customers can offer.
With the explanatory catalogs they provide descriptive to their customers.

IKEA as a well-known and successful furniture franchiser use 3 major service
strategies. Overall cost leadership, Complementary Services Development and Multi-Country
Expansion are those 3 strategies.

For the cost leadership they use some practices such as limited customer services,
self-selection of customers, lower manufacturing cost and modular furniture designs. With
that they make their cost to a lower level. As the complementary service they maintain a
restaurant, caf and safe & supervised play area. According to the globalization strategy they
involve with multi-country expansion strategy being a franchiser of selling furniture items.

With these 3 service strategies they have become very successful and the practices
they involve with leads for long term sustainability. We have done a critical analysis on all
the aspects of IKEA organization based on the service marketing concepts what we learnt and
got a good understanding on how it really applied in the real world.