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Case

Prepared for:
Dr. Sheikh Mohammed Rafiul Huque
Prepared by: Group 7
(Md. Asif Hasan

ID- 152 1120 660)

(Sohidul Hoque

ID- 152 1471 660)

(S.M. Thowhidul Alam
ID-152 1509 660)

(Md. Afif Nizam

ID-151 2814 660)

(Md. Junayed Mojumder ID- 152 1457 660)

Date:04/11/2015

Brief of the Case:


Background:
Since IKEAs inception, it has grown rapidly. Now IKEA is the global largest furniture retailer,
recognized for its Scandinavian style. The majority of IKEA's furniture is flat-pack, ready to be
assembled by the consumer. This allows a reduction in costs and packaging. IKEA carries a range of
9,500 products, including home furniture and accessories. This wide range is available in all IKEA
stores and customers can order much of the range online through IKEAs website. There are 18 stores
in the UK to date, the first of which opened in Warrington in 1987. In July 2009 IKEA opened a store
in Dublin too - its first in Ireland.
Since it was founded that IKEA has always had concern for people and the environment. The IKEAs
vision is to create a better everyday life for the many people puts this concern at the heart of the
business. IKEA has responded to the publics rising concern for sustainability in its choice of product
range, suppliers, stores and communication. It has also spotted business potential in providing
sustainable solutions. IKEAs concern for people and the environment encourages it to make better use
of both raw materials and energy. This keeps costs down and helps the company to reach its green
targets and have an overall positive impact on the environment.
The backbone of IKEAs success is The IKEA Concept. IKEAs vision statement reflects this core
operating philosophy:
Our vision is to create a better everyday life for the many people. Our business idea is to offer a wide
range of well-designed, functional, home furnishing products at prices so low that as many people as
possible can afford them.
To fulfill its vision, IKEA provides stylish, functional, low-cost home furnishings that customers must
assemble themselves. Furniture products are shipped in flat packs to save money on manufacturing and
distribution, which IKEA then passes on to customers in the form of lower prices at retail. To
compensate for the customer having to do it yourself, IKEA offers other services that make this
proposition a little more attractive. These extra services include in-store child-care and play areas,
restaurants, and longer store hours. To help visitors prepare for this experience, IKEA provides its
customers with pencils, paper, tape measures, store guides, catalogs, strollers, and shopping bags.
IKEA even offers delivery for the bulky items that customers cannot carry themselves. For those who
want to carry their own bulky furniture home, IKEA rents car racks for convenience. IKEA stores are
designed as a circle so that everything can be seen no matter in what direction the customer is headed.
The aisles are wide to reduce traffic congestion that could occur when customers stop to look at
different showrooms and displays.

Internal &External Analysis:


Strength:
IKEAs cost leadership concept keeps it ahead of its competitors:
Whenever IKEA produce their furniture, firstly they fix the price and then they start producing. So with
the context of cost leadership IKEA is ahead than the other competitors.
IKEA has successfully combined low cost with good quality:
As we all know that IKEA produce low cost products than the others, that dont really mean that they
manufacture low-grade product. They always maintain the good quality product for the customers.
From the very beginning, they maintain their product quality as well
IKEAs research and development team finds ways to alter designs to save on manufacturing
costs:

After a little success, the chief of IKEA Mr. Kamprad appointed a designer to design good quality
product. Moreover, the designer finds out the strategy to make the product manufacturing cost as low
as possible.
A key feature of IKEA furniture is self-assembly:
With regards to low price strategy, IKEA come up with a good strategy and that is self-assemble.
IKEA tried to make their customers knowledgeable about their product. They also tried to create a
good impression toward their furniture to the customers that, customers can rely on their furniture.
IKEA uses cheap labor which keeps its costs down and gives them a competitive advantage:
If we talk about the competitive advantage of IKEA furniture, then it is the cheap labor cost. Whenever
they discovered that furniture manufactured in Poland was as much as 50% cheaper than furniture
made in Sweden, they started to get that competitive advantage by using their resources.
Its strong long-term relationship with its suppliers gives it a competitive edge:
Whenever IKEA started their production in Poland, they made a very good relationship with the
suppliers. A strong relationship established with the suppliers provides avery smooth supply chain
which saves IKEA from quite a lot of additional costs and hassle.
IKEA has the ability to adapt its tactics according to the market:
IKEA has a very good strategy to adapt the way according to the market. If we see the scenario of
America, then we can realize that whenever Americans did not accept their previous products, IKEA
came up with new target market within a very short period of time with the reflection of customers
needs and wants.
Weakness:
Its organizational culture can become a demotivating factor for many of its employees:
According to Mr. Kamprad, people work at IKEA because they like the atmosphere of IKEA. They
follow a very informal environment over the stores. But the most painful part is that they do not have
any hierarchy. So, in order to sustain properly and to do well in this sector they should have an
organizational hierarchy because a proper hierarchy could be the strength and motivational factor for
them.
IKEA is not at all customer focused:
One of the weak parts of IKEA is that they are not at all customers focused. They always prefer the
cost first. The world is changing every day. Now a days, customers need tend to modify products and
they might have some preferences which IKEA should consider.
It lacks thorough market research on customers preference before entering into a new market:
As s furniture company, providing good quality products and giving value to the customers needs and
wants should be the main organizational motto. IKEA do not do any sort of market research regarding
customers needs and wants. So they should come up with a market research results which will give
them more profit.
IKEA never took economic issues into consideration before being faced with the problem.
Whenever any company wants to go global, they should consider some critical issues such as in
American market the goods were priced in the Swedish kronor, which was strengthening against the
American dollar. This drove up the price of goods in IKEAs American market. So this sort of mistake
should not be done by IKEA.

IKEA has a tendency of making mistake first and then realizing that it should have taken
matters into consideration beforehand:
To be a successful furniture company, IKEA should take the customer preference first and then they
should start producing. Normally, they do not do any research on the needs of customers. They change
the design and style once they get failed.
Kamprad does not take into consideration the change of times:
In this world, everyone wants an entity or identity, a designation. The employees used to stick with the
company because they loved their work beyond anything else. However, times have changed and with
that peoples want out of their job has also changed. With regards to time changes, Kamprad should
come up with a proper hierarchy.
IKEAs strategy is not exactly aligned with its vision:
Actually, in this case we see that, Kamprad just focused on low cost furniture producing. After that, he
tried to expand his business all over the world, but the problematic part was he did not have any longterm goal regarding the position of his company in future.
Opportunities
IKEA can expand its product line by producing high end products:
Usually IKEA manufacture their product for the middle class, upper middle class family. But if we
consider the present market situation then we can see that, people want elegant design and they are
ready to pay for that, so IKEA can come up with a new target customer that is upper class and grab the
market as well.
IKEA can expand its business into interior designing and cookeries products:
As furniture is highly related with interior designing and interior designing is getting very popular
nowadays, IKEA can come up with a new idea and that is opening an interior designing division to
maximize their market share and their profitability. Moreover,cookeries also can be an ideal product
for IKEA.
IKEA should listen to the customer demand to make more sustainable solution:
The people are becoming very conscious about the environment nowadays. So to be a successful
furniture company they can come up with environmental friendly furniture with vast customization.
Product customization can boost up IKEAs sales:
As we know, IKEA manufactured very stylish product but general, whereas if IKEA can come up with
a customize product for their customer then if could be a very profitable business for IKEA. People
want customize furniture and there is no substitute product of furniture.
Threats
Changing social trend can hinder the growth of sales of IKEA:
From the very beginning IKEA is emphasizing on the low cost product but if weconsider the customer
trend then we see that, a large number of people want quality product. So there is high possibility to
lost that market who wants good product. So IKEA should come up with a good quality product
strategy with their low cost strategy.
Accelerated market competition in USA:
Some of the well-established retailer sell furniture with low cost than IKEA, so it could be very
difficult for IKEA to continue their business with only low cost strategy. If we consider Wal-Marts

office depot price, we can see that their price is 20% to 30 % lower than IKEA. So, IKEA should come
up with another strategy besides low cost strategy as early as possible.
The risk of global financial crisis:
The worldwide recession is a major factor of bad economic condition. Since 2007, most of the business
organizations turnover has been decreasing globally. So it might have some bad effects on IKEA.

Main Issue:
After analyzing the case we have found that the main issue is the success journey of IKEA in the global
market which they have started by offering a unique value proposition to consumers: leading edge
Scandinavian design at extremely low prices. We know, consumers always look for the product or
service which gives them greater value comparing to the money they have to spend for it, and IKEA
did just that by considering the low cost concept globally. IKEA has been able to offer low prices by
following some standards for its production, distribution, store management and sales. Lets have a
brief discussion on those:
Self-Assembling: IKEA delivers most of its products in box, so the consumers have to
completely assemble those in their home. This strategy results in cheaper and easier
transportation as well as more efficient use of store shelf space.
A Large pool of suppliers: IKEAs production and global supply chain is backed by a large
pool of suppliers, approximately 1300 suppliers from 53 counties. This huge numbers of
suppliers give the company a bargaining power over the supplier and they can source the
product and competitively low price rather than their compatriots with a handful of suppliers.
So eventually they can charge a lower price to the consumer even if they maintain a higher
profit margin (10%) than their competitors.
Store Location:Most of the IKEA stores are located at a notable distance from the city
centers to lower thecosts and taxes. The consumers have to drive a long way to shop in the
stores and they gladly do that because of the price and brand attachment.
Store Plan and Management: Most of the IKEA stores are designed very simply like a large
box with some windows and doors painted in Sweden national color. The operates 24/7 and
also use energy savings electric bulbs to reduce the operating expense. The stores follow a
one-way floor plan so that the customers can experience the whole store fist and then pick the
desired item in a flat box from the warehouse, thus the store space can be managed efficiently.
Uniformed Design: To maintain the low cost concept globally and reducing the price 2 to 3
percent annually IKEA maintains the uniformed design for its furniture and other items.
Though there are some situations when they need to make changes to tie with the local culture
and cater the consumer needs for boosting the sales.
Situation faced by decision Maker:
Throughout this ongoing success journey of IKEA globally the decision makers of the company
had to face some particular situation in different market which made them to reevaluate their
strategy specially the uniformity of the products. So the management of IKEA surveyed the
particular markets and responded the consumer needs by bringing required changes in its product
and service:
In response to the Chinese culture IKEA stocked 250,000 plastic placements with Year
of the Roosters themes and those were sold so quickly.
It introduced larger glasses for the U.S market when it was found that the U.S
consumers were actually buying the Vases as drinking glass as the regular glass was too
small for them.
After surveying the European and U.S households the managers found that the
European consumers usually hang their cloths but the U.S consumers prefer to store
them folded. So based on this insight they developed wardrobes with deeper drawers for
the U.S market.
In response to the Hispanic Market of California IKEA added seating and dining space
in its California Store. They also made the color palettes more bright and hung more
pictures frames on the walls of the store.

Question Answer Part:


1.

What are some of the things IKEA is doing right to reach consumers in different
markets? What else could it be doing?

When IKEA expands in new country, it studies that countrys market and do consumers need analysis
and then designs products to cater that countrys needs. When it expanded in China, IKEA gave
importance to the local taste in China. They placed plastic placements with Year of the Rooster
themes which sold to thousands of people quickly. When IKEA realized US shoppers were vases as
drinking glasses because they considered IKEAs regular glasses were too small. So, they customized
the size to fit the needs of the US markets.
Some of the great things IKEA does to reach consumers are given below:
IKEAs products are stylist and customized.

Wide range of products according to the need of customers.

Low priced furniture store provides reassemble furniture and casual furniture.

Products available for different sections of the society.

Product adaptation according to the need of different market.

Diversify product line product depth.

Concept of flat packaging which makes it easier to consumers to transport the furniture

IKEA earns a huge amount of revenue because of its low price strategy from consumers around the
globe. However, IKEA does not have stores in South Asian markets. South Asia has a huge market for
furniture especially in Bangladesh and Pakistan. Due to its low price strategy and with its innovative
products , IKEA can make its roots in Bangladesh with no much completion as there is not much
companies exists. Besides, India, Pakistan can be a profitable market for IKEA.

What else it could be doing?

IKEA should expand its product line by producing high end products
IKEA can expand its business into interior designing and crockery products
IKEA can go for environment friendly technology
Product customization can boost up IKEAs sales
Consider online sales/retail
Make use of social media to increase awareness
Offer further discounts (e.g. seasonal discounts)
Expand to new markets e.g. Asia and Africa
Make use of catalogues for convenience

2.

IKEA essentially changed the way people shop for furniture. Discuss pros and cons of
this strategy Pros:

IKEAs low cost concept keeps it ahead of its competitors.


IKEA has successfully combined low cost with good quality.
IKEAs ability to find ways to alter designs to save on manufacturing costs.
A key feature of IKEAs furniture is self-assembly.
IKEAs ability to adapt its product design strategies according to the market
Family Oriented

Affordable to everyone
Because of the wide variety of items displayed and the layout of the shop designed in a
one-way format results in customers seeing everything available. They might therefore
end up buying even something that they hadnt thought about.
Convenience for the customer because everything is boxed and they do their own
assembling. It makes it easy to transport (on buying and when people move)
Also saving shelf space for other IKEA products and reducing transport costs for the
consumer hence resulting in the lower prices
Using unconventional names for their products that people can easily remember (belief is
that people remember names better than they do codes)

Cons:

Cost leading Strategy


Lack of product innovation
Changing social trend can hinder the growth of sales of IKEA
The size and scale of IKEA sometimes affects the quality standards of their products
and therefore negatively affect the view that customers have of them. As such
customers will have to pay more attention to the products they are buying
The format of the shop (everything is on floor) can be too overwhelming for the
customers such that they may not even know where to start from
Not maximizing on the growing technology available for marketing and advertising,
so consumers might end up going elsewhere
The fact that that people have to assemble their own items can be problematic for
people who are not good at fixing or assembling items

Other Related Issues:


The Industry Environment
Threat of New Entrants
There are little or no entry barriers, but intensity of competition may scare off potential entrants. The
required initial investment is not substantial and economies of scale can be used easily. To compete
effectively with IKEA, the competitor must invest a greater amount, develop long-standing
relationships with clients, and select suitable and competitive locations for outlets for which much
patience and capital is required. It is relatively difcult to establish in major cities and gain the
reputation of IKEA, establishing a vast supply chain and creating a unique brand name. Due to less
regulation, the threats of new entrants are high, with no immediate threat because of the intensity of
competition.

Bargaining power of suppliers


The bargaining power of suppliers is considerably low. IKEA has succeeded in managing and
maintaining long and well established relationships with suppliers across the globe. IKEA has been
recorded to have 1380 suppliers in as many as 54 countries, 21% of which are established in China in
2008. IKEA also possesses their own manufacturing company, Swedwood Manufacturer which
manufactures its own designs. Therefore, suppliers possess less bargaining power, and can be
compelled to meet the terms of IKEA rather than vice versa.
Bargaining power of buyers
There are a number of retailers with a direct price-war occurring, while there are many entities who are
importing from China involved in direct competition with IKEA. Consumers are faced with many
choices and alternatives, and there is great amount of bargaining power at present with the buyer, due
to greater choice. The buyers themselves have a substantial degree of inuence over IKEA's product
line and direction; for example, as mentioned in the history, IKEA developed the concept of at

packaging at a buyers suggestion, making it convenient for the buyer.


Threat of substitute products
No specic product can substitute the furniture, but IKEA needs be updated with the latest trends, to
avoid losing their name for style. Through simplicity of design and innovative technology, IKEA can
follow any new style fairly well and rapidly and move each the product into its stores. Ever since the
inception of the concept of furniture, styles and trends in that sense have undergone much change.
Since the current trend is going-green, many rms are following this concept. However, the demand
for basic, functional furniture has remained relatively constant, therefore there is less threat of
substitutes in the near future.
Rivalry among competing rms
This is a highly competitive industry, characterized by other low priced furniture producers such as
Galiform of England and retailers such as Wal-Mart of the United States In addition to local
competitors. Due to the competition worldwide, IKEA has wisely attempted to compete by entering the
China and Japan, markets which pose the largest competition. Many retailers are present, and a number
of them import products from China selling at a low price signifying intense competition

Summary of the case:


IKEA is known around the world for its stylish, quality, and low-cost furniture and home furnishings.
The companys success is based on a strategy of operational excellence in production, supply chain
operations, and marketing. IKEAwildly popular in Europehas leveraged its brand reputation to
penetrate markets in other countries. IKEA believes to deliver the unique value to its consumers at a
lowest price possible. Its different stores worldwide selling the dream of the middle class and upper
middle class of affording a perfect home furniture and appliance solution within their budget range as
well as sustainable enough to serve their need for a longer period. No wonder it has the reputation of
being the giant of the furniture retail market world-wide, but the world is changing as well as the
market and the test and preference of consumer; as they look to more customization and trendy design
in modern furniture rather than uniformly designed items. The retail furniture market is facing fierce
competition as many local and big retailers like Walmart are producing and importing at a low cost
form China so they are also offering end product at a low price to the customers. Apart from the
physical market the digital market space of this industry is being dominated by some growing online
sellers those who are also offering new trendy furniture at a lower price. On the other hand, IKEA
largely depends on WOM and catalog based marketing, so the marketing strategies are need to be
reevaluated to face the increasing competition. Though we do believe that with its strong brand image,
global supply chain and low cost strategy IKEA still have the competitive edge over the market players
those who have to go a long way to win over a giant brand like IKEA.

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