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IKEA INVADES AMERICA

Instructor: Dr. Ravindra Suxena

Course: International Marketing

Program: MBA 2017

By:

Allam Goutham Kumar (MBA16007)


Aditya Bhati (MBA16004)
Deepesh Kukreja (MBA160014)
Runal Keswani (MBA16034)
Introduction
The case IKEA Invades America is about the worlds top furniture retailer IKEA which was
founded in 1943 by 17-year-old Ingvar Kamprad and the strategies this furniture giant followed
to get to worlds top furniture retailer. The company initially began with selling basic households
at discounted prices and in 1947 Kamprad began selling home furnishings. In 1958 IKEA
opened its first store in Almhult, Sweden which was the largest furniture display in Scandinavia
at that time.

ISSUE

In year 1985 IKEA enters the US furniture retail market. The company initially faces the
problem that Americans didnt like their product because of small size, comfort and although
IKEA had been able to address these problems, relying on market research to match its product
line up and merchandising.

But still in the year 2002 company being the worlds top furniture retailer remains far from being
the leading furniture retailer in the U.S market. IKEAs niche targeting strategies and stiff
competition from the specialty retailers are not letting the company to achieve the milestone in
U.S.

PROBLEM STATEMENT

What are the Key success Factors ?


Was companys product strategy & product range effective ?
Should IKEA change its product startegy ?
How to improve IKEAs value proposition according to the American consumers

ALTERNATIVES

The following three decision alternatives target consumers segmented by existing shopping
habits.

1. Target consumers of high-end retailers.


2. Do a mass marketing strategy.
3. Target all consumer of low-end retailers while retaining IKEAs current positioning.
SWOT ANALYSIS

Strength

1- Company enjoyed the powerful and good brand image.


2- It had wide range of products and designs in its product line
3- The companys policy of being cost effective and affordable.
4- Easily transported flat packed furniture.
5- Friendly and comforting atmosphere in the store.
6- It had strong global presence and more control on prices because of its large quantitites.

Weakness

1- Do it yourself approach can be unappealing to lazy customers.


2- 14 stores in U.S relatively fewer locations.
3- Swedish design offered didnt attracted the American crowd much.
4- The durability of furniture didnt match the American customers expectations.4

Opportunities

1- Company is still to cater the untapped high-end customer market.


2- Bring online platform to sell their product because they have wide range of designs.
3- Educate American customers about the IKEA through advertising.

Threats

1- Main threat to the company is the presence of direct competitors like Wal-Mart, office
depot, Costco.
2- Highly fragmented market in the U.S again is the great threat to the IKEA.
INDUSTRY ANALYSIS
The U.S market is highly fragmented market for furnitures and the industry is highly
competitive with both low-end and high-end retailers with large differences. The
companies need to strongly differentiate and advertise to attract customers. The profit of
IKEA in year 2002 was $67 billion sales.
The fragmented market gave customers to tradeoff between price and quality. IKEA
Positioned itself in between the low end and high-end customers of the United states of
America.

MARKETING MIX
Product
It offered both the case good and upholstered furniture.
Company mainly focused on offering the Scandinavian design with Swedish
heritage.
The products offered in the store are unassembled and were in flat packaging
which made the product easily transportable.
Durability of the product offered in low compared to the products of other
specialty stores.
Price
The company strictly followed its policy of offering the low-price furniture.
Company even brings customer involvement in the cost saving model by flat
packaging and was saving on shipping.
Company always promoted itself with slogan Low Price with Meaning,
It had separate matrix for different product in its product line.
It was always the favored destination for price sensitive customers.
Place
In the year 2002 the company operated around 154 stores with its presence in 22
countries and it served 286 million customers a year.
It lastly invaded America according to the case.
Promotion

Company followed High profile advertising.


IKEA store speaks for itself.
The catalogue provided by IKEA to its customers.

Segmentation

Geographic: United States


Demographic: Prices conscious
Psychographic: Lower to middle class
Behavioural: Good design prodcuts at low cost, fascinating outlets

Targeting

Concentrated marketing- Niche marketing


Target market is the low to middle income group of customers.

Positioning

Slogan : Low price with meaning

Our market positioning statement is "Your partner in better living. We do our part, you do yours.
Together we save money."
The company positioned based on the low price of its products with a good design.
Evaluation of Alternatives

Alternative 1:
This alternative requires IKEA to target clients who currently shop at high-end retailers. as a
result the product line might be adjusted and tailor-made to clients who select traditionally
designed furniture. IKEA will retain to offer their precise one-prevent buying revel in while
adding to their sales pressure to accommodate the expectations of the market. IKEA can also keep
in mind providing free delivery and installation in their fixtures. Their pricing scheme will
alternate and growth to mirror their new target marketplace and charges. IKEAs distribution
strategy will stay the identical with massive, freestanding retail stores. IKEA wishes to market it
their redesigned products and sell via social media, personal selling, advertisements in greater
high-end publications.
PROS: -
Because the goal is no longer a spot, this opportunity will significantly boom the target
marketplace length
Practicable and well-known marketplace, with excessive ability margins and profits

CONS: -

Excessive fees related to R&D and absolutely new marketing approach


High advertising and marketing fees; it's miles tough to alternate the belief of IKEA as a
low-price retailer
Deviates from IKEAs authentic Scandinavian layout and logo, might also alienate
current clients Ignores lots of IKEAs crucial achievement factors (See Appendix E for
vital success elements)
Alternative 2:
With this opportunity, IKEA will goal the whole marketplace of low- and high-income customers
via promoting IKEAs approach in the direction of clients. customers are expected to be extra
than simply mere clients; transportation and assembly come to be their responsibility. but, this
attempt is rewarded via more fee derived from notably lower costs, and an inimitable
advantageous shopping revel in. promoting of this extra cost is critical for mass fulfillment
IKEA is not simply the shop, it's miles a partner for life. consequently, there may be a need to
layout a greater massive 3 IKEA Invades the united states and long-term marketing campaign that
addresses the wide public and explain IKEAs reasons for unconventionality and alternate their
views towards Scandinavian layout. The message should underline the benefit of patron
involvement and persuade them to simply accept the difference.
PROS:
Preserves brand photo and is not in struggle with any of IKEAs authentic emblem values
Keeps competitive gain of differentiation and its crucial fulfillment elements
Potentially huge profitability if complete market can be reached
CONS:
High marketing marketing campaign expenses if you want to cover the whole
marketplace
Hard to find right message to promote with a chance of message rejection
Extraordinarily difficult to trade US purchaser alternatives for classic layout and provider

Alternative 3:
With this alternative, IKEA have to target low- to middle-income consumers who currently keep
at low-end stores. they may be much more likely to accept IKEAs current products, rate,
promotion, and distribution method. IKEA could slightly tweak its product line and add to their
fashion matrix, (ie. an American fashion in addition to Scandinavian, modern, united states and
younger Swede). this can attraction to the wider American market but still preserve IKEAs
center Scandinavian design style. IKEA should continue to sell aggressively to get individuals to
take a extra commitment-loose approach to furniture and expand to big cities with their
conventional big shop format.

PROS:
IKEAs brand image will evolve and adapt slightly to america marketplace, yet still
remain Scandinavian - A dedication-free approach to furnishings could inspire customers
to buy extra from IKEA, generating excessive client lifetime cost
Capability profitability is excessive because the target marketplace, the low-income
customer, is extraordinarily huge true fit with the agencys dreams to make bigger and
open greater shops, attraction to a braoder 4 IKEA Invades the usa client base but
nonetheless keep its vital success factors
Viable to spend money on R&D, tweak product line, make bigger and boom advertising
and marketing
CONS:
Will not appeal to individuals who select the traditional fixtures purchasing experience
targeting low- to middle-income consumers affords lower margins than high-profits
consumers

Adding a product line will incur big expenses: increased inventory and design fees

RECOMMENDATIONS
1- We recommended that IKEA choose Alternative 3
2- Company should add new and latest American styles in its product line to change its
perception from the minds of American customers
3- Redesign stores to meet the demands of vast ethnic groups in America.
4- IKEA should continuously focus on market research to cater the changing needs and
preferences of customers.
5- Americans like to shop on the net. This is clear from the survey. Hence more services
should be offered on the web
Questions and Answers

What factors account for the success of IKEA?


Product differentiation
Restaurants and Childrens area in the IKEA stores has made it reach its success.
Scandinavian designs which are unqiue in the industry.

Cost leadership
Reducing the cost between manufacturers and customers.
Costs were kept low using the flat packaging which made the furniture occupy less space and
the logistics charges were also reduced.
All the IKEAs outlets are strictly based on self-service theme.
The customers were expected to make their transport arrangements and also assemble the
furniture themselves to keep the prices low.

What do you think of the companys product strategy and product range? Do you agree
with the matrix approach (Figure-B in the case)?

IKEAs product strategy and product range is placed out in a manner that is easy to manage and
avoids any conflicts. Though the matrix is simple, it does its job. Along the price ranges and
styles, there can be some confusion, but the matrix is very helpful in finding where it is lacking
and also the market opportunities. Since the company prices it products with less then 50 to 30
percent of customers prices, matrix is useful in the implementation of this part. The company
has also developed the plan of using premium quality materials for external surfaces and lower-
quality materials for low-stress, internal surfaces. In this way, the company is constantly working
on the improvement of the design of the products and this matrix strategy benefits in making the
process simple and less conflictive.
The fact that IKEA hopes to have fifty stores in operation in the U.S. by 2013 is an
indication of how optimistic the company is about the viability of its value proposition in
this country? How would you improve IKEAs value proposition to make it even more
attractive to American consumers?

We think that IKEA is not overly optimistic when it comes to the expansion to 50 stores in US as
for retail stores the number 50 is not a very large number. There are some companies which have
more than 100 stores in US. To be accessible to everyone, IKEA has to establish more number of
stores in the country. To improvise the companys value proposition and become the most
attractive company to its American consumer base, it will have to be transparent. American
consumers should know that they are not just buying products for cheap price but they should
have trust in the company. Being transparent by letting everyone know who their suppliers are,
where items are sourced from, and the normal labor conditions of the companys employees will
give IKEA a very good competitive edge and will lead to an attractive value proposition for
American consumers.

To achieve the kind of growth that IKEA is hoping for, should the company change its
product strategy? If so, in what ways?

To achieve the kind of growth the company has, it shouldnt change the product strategy
completely. Too much alteration of the strategy will result in lot of confusion and conflicts in the
process. The simple matrix formula works pretty well for the company. It should do some minute
adjustments to make it better, but it should not change the core concept of the matrix. Since the
matrix doesnt tell anything like good quality material etc. we can add percentages to identify the
premium materials as a designation. More sub categories can be added to be more specific in the
designs. More price points and styles can add a detailed and price effective strategy for the
company.