ASSIGNMENT 1

IKEA HOME FURNISHING

BUSINESS MODEL CANVAS
EXECUTIVE SUMMARY
This report analyses the Business model Canvas of Ikea. The analysis is executed through the use of
Osterwalder and Pigneur’s business model of nine building blocks. The analyses depend on the
information that is publically available.

Ikea has a very strong business model with highly targeted and vast consumer base all over the world
with a strong distribution channel network. The value proposition of the model is also very concrete
in comparison to the costing. The company is cost derived and targets the middle and lower section
of the economic sections.

This huge turn up of individuals towards Ikea is due to the strong interrelationship between the
constituents of Business Model and Critical Success Factor of Company is that it provides a one-stop
solution for all the furniture needs, its fast in service and in affordable prices.

Its ground and digital sufficiencies have led it to cover a major part of the furniture market. Ikea have
to face some risk in future, Ikea has to deal with the niche targeting of consumers. A very narrow and
cost sensitive base of a consumer is also a risk factor. Current consumer database can turn to another
source for the sake of costing and quality.

Following are the recommendation for the alteration in business model:

 Introduce a premium range of products and target premium consumers

 Increase the digital reach and improve the user interface of the digital platform for better user
experience
 Enter the developing markets of developing and underdeveloped countries

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TABLE OF CONTENTS

1. INTRODUCTION..............................................................................................................................3

2. BUSINESS MODEL..........................................................................................................................4

A. BUILDING BLOCK APPROACH...............................................................................................4

A.1. CONSUMER SEGMENT......................................................................................................4

A.2. KEY PARTNERS..................................................................................................................5

A.3. VALUE PROPOSITION.......................................................................................................5

A.4. KEY ACTIVITIES.................................................................................................................5

A.5. CHANNELS...........................................................................................................................5

A.6. REVENUE STREAMS..........................................................................................................6

A.7. COST STRUCTURE.............................................................................................................6

A.8. KEY RESOURCES................................................................................................................6

A.9. CONSUMER RELATIONSHIP............................................................................................6

B. INTERRELATIONSHIP...............................................................................................................7

C. CRITICAL SUCCESS FACTORS...............................................................................................7

D. DOWNSIDE RISKS.....................................................................................................................8

E. BUSINESS MODEL CHANGES.................................................................................................8

3. CONCLUSION..................................................................................................................................9

4. RECOMMENDATION.....................................................................................................................9

APPENDIX: IKEA-BUSINESS MODEL CANVAS.........................................................................10

REFERENCING..................................................................................................................................11

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1. INTRODUCTION
Ikea is a huge home furniture decor company. It started in the city of Delft. Ikea is famous for
providing ready to assemble furniture on the door. Home décor furniture, kitchen furniture and
appliances are the widely famous products of the company (DaSilva et al., 2014). The company
started is Amhult, Sweden in the year 1943 and till 2008 it was the largest furniture retailer in the
world. Ikea started trading in Australia in 1975 and opened its first store in Sydney (Ikea, 2018). In
2017 Ikea launched the online store in Sydney. In November 2017, Tasmania was also having an
offline and online Ikea store. Currently, Ikea is working in 411 locations around the globe covering
Europe, Australia and America with offline and online reach as well. In the financial year of 2016,
Ikea generated revenue of more than 40 billion USD (Ikea.com, 2016).

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2. BUSINESS MODEL
Ikea's business model concentrates on providing a wide range of furniture product consisting of
decent design and heavy functioning at such a low cost that a major segment of the society can afford
it. Ikea arrived in Australia in 1975 with a direct marketing approach. Ikea used the medium of
newspaper, flyers and brochures in the area of Sydney outlet (Ikea, 2018). It started with one store
and then went up to open several offline stores before going online in the context (Casadesus‐
Masanell, and Zhu, 2013).

A. BUILDING BLOCK APPROACH

For analysing the business model of IKEA in detail, Osterwalder and Pigneur’s model of nine
building blocks is utilized.

A.1. CONSUMER SEGMENT

The main targeted consumer segment of IKEA was middle-class family households, offices and
restaurants (Fallahi et al., 2016). It can be derived from the use of the client list and target
demographics of the Facebook ad campaign of the company. The target consumer demographics
revealed that the major sections of consumer were aged 18 to 35 (Ikea, 2018). Consumers are
relatively young in age with a middle and low section of income.

TABLE 1: IKEA CONSUMER PROFILE

DEMOGRAPHI FINDING
C
SEX MALE AND FEMALE
AGE 18-35 YEARS
INCOME MIDDLE AND LOW
MARITAL SINGLE OR JUST MARRIED
STATUS
EDUCATION UNIVERSITY OR ABOVE
LIVING STATUS RENTED OR SMALL HOME
REGION DEVELOPED OR FAST DEVELOPING CITIES
LIFE ATTITUDE INDEPENDENT, ACTIVE, STYLISH, IMPULSIVE
OCCUPATION FRESHER MEN, GRADUATES OR SMALL BUSINESS
OWNER

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A.2. KEY PARTNERS
Being the largest retailer of furniture, Ikea has an obvious set of Key partners in the business along
with some strategic alliances and partnership. Following are the listed partners of Ikea in the
business.

 Production Factories, Wood Harvesters And Manufacturers

 Transportation Services, Delivery And Shipping Companies
 Strategic Alliances eg. Philips, UNICEF, WWF etc (Ikea.com, 2016).

GoGets is one of the key delivery partners for providing vans and trucks for the delivery of flat
parcels of Ikea to the doorstep of the consumer. GoGets primarily operates in the region of urban
Australia.

A.3. VALUE PROPOSITION

Ikea has the value proposition of several levels

 FAMILY: THE IKEA EXPERIENCE

o Provide safe, affordable and quality home furniture to domestic homes for providing
the Ikea Experience.
o On-site childproofing the furniture
 BUSINESS: AFFORDABLE
o Affordability and customization options
o Service and Convenience of DIY

A.4. KEY ACTIVITIES

Main activities of Ikea are as follows:

 Designing and manufacturing new and compatible modular furniture for homes, offices and
restaurants. Storing and
 Providing services of online orders, offline availability of stores, marketing, repair services,
transport, assembly, post purchasing.
 Branding, marketing, Advertising, production

A.5. CHANNELS
Channel refers to the distribution channels of the origination through which it operates the sales and
delivery. Ikea has 5 major channels of distribution through which it regulates sales and distribution

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of the products. In Australia, all the four channels are active, with the most recent activation of
Internet ordering in the year 2017 (Ikea, 2018). The channels are:

 Ikea superstores
 Ikea catalogues
 Ikea family Email Subscriptions
 Ikea store website and
 Ikea mobile application store on Android and IOS devices

A.6. REVENUE STREAMS

In the year 2016, Ikea generated revenue of more than 40 billion USD with a net profit generation of
4.89 billion USD (Ikea.com, 2016). The company is experiencing a regular increase in the revenue
generation for the last 10 years. The key Streams of revenue for Ikea in Australia are:

 Furniture sale in households and offices

 Food sales at restaurants (Jiang et al., 2018)
 Service charges: delivery and assembly
 Accessories sales: Yarns, tools, towing equipment

A.7. COST STRUCTURE

In order to reduce the cost, Ikea uses disassemble shipping of material and promotes DIY. The main
cost structure of IKEA comprises of Raw material cost, manufacturing cost, advertising and
marketing cost, Labour and transportation cost, maintenance cost and rotation cost of the offline
stores (Haggège et al., 2017).

A.8. KEY RESOURCES

The client database is one of the most essential resources for Ikea. Apart from that Physical,
Intellectual and Human resources are essential for Ikea. The Internet has also introduced itself as the
key factor for Ikea (Groh, 2015). Infrastructure finished furniture, transportation units, lifting and
fixing equipment, tools, internet application, website and skilled labour are the key resources for
Ikea.

A.9. CONSUMER RELATIONSHIP

Ikea maintains its consumer relation through its mailing list, push notification in mobile apps, regular
service check and consistent consumer support through the mail, phone call or physical complaint.

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Ikea provides regular updates regarding any new product arrival to the pre-existing consumer and
catalogues it through for future potential customers.

B. INTERRELATIONSHIP
Ikea prints more than 210 million catalogues per year to approach new consumers worldwide. In
2017 Ikea noted a consumer base of 817 million people around the globe. In 2017, Ikea printed more
than 215 million catalogues and reported a footfall of 137 million people in the stores and 2.1 billion
visits at the online store of Ikea (Ikea, 2018). This huge turn up of individuals towards Ikea is due to
the strong interrelationship between the constituents of Business Model.

The value proposition of Ikea of providing the Ikea Experience in affordable price drives the
consumer towards the cheap, easy and trusted option of Ikea (Schneider and Bermudez, 2018). The
affordability of the product along with the superior quality and the luxury of modification provide a
boost to the sales.

The availability of both physical and digital channel for the distribution and sales makes it very
convenient for the targeted consumer to approach the organisation. Regular availability of stock and
ease of ordering the product is also a major point for sales. The channels are very tightly connected
with the key activities of the company and hence it improves the operations.

Key partnership with the non-competitive brands adds up to the value proposition of the company.
The Philips television with the Ikea furniture is a huge product success from the point of Ikea. Sales
increased with considerable figures.

C. CRITICAL SUCCESS FACTORS

Ikea carries business in a well-defined market segment with the highly targeted consumer base. Ikea
provides the product that fulfils the specific and general demands of that targeted consumers. The
middle and low-income group appreciates Ikea for affordability and design of the products (Vinay et
al., 2017). Young and style conscious customer get attracted to the trending designs and
personalisation options (Haggège et al., 2017).

Another critical factor of success for Ikea is the appeal of young and nuclear families to Ikea. The
products of Ikea are easy to replace with pre-existing furniture of the same size as it is used (Vinay et
al., 2017). The final factor of CFS is that it provides a one-stop solution for all the furniture needs, its
fast in service and in affordable prices.

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D. DOWNSIDE RISKS
The major downside risk for Ikea is due to the operation on a global level. The huge operational area
has the risk of altering the product quality across locations (Cao et al., 2018).

The cost leadership driven approach of Ikea may also hurt its operating and functioning. Increase in
the cost of raw material like wood is very likely in future and that will provide Ikea with only two
options either to increase the costing or compromise with the quality of the product (Chen, 2017).

A very narrow and cost sensitive base of consumer is also a risk factor. Current consumer database
can turn to another source for the sake of costing and quality.

E. BUSINESS MODEL CHANGES

I would approach the current buyer with better and more diversity of product. At the same time, I
would explore the other segment of consumers. Ikea's main base of success is targeted marketing of
the product with providing affordable furniture to low and middle economy holders of the society.

I would use the same strategy for a premium class segment to explore a more loyal consumer base
that is driven by design and quality rather than cost.

For better growth rate Ikea should also tap into the underdeveloped and developing countries (Cao et
al., 2018). This will boost the growth rate of Ikea along with the fast-growing economy of the
developing nations.

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3. CONCLUSION
The analysis performed above is done on the basis of public information. Ikea has successfully
achieved a profitable market by the virtue of a strong business model. Its ground and digital
sufficiencies have led it to cover a major part of the furniture market. Ikea have to face some risk in
future, Ikea has to deal with the niche targeting of consumers.

4. RECOMMENDATION
 Introduce a premium range of products and target premium consumers
 Increase the digital reach and improve the user interface of the digital platform for better user
experience
 Enter the developing markets of developing and underdeveloped countries

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APPENDIX: IKEA-BUSINESS MODEL CANVAS

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REFERENCING
Cao, L., Navare, J., & Jin, Z. (2018). Business model innovation: How the international retailers
rebuild their core business logic in a new host country. International Business
Review, 27(3), 543-562.

Casadesus‐Masanell, R., & Zhu, F. (2013). Business model innovation and competitive imitation:
The case of sponsor‐based business models. Strategic management journal, 34(4),
464-482.

Chen, L. R. (2017). An Analysis of Business Strategies and Management Which Cause Company's
Success or Challenges in the International Market: A Case Study in IKEA Company.

DaSilva, C. M., & Trkman, P. (2014). Business model: What it is and what it is not. Long range
planning, 47(6), 379-389.

Fallahi, S., Holmén, M., & Björkdahl, J. (2016). Organizing business model innovation in
established firms. In Australian Center for Entrepreneurship Exchange (ACERE)
Conference 2016, Gold Coast, Queensland, Australia, 2-5 February 2016.

Groh, E. (2015). Managing Strategic Alliances: The Risks and Rewards of IKEA's Purchasing
Strategy in Trade Area Greater China Region (TAGC).

Haggège, M., Gauthier, C., & Rüling, C. C. (2017). Business model performance: Five key
drivers. Journal of Business Strategy, 38(2), 6-15.

Ikea.com. (2016). 1960s-1970s - IKEA. [online] Available at:

https://www.ikea.com/ms/en_AU/about_ikea/the_ikea_way/history/1960_1970.html
[Accessed 1 Aug. 2018].

Ikea.com. (2018). 1960s-1970s - IKEA. [online] Available at:

https://www.ikea.com/ms/en_AU/about_ikea/the_ikea_way/history/1960_1970.html
[Accessed 1 Aug. 2018].

Jiang, Y., Jia, F., & Gong, Y. (2018). IKEA: global sourcing and the sustainable leather
initiative. International Food and Agribusiness Management Review, 21(5), 627-640.

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Schneider, M. A., & Bermudez, V. (2018). Challenges of transforming a Business Model to a
Sustainable Business Model-A case study based on IKEA and Tetra Pak.

Vinay, A., Srivastava, I., Vij, S., & Rawat, S. R. (2017). IKEA: The Furniture Guru-An Exploratory
Study.

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