IKEA INVADES AMERICA

Group 8: | Anand Jain | Dinesh Kumar | Madhuri Robbi | Venkateswarlu B | Vishu J Gupta | Vivek Pant
Introduction
• Ikea is the world’s top furniture retailers
• In USA, they have fourteen stores and clock a revenue of $1.34 bn
in 2003. This translates to around $96m revenue annually per store.
• It has presence in Europe & Asian markets too.
• In UK, they clock about $133m revenue annually per store & in
Germany they clock about $81m revenue annually per store.
• IKEA’s growth in terms of sales over past few years is slowing
down.
• Predominantly, their supplier base (1800) is in Europe (66%) &
Asia( 31%).
• USP of IKEA is
a. Strictly Self Service
b. Superior Customer shopping experience
c. Furniture is unassembled . Customer should “DIY” the assembly.

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SWOT ANALYSIS FOR IKEA
STRENGTH
⮚ Value for money products
⮚ Strong design philosophy: Low cost with
meaning
⮚ Low Shipping Cost: Shipped flat packages
⮚ Global Vendor base: 1800 in more than 50
countries
⮚ Immensely appealing shopping experience
⮚ Strong work culture of Cost cutting
Sensibility in everything they do
⮚ Robust Product Design & Pricing strategy
OPPORTUNITY
⮚ Product design strategy can help them
identify gaps in their lineup.
⮚ They have new growth opportunities &
new markets to cover in US. (Presently in
major cities of US. Have not penetrated
into Tier 2 cities of US).
⮚ Adapt Information technology (Online
presence & e-commerce) to increase
customer base.
⮚ Partnering with architects & interior
WEAKNESS
⮚ Increased burden/responsibility to
customer: Assembly, Transportation and
Service in store was completely the
customer’s responsibility
⮚ Durability was a question mark.
⮚ Style Selection & Product range was
limited. Focus was more on Scandinavian
Design.
THREAT
⮚ They have to fight against the American
culture of not changing furniture
frequently.
⮚ Low entry barrier for competitors
because of low capital investment & low
technology required in manufacturing
furniture.
⮚ Low Margin because of heightened
competition with established brands in
US.
⮚ Environment regulations (forest cover,
deforestation) can threaten their raw
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 designers to offer tailor made services to material supply
customers. (add on service)

⮚ Increase customer conversion rate through

attractions such as food court & play area.

COMPETITION FROM LEVEL COMMENTS

⮚ From competitors who are home grown companies in US as they
understand the US market and tastes of US people.
⮚ Monopolistic market. Margins are less and there is a price
Existing Competition HIGH
competition
⮚ Differentiation in having a large global vendor base, unique designs
& DIY furniture helps in fighting competitor forces.

⮚ Low entry barrier for anybody to enter Furniture Industry

⮚ But to adopt all activities of IKEA, it is difficult.
New Entrants MEDIUM
⮚ New Entrants need to establish good relationship with suppliers
who are already working with established competitors.

⮚ Because, IKEA deals with many Suppliers, the suppliers have less
bargaining power.
⮚ Also, IKEA owns some supplier companies which further reduces
Suppliers LOW the bargaining power
⮚ There is a small threat of single source of supply for key items.
If any of the supplies goes haywire, then selling of all key items of
assemblage would be an issue

⮚ Because of many choices, customers have bargaining power to get

the costs down
BUYERS HIGH ⮚ Also due to much more styles & designs provided by competitors in
the market
⮚ Cost of switching from one brand to other is very low

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 SUBSTITUTES LOW ⮚ Furniture as an industry has no substitute.

PORTER FIVE FORCES

PORTER 5 FORCES RADAR

COMPETITORS

NEW ENTRANTS SUBSTITUTE

CUSTOMERS SUPPLIERS

Problem Identification

IKEA has been able to double their revenue in the last four years.
Going forward, In US Market, how should IKEA find the balance
between growth & retaining their niche and not be another supplier of
traditional furniture

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 SEGMENTATION
TYPE OF CRITERIA DIFFERENT SEGMENTS
SEGMENTATION

GEOGRAPHICAL Country USA

SEGMENTATION
Cities to Target Tier 1 Cities (By population)

Tier 2 Cities (By Population)

Rural Areas

DEMOGRAPHIC Life Cycle Young, Single, Married Couples, Married with Children,
SEGMENTATION
Old Couples

Age Under 18, 18 – 25, 25 – 50, >50

Income Low Income, Medium Income & High Income

Life Stage College, Young Professional, Experienced Professional,

Unemployed

BEHAVIOURAL Occasion Festive Seasons, New movers, New Home Buyers, Weddings,
SEGMENTATION Birthdays & anniversaries

Benefits Quality, Convenience, Cost, Value of Money, Ergonomics,

Service, Luxury.

Loyalty: Hard-core, Shifting, Switchers, Loyalists of IKEA, Split

Loyalists

Readiness Stage: Unaware, Aware, Informed, Interested, Desire to buy, intend

to buy

PSYCHOGRAPH High Resource Innovator, Thinker, Experiencer, Achievers

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SEGMENTATION Individual:

Low Resource Survivor, Believer, Maker, Strivers

Individual:

TARGETING
TYPE OF CRITERIA DIFFERENT SEGMENTS
SEGMENTATION

GEOGRAPHICAL Country USA

SEGMENTATION
Cities to Target Tier 1 Cities (By population)

Tier 2 Cities (By Population)

Rural Areas

DEMOGRAPHIC Life Cycle Young, Single, Married Couples, Married with Children,
SEGMENTATION
Old Couples

Age Under 18, 18 – 25, 25 – 50, >50

Income Low Income, Medium Income & High Income

Life Stage College, Young Professional, Experienced Professional,

Unemployed

BEHAVIOURAL Occasion Festive Seasons, New movers, New Home Buyers, Weddings,
SEGMENTATION Birthdays & anniversaries

Benefits Quality, Convenience, Cost, Value of Money, Ergonomics,

Service, Luxury.

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 Loyalty: Hard-core, Shifting, Switchers, Loyalists of IKEA, Split
Loyalists

Readiness Stage: Unaware, Aware, Informed, Interested, Desire to buy, intend

to buy

PSYCHOGRAPH High Resource Innovator, Thinker, Experiencer, Achievers

SEGMENTATION Individual:

Low Resource Survivor, Believer, Maker, Strivers

Individual:

Segments which IKEA should target

SUMMARY

1. IKEA need to target the Tier 2 cities of USA in the age group of 18 – 25 or 25
– 50 who are single, married (with / without children) in the low- or
medium-income group.
2. In these categories, IKEA need to look out for new home buyers, or recent
movers, migrants who are looking for low cost, value for money furniture
but are also particular about aesthetics
3. The psychology of these customers are they are either innovators (have
tastes for niche-oriented products/services), Experiencers (seek variety,
excitement) or makers (like to work with their hands) & strivers (resource
constraint but have a desire to better their lives).

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 4. IKEA need to design advertising campaigns to the segment of people who
are unaware of IKEA, who are aware but not well informed of it’s USP’s &
people who have a desire to buy IEKA products.

-PTO

ALTERNATIVES EVALUATION

As per exhibit 7, Presently IKEA has 14 stores in majorly Top

10 cities of US (by population).

Going forward they can focus on Tier 2 cities for expansion Ensures adding new cities and untapped customer
geographically. base while promoting their niche. This clearly meets
the criteria

Also, no presence in Dallas, Phoenix, Detroit & San Antonio –

which are in the top 10 cities (by population).

Also ensures the customer base increases as they

extend product line that cater to general American
Add American design to product matrix (through reverse tastes.
engineering process) to cater to local styles & needs without Downside: Scandinavian Design centric philosophy
compromising on their flagship Scandinavian Design.

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Exhibit 5:
a.    Purchase from North American Suppliers is just 3%.
Opportunity to increase supply from this region which will
is compromised to a certain extent.
complement the addition of American Design & taste.
b.       Pitch to the large student community to come with designs
(grassroot marketing)

Meets market growth share by increasing their

Increasing the online presence (by way of e-commerce & online customer base and don’t need to compromise on their
sales) niche.

This ensures growth while retaining their niche. Having online

presence ensures that we chase the “long tail”.

To attract more American customers to the store, restaurants

and other attractions can be American centric (For Ex :
Restaurants to offer American varieties of food).

Focus on College Students (majorly migrant student population

– Asians, Africans, etc)

These customer profiles are not presently a part of their

customer profile as they too seek benefits of Value for money,
cost & style that IKEA is offering.

Focus on Newly married couple, people who are buying a home

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Tie up with Architects, Big Construction projects, etc.

Introduce product line targeting the high-income group Although can increase their customer base will
compromise on their vision statement of “Low price
with meaning”.

Alternatives/ Way Forward & Evaluation

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