Key Issues in IKEA: Case Study

Subject: Company Analysis
Pages: 6
Words: 1718
Reading time:
6 min
Study level: PhD

IKEA is a privately owned Swedish company that specializes in the designing and selling of furniture and other home appliances in the international market. The paper therefore finds out how IKEA was able to achieve its tremendous success to achieve the witnessed customer confidence and trust. The case study reveals several issues concerning IKEA. All the issues narrow down to knowing how IKEA was founded and how it has been able to survive in its industry to this point. For instance, IKEA’s leadership is a key issue pointed out in the case study. It is crucial to know the leadership style that was adapted by Kamprad from the time of the company’s inception as a 17-year-old to the time when the company became a fully-fledged entity competing on the global market and with huge profits to come with. This was sought to fight the issue of competition. Moon (2004, 1996) presents him as an innovative and a visionary leader (p.1, p.3) respectively who had strategic skills to put in place to make IKEA a competitive brand on the global market for a very long period. This is because IKEA was been able to thrive on the global market by defying the market dynamics that came with different geographical locations, different cultural backgrounds, and different social-political settings of the environment in which it has worked. Another issue that IKEA sought to address was equal resource allocation to all people. Moon says, “a large part of the resources is used to satisfy a small part of the population” (1996, p.2). IKEA sought to find out the possible strategies to put in place, in terms of its products and prices, to make sure that the entire population benefited. Another key issue of this study that IKEA sought to bring out is its ability to maintain its clientele base in different countries while at the same time wooing new ones. It “worked with 1800 suppliers in more that 50 countries” (Moon, 2004, p.4). This qualifies as an issue to address because, at any given moment when it opened new stores, it had been able to record several tens of thousands of clients who were eager to view and purchase its products. Maintaining this was central and a challenge for IKEA. IKEA has fashioned itself as a self-service store whereby clients simply walk in and serve themselves with the products they need. This has also been accompanied by IKEA’s unique packaging strategy that is designed for flat packaging of its products when they leave the shop, which has allowed it to save many costs (Moon, 2004, p.4).

Behavioral customer segmentation

Behavior segmentation of the market is the division of the clientele base into different groups based on their use of the product, knowledge of the product, or their attitude towards a product in the market. Therefore, behavior segmentation of the customer is simply the division of the different customers into groups that exhibit similar behaviors towards a product. IKEA’s market is also drawn from the high-end to the low-end group of clientele. An example of high-end market segment is when IKEA opened a canton in downtown Zurich, which was a very affluent area having “20% of the whole country’s consumer purchasing power” (Moon, 1996, p.2). By doing so, IKEA was simply putting in practice the fact that, “in business, some clients are more profitable than others” (Moon, 1996, p.2). Design and price is also a factor that dictates some customer’s behavior. With this, IKEA targeted young buyers who wished to furnish their apartments. It thus came up with furniture that would be appealing to the young buyers and at the same time affordable. This group had the characteristics of low to middle-income families. The products made in this case were specific to suit their needs. Their purchasing behavior was mostly driven by price and design of the product. Quality, as a behavioral determinant in clients’ purchasing behavior, was exhibited among the older and affluent buyers who put much emphasis on the quality of items they wished to purchase. It was also exhibited in the American market where customers bought stuff that they believed would last for long. Moon (1996, p.8) says, “The US’ market had enormous potential.” Large assortment of items to choose from is also a driving factor, as a large variety tended to make each item look unique to the eyes of the buyer. The catalogue, based on the way it presented the items to the buyers, was also an influential factor. It tended to give customers a great overview of what to expect and choose from thus qualifying as a convincing factor for the undecided group of buyers. Recommendations and guarantees played a minimal role in influencing the customers’ purchasing behavior. Other factors that influenced the behavior of customers include marital status, income, and type of home, as well as the number of children within a household (Moon, 2004, p.9).

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IKEA’s Traditional vs. New US Customers

Comparison of IKEA’s traditional vs. new US customers can be defined along the European market in comparison to the US market. IKEA’s traditional market therefore consisted of European markets with countries like Germany, Britain, France, Netherlands, and Sweden (Moon, 1996, p.4). Whereas the traditional market was always anticipatory in the new products that IKEA would be unveiling, the US market was a bit cautious in receiving the new brand of products brought about by IKEA. Whenever IKEA opened a new store in the European countries, there would be massive lineups of clients coming in to sample and purchase the products. This is in contrast to the American style where people shunned IKEA’s stores for a while before they could accept it. Whereas the traditional market would be satisfied with fewer designs of the same item, “not too status-conscious” (Moon, 1996, p.5), the new American market fancied same products that came in an array of different designs and colors. In America and just like in Europe, the market was highly fragmented with the dominant players taking about 14% of the market share while the rest was shared among the rest. Both the European customers and the American customers shared the same influence brought about by the availability of parking in determining where they shop. This follows because, in most countries, parking is a problem and the availability of parking gives the customers a more comfort as they do their shopping or on deciding where to shop. The new American customers also share resemblance with the European counterparts in the choice of where to shop: both groups prefer an all-inclusive shopping centre that offers other facilities like eating joints and children playing areas (Moon, 2004, p.9). They also prefer to shop in firms that offer other products under one roof, as well as under the same brand. Whereas the European customers preferred products that they could replace after a short time depending on the trend in the market, the new American customers preferred products that would last for long. They were not used to disposing off their old items, as they preferred to keep them.

IKEA’s Strategic Growth Opportunity in the US

IKEA’s strategic growth opportunity in the US market can be influenced by different factors that will enable it expand to new levels within the American market. First, IKEA should invest in research and development for it to be able to churn out new products that are consistent with the ever-dynamic market trends in the US. It needs to know the requirements of the customer. As Christensen, Cook, and Hall point out, “People do not want to but quarter inch drill, they want a quarter-inch drill” (2006, Para. 4). As much as it has thrived on Scandinavian styles for a while, it is not a guarantee that this strategy will work in the US. Therefore, IKEA has to go back to its corporate strategies and adjust them to allow the company to penetrate the American market. It should also be open to recruit personnel from other sectors of the market who have a lot of experience in their different fields especially from the US. This follows because such people come with a lot of knowledge of the US market that may not be available to the in house trained managers. Therefore, a change in the human resource management strategy will enable it come up with new ideas on the market and thus cover more ground in terms of product coverage (Moon, 1996, p.6). IKEA should embark on an aggressive campaign to market itself and make its name a brand name of choice for all. This follows because it has a potential to have a household name like Coca Cola. With this in place, it will not need to spend a lot of money on advertisements, as it will have captured a big chunk of the market with lots of repeat purchasers. Repeat purchasers usually do not need a lot convincing to buy a product. IKEA should aggressively make its presence felt in the American society by opening more branches or franchise. This holds because its unique mode of operation is easily imitable, as it might lead to stagnation whenever it tries to penetrate in new areas. Other competitors will have already settled in the area. IKEA should also consolidate its sources for raw materials in preparation for expansion. This will enable it have a constant, reliable, and uninterrupted supply for materials that will enable it satisfy the market demand.

Conclusion

In conclusion, IKEA can be described as a unique case of a successful business venture that has made it in the market that is not traditionally successful internationally. This holds because the furniture industry worldwide has generally been viewed as a cottage industry that caters for the needs of people within a given area in a country and not as a global business identity. Therefore, IKEAs success can never be viewed as a fluke, but as a business model that is worth studying, as well as emulating. The ability of IKEA to penetrate and survive in new and hostile market has made it stand out among the many big business names in the world because of its ‘no surrender’ approach. Also, of interest is IKEA’s management style that is simple and not so unique, one that has so far brought about success to the company.

Reference

Christensen, C. et al. (2006). What Customers want from your Products. Web.

Moon, Y. (2004). IKEA Invades America. New York: Harvard Business School.

Moon, Y. (1996). Ingvar Kamprad and IKEA. New York: Harvard Business School.

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