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This case study gives a brief over view of IKEA , it’s history, the concept, the store and it’s performance. It also looks at the sustainability of the concept.

Ghaayathri P

GAPR09RM082

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Contents IKEA HISTORY ........................................................................................................................ 3

THE IKEA CONCEPT .............................................................................................................. 4

Vision ..................................................................................................................................... 4

Business Idea ......................................................................................................................... 4

Marketing positioning statement............................................................................................ 4

Value Proposition................................................................................................................... 4

Great Functional Design .................................................................................................................. 5

Extensive Range and Variety ........................................................................................................... 5

Customer Value ............................................................................................................................... 5

Right Quality.................................................................................................................................... 6

Convenience .................................................................................................................................... 6

THE IKEA MARKETING MIX ............................................................................................... 7

THE IKEA STORE.................................................................................................................... 7

Location ................................................................................................................................. 7

Format .................................................................................................................................... 7

Visual Merchandising ............................................................................................................ 8

Other Services ........................................................................................................................ 8

IKEA‟s PERFORMANCE......................................................................................................... 9

Sales ....................................................................................................................................... 9

Expansion ............................................................................................................................. 10

IKEA‟s SUSTAINABLE BUSINESS MODEL ...................................................................... 11

The Supply Chain ................................................................................................................ 11

Primary sector ...................................................................................................................... 11

Secondary sector .................................................................................................................. 11

Tertiary sector ...................................................................................................................... 12

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IKEA HISTORY

The IKEA story begins in 1943, when founder Ingvar Kamprad, born in southern Sweden,

established his own business at the age of 17 from the money his father

gave him for succeeding in his studies. The name IKEA is formed from

the founder's initials (I.K.) plus the first letters of Elmtaryd (E) and

Agunnaryd (A), the farm and village where he grew up. IKEA originally

sold pens, wallets, picture frames, table runners,

watches, jewellery and nylon stockings -

meeting needs with products at reduced prices. In the 1950‟s he

turned IKEA into a proper furniture retail store with various

furniture designs, advertising and using a catalogue and showroom

to reach more people and potential customers. The IKEA concept

started to take its destined shape in 1960s – 1970s. A few new

stores were opened during this era and new hero products were launched and the first IKEA

restaurant opens in 1960s.

The IKEA furniture stores saw a dramatic expansion of their

stores into different countries including UK, France, Italy and

even USA. In the 1990s, the store grew even more. The number

of products increased along with the number of stores all over the

globe. But this decade is very special for the group because

Children‟s IKEA was introduced at this time-period only. The focus

shifted to catering families with children. The IKEA group was

created during this time and the responsibility towards customers

and environment became a priority to make good business. In the

2000s, the IKEA expands further, reaching the

new markets of Russia and Japan. This is the

time when the group associated itself with many environmental and social

projects. In 2006, IKEA launched its own food label covering about 30

percent of the 150 products in its food range. The range focuses on high-

quality food products based on Swedish recipes and tradition, for a low

price. The products have an IKEA label and are sold in Swedish Food Markets in IKEA

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stores and are also served in IKEA restaurants. Thus the history shows how, over six decades,

IKEA went from the woods of southern Sweden to being a major retail experience in 44

countries around the world.

THE IKEA CONCEPT

Vision

“To create a better everyday life for the many people”

Business Idea

"To offer a wide range of well designed, functional home furnishing products at prices so low

that as many people as possible will be able to afford them.”

Marketing positioning statement

"Your partner in better living. We do our part, you do yours. Together we save money."

Value Proposition

IKEA

GREAT FUNCTIONAL

DESIGNS

CUSTOMER VALUE

EXTENSIVE RANGE and

VARIETY

CONVENIENT SOLUTIONS

RIGHT QUALITY

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The IKEA‟s value proposition stems from its positioning statement which is “We do our

part”. IKEA is committed to designing great products in terms of convenience, functionality,

price and quality and hence delivers clever solutions and great value to the customers. They

achieve this by using the best of supply chain practices, lean management, minimising retail,

production and distribution costs and using inexpensive materials in innovative ways.

Great Functional Design

Easy to use, practical and yet attractive are the mantras for IKEA

design. It follows a no frill approach and allows the customer to

customise to a large extent; hence one does not have to pay for the

unnecessary add-ons. For example: even boxes at IKEA, the lids are

priced separately and can be bought separately. Innovation is the key

to the great designs that IKEA produces which simplifies everyday home furnishing needs.

Extensive Range and Variety

IKEA has positioned itself to be the one stop destination shop for all home furnishing needs.

It covers all home solutions, ranging from kitchen , bedroom,

bathroom , living rooms to office solutions as well. It not only

has furniture, but even small home decor products, lighting,

carpets, small kitchen knick knacks, storage boxes, kids toys,

etc. Not only does it house such a range of product categories,

but offers great depth in each category as well and hence

appeals to a large population. These products are very practical, appealing and modern and

hence for everyday use.

Customer Value

IKEA‟s pricing strategy is not plain “low price”, but value for money.

IKEA uses excellent supply chain concepts, reducing and eliminating

wastes at every stage and hence can offer good value to customers.

They are known for the close relationships with their suppliers, which

enables them to make a real difference, by buying good quality and

economical production in bulk to keep the prices low. They also make

all their furniture packing flat to reduce transportation and assembling costs. They also reduce

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on retail costs, but having simple warehouse type retail spaces in the sub – urban area, hence

reducing rental costs. They also cut down on the costs in sales personal, as IKEA customers

need to pick up their own merchandise and clear their own trays at the food court.

Right Quality

Keeping the customer in mind, IKEA doesn‟t invest in unnecessary expenses and focuses on

appropriate quality for the right use. For example, the back

panels of most of their book shelves are usually inexpensive

material, as it does a good enough job. At the same time, they

don‟t comprise on quality and ensure that the customers know

about this by putting up demo pieces in the retail outlets. All

their products undergo rigorous tests to ensure they meet the

required quality and safety standards.

Convenience

“All home needs under one roof”, with ready stock, provides at most

convenience to the IKEA shoppers. The simple return policy, simple

display of product information , the touch and feel of the products,

helps customers make most of their decisions by themselves.

Customer Service representatives, though few in number are always

ready to help the customers. The children‟s play area, the family

great value restaurant, special events, catalogues, seasonal themes, etc definitely provide

convenience to the customers.

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THE IKEA MARKETING MIX

The long standing tradition of IKEA„s marketing communication is primarily focusing on

print media like catalogues, newspaper ads, etc. However, it has expanded to TV, radio and

recently the internet medium. The IKEA website offers virtual home solution concepts and

prices as well.

IKEA focuses on 4 areas primarily for all its marketing communications:

Product Range

The Store

Catalogue

Advertising and PR

The IKEA catalogue requires special mention as 70% of the annual marketing spends are

reserved for this. With 38 different editions in 17 languages reaching 28 countries, a total of

110 million catalogues were distributed last year.

THE IKEA STORE

Location

The stores are usually located in sub- urban area and in standalone formats, with good

parking facility. This creates a complete shopping experience for IKEA‟s customers.

Format

The IKEA store is a warehouse format, no frills blue and yellow building which are usually

around 300,000 sq feet. The layout is a race track format, which guides the customer through

the entire store in one direction. However, as the path is wide, customers can easily stop and

look at displays and products without blocking the way for others.

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Visual Merchandising

The beautifully designed IKEA products are themselves appealing, and to add to this visual

treat, the stores have beautiful little concepts showcasing a

complete furnished model rooms for each section of the house.

A lot of colour coordination is used in the product placement

to enhance the entire experience of

their shoppers.

A few products in motion are placed

to further attract attention at the same

time enhance the quality perception of IKEA products. The products

are well placed and the price tag gives all the required information,

including the designer‟s name. The lighting is mix of soft yellow

lights, with good focusing white lights on the main products.

A pleasant aroma of the IKEA restaurant fills the store, and the

music is usually light and enjoyable. The design of the products and

the store interiors are changed often to make sure that the customers

get to see something new all time and hence increase the store visits.

It also places inexpensive products complementary to the big ticket

items, to let the customer know that the products they thought they never required would

enhance their lifestyle. By rotating one fourth of its product line every year, they manage to

keep the product desirable, fresh and relevant.

Other Services

The children‟s play area is well known for its high safety standards

and customers can drop off their kids right at the entrance and

enjoy a leisure shopping experience. The IKEA restaurant is

mostly in the centre of the store and hence the customer can at any

time take a break and head to the restaurant before he resumes his

shopping. They have large parking facility and hence customers can

easily load their products into their cars and drive home.

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IKEA’s PERFORMANCE

Sales

The figure below shows the sales of

IKEA group over the years. All the

numbers are in billions Euros. IKEA

had managed to double its sales in a

period of 5 years from 1999 to 2005.

The sales of the company have been

steadily growing at the rate of 15%

from year 2005 to 2008. Despite the

economic downturn in 2009, IKEA

sales increased by 1.4% and during recession, IKEA‟s low prices become even more relevant

to the customers. In 2009, the IKEA group totalled 21.5 billion Euros, while the food

services reached 1.03 billion Euros.

Europe still accounts for 80%

of its sales, with Germany

being the highest contributor at

16%. The US market alone

accounts for an 11% , followed

by France 10% , UK and Italy

at 7%. IKEA is yet to tap the

potential of the Asian Market.

The first entry in the Asian

Market was in Japan in the

1970‟s as a joint venture didn‟t

turn out to be fruitful venture

and exited in 1986 and it is only in 2006 that IKEA re-entered Japan with full ownership.

During the year 200, it entered China.

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Popular to the common belief that most of IKEA‟s products are sourced from Asia, two- third

of its suppliers are in Europe and only one third in Asia. IKEA has a total of 1550 suppliers in

55 countries.

Expansion

The grand total of 301 IKEA stores in 37 countries, speaks volumes about the company and

it‟s far reaching presence. The IKEA Group itself owns 267 stores in 25 countries:

Australia, Austria, Belgium, Canada, China, Czech republic, Denmark, Finland, France,

Germany, Hungary, Italy, Japan, Netherlands, Norway, Poland, Portugal, Russia, Slovakia,

Spain, Sweden, Switzerland, United kingdom and USA.

The other 34 stores are owned and run by franchisees outside the IKEA Group in 16

countries. These are Australia (2), the United Arab Emirates (2), Cyprus (1), Greece (3),

Hong Kong (3), Iceland (1), Israel (1), Kuwait (1), Malaysia (1), the Netherlands (1),

Romania (1), Saudi Arabia (3), Singapore (2), Spain (4), Taiwan (4), and Turkey (4).

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IKEA’s SUSTAINABLE BUSINESS MODEL

The Supply Chain

IKEA‟s core strength, besides its design, stems from its strong supply chain practices. The

various stages are:

raw materials in the primary stage

manufacturing in the secondary stage

Distribution and retailing services in the tertiary stage.

Primary sector

IKEA works closely with its primary sector suppliers to ensure that it is receiving sustainable

and environmentally friendly raw materials. IKEA designs its own products and throughout

this process makes sure that the impact on the environment is minimised. The firm uses a tool

called the „e-wheel‟ to measure the environmental impact of products. This looks at

resources, production, use and recycling for each product. Around half of IKEA‟s products

are made of wood. This is a good source of material as it is recyclable and renewable. Other

production processes which help support sustainability include:

• tables made from recycled plastic

• rugs made from off-cuts

• Products made to stack for more efficient transportation.

IKEA works with suppliers to reduce waste or use waste products in further manufacture. To

help it has a Code of Conduct called the IKEA Way (IWAY).

Secondary sector

The IWAY Code helps manufacturers by making sure that they apply sustainable principles.

It also insists that they follow laws, health and safety requirements and do not employ child

labour. It states that materials from non-sustainable sources should not be used. The Code

raises standards for all concerned. IKEA also works with other organisations to support the

Code. These include children‟s charity UNICEF and the World Wildlife Fund.

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Tertiary sector

IKEA has more than 260 shops in 36 countries set up to provide a retail experience that meets

consumer needs. Stores are large and customers can pick their own purchases. Further

services are provided through the IKEA catalogue and home delivery. IKEA also has set up

initiatives to support sustainability within the company by:

• aiming to recycle up to 90% of its waste

• removing carrier bags from its stores

• subsidising public transport and encouraging cycling (with a new bike given to

each employee)

• giving low-energy light bulbs for employees

• Using only hybrid vehicles as company cars.

Bibliography

www.ikea.com