Should ikea change its product strategy

So, how exactly was IKEA able to keep its costs so low? In the early days, IKEA sold fully-assembled furniture. This change provided several advantages. Obviously, it made shipping and transportation costs lower — with flat-packed goods, more products can be loaded up into a single delivery truck.

But there was another advantage that came from this move: modularity. By requiring customers to assemble their products, IKEA can manufacture modular pieces that fit several different furniture items.

This means that production lines can be streamlined and made more efficient. Similarly, by removing the assembly from the picture, IKEA also needs to hire fewer service employees, which saves on employee compensation costs. The principle behind the IKEA Effect is simple: people value things that they build themselves more than things that are built for them. Doing the work yourself gives you a better appreciation of the value, and since people tend to think quite highly of their own craftsmanship, they will tend to view the furniture as well-made.

This helps IKEA with a cost leadership sleight of hand: by asking customers to assemble their own furniture, they can keep their own costs low, while simultaneously making their customers view their products as higher-quality and more valuable. While many low-price retailers attempt to keep production costs low by pitting suppliers against each other and selecting the most competitive price offerings, IKEA takes the opposite approach.

Instead of fostering competition among the suppliers it works with, it opts for collaboration. IKEA keeps production costs low by signing long-term contracts with its suppliers.

The result is that IKEA is able to keep its costs low consistently, instead of constantly scrambling to find the lowest cost supplier. The strategy appears to work. Additionally, IKEA does its best to source its wood close to its suppliers in order to keep transportation costs down. They are essentially repackaged warehouses.

Within the store, customers are presented with realistic representations of how each furniture item might be used in a contemporary living situation. The displays are not sterile lineups — they feel alive, livable, and customers can easily see the functionality of each item. To make the shopping experience even more pleasant, IKEA provides play areas for children and eating areas for hungry shoppers. The end result is a store that feels homey and comfortable despite the industrial scale. Although this may all seem entirely in service of the customer, it also confers several cost-saving benefits to IKEA.

For one, IKEA specifically places its stores in more domestic areas, where real estate prices are lower and the stores can be more expensive. This saves the company from having to spend top dollar for competitive retail space in a large city.

Secondly, by making stores so large, they can effectively function as both a warehouse and a showroom. As a result, IKEA can combine warehouse and showroom expenses into one, keeping total costs low. Of course, the fact that IKEA products are flat-packed also means that more products can be stored per warehouse, further reducing storage expenses. Thirdly, the huge amount of space allows IKEA to present many different design possibilities to customers without the need for large numbers of staff to constantly rearrange furniture for shoppers.

Overall, the end result is that the unique IKEA showrooms provide customers with an enjoyable shopping experience, all while allowing the company to save on real estate, warehousing, and staffing expenses. When we think of something valuable, we tend to think of something expensive: gold watches, luxury cars, rare jewelry.

Sometimes, small changes can lead to big results. From its humble beginnings in small-town Sweden to its current seat as a major player in the global retail market, IKEA has been nothing short of a Cinderella story. But no business can rest on its laurels — the market is constantly changing, and a single bad move could throw away 80 years of success in a flash. From the start, IKEA has had the goal of becoming a company that sold low-priced products that would appeal to mass-market consumers.

Today, IKEA has become practically the world leader in budget furniture — it is the first place that the average Joe will go when searching for new furnishings. It is particularly popular amongst young people furnishing their first apartments and houses. Throughout its development, IKEA had ample opportunity to stray from this initial vision, but it never has. Through the various cost leadership strategies we discussed in Chapter 3, IKEA is able to consistently price its products cheaper than its competitors.

In turn, this has made IKEA the go-to brand for budget-friendly furniture. Any quality deficits that IKEA products may have been made up for by the IKEA Effect, which causes self-assembled products to take on a higher apparent value in the eyes of the builder. From the unique furniture designs to the use of Swedish names to the beloved in-store restaurants and beyond, IKEA has crafted a brand experience that is unlike any other. Across the world, people instantly recognize the IKEA name and its bold yellow-and-blue logo.

Without a doubt, IKEA is a household name, and that level of recognition is rare. This level of brand recognition means that IKEA is ingrained in the global culture as the first stop for affordable furniture. Unlike many companies vying for cost leadership, IKEA refuses to force its suppliers to compete with each other. Instead, it opts for a more collaborative approach, which leads to strong relationships and consistently low pricing in the long term.

Additionally, having control of some of the raw material supply chain helps keep IKEA in a strong position. Instead, they have focused on cornering the budget market. Its long-term and collaborative arrangements help reduce this risk, but it is still a less favorable position to be in than producing everything in house. Since , five children have been killed by an IKEA product, the Malm dresser, toppling over onto them.

The company has also received bad press for treating its workers poorly. IKEA is a company that focuses on providing its customer base with cheap, unassembled furniture. While this works well to corner its core market, it does leave other potential markets, like budget pre-assembled furniture, almost completely untapped.

By leasing its own forest land, IKEA is able to further ensconce itself in its supply chain, which leads to more control, lower prices, and better sustainability initiatives. However, managing and operating timberland is a costly and time-consuming effort, which could ultimately leave IKEA scattered and less focused on its core purpose.

Currently, IKEA is overwhelmingly focused on the developed world. This leaves large swaths of the developing world practically untouched and represents a sizeable growth opportunity. If the company continues to direct energy and resources in this direction, it could see a strong ROI. However, as e-commerce becomes a greater part of everyday life, IKEA will need to find a way to effectively digitize and create a similarly enticing brand experience in the digital world.

IKEA has begun making changes to better position itself in the developing e-commerce landscape. For example, many of its stores now double as fulfillment centers, and the company has made many behind-the-scenes changes to ensure online orders are fulfilled faster. Particleboard is a material that is made by gluing together wood particles. Essentially, particleboard is made from wood, but it is not wood.

Combined, this means that particleboard makes more efficient use of raw materials and transportation, given that its lower weight allows more particleboard items to be shipped per load. If it raised the percentage of particleboard products, it could save significantly. Even though customers demand met is based on their respective orders, IKEAs meet such demand based on their already stocked inventory and hardly does it produce from scratch based on such individual customised orders.

But as stated above, in all IKEA does not typically focus on the pull strategy but uses push strategy throughout it supply. Amazon has achieved a lot on a great scale that it gets the best prices from its vendors so they can operate in very flexible and thin margins and sell their items easily at retail prices and make money. They also provide shipping products for a reasonable cheap price. They also have improved their warehouses by giving some space to other sellers who want to sell their items through Amazon.

They differentiate and provide better quality than their competitors across the industry. It provide the customer popular items with private level brands. ALDI has always been consumer focused and its aims to provide quality products to its customer at low price. Its objective was market oriented which satisfy customer needs and wants and motivate them to come back again by selling cheaper product and providing best customer service.

The IKEA idea is to provide a variety of home furnishing products that are affordable to the many people. It is accomplished by merging quality, design, function and value. The waterfall strategy contains less risk than the sprinkler strategy as expansion can be planned and initial costs of the entry are lower.

Nevertheless, the sprinkler strategy is used especially in case of important firstmover advantages through quick market entries Kotler et. Underlying its extreme growth, Ikea developed certain growth drivers that made this growth possible and increasing. These are either internally caused by the company or externally by the market environment. Even in the recession years after , Ikea maintained to be successful by selling cheap furniture that the people could afford.

The following chapter explains what the company did to achieve this stable growth. Although the products are connected by the unique Scandinavian design, there are products that are suitable for every occasion and room in a house or apartment like kitchens, toys or even plants Dahlvig, , pp. By creating this wide range, the company makes sure that every customer finds something to buy, even if it is just a candle.

By clever solutions adapting to the problems of the customers with small rooms, Ikea manages to attract many people in cities where living space is limited. As the number of people who live in big cities will increase, e. Ikea has the assumption that a customer who wants to spend less on products is also willing to take part in the sales process.

This includes the self-transportation, the selfassembly and even the introduction of self-checkout Dahlvig, , p. By this method, Ikea keeps its own costs low at the same time as providing a purchase experience for the customer. For the customers who do not want to be integrated in that way, the company also offers transportation or installation and construction of the ordered furniture.

Although this is tested by new employees, the criticism still remains Kowitt, ; Harrison, Ikea is a standardized retailer which involves the same product range and strategies worldwide. With only little adaptations in physically further markets like Asia, the company is able to grow through economies of scale and mass production effects Grant and Jordan, , p. Practically every store is standardized regarding layout and size of the sale areas, materials, equipment or even management techniques.

The disadvantage of the standardization strategy is that it cannot be adopted everywhere and leads to difficulties as depicted in the next chapter. They want an experience including the Swedish lifestyle and authenticity that Ingvar Kamprad, the founder of Ikea, implemented in the company.

This lifestyle distinguishes itself from competitors with its simplicity, practicality and informality Kotler et. In Kungens Kurva for example a shop visit lasts on average one and a half hours Dahlvig, , p. Due to these factors the growth of Ikea increases steadily. The main growth factor of Ikea represents the pricing strategy. Before producing a product, a target price is set that needs to be achieved by the suppliers Hiiemaa, For you.

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