Ikea Case Analysis

IKEA Invades America

Table of Contents

Executive Summary………………………………………………………………………...2

Relevant Factors or Issues……………………………………………………………….....3

Central Problem…………………………………………………………………………….3

Implications

Criteria for a Viable Solution

Alternative Solutions

Recommended Solution

Executive Summary

Overview

IKEA is a furniture company founded in 1943 by Ingvar Kamprad in Sweden when he was just 17 years old. He started with selling home goods at a discounted price but eventually created a furniture store that specializes in keeping furniture costs low so everyday people could afford it.

IKEA’s pricing strategy keeps their product priced lower than competitors. Their packaging and put it together yourself approach makes it easy to buy items and transport them home. They use recycled materials when possible for manufacturing and has great instructions for assembling the furniture. The minimalist design works for those that have space concerns and like to keep things tucked away.  They provide daycare and restaurants that keeps customers in the store longer rather than losing them to go out to lunch It also eliminates the possibility of customers choosing to visit another store.

By 2002 IKEA had 154 stores in 22 countries. It opened its first store in the United States in 1985 and had a goal to reach 50 stores by 2013. There are currently 48 stores in the United States, which means they came close to their goal or had to close two stores in the last four years. When the store first came to the US it found issues that a little more market research could have avoided. The unit measurements were metric, not SAE (which is the preferred measurement unit in the US). The size of the kitchenware was also smaller than what Americans consider normal serving sizes, but IKEA quickly remedied these issues.

Problem

Some weaknesses in the model are that the designs are limited due to the minimal Scandinavian based furniture structures and designs. A niche market cannot grow as well as a more diverse portfolio. Because of the do-it-yourself model, IKEA also excludes the buyers with more money and desire for higher end items.

Solution

A great opportunity would be to expand the merchandise to include pre-assembled or custom pieces made to order. People with a more disposable income would be willing to see a display model or craft-your-own furniture design and pay a premium price to have it created and delivered. While a minimalist approach to sales keeps costs down is effective, increasing the number of sales associates to help guide people to what they are looking for would allow for greater sales success. This would encourage more shoppers to visit since most people do not have a full day to wander around the store.

Relevant Issues

Furniture comes unassembled, customers are expected to put together their furniture on their own with no help or guidance from a professional. This does not attract all consumers.

No delivery available, thus consumers must pick it up themselves and haul it home. Not like furniture retailers in America where delivery and installation are included in the price. Consumers don’t have to lift a finger, just wait for it to be delivered.

Competition from low-end retailers such as Walmart, Costco, and high-end specialty retailers.

Americans are less willing to buy new furniture.

Product and style selection is very limited. Americans are used to having many options and choices when making a big purchase. Consumers can customize their furniture to fit their needs and lifestyle.

Ikea stores are self-service stores. Customers are expected to measure, find and haul their own items. Plus, there are not many sales reps in the stores like Americans are used to. Americans like to be reassured their furniture is of high quality. They like to make sure the item is durable and know the longevity. Without sales reps, the consumer might be more reluctant to buy certain items they know nothing about.

Central Problem

Some weaknesses in the model are that the designs are limited due to the minimal Scandinavian based furniture structures and designs. Because of the do-it-yourself model, IKEA also excludes the buyers with more money and desire for higher end items.

Implications

The first implication is that because of the minimalist Scandinavian design, the stores in the United States would start to have less visitors. Scandinavian design is very different from American designs because their measurements are in the metric system and their portion sizes are smaller than Americans are used too. Most Americans are not familiar with the metric system because the U.S. uses their own system of measurement so that would make it difficult to shop for an item if they needed a certain size. It would also deter customers because the sizes are too small for what they are accustomed to in the U.S.