Ikea Case Study Essay Example

the first time in 1950. The response to the new addition of furniture to the catalogue was so great that the decision was made to be involved only with Furniture. 1951 was the year when Ikea produced their first furniture catalogue.

In 1953 in the local town of Almhult the first showroom was opened. This simple idea became the key to Ikea’s success and Ikea was able to leverage this idea and incorporate.

The recognition of the opportunityIKEA as one of the world’s best retailers, build the world’s largest furniture retailer and has grown impressively. Its success in the retail arena also seems to require companies to be innovative, adaptable, entrepreneurial and opportunistic, particularly when they begin to expand beyond their domestic markets (Arnold 2002).

The objective of IKEA is to supply exclusive and reliable flat-pack Swedish designed furniture at bargain prices. (Reynolds, 1988)

Leadership Ingvar Kamprad, founder and spiritual leader of IKEA, revolutionized the selling of furniture. When Mr.Kamprad built first IKEA store and inaugurate IKEA Empire, and facing endless competitors and new technology he never discontinue innovation, whatever production, service, manufacture, and endue new elements with IKEA (Kippenberger, 1997).

Vision and business idea The vision of IKEA is to create a better everyday life for the many people.

Its business idea supports this vision by offering 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. This vision and business idea insures the advantage of IKEA. - Corporate culture IKEA has opted for a very open, flat organization, giving responsibility early on to “co-workers”, with most managers only in their mid-30s (Kippenberger, 1997). Ingvar

Kamprad said that IKEA must develop a very large product range for the home which is at the same time aesthetic, functional and of good value, in order to be accessible to the greatest possible number of people (Reynolds, 1988).

An inescapable fact behind success in retailing seems to be the people side of business: from leadership vision and employee involvement to customer satisfaction.Companies may differ in what they sell and where they sell it, but those soft people skills seem to be essential for long-lasting, international success (Arnold 2002).

Community Awareness

The leading group of retailers’ shares is community awareness. This manifests itself in different ways. IKEA has built schools in Vietnam and Madagascar and only uses wood from sustainable sources to make its furniture. IKEA has a number of initiatives in place, from the use of reusable, recycled and environmental materials to produce goods for customers wanting to learn about do-it-yourself (Kippenberger, 1997). - Technological power Technological advances have substantially improved industrial productively, permitting suppliers to produce an unprecedented array of products and services (Kim and Mauborgne, 2005).

Traditionally, strategy focused on beating the competition, and strategic plans are still couched in warlike terminology. They exhort companies to seize competitive advantage, battle for market share, and fight over price (Kim and Mauborgne, 2005). IKEA achieve more successful business in its field through each technological revolution.Through SAP, it accelerates more competitive globalization, and could more effective control and arrange the whole resource.

Moreover, IKEA could more optimally stock productions from anyplace to attain the target of IKEA.

Production and service revolutionary IKEA had started to design its own furniture by 1955,and the following year, because furniture is bulky to transport,

self-assembly furniture packed in flat boxes was introduced (Kippenberger, 1997) .

History reveals that there are neither perpetually excellent companies nor perpetually excellent industries.Companies and industries rise and fall based on the strategic moves that are made (Kim and Mauborgne, 2005). by e-commerce developing, customers could more conveniently browse IKEA production on internet, and sent the order to Service-center, they can achieve favorite, but do not need to walk in the shop. Kim and Mauborgne (2004) think that:In the competitive-advantage worldview, companies are often driven to outperform rivals and capture greater shares of existing market space III.

A brief outline of the innovationWhen people think about IKEA, plenty of examples of innovation introduced by the Swedish company come to people’s mind in many different domains: -Product innovation : For example, they have launched houses in kits in the United Kingdom in partnership with a local partner. -Communication innovation : They have always been innovators in their marketing campaigns: guerrilla marketing in NYC, expositions in the monorail of Kobe, or even on the Internet with the Matrix catalogue. -Price Innovation : The furniture in kits helped lowering the prices.In the five last years, most of the prices have declined by 15%. The most interesting innovation appeared in the early years of IKEA was totally surprising. IKEA was only a furniture shop employing 4 workers at that time.

One of them, Gillis Lundgren was desperately fighting with a table to get it into the trunk of his car. He finally had no choice but taking its legs off. The table then ended in five different pieces and gave birth to the first furniture in kits, also called flat-pack furniture. This

invention had two main advantages for the company.Firstly, it drove to a decrease of the cost concerning the transports of furniture.

Secondly, it simply cut the assembly costs of putting the furniture together could be passed on to the customer. Nevertheless, customers went to IKEA which mean they are happy and willing with this role. They accepted it as it reduces the prices for their furniture. That’s why; still fifty years later, when customers think “IKEA”, they think flat-pack. Flat-packs were introduced to lower the costs, and the customers felt more involved when they had to pick up, bring home and build it themselves.

There seemed to be a relationship between the growing IKEA shop and its customers. They never stopped demanding more: the waiting time to access parking got longer and longer...

The Team Responsible For The Implementation

Every product has its product life cycle in one of these phases: introduction, growth, maturity or decline. By positioning or repositioning strategy, companies can change their products life cycle from one to another phase like moving from introduction to growth phase or moving from maturity back to growth prase.Youngme (2005) have pointed out that IKEA use reverse positioning strategy to strip away some characteristics customers expect in mature products and add some surprising new elements which creates differentiation and distinguish from the other furniture stores, and it leads the product life cycle from maturity back to growth stage, it makes IKEA successful. In addition, IKEA uses Blue Ocean strategy to create value innovation. 1 - Reverse Positioning Strategy IKEA is not like most furniture stores which have huge amount and diverse inventories but instead of cheap and stylish Swedish designed

inventory.

The key successful factor is its reverse positioning strategy which includes four attributes. Firstly, IKEA are not like other furniture stores hiring store assistants to help customers selecting products, it’s all self-assistance, but customers can ask a help from store person around. Secondly, products variety is limited; IKEA provides only some basic lines. Thirdly, customers have to delivery products by their own; other furniture shops may delivery products and move away the old one which customers want to dump.

Fourthly, most IKEA’s products need assembly.Fifthly, the durability is not long, IKEA convince customers should change furniture in certain period time, not own furniture all their life. In addition, IKEA offers customers a comfortable shopping environment; people can stop in the nice coffee shop, dine in the restaurant or put their children in the day care centre when they shop. As a result, IKEA uses all the factors above to distinguish it from independent furniture shops, low-end stores and big-box furniture stores and has become the seventh-largest furniture store in the U. S. A. Youngme 2005)

Entrepreneurship and Blue Ocean Strategy

The spirit of entrepreneurs is to inspire their organisation by creating innovations to help company’s growth and success. Arnold (2002) points out that in the most successful retailers include IKEA, the entrepreneurs build their own unique organizational culture to attract talented staff coming, motivate continually and train them to be innovative and entrepreneurial supervisors; furthermore, the company retain these brilliant individuals to devote themselves to the organisation.Another successful element of IKEA is IKEA applies Blue Ocean Strategy which is the pursuit of differentiation and low cost simultaneous like the flat-pack concept; it makes competitions irrelevant and reduces cost.

The

flat-pack concept divides into five key points which are easy to transport from factory to retail and to home, the differentiation of brand, the life style of building by yourself, easy to stock in the warehouse and easy to carry and resale. All of these factors lead IKEA moving away from Red Ocean and jumping into Blue Ocean.

Explanation For The Success Of The Innovation

Innovation of IKEAMost of the retailers use design to justify a higher price, IKEA designers work in exactly the opposite way. They use design to secure the lowest possible price.

IKEA designers design every IKEA product starting with a functional need and a price. Then they use their vast knowledge of innovative, low-cost manufacturing processes to create functional products, often co-ordinated in style. Then large volumes are purchased to push prices down even further to achieve the business idea of IKEA ,”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. (IKEA student info, 2008)

Flat-Pack Most of the IKEA products are designed to be transported in flat packs and assembled at the customer's home (DIY). This lowers the price by minimizing transportation and storage costs.

In this way, the IKEA concept uses design to ensure that IKEA products can be purchased in a lowest price and enjoyed by as many people as possible to achieve their objective.

Cost Leadership

Cost leadership, unique design, innovative business concept, availability and product differentiation are all key factors that promote IKEA’s business success.IKEA understand their target market, consumers are sensitive in pricing and seeks value from what they pay for (IKEA student info,

2008). As Pratt stated “The secret to effective pricing is to find ways of placing yourself in the shoes of the customer; to be bothered enough to invest the necessary time to understand their situation and what it is that they value. ”(Pratt, 2007) IKEA differentiated itself because their products are different compared to the conventional ones already in the market.

They defy the norms in terms of furniture style. IKEA designs their furniture with simple design.And they are a cost leader in terms of the price of their products are cheaper compared to other retailers. A low price is linked to the happiness of finding just what the consumer need for their home. That's why IKEA designers, manufacturers and purchasers spend most of their days finding solutions that result in a low price, then, buy big volumes to make it the cost lower.

And the customers choosing the furniture, getting it at the warehouse, transporting it home and assembling it themselves, to keep the price low. Conclusion IKEA’s low pricing strategy has successfully differentiated itself from the competitors.Due to the furniture are assembled and well designed functional, the products are also valuable in the resell market. IKEA has grabbed the second spot in the top 10 fastest-growing furniture store list for 2007 in the U. S (Clint, 2007) it successfully established the leading position in the global furniture market.

Reference

1. Alex Pratt, 2007, “The price is right (or is it? ) Vol. 60 Issue 7, p20-20 Arnold, S 2002, "Lessons learned from the world’s best retailers", International Journal of Retail & Distribution Management, Vol. 30, No. 11, pp. 562-70.
2. Engel Clint, 2008 “IKEA leads pack in '07
   

growth. Vol. 32 Issue 39, p14-16 IKEA OFFICIAL WEB http://www. ikea-group. ikea. com/? ID=14 IKEA student info .