The Usage And Cost Advantages Of IKEA

This paper aims to demonstrate a detailed description of the elements of ‘IKEA’ company based on its famous name in the furniture industry.

IKEA is one of the largest multinational companies in the world dealing with several products. The company sells and designs furniture appliances and home accessories at an affordable price. Ikea has over three hundred stores worldwide enjoying the good name it has created for itself. While they are one of the most profitable furniture companies in the world there are significant challenges and threats that have been overcome and are still needed to be tackled.

The high level of customer involvement is one of the key features of the IKEA concept. With their unique self-serviced warehouses, customers are required to collect their flat-packed items before proceeding to checkout. Customers are also involved in the assembly of their purchases after transporting them home in their private car. Because the company’s furniture are designed to be shipped disassembled and sold to the customer flat-packaged boxes IKEA saves a lot on shipping costs. As one of the company’s mantras said; “We don’t want to pay to ship air”.

IKEA has adapted to the operations function of a business. This function is the main function of every company. This key function, of which IKEA has adapted to, is the business function responsible for managing the process of creation of goods and services. The operations function is responsible for organising, coordinating, planning, and controlling the resources that are required in the production of goods and services. IKEA has effectively implemented this function by understanding the needs of customers. In particular, this applies to those who have a lower income, and/or, limited space. IKEA’s employees within the product design and product development departments, focus directly on the price and quality, as well as the design and function of products. Elements of the design are typically agreed on within the factory itself, this is where manufacturers and designers work together, to create a product with regard to the greatest use of raw materials and manufacturing opportunities. IKEA’s operations have proved effective as in 2013 it earned $35.5 billion. IKEA has a large amount of suppliers, greater than 1300. IKEA purchases most of their

IKEA is a global furniture retailer, which is established on the concept of contributing wide range of well designed, functional, and low cost home furnishing products in 40 countries, with 330 stores and 154,000 workers (The IKEA concept, 2012). IKEA was founded in 1943 by Ingvar Kampar and has turned in an international furniture retailer that specialized in stylish but inexpensive furniture designs.

This case study is to deliberate about IKEA’s marketing strategy in reaching out customers. Also discussing about IKEA’s business idea and IKEA follows a quite traditional pattern of internationalizing and also drives the localization thoughts in different market place to stay competitive. Their vision “To create a better everyday life for the many” and their ultimate 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” actually has inspired many shoppers and influence the way people shop.

In PEST analysis, we will look into what will be affect by the business environment. It includes political environment, economical environment, social environment and technological environment.

IKEA also based on low cost to achieve hybrid strategy. Big items are all flat-packed that the customers transported and assembled themselves. This saves IKEA with shipping costs from suppliers and delivery costs to customers so that they can pass this benefit to customers through low price. In the stores, there are no armies of sales staffs. Customers are providing with tape measures and pencils so that they can self-served. This reducing the number of sales staff required. IKEA encourages customers to create value for themselves by taking on certain tasks traditionally done by the retailers and their low expectation on service levels keeps costs down. Additionally, IKEA choose most economical suppliers over traditional suppliers around the world. The company buys great volume of materials from suppliers to get the economies of scale. Since the labour in UK is expensive, their products are produced in

market as many consumers actively buy into the cost-conscious mentality. Furthermore, the standard of living is higher than most countries. Quality is highly important as consumers are driven by value and demand quality products (Ferrell & Hartline, 2014). Ringstrom (2016) acknowledge that, IKEA relishes in the fact and status that they are a place for individuals that enjoy value and have thin wallets. The goal is to make customers and potential customers aware of their higher-quality goods all the while maintaining a popular appeal. They essentially build their success from low priced goods and

IKEA is a worldwide expanded company. They enlarge their showrooms to North America, Europe, Australia and Asia. Customers can check out IKEA’s product in the show rooms and also by checking out IKEA’s websites to get their selected products to be home delivered. This is an effective way of selling their products as customers who are busy with their own work can purchase their preferred products online whenever they want to. Thus, this is an advantage for both customers and IKEA’s company as their sales doesn’t stop at the showroom itself.

The decision to choose a new piece of furniture might be difficult, but to select the right store is even more confusing. I took a decision to buy a new sofa whether from IKEA store or THE One. IKEA is considered to be a major furniture retailer in the world (Loeb, 2012). Also, it was stated in IKEA’s website that the store is invading the region with more than 403 stores in 49 countries around the world. THE One is also considered as a luxury brand in MENA region. As according to THE One website, there are 24 stores around the region. Both stores bring exclusive home fashion products. They both claim that quality is their top priority. According to IKEA’s website, it is reported that they aim to keep quality at

Looking into the sourcing of a multinational company is very important as we would know risks of investing on that company well. Inter IKEA Holding S.A. is a fully owned by Interogo Foundation in Netherland, which is an enterprise foundation registered under Liechtenstein law. It has no listed their shares on any market in world, the company elaborates that, they wish to create ownership structure that stands independence and long-term approach. Their profit will only be reinvested into IKEA Foundation for charitable purposes and keeping purpose for future investment. As a result, they used Euro (€) as their main currency.

* IKEA’s low cost structure has been the very core of its success. It’s low-cost and high-quality strategy fits with the current state of the economy. Offering convenience factors within IKEA’s stores would fit well with IKEA’s low cost structure. It maintains its low-cost business model by creating a different furniture shopping experience. IKEA supplies customers with all possible materials needed to complete their shopping when they enter the store (that are, measuring

In some instances IKEA’s expansion to a new country had lacked sufficient research. This is evident from its expansion to United States and Japan. IKEA entered Japan with a local partner but had failed to win over Japanese consumers as they had underestimated the significance of cultural differences. The rush into Japanese market and Japanese customers’ unacceptance for flat pack and self-assembling their own furniture were some of the reasons for failure. Whereas, in US, IKEA had initially replicates its existing business model and products when in expanded its business operations in that country. However, there arise need to customize its products to cater the local customers’ needs. For instance, American customers demand for bigger beds and closets. Hence, several marketing strategies were also changed for the American

The services and products offered by IKEA provide value to its customers in various ways. For one, the products and services are very affordable. The products and services are not priced highly and therefore, the average customer can enjoy them. At the same time, the products are of high quality. From IKEA’s slogan “low prices but not at any price”, it is clear that the company prices its products lowly but that does not mean that the quality is compromised. IKEA satisfying its customer’s needs through providing them value for their money as they provide quality products that will last for a long time, and at affordable costs. The fact that the company has set the minimum acceptable standards for its wood, implies that it is also keen on quality and on the environmental impact of its action of making furniture ( Edvardsson, Enquist & Hay, 2006).