IKEA

ST514E COMPETITIVE STRATEGY GR 04 - STRATEGY INNOVATION

Professor: Jacques Le Pennec
Tony HURMALAINEN - Francesca MAGGI - Karin PAVUROVA - Ramona WALDAU
 IKEA - Digital Business Transformation 2

Executive Summary
• We analyzed IKEA’s stakes and objectives finding out that IKEA needs to focus on the improvement of its brand image, enhance its customer
experience and ensure differentiation from its competitors.
• The process mapping of IKEA’s value chain highlights its primary and supporting value chain activities. With regard to the internal functions as
well as the operations, inbound and outbound sales logistic IKEA has already achieved a lean and effective value chain systems using digital tools
and processes. As we discover potential for improvement in relation to marketing and sales and the service, we decided to focus on the client
Current side for our business recommendations.
Situation • To enhance the knowledge about IKEA’s current and potential customers, a customer segmentation was conducted. Three current segments
and one potential segment was discovered and described by demographics and their purchasing behavior.
• Finally, the comprehensive As-Is-analysis of IKEA’s market position revealed three major risks for its current business model, namely the risk of
standardization, the reputation as low-quality furniture retailer, and the long product life cycles in the furniture industry.
In conclusion, uniformly designed products available at low-prices can turn from being IKEA’s competitive advantage to their biggest threat due
to the digital age and changing consumer habits.

• As our business mission for IKEA we set four dimensions IKEA should be associated with by its customers and prospects within the next five
years. IKEA needs to design and sell must-have products, provide superior customer service, be known as the digital innovator, and offer a
seamless omnichannel experience. For each dimensions, important KPIs have been developed to ensure and monitor IKEA’s progress on this
goal.
• Our seven concrete recommendations for IKEA’s business model will tackle all three identified risks and will help IKEA to follow the three set
stakes simultaneously. Thereby, the recommendations can be divided into four main categories – product recommendations, crowdsourcing,
Main virtual reality, and offline stores.
Recommen- 1. The product recommendations include designer collaborations, more Smart Home products, and add transformable products to their portfolio
to make sure that IKEA differentiates from its competitors, surprises its customers, and re-establish its brand to a new segment.
dations for 2. Developing an IKEA community that helps each other designing their homes will strengthen its relationships with all possible customers and use
IKEA digital skills and knowledge to enhance its customer experience.
3. Using virtual reality, also for popup stores in big cities, and augmented reality in its original IKEA offline stores will deliver a complete new level
of customer experience and increase sales. When IKEA gains the digital skills required for these recommendations, it will be prepared for the
future and establish a new benchmark in its market.
When using a feasibility-impact-matrix to assess the recommendations, it becomes obvious that we propose IKEA to focus at first on
establishing an IKEA community, using VR, implementing AR for their offline stores, and developing designer collaborations.
 IKEA - Digital Business Transformation 3

Summary

1 About IKEA 6 Targets – IKEA 2023

2 Stakes and Objectives 7 Business Transformation

3 Process Mapping 8 Recommendations

4 Customer Segments 9 Prioritization

5 As-Is-Analysis 10 GANTT
 IKEA - Digital Business Transformation 4

About IKEA LONG LIVE AT HOME

• Founded in 1943 by Ingvar Kamprad Caring for

• Exploring innovative solutions such as furniture design, self-assembly people and

planet

History • Creating a unique shopping experience for the customers

• Expanding internationally, there are over 300 IKEA stores in the world – in 38 countries Lead
by example

• Interogo Holding AG was established in Switzerland in 2016: holding company of the investment business
Different
with a

• The IKEA Concept is the core asset of Inter IKEA Group and its franchising operation meaning

Core • IKEA Range & Supply is a core business: IKEA Range & Supply consists of two core
Business units: IKEA of Sweden AB and IKEA Supply AG.

PRODUCT • IKEA is the market leader. It is largest retailer for furniture

Products
& SERVICES • Most important factor: availability of the large range of products under one roof. Hardly
& one of the competitors offers such a wide range of products.
Services

Markets &
• Ready-to-assemble furniture, homeware Annual Sales Figures in Billion €
• Wide range of home furnishings with good design, function, low prices and sustainability
Compe- • IKEA's furniture is designed to be assembled by the customer: reduce costs and use of packaging
titors • IKEA is the market leader. It is largest retailer for furniture.

IKEA Group Stores

Worldwide

Current market locations

Future market locations
No current or planned locations

Stakes and Objectives
Stake 1
Improvement of brand image
Objective 1: Understanding the ever-
changing customer needs &
expectations in terms of price, quality,
design and technology (considering
designer collaborations, engage social
media influencer, crowdsourcing)
Objective 2: Optimal marketing
communication for demonstrating the
quality of the products following with
their other advantages to reposition
the brand image for loyal consumers
and new consumers as well.
IKEA - Digital Business Transformation
Focus on the client
Stake 2
Enhance customer experience
Objective 1 : Involving consumers and
community to the design and
development process of the products in
labs.
Objective 2 : Focus on the virtual reality
in terms of designing and redesigning
homes.
Objective 3: Supporting online
purchasing, and analysis of the store
design and empower after-sales
service.
5
Stake 3
Differentiation
Objective 1: To bring more exclusivity
to the brand image, following the
innovations in product designs and
manufacturing processes.
Objective 2: Focus on consumer
experience, differentiation in
comparison with competitors while
taking into account research &
development of the field.
 IKEA - Digital Business Transformation 6

Process Mapping and Value Chain = Amount of value added by this step currently

Primary Activities

Inbound Sales Logistic: Operations Outbound Sales Logistic: Marketing & Sales Service

● Buying raw materials from
suppliers in bulk,
worldwide (cost reduction)
● Receiving, storing,
distribution of materials at
warehouse
● Control of product
movement
● 6 distribution centers
● Manufactured mostly
through subcontracted
parties
● 10,000 item product line
manufactured by over 1,000
suppliers
● IKEA designs all of its
furniture on its own
● Using mostly renewable and
recyclable materials
● Distributing products and
services to customers
● Manufacturers are
responsible on shipping the
components to large
distribution centers
● Self-serve warehouse (cost
reduction)
● Various channels used ● Before, while and after
outside the store to explain purchasing to customers
the full offer such as repairs and
● Co-workers: art directors, maintenance function
copywriters, interior
designers, project leaders
● Targeted at families with
lower income, students and
singles
● Family-friendly store
environment

Research & Development ● Activities to improve company's prodcuts and services

● Co-workers in product design and product development focus on price and quality, design and function, environment and health
● Scrutinising ideas regarding the best use of raw materials and manufacturing opportunities
Support Activities

Human Resources ● Continual development of co-workers

● Looks after recruiting, training, benefit management and succession planning

Firm Infrastructure ● Large scale stores in size

● Hierarchical organizational structure

Procurement ● Long strategic relationships with suppliers

● Without need for raw materials since IKEA is not producing its' own brand products
 IKEA - Digital Business Transformation 7

Customer Segmentation
Europe

Stage Description Purchasing behavior

• Age: 19-26
• Income category: lower Looking for smart, innovative, modern
Students
• Background: Living in the cities, in the rather but affordable way of living.
smaller apartments
• Age: 25-35
customers

Focused on safety, functionality, quality

Current

• Income category: medium

Young families • Background: Living in the cities or suburbs, well balanced with price and space
in apartments or smaller houses saving design.

• Age: 22-40
• Income category: lower, medium Looking for a nice, modern design of a
Singles • Background: Living in the cities, mostly in better quality for reasonable price.
shared apartments or bachelor flats.

• Age: 30+ Looking for an upper standard, really

customers
Potential

• Income category: medium, higher interested in design, innovation and

Young academics • Background: Living in the cities or suburbs, quality, collectors of rather modern stuff
in apartment or house than a mass production, but still require
some level of functionality.

As-Is-Analysis
Problem Risk of standardization
• Consumer strive for self-expression and self-
realization, they are not satisfied by
standardized solutions and products
• IKEA offers easy-to-assemble furniture with
simple shapes that can be sold globally
Description
• The design of their products is supposed to
appeal to the mass and to fit in as many as
possible different home designs and functions
• Therefore, this design approach can lead to
consumers turning away from IKEA to find more
personalized, individual, and more edgy
furniture (globally online) as IKEA does not offer
exclusive, status-enhancing products
• Threat for IKEA’s
image as the go-to
Impact furniture retailer
• Entire customer base
could be at stake
Uniformly designed products available at low-prices can turn from being IKEA’s competitive advantage to their
biggest threat due to the digital age and changing consumer habits.
IKEA - Digital Business Transformation
Positioning of Products
Reputation as low-quality furniture retailer
• IKEA offers low-cost furniture and design
products which have to be assembled by the
consumers themselves
• Consumers associate low prices with low
quality and do not turn to cheap brands when
they are looking for permanent and satisfying
solutions for their homes
• Hence, the low prices of IKEA can lead to
consumers assuming that their furniture is of
low quality which is particularly dangerous in
the area of home design with high customer
involvement and the rising popularity of
premium products
• Brand image is at risk
• Perception and
reputation of IKEA’s
products in danger
8
Long product life cycles
• Consumers show high involvement about
decorating their home as they spend much time
in it and their homes should also represent
their personalities and status
• If consumers spend a lot of their resources, e.g.,
time and money, on decorating their home
once, they are not willing to re-design it again
within a short time frame
• This consumer habit confronts IKEA with the
issue of long product lifecycles and consumers
unwilling to invest in furniture repeatedly
• Hence, IKEA’s low-cost approach is in danger as
this require high sales volumes
• Purchase frequency is
on the edge
• Buying occasions for
IKEA furniture
decrease

Targets based on recommendations – IKEA 2023
IKEA is known for exclusive, unique
furniture solutions with a special
edge as well as timeless, good value
for money home goods.
● Min. 2 designer collaborations
per year
● Limited collections should be
sold out within max. 5 days
● Engagement rate on social media
for limited collections should be
+30% than normally
IKEA is known for an excellent
customer orientation and providing
superior service for each individual
problem quickly.
● 80/5-rule: 80% of customers’
problems will be solved within 5
hours
● IKEA’s customer service receives
a positive recommendation in
min. 80% of all cases on Net-
Promoter-Score
IKEA - Digital Business Transformation 9
IKEA is known for innovative and
digital products that connect the
consumers’ home and make it
available even when you are not at
home.
Must-have Digital
● Launch of min. 3 new Smart
products innovator Home products each year
● IKEA’s Smart Home products
need to be connectable to min.
80% of consumers’ smartphones
and existing home systems
IKEA is known for a benchmarking
consumer experience both offline
and online with no boundaries for
customers to use the channels as
Seamless they want to.
Superior customer
omnichannel ● Min. 30% of IKEA’s offline
service customers have also purchased
online
experience ● 60% of IKEA’s customers use at
least 3 different channels and
can be identified by IKEA
 IKEA - Digital Business Transformation High influence 10

Business Transformation Medium influence

Low influence

Problems Stakes
Reputation as
Enhance
Risk of low-quality Long product Improvement of
customer Differentiation
standardization furniture lifecycles brand image
experience
retailer
Product
innovations
1.1-1.3

Crowdsourcing
2.

Virtual Reality
3.1-3.2

Offline stores
4.

The seven recommendations for IKEA’s business model will tackle all three identified risks and will help IKEA to follow
the three set stakes simultaneously.
 IKEA - Digital Business Transformation 11

Product Innovations
Required level of
1.1 Designer Collaborations digital skills

Description Proposed time frames

• IKEA should team up with well-known and established designer brands from the fashion, furniture, and
Quick winner: less than 2 months
technology industry to create collections under a new brand named “IKEA X [second brand]”.
• These collections will only be available for a limited amount of time and will be sold exclusively online or offline
to stress the exclusivity of the collections. All items of one collection need to have a common design topic, but Mid-term: 2-6 months
should still be combinable with the normal scandinavian furniture by IKEA. The collections will also be limited in
terms of the number of items that will be produced. Long-term: more than 6 months
• Possible brands for collaborations can be luxurious furniture designers, popular fashion designers, and
innovative tech companies which create unique pieces for IKEA. The production and distribution will be Required resources
organized by IKEA and the designers can be compensated via fees or shares of turnovers. Finance +++
• The announcement and the launch of these designer collaborations should always ensure a great customer
experience, e.g., exciting launch events, mysterious social media campaigns, and inclusion of digital elements. HR +
Expected benefits 3rd parties +++
• The limited amount and availability of the collections will trigger the consumers’ will to change their home and Targeted segments
to buy new furniture. It leads to new purchases and shortens the life cycle of furniture goods since consumers Young
want to replace them with the new collections. Students
families
• The exclusive and innovative/luxurious image and reputation of the other brand will be transferred to the brand Young
Singles
of IKEA. Hence, IKEA can reach new customers who want to possess some designed pieces from the designer academics
brand and surprise their loyal customers who want more than just the well-known IKEA classics.
• As the designer brand leads to a higher willingness-to-pay, the collections can be sold for higher prices and KPIs (+1 year)
hence, these sales will have higher profit margins for IKEA. • Sold out within max. 5 days
• +30 % in social media engagement rate
 IKEA - Digital Business Transformation 12

Product Innovations
Required level of
1.2 Smart Home products digital skills

Description Proposed time frames

• The Internet of Things lead to the emergence of the Smart Home and the growing demand from customers to
Quick winner: less than 2 months
be able to control their home from their smartphone. Moreover, consumers look for more sophisticated
household utensils which facilitate their lives and offer more information about resource consumption, usage,
and expenditures. Mid-term: 2-6 months
• The focus of IKEA’s Smart Home products should be kitchenware to keep up with already existing solutions on
the market. To reduce the time to market, IKEA should consider alliances with other companies which have the Long-term: more than 6 months
knowledge about Smart Home kitchenware and can help to design superior and cheap IKEA’s Smart Home
products. Required resources
• For the success of the products, the connectivity to existing solutions is absolutely crucial. IKEA’s new products Finance +++
need to be integratable to digital voice assistants and to the most common operating systems of smartphones.
This way IKEA can ensure that the purchase barriers for consumers are as low as possible and the connectivity HR +++
to other systems suggests consumers that IKEA’s products deliver just as high quality as competitors’ products. 3rd parties +++
Expected benefits Targeted segments
• If IKEA is able to design high functionality and high quality Smart Home products, consumers will associate IKEA Young
Students
to be a digital and innovative solutions provider. families

• As Smart Home products will be standard solution for consumers within a few years from now, it is absolutely Singles
Young
academics
necessary for IKEA to extend its business in this area to stay relevant and in the market for many more years.
• Technology-savvy consumers have a higher willingness-to-pay for innovative Smart Home products that are also KPIs (+1 year)
well designed and hence, IKEA can benefit from higher margins and finance the investments for research and • Share of Smart Home products + 20%
development. • Connectable to min. 80% smartphones
 IKEA - Digital Business Transformation 13

Product Innovations
Required level of
1.3 Transformable Products digital skills

Description Proposed time frames

• IKEA should start focusing on space saving transformable furniture that is a smart way how to live more
Quick winner: less than 2 months
comfortably in an apartment, townhome, condo, or a single family home, or even when someone frequently
has a guests.
• By transformable products we mean a product category inclusive of any piece that does the work of 2 and more Mid-term: 2-6 months
types of items.
• This furniture range should be considered as a long term project. Even though IKEA had done some space saving Long-term: more than 6 months
furniture, there is a way bigger challenge in an inventory, such as beds, tables, seating and other essentials.
• There is a necessity of a new technical (because of functionality) and design (because of sophistication) research Required resources
and smart engineering projections, with a quality and pressure tests afterwards in a labs, so that furniture are Finance +++
reliable, qualitative but with the instructions that one can build it home easily after the purchase.
• IKEA should involve the possibility of 3D projections of such a products online, eventually using a VR as well so HR +++
that customers can understand the use and transformation process of the products. 3rd parties ++
Expected benefits Targeted segments
• People, living mostly in a cities in an smaller or medium apartments, will be very likely to buy such a furniture Young
Students
since you can do the most of the small spaces in a design and effective way, but still for affordable price - which families

will feel a gap in the market with such a product category. Singles
Young
academics
• IKEA will be considered as a very innovative company that instantly follows need of its' customers, because it is
highly technically oriented project with a lot of design work to be done behind so that homes are spacious, KPIs (+1 year)
practical but still wrapped in a modern design.
• Increasing sales + 20 % in a first
year
 IKEA - Digital Business Transformation 14

Crowdsourcing
Required level of
2. The IKEA Community Designs Your Home digital skills

Description Proposed time frames

• It is IKEA's initiative focused on product design created and tested by and for its' customers through creating an
Quick winner: less than 2 months
IKEA community. Main idea is to use a group of people, as a representants of certain communities, for their
skills, ideas and participation so that they generate or help a facilitate the creation of the content of products
and services of the company. Mid-term: 2-6 months
• Basically, IKEA should get rid of the most processes that it can and give that responsibility to consumer, so that
he feels he is a part of this IKEA community, that company really takes care of customers' needs and tries to Long-term: more than 6 months
understand them.
• Thanks to the testing and developing the products in the IKEA's labs with community representants (such as A-B Required resources
testing is), communication of the company's values is developed to the final customer in most effective way (as Finance +++
word of mouth) and also emphasize on quality testing experience might improve the overall reputation of the
company through the same information chanel. HR +

Expected benefits 3rd parties +++

• Since the products will be designed for client basically by himself, IKEA might expect increase in client's Targeted segments
purchases. Students
Young
families
• Extending the group of loyal customers and also attracting new, potential customers thank so the community
representants. Singles
Young
academics
• High focus on customers' experience, trough involving him into company's processes and giving him some
power, experience in the labs. KPIs (+1 year)
• Possible cost reductions thanks to crossing out some processes, customers as a part of communities as a chief
• Increase in new IKEA family
creator of the product lines. members +45 % in the first year
 IKEA - Digital Business Transformation 15

Virtual Reality
Required level of
3.1 The VR Experience digital skills

Description Proposed time frames

• The virtual reality IKEA will let shoppers try out the furniture before they buy it. The VR visualization tools will show
off a realistic full-featured 3D product catalog to create an emotional, connected sales experience. Quick winner: less than 2 months
• The VR will be possible both directly in the stores and as a service on the IKEA website and application. It makes in-
person shopping more profitable, personal and exciting and provides access to complete and realistic Mid-term: 2-6 months
walkthroughs, while also allowing homebuyers to customize, visualize and price options.
• For the shoppers will become an intuitive shopping Long-term: more than 6 months
• VR Stores’ showrooms: In-store 3D space configuration and virtual reality visualization
• VR Web-based 3D configuration and visualization Required resources
• Virtual Reality will able to:
o Make easier than ever before to make buying decisions in your own space Finance +++
o Create a guided journey to explore products and space in 360-degree
HR +++
o Combine multiple virtual products into an assembly and customizing them according customers necessity
o Draw a space and populate it with virtual products and design realistic 3D products or items into a single scene 3rd parties +++
Expected benefits Targeted segments
• By using virtual reality the consumer will be able to see his idea of reality before making the purchase, being able to Young
Students
share the purchase decision with others involved in the decision making process. The consumer will be more families
confident that what he has selected will be to his liking: increasing customer satisfaction and customer loyalty. Young
Singles
• Via VR customer could have a customization of the home design with a calculation of price and the time about academics
reconstruction: it allows a better customers comprehension. KPIs (+1 year)
• Increase in profits with a shorten sales cycle.
• Interaction time of min. 7.5 minutes per
• Users will also be more involved, which means improvement of brand image and IKEA will be able to innovate from customer
customers ideas. • 5% conversions via ‘buy button’
 IKEA - Digital Business Transformation 16

Virtual Reality
Required level of
3.2 VR in Pop-Up Stores digital skills

Description Proposed time frames

• For enhanced virtual reality experience IKEA can open pop-up stores to city centers where customers can see
Quick winner: less than 2 months
multiple interior designs made by IKEA through the latest VR glasses in 3D and real size. In the first stage the
shopping experience would not be the main target but rather to inspire and arise a need to update customers
own home Mid-term: 2-6 months
• At later stage, customers can make their own interior designs and rate the designs made by other customers.
The best designs could be displayed in IKEA’s web page. Long-term: more than 6 months
• Finally, the purchase of products should be combined to the VR experience in a way that customer can choose
the products and make the purchase with VR glasses. Required resources
• Pop-up stores should be opened in collaboration with a large tech company like Google, Amazon or Samsung Finance +++
to have the latest VR glasses available. This would allow the tech company to market their VR glasses and
showcase the opportunities they offer. HR +

Expected benefits 3rd parties +++

• Enables IKEA to get closer to the customer without buying expensive square meters from the center but still Targeted segments
letting customers see the whole catalog of furniture. Students
Young
families
• Increased online sales through customers being able to see the product digitally but as real as possible
• IKEA can test the reactions of customers to different furniture designs without starting actual production. Singles
Young
academics
• Harness people to make interior designs for free.
• Introduces customers on VR and paves the way for VR shopping at home. KPIs (+1 year)
• 15% of customers joining IKEA Family
• 40% of customers associating IKEA
with digital innovations
 IKEA - Digital Business Transformation 17

Offline Stores
Required level of
4. AR for IKEA Stores digital skills

Description Proposed time frames

• Augmented reality uses existing natural environment and simply overlays virtual information on top of it.
Users of augmented reality can experience a new and improved natural world where virtual information is Quick winner: less than 2 months
used as a tool to provide assistance and timely data in their purchase.
• IKEA should redesign their accessories section, which is usually separated floor, to organizes shelfs which still Mid-term: 2-6 months
allows impulsive purchasing but on the other hand, you might easily find the product you are looking for as in
the warehouse section. This action should be followed by continuous market research about client's Long-term: more than 6 months
experience supported by client service to ease understanding of the new path.
• Types of Augmented Reality implementation: Required resources
o Creating a marker Based AR: the consumers can have a AR using a camera and some type of visual marker,
such as a QR/2D code, to produce a result only when the marker is sensed by a reader directly in the stores. Finance +++
o Creating a superimposition based AR either partially or fully replaces the original view of an object with a HR +
newly augmented view of that same object. In IKEA by downloading an app and scanning selected pages in
their printed or digital catalogue, users can place virtual Ikea furniture in their own home with the help of 3rd parties +++
AR. Targeted segments
Expected benefits Students
Young
families
• As for VR, AR allows Ikea to enhance customers' experience and help them make decisions faster and safer
Young
and then optimize purchasing process Singles
academics
Customers will have more confidence in purchase using AR devices with the necessary information provided.
• Using AR Ikea can have more products differentiation and quicker decision process KPIs (+1 year)
• Increase in accessories purchases thanks to making the path smoother for customers that are looking for a • 20% increase in accessories sales
particular products • Purchase rate of 8% via AR App
 IKEA - Digital Business Transformation 18

Prioritization of Recommendations
High
1.1
3.2 Pop- Designer 4. AR 2. IKEA
Up collabo- Commu-
Stores rations nity

3.1 VR
1.2 Experi-
Smart ence
Feasibility

Home
1.3
Trans-
formable
furniture

Low

Low Impact High

This transformation plan is based on highly feasible and impactful actions incorporating different levels of
digitalization so that all three main stakes will be fully achieved and IKEA can maintain its market leadership.
 IKEA - Digital Business Transformation 19

GANTT
May June July August September November October December January February March April

4. AR for IKEA Stores

Design
Redesigning Redesigning the
Customer service
plan store

1.1 Designer Collaborations

Acquire a Designer Design & Production start Marketing

2. The IKEA Community Designs Your Home

Community Workshops with
Customer Analysis Product Testing
Representatives

1.3 Transformable Products

Design Production and Marketing Feedback & Development

1.2 Smart Home products

Collaborate with Tech
Design Production and Marketing
company

3. Virtual Reality / Pop-Up Stores Using VR

Collaborate with Tech Launch / Store Location and
Software Implementing Purchasing Ability
company Opening