Business Club

Pre-Case
 Business Club INDIAN CASE
CHALLENGE
2019
IKEA in India
Another tiring day, packed with board meetings, performance reviews and supply
negotiations had come to an end for Jasper. Had tomorrow been the usual routine,
Jasper would have taken off for the day. But the moment he saw a report on his table,
he beamed and signalled his secretary for another cup of coffee....
People at IKEA had always been particularly excited about expansion projects. The idea
of approaching a new audience with entirely different perceptions and ways of
furnishing always seemed alluring. He was reminded of IKEA’s early growth years and
the challenges it faced while approaching the American markets. After reminiscing for
a while and coming out of the nostalgic bubble, he sat down, preparing his deck for
IKEA’s expansion to India.

Company Background
Ikea was founded in 1943 when 17-year-old Ingvar Kamprad became motivated
enough to start his own local catalogue company using his father’s money. Initially, he
began selling essential household goods at discounted prices but later in 1947, he
transformed his company into exclusively selling home furnishings. Six-years later
Kamprad opened his first furniture showroom and two years later, IKEA began
designing its own low-priced furniture. In 1958, IKEA opened its inaugural store in
Almhult, Sweden; spanning over 6,700 square meters, it was the most humongous
furniture retail showroom in Scandinavia!
Ikea opened its flagship store in Stockholm, Sweden in 1965, prior to which, it had
already become the favoured shopping destination for price-conscious Swedes. The
45,800-square-meter flagship which ultimately became the gold-standard for all of
IKEA’s retail outlets featured a childcare centre, a restaurant, a bank and enough
parking for over a 1000 cars in addition to an overwhelming range of furniture. The
success they achieved in the Scandinavian countries prompted them to open similar
low-priced stores and expand in Europe and then in both Asia and North America.
IKEA rose up the ranks to become one of the most prominent furniture retailers by the
onset of the twenty-first century. Yet, despite its success, IKEA’s corporate structure
still retained its pragmatic and cost-cutting sensibility. Waste of not only raw material
but also other resources such as time, electricity and man-hours was considered a sin at
IKEA. Its employees were constantly reminded to turn off the lights and computers
when not in use. Managers did their share by travelling in coach and avoiding personal
taxis as far as feasible.

2
 Business Club INDIAN CASE
CHALLENGE
2019
IKEA’s Product Strategy
IKEA had a unique approach to product development. They had set different priorities
for different products in their line-up. These priorities were set on the basis of
consumer trends, as identified by globe network of executives. Once a product’s
priority was established, a product developer would set its target retail price using
what the company referred to as “the matrix”. The usual matrix consisted of three
price ranges and 4 basic styles. The company would then survey the competition within
each price range and set its own price point somewhere between 30% - 50% lower than
its rivals.

The Product Matrix

Styles

Scandinavian Modern Country Young Swede

(Sleek Wood) (Minimalist) (Neotraditional) (Bare Bones)

High

Price
Medium
Ranges

Low

These ingenious product matrices served another purpose other than being used to plot
retail prices. They were used to identify gaps in IKEA’s product portfolio. Product
managers used to plot the company’s current product offerings on the grid and identify
possible market opportunities in the form of empty spaces on the grid.

3
 Business Club INDIAN CASE
CHALLENGE
2019
Once the target price was established for a certain product, the company would then
begin selecting manufacturers. In line with its extreme cost-efficient policies, IKEA was
always on the lookout for opportunities to build supplier relationships in developing
countries to save money on labour and production. IKEA would provide specifications
and target cost of the products and encouraged all the suppliers in its network (1800
manufacturers in 50 countries) to compete for the tender offer. Often the case was that
various components of a product were sourced from diametrically opposite ends of the
world and were assembled only after they reached the store.
IKEA’s engineers carefully determined the kind of wood that would be used to make
the item. Here too, the focus was cost efficiency: the company liked to use high-end
materials on furniture surfaces that were visible to the customer and most likely to
undergo stress. However, for the remaining surfaces, the company preferred to use
low-quality materials. In fact, it wasn’t uncommon for a single wooden product to be
made out of 5 different parts of a tree.
The company had another ingenious policy. They were strictly against wasting
shipping volume and hence, also came up with the catchphrase “we don’t want to pay
to ship air”. Following these lines, they used to ship their products disassembled in flat
packaging boxes thereby saving on shipping volume. In fact, the company estimated
that its transport volume was six-times less than what it would have been had it
shipped its products assembled.

Low Price with Meaning

IKEA’s primary focus had almost always been low prices. Because of this, while IKEA
enjoyed much early success, its low-priced furniture was functional at best, ugly at
worst. IKEA took the woes of its customers and the suggestions of its critics very
seriously and after a gruelling 15 years spent in brand repositioning and designing,
many design experts have credited IKEA with adopting a more distinct design
aesthetic in the last decade. Gerald Groenar, a prominent design critic said “Today if
you go to IKEA, you always will find some pieces which are great designs and are very
reasonably priced”. And while no one in the company claimed that IKEA’s furniture
was built for longevity, its customers were nonetheless delighted by their unique
combination of form, functionality, affordability and now design!

4
 Business Club INDIAN CASE
CHALLENGE
2019
IKEA invades America
The American furnishing industry was highly fragmented back in the last decade. The
top 10 players accounted for just 14.2% of the market share. Within this market as well,
there was a dichotomy between low-end and high-end retailers. Low-end comprised
generally of discount retailers such as Wal-mart, office supply stores like Office Depot
and discount warehouses like Costco. The key value propositions of the low-end
retailers remained the remarkably low prices which meant margins were extremely low
in these channels. The low end also consisted of smaller shops that offered cheap
furniture to price-sensitive customers; many of these shops targeted college students
and others on a tight budget. The environment of these stores usually reflected their
low price focus - they were generally dreary and dingy, with haphazard product
displays and inconsistent, poorly managed inventories. In all these stores service
tended to be poor to non-existent, and product selections tended to be limited to
utilitarian furniture that was either dull or altogether unattractive.
In contrast, most high-end speciality retailers offered luxurious store environments
designed to capture up aspirations of affluence, prosperity and comfort. The speciality
retailers- which included both single-brand retailers such as Ethan Allen and
Thomasville as well as multiple-brand retailers such as Jordan’s Furniture. Because
these speciality retailers competed heavily on selection, they tended to boast of huge
inventories; even single brand stores carried numerous different styles. It wasn’t
uncommon for retailers to have ten categories of beddings available and ten sub-types
of each category. Speciality retailers also competed heavily on the quality of service.
Salespeople were trained to educate customers about the quality markers such as grains
of wood, constructions techniques, and so on. The salesperson's’ goal was always the
same: To assure customers that the furniture they were buying would last a lifetime.
This was particularly important given Americans were generally reluctant to buy new
furniture- the conventional industry wisdom was the most Americans hung on to sofas
for much longer than their cars and tended to “change their spouses as often as their
dining tables, about 1.5 times in a lifetime” [1].

Finally, almost all American retailers, low-end or high-end offered delivery services,
sometimes free of charge, sometimes for an additional fee. As a part of the delivery
service, most retailers offered to set up the new furniture directly in the customer’s
home even if it required rearranging existing furniture; they would also cart away with
existing furniture if the customer wanted to discard it.

5
 Business Club INDIAN CASE
CHALLENGE
2019
Troubled West and IKEA’s way through
IKEA’s eventual success in America had not come easily. After opening the first store in
Philadelphia in 1985, the company discovered that Americans did not like the products:
apparently, its beds and kitchen cabinets did not fit American sheets and appliances, its
sofas were too hard for American comfort, its product dimensions were in centimeters
rather than inches, and its kitchenware was too small for American serving size
preferences. One of the market researchers had mentioned, “People told us they were
drinking out of vases” [2]. However, by paying close attention to customer complaints,
IKEA had been able to address these problems, relying on market research to adjust its
product lineup and merchandising.
At the same time, IKEA had launched a high profile advertising campaign designed to
get Americans to take a more “commitment-free approach to furniture.” As an
example, one of IKEA's ad campaign called “Unboring” featured a series of television
commercials poking fun at Americans’ unwillingness to part with furniture. The best
known of these commercials had been the award-winning ad titled as “The Lamp”.
IKEA eventually made its way into average American’s homes and by 2002 itself
America had become IKEA’s third-largest revenue source. It’s US stores were serving
30 million American customers a year. As another indication of IKEA’s success, the
company’s in-house restaurants were now the 15th largest food chain in America. For
its American customer base, IKEA described its typical shopper as the sort of person
who travelled abroad, liked taking risks, fine food and wines, had a frequent flyer plan
and was an early adopter of customer technologies such as the Walkmen, laptops and
cell phones.

Visiting an IKEA store

Shopping at IKEA seems to be a particularly unique experience for a new shopper.
Generally, customers are used to sales representatives flocking around them in big
stores, taking them through each product category they offer and providing dedicated
assistance from the time the customer chooses a product to the time it is placed in their
home. Now, when such entitled shoppers are exposed to IKEA’s environment, where
customers are advised: “Be prepared. Make a list of anything you may need for your
home...Take measurements of spaces you want to fill with furniture. And be sure
there’s room in your car. You’ll need it.“[3], they’re bound to be taken aback.

6
 Business Club INDIAN CASE
CHALLENGE
2019

Everything else customers needed to shop at IKEA would be available at the store
entrance: pencils, paper, tape measures, store guides, catalogues, shopping carts,
shopping bags, and strollers. If the customers wished to purchase smaller items like
kitchenware or cushions, they could directly put them in their carts, however, for
purchasing larger items, they could jot down the item numbers and then pick up their
flat-packed items while passing through the warehouse, just before checkout.
Customers would not only be expected to transport their purchases home but also
assemble their products on their own. According to their website: “Picking up your
purchases is an important part of IKEA’s approach to customer involvement.
Specifically, if you can do simple things like pick up your purchases and assemble them
at home, we’ll keep the prices low.”
If customers wish to shop without their kids, they could drop them off at the company
operated childcare facility on the way into the store. If they get hungry, they can stop
by at the IKEA restaurant for a lunch break. And if assistance is needed with shopping,
they can spot a sales desk and speak with an IKEA representative. However, the ratio
of these sales reps to customers is generally kept quite low, consistent with the
company’s self-service ethics.

IKEA invades India?

Home to 1.3 billion people, India has been attracting numerous giants from around the
world for capitalizing on the growing demands. IKEA has been particularly keen about
entering the Asian markets after the rapid growth in China. Indian furnishing retail
market, which had largely been fragmented and unorganized until a few years ago,
now seems to be erupting with growth in both online/ omni-channel players like
Urban Ladder and Pepperfry as well as much more organization on the supply side.
People today are attracted to single place furnishing solution ecosystems like Livspace.

It was way past midnight and Jasper was nearly done with the report titled, “IKEA -
India”. He decided to take the day off, but a lot of questions were still preying upon his
mind: Would such pampered audience like that of India be willing to accept the bold
shopping culture IKEA offers? Would IKEA face similar challenges as the ones faced
while entering the Chinese or the American markets? Is the supply ecosystem
organized enough for IKEA smoothly and efficiently deliver cost-effective solutions it
boasts about?

7
 Business Club INDIAN CASE
CHALLENGE
2019

Your presentation deck must contain answer to the following

questions in detail:

Q1. Analyze the furniture retail industry in India and highlight the
nuances of the competitive landscape that IKEA would face upon entering
into India.

Q2. After analyzing the dynamics of the furniture industry in India, which
city do you think would be most suited for IKEA to set up its first store.
Give appropriate reasoning for your answer.

Q3. Based on your understanding of the ad campaigns run by IKEA in

America and China, devise an ingenious ad campaign to tap the Indian
demographic.

Q4. Make appropriate assumptions and guesstimates using the data

provided in the exhibits and available online to estimate the breakeven
period for the first IKEA store in India.

8
 INDIAN CASE
Business Club CHALLENGE
2019

Exhibits
Online Furniture Stores Market Share in India (2015)

Fabfurnish Pepper-fry
26% 30%

Urbanladder
Snapdeal
23%
21%

IKEA Region-wise Sales Division (2016)

Europe 69%

America 18%

Asia and Australlia 9%

Russia 4%

9
 INDIAN CASE
Business Club CHALLENGE
2019

IKEA Revenue (In Billion Euros) Vs Financial Year

40

35

30

25

20

15

10

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Furnishing Middle Class Homes

India’s Indoor Furniture market is set reach US $10.7 Billion in 2022

2018-2022 are forecasts.

Source:- Euromonitor International

10
 Business Club INDIAN CASE
CHALLENGE
2019

Rating Criteria & Qualification Requirements :

For the final round, the teams will be selected based on the following criteria :
❑ Quality of Analysis
❑ Creativity
❑ Feasibility of the solution
❑ The overall presentation of the case

We look forward to your team’s participation. Surprise us with your business cum
innovative approach and be invited to travel to Kharagpur. Spend some marvellous
days with us here and challenge the best!

The finalists will be invited to Kharagpur during Kshitij 2019 from 18th January to 20th
January.

Note :
❑ The last date of submission is 11:59 PM, 24th December.
❑ Submissions should be in PPT ( 15 slides excluding the introduction and final slides)
with a pdf of the same presentation.
❑ The solution should be mailed at submission@bclub.co.in.
❑ Relevant information can be added for the analysis from the web or other suitable
sources.
❑ No plagiarism will be tolerated.

11
 Business Club INDIAN CASE
CHALLENGE
2019

End Notes

1. Christian Mathieu, external-marketing manager for IKEA North

America, quoted in John Leland, “How the Disposable Sofa
Conquered America,” The New York Times, December 1, 2002.
2. Ken Nordin, previously IKEA’ sales and marketing manager for North
America, quoted in John Leland, “How the Disposable Sofa
Conquered America,” The New York Times, December 1, 2002.
3. IKEA website: www.ikea-usa.com

12
 Business Club INDIAN CASE
CHALLENGE
2019

Copyright Notice

All Rights Reserved. No part of this publication may be reproduced,

stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of Business Club, IIT Kharagpur.

This case is the intellectual property of Business Club, IIT Kharagpur.

For further information, visit our website www.bclub.co.in or contact us
at: www.facebook.com/bclubkgp. For more information, please feel free to
contact:

1. Aditya Parashar: 96103-59142

2. Vikrant Gupta: 89420-56951

Alternatively, you can send us an email at: query@bclub.co.in.

13