1|Page

Ghaayathri

CASE STUDY ON IKEA

2009
This case study gives a brief over view of IKEA , its history, the concept, the store and its performance. It also looks at the sustainability of the concept. Ghaayathri P GAPR09RM082

Contents
IKEA HISTORY ........................................................................................................................ 3 THE IKEA CONCEPT .............................................................................................................. 4 Vision ..................................................................................................................................... 4 Business Idea ......................................................................................................................... 4 Marketing positioning statement............................................................................................ 4 Value Proposition................................................................................................................... 4
Great Functional Design .................................................................................................................. 5 Extensive Range and Variety ........................................................................................................... 5 Customer Value............................................................................................................................... 5 Right Quality.................................................................................................................................... 6 Convenience.................................................................................................................................... 6

THE IKEA MARKETING MIX ............................................................................................... 7 THE IKEA STORE.................................................................................................................... 7 Location ................................................................................................................................. 7 Format .................................................................................................................................... 7 Visual Merchandising ............................................................................................................ 8 Other Services ........................................................................................................................ 8 IKEAs PERFORMANCE......................................................................................................... 9 Sales ....................................................................................................................................... 9 Expansion............................................................................................................................. 10 IKEAs SUSTAINABLE BUSINESS MODEL ...................................................................... 11 The Supply Chain ................................................................................................................ 11 Primary sector ...................................................................................................................... 11 Secondary sector .................................................................................................................. 11 Tertiary sector ...................................................................................................................... 12

2|Page

IKEA HISTORY
The IKEA story begins in 1943, when founder Ingvar Kamprad, born in southern Sweden, established his own business at the age of 17 from the money his father gave him for succeeding in his studies. The name IKEA is formed from the founder's initials (I.K.) plus the first letters of Elmtaryd (E) and Agunnaryd (A), the farm and village where he grew up. IKEA originally sold pens, wallets, picture frames, table runners, watches, jewellery and nylon stockings meeting needs with products at reduced prices. In the 1950s he turned IKEA into a proper furniture retail store with various furniture designs, advertising and using a catalogue and showroom to reach more people and potential customers. The IKEA concept started to take its destined shape in 1960s 1970s. A few new stores were opened during this era and new hero products were launched and the first IKEA restaurant opens in 1960s. The IKEA furniture stores saw a dramatic expansion of their stores into different countries including UK, France, Italy and even USA. In the 1990s, the store grew even more. The number of products increased along with the number of stores all over the globe. But this decade is very special for the group because Childrens IKEA was introduced at this time-period only. The focus shifted to catering families with children. The IKEA group was created during this time and the responsibility towards customers and environment became a priority to make good business. In the 2000s, the IKEA expands further, reaching the new markets of Russia and Japan. This is the time when the group associated itself with many environmental and social projects. In 2006, IKEA launched its own food label covering about 30 percent of the 150 products in its food range. The range focuses on highquality food products based on Swedish recipes and tradition, for a low price. The products have an IKEA label and are sold in Swedish Food Markets in IKEA 3|Page

stores and are also served in IKEA restaurants. Thus the history shows how, over six decades, IKEA went from the woods of southern Sweden to being a major retail experience in 44 countries around the world.

THE IKEA CONCEPT

Vision
To create a better everyday life for the many people

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.

Marketing positioning statement

"Your partner in better living. We do our part, you do yours. Together we save money."

Value Proposition

GREAT FUNCTIONAL DESIGNS

RIGHT QUALITY

CUSTOMER VALUE

IKEA
EXTENSIVE RANGE and VARIETY

CONVENIENT SOLUTIONS

4|Page

The IKEAs value proposition stems from its positioning statement which is We do our part. IKEA is committed to designing great products in terms of convenience, functionality, price and quality and hence delivers clever solutions and great value to the customers. They achieve this by using the best of supply chain practices, lean management, minimising retail, production and distribution costs and using inexpensive materials in innovative ways.

Great Functional Design

Easy to use, practical and yet attractive are the mantras for IKEA design. It follows a no frill approach and allows the customer to customise to a large extent; hence one does not have to pay for the unnecessary add-ons. For example: even boxes at IKEA, the lids are priced separately and can be bought separately. Innovation is the key to the great designs that IKEA produces which simplifies everyday home furnishing needs.

Extensive Range and Variety

IKEA has positioned itself to be the one stop destination shop for all home furnishing needs. It covers all home solutions, ranging from kitchen , bedroom, bathroom , living rooms to office solutions as well. It not only has furniture, but even small home decor products, lighting, carpets, small kitchen knick knacks, storage boxes, kids toys, etc. Not only does it house such a range of product categories, but offers great depth in each category as well and hence appeals to a large population. These products are very practical, appealing and modern and hence for everyday use.

Customer Value
IKEAs pricing strategy is not plain low price, but value for money. IKEA uses excellent supply chain concepts, reducing and eliminating wastes at every stage and hence can offer good value to customers. They are known for the close relationships with their suppliers, which enables them to make a real difference, by buying good quality and economical production in bulk to keep the prices low. They also make all their furniture packing flat to reduce transportation and assembling costs. They also reduce 5|Page

on retail costs, but having simple warehouse type retail spaces in the sub urban area, hence reducing rental costs. They also cut down on the costs in sales personal, as IKEA customers need to pick up their own merchandise and clear their own trays at the food court.

Right Quality
Keeping the customer in mind, IKEA doesnt invest in unnecessary expenses and focuses on appropriate quality for the right use. For example, the back panels of most of their book shelves are usually inexpensive material, as it does a good enough job. At the same time, they dont comprise on quality and ensure that the customers know about this by putting up demo pieces in the retail outlets. All their products undergo rigorous tests to ensure they meet the required quality and safety standards.

Convenience
All home needs under one roof, with ready stock, provides at most convenience to the IKEA shoppers. The simple return policy, simple display of product information , the touch and feel of the products, helps customers make most of their decisions by themselves. Customer Service representatives, though few in number are always ready to help the customers. The childrens play area, the family great value restaurant, special events, catalogues, seasonal themes, etc definitely provide convenience to the customers.

6|Page

THE IKEA MARKETING MIX

The long standing tradition of IKEAs marketing communication is primarily focusing on print media like catalogues, newspaper ads, etc. However, it has expanded to TV, radio and recently the internet medium. The IKEA website offers virtual home solution concepts and prices as well. IKEA focuses on 4 areas primarily for all its marketing communications: Product Range The Store Catalogue Advertising and PR

The IKEA catalogue requires special mention as 70% of the annual marketing spends are reserved for this. With 38 different editions in 17 languages reaching 28 countries, a total of 110 million catalogues were distributed last year.

THE IKEA STORE

Location
The stores are usually located in sub- urban area and in standalone formats, with good parking facility. This creates a complete shopping experience for IKEAs customers.

Format
The IKEA store is a warehouse format, no frills blue and yellow building which are usually around 300,000 sq feet. The layout is a race track format, which guides the customer through the entire store in one direction. However, as the path is wide, customers can easily stop and look at displays and products without blocking the way for others.

7|Page

Visual Merchandising
The beautifully designed IKEA products are themselves appealing, and to add to this visual treat, the stores have beautiful little concepts showcasing a complete furnished model rooms for each section of the house. A lot of colour coordination is used in the product placement to enhance the entire experience of their shoppers. A few products in motion are placed to further attract attention at the same time enhance the quality perception of IKEA products. The products are well placed and the price tag gives all the required information, including the designers name. The lighting is mix of soft yellow lights, with good focusing white lights on the main products. A pleasant aroma of the IKEA restaurant fills the store, and the music is usually light and enjoyable. The design of the products and the store interiors are changed often to make sure that the customers get to see something new all time and hence increase the store visits. It also places inexpensive products complementary to the big ticket items, to let the customer know that the products they thought they never required would enhance their lifestyle. By rotating one fourth of its product line every year, they manage to keep the product desirable, fresh and relevant.

Other Services
The childrens play area is well known for its high safety standards and customers can drop off their kids right at the entrance and enjoy a leisure shopping experience. The IKEA restaurant is

mostly in the centre of the store and hence the customer can at any time take a break and head to the restaurant before he resumes his shopping. They have large parking facility and hence customers can easily load their products into their cars and drive home.

8|Page

IKEAs PERFORMANCE
Sales
The figure below shows the sales of IKEA group over the years. All the numbers are in billions Euros. IKEA had managed to double its sales in a period of 5 years from 1999 to 2005. The sales of the company have been steadily growing at the rate of 15% from year 2005 to 2008. Despite the economic downturn in 2009, IKEA sales increased by 1.4% and during recession, IKEAs low prices become even more relevant to the customers. In 2009, the IKEA group totalled 21.5 billion Euros, while the food services reached 1.03 billion Euros.

Europe still accounts for 80% of its sales, with Germany being the highest contributor at 16%. The US market alone accounts for an 11% , followed by France 10% , UK and Italy at 7%. IKEA is yet to tap the potential of the Asian Market. The first entry in the Asian Market was in Japan in the 1970s as a joint venture didnt turn out to be fruitful venture and exited in 1986 and it is only in 2006 that IKEA re-entered Japan with full ownership. During the year 200, it entered China.

9|Page

Popular to the common belief that most of IKEAs products are sourced from Asia, two- third of its suppliers are in Europe and only one third in Asia. IKEA has a total of 1550 suppliers in 55 countries.

Expansion
The grand total of 301 IKEA stores in 37 countries, speaks volumes about the company and its far reaching presence. The IKEA Group itself owns 267 stores in 25 countries: Australia, Austria, Belgium, Canada, China, Czech republic, Denmark, Finland, France, Germany, Hungary, Italy, Japan, Netherlands, Norway, Poland, Portugal, Russia, Slovakia, Spain, Sweden, Switzerland, United kingdom and USA.

The other 34 stores are owned and run by franchisees outside the IKEA Group in 16 countries. These are Australia (2), the United Arab Emirates (2), Cyprus (1), Greece (3), Hong Kong (3), Iceland (1), Israel (1), Kuwait (1), Malaysia (1), the Netherlands (1), Romania (1), Saudi Arabia (3), Singapore (2), Spain (4), Taiwan (4), and Turkey (4).

10 | P a g e

IKEAs SUSTAINABLE BUSINESS MODEL

The Supply Chain
IKEAs core strength, besides its design, stems from its strong supply chain practices. The various stages are: raw materials in the primary stage manufacturing in the secondary stage Distribution and retailing services in the tertiary stage.

Primary sector
IKEA works closely with its primary sector suppliers to ensure that it is receiving sustainable and environmentally friendly raw materials. IKEA designs its own products and throughout this process makes sure that the impact on the environment is minimised. The firm uses a tool called the e-wheel to measure the environmental impact of products. This looks at resources, production, use and recycling for each product. Around half of IKEAs products are made of wood. This is a good source of material as it is recyclable and renewable. Other production processes which help support sustainability include: tables made from recycled plastic rugs made from off-cuts Products made to stack for more efficient transportation.

IKEA works with suppliers to reduce waste or use waste products in further manufacture. To help it has a Code of Conduct called the IKEA Way (IWAY).

Secondary sector
The IWAY Code helps manufacturers by making sure that they apply sustainable principles. It also insists that they follow laws, health and safety requirements and do not employ child labour. It states that materials from non-sustainable sources should not be used. The Code raises standards for all concerned. IKEA also works with other organisations to support the Code. These include childrens charity UNICEF and the World Wildlife Fund. 11 | P a g e

Tertiary sector
IKEA has more than 260 shops in 36 countries set up to provide a retail experience that meets consumer needs. Stores are large and customers can pick their own purchases. Further services are provided through the IKEA catalogue and home delivery. IKEA also has set up initiatives to support sustainability within the company by: aiming to recycle up to 90% of its waste removing carrier bags from its stores subsidising public transport and encouraging cycling (with a new bike given to each employee) giving low-energy light bulbs for employees Using only hybrid vehicles as company cars.

Bibliography
www.ikea.com

12 | P a g e