IKEA CASE STUDY: SOLUTION

Name: kumari Maya Bharti

MFM-3

IKEA Invades America :Youngme moon

Q1.What was IKEA’s vision statement? Please explain.

Ans: IKEA’S vision statement : “Democratic design: Low price with meaning”-captured
this commitment to offering tasteful, cleverly designed product that did not make consumers
feel cheap. And basic product was fashioned to reflect the company’s philosophy of
democratic design.

Democratic design: low price with meaning portrait its exact business strategy and this
vision statement states that IKEA seeks to build a “friendly partnership” with its customers.
On a global scale, IKEA does an exemplary job at building relationships with its customers
by creating aesthetically pleasing yet affordable designs. However, on a smaller scale, IKEA
is a warehouse of products and since they do not give any additional services after a purchase
is made, relationships cannot go much further. Creating functional designed furniture creates
a profit not a relationship. Nonetheless, the mass continues to enjoy shopping at IKEA due to
the low prices and beautiful furniture. In order to preserve a long-lasting relationship, IKEA
must learn how to create the lovely furniture, keep inexpensive price points, and constantly
come up with advanced ways to help the customer feel less disconnected after purchasing a
product.

Q2. What propelled IKEA to start designing its own furniture? What were the key reasons
for this move?

ANS : IKEA began designing its own furniture items in 1955, and soon began taking
advantage of the benefits of flat packaging and self-assembly by customers. Success followed
quickly, and in 1958 the tiny showroom was replaced by a then giant store of 13,000 square
meters. One year later, a restaurant was added to the store, to accommodate the needs of an
ever-increasing number of customers who were traveling long distances to IKEA.
There were several reasons for IKEA to start designing its own furniture. Pressure from their
competitors caused suppliers to boycott IKEA. This reaction to his early success required
them to begin designing their own furniture, and became the basis for future growth.
Ultimately, this would lead to innovative design and improved function at lower prices. Then,
by lucky inspiration, one early IKEA employee decided to remove a table’s legs so it would
fit into a car, and to avoid transport damage. From that point on, they began to think in terms
of design for flat packaging. A pattern had begun to establish itself at IKEA. Turning
problems into opportunities. And this become their USP of brand and turns their brand in to
leading brand.

Q3 . Please apply IKEA with 5 Forces framework and explain it in detail.

Ans: IKEA Porter’s Five Forces

Threat Of New
Entry
(low)

Bargening competitive Bargening

power of power of
Supplier Rivalry Buyer
(low) (Intense) (strong)

threat of
subsitutaion
(low)

Rivalry among existing firms is intense in the global market of discount furniture and the
major players in the industry include Euromarkets Designs Inc, Galiform plc, Wal- Mart
Stores Inc, Argos and others. However, currently IKEA is the undisputed market leader in the
industry of discounted furniture in the global

The threat of new entrants into the industry is low, and the chances of emergence of new
competition for IKEA is insubstantial as the current market is saturated and significant
amount of financial investments and expertise are required to become a discounted furniture
retailer in a global scale.

The bargaining power of IKEA customers is strong, as the competition is intense and the
customers have a wide choice of alternative options offered by global furniture retailers, as
well as, local furniture producers.
IKEA suppliers do not possess substantial bargaining power as there are numerous factories
around the globe with the capabilities and resources to form partnership with IKEA. At the
same time, IKEA pursues the strategy of forming strategic long-term relationships with its
suppliers.

The threat of substitute products and services are low as there are not too many products and
services available that can substitute the demand for furniture, home appliances and a range
of other products like are offered by IKEA.

4. Explain IKEA’s Product/Price strategy.

ANS: “The matrix” through matrix they clearly defines their product and price strategy.

Firstly, the new product development process was overseen by a product-strategy council,
which consisted of a group of a senior managers who established priorities for IKEA ‘s
product line up. These priorities were based on consumer trends as identified by the globe-
trotting council members. Once a product priority was established a product developer would
set the product’s target retail price using what the company referred to as the MATRIX,.

Since IKEA has established the benchmark price point of 30-50% lower than those of its
competitors the matrix can provide an uncomplicated yes or no to the product, manufacturer,
or designer. IKEA has also developed the plan of using high-quality materials for visible
surfaces and lower quality materials for low-stress, less visible surfaces (Moon, 2004). This
benefits IKEA in its attempt to cut costs for its consumers. IKEA’s product strategies are
always undergoing constant redesigning in order to provide its consumers with the best
product at the best price.

Q5. How did IKEA foray into the US market? What were the challenges the brand faced and
how did it overcome those challenges?

Ans: At the beginning IKEA business was not good in US Market. But wIth the help of their
strong strategy they invade in to America. At the early IKEA discovered that America did not
like its product. IKEA’s product was designed on the basis of Scandavian style which was
completely different from the American style. Their beds and kitchen cabinets did not fit
Americans sheets and appliances,and many other problem appeared in IEA’s design.

To overcome from these problems, they address these problems relying on the market
research to adjust its product line up and merchandising. IKEA had launched a high profile
advertising campaign designed to get Americans to take a more ‘commitment free approach
to furniture’.

They create an Ad campaign called ‘unboring’which was a television commercials poking

fun at Americans unwillingness to part with their furniture. And this strategy was hit at that
time .by the mid-1990, company had begun to improve, and 1997-2001 was able to double
revenues. By 2002 US market was IKEA third largest market.