Graduate School of Business (HEC, Ecole des Hautes Etudes Commerciales) University of Lausanne (Switzerland)

MK-06-003

Papa Ingvars worries

Saskia Faulk prepared this case under the supervision of Professor Jean-Claude Usunier solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a business situation. The authors may have disguised certain names and other identifying information to protect confidentiality. The Institute of International Management of the University of Lausanne (IUMI) prohibits any form of reproduction, storage or transmittal without its written permission. To request permission to reproduce materials, contact Catherine Lombard, administrative officer, IUMI, HEC, BFSH1, CH-1015 Lausanne-Dorigny, Switzerland; phone 00 41 21 692 3310 ; fax 00 41 21 692 3495; e-mail admin.mim@hec.unil.ch. IUMI/HEC, 2003 Version: (A) 2003-09-09

Who can successfully market products around the world with names like snuttig, droppen, grimo, moren, jerker, mrd, or slugis? IKEA, the worlds biggest home furnishings retail chain can use names that break some rules of branding, and make a healthy profit out of it. Quirky and identifiably Swedish, the names mirror the companys image. Small-town entrepreneur Ingvar Kamprad founded IKEA as a furniture mail-order company in Almhult, Sweden, in 1943. Since then, IKEA has expanded far from its pastoral headquarters to worldwide sales of 11.3 billion euro1 from 175 outlets in 32 countries and territories. IKEA is now one of the worlds largest family-owned companies. Although well past retirement age, Kamprad remains active in the business, reportedly traveling to IKEA stores by economy class and public transport, in order to listen to the concerns of the common people and to save a little money. His three sons have worked at the company.2

Since 1997, revenues have grown at a rate of 20% and a new IKEA store is opened, on average, each month.3 Today, IKEA operates retail stores in countries as diverse as Austria, Canary Islands, France, Hungary, Iceland, Israel, Malaysia, Russia, and Saudi Arabia, with 31 outlets in Germany, and 16 in the USA.4 At the insistence of founder Kamprad, IKEA expanded rapidly, without adapting its core concept to local conditions. Starting in the early 1960s, IKEA took a foothold in Sweden, then Denmark. In 1973, the company took its high-design, good quality, reasonably priced goods throughout Europe and Australasia. Today, four out of IKEAs top five markets are in Europe, the fifth is the USA. Although IKEA has concentrated on company-owned, larger scale outlets, franchising has been used in 14 countries 5 and all stores operate on a franchising basis, regardless of ownership.6 During 2003, store openings were scheduled in Germany, Australia, Hungary, and Spain. There are currently two IKEA stores in Moscow, and one planned to open this year in St Petersburg. 8 In Moscow, IKEA is branching out to develop a mega-shopping mall (including a Auchan hypermarket) and hotel complex adjacent to its southern Moscow store.9 In the near future IKEA plans to open 17 stores in Russia, with the majority in provincial cities, and two or three more in Moscow.10 In 1974, the North American expansion began, a venture which continues with plans to open 50 stores in the USA by 2013. 11
7

Recent expansion in Asia Pacific is projected to continue at a significant rate. IKEA aims to double its Asia Pacific region revenue, currently 3.5% of the global figure, to US$ 770 million by 2005.12 Within the next three or four years, IKEA expects to open 15-20 new stores in the area, including two in Japan.13 IKEA currently operates the largest warehouse in South-East Asia, which is poised to fill the expected demand.14

The nuts and bolts of IKEA Founder Ingvar Kamprad formulated IKEAs vision to 'offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them.15 IKEA carries approximately 10,000 different home furnishings, garden items, plants, lighting, office furniture and supplies, household textiles, decorative items, kitchen cabinetry, toys and children's equipment, crockery and flatware, and seasonal decorations.

Product strategy IKEA follows a standardized product strategy with an identical assortment around the world. IKEA designs all of its product lines and products, then uses a bidding process among hundreds of agreed suppliers, contracts the manufacturing job out under stiff quality controlled conditions. Furniture and accessories are designed to fit four categories: 16 Scandinavian: simply styled, streamlined, light wood Modern: minimalist and funky Country: a new take on traditional European styles Young Swede: totally simple, but functional and stylish IKEAs office-supply division offers office furnishings that also fit into the four categories. It operates on a business-to-business as well as a retail level, in some areas publishing its own catalog and employing its own call-center employees. IKEA pioneered the idea of flat-pack merchandising, which means that buyers do the final assembly for most items. It has been estimated that six times more freight space would be needed if its products were shipped already assembled, a significant cost point especially when increasing numbers of items are made in the Asia-Pacific region and control of shipping times and costs becomes critical.17 IKEA's shopping experience is a unique element in the marketing mix. In addition to the items they buy, shoppers have an experience at IKEA's self-contained shops. The largest stores feature a self-service restaurant with Swedish menu items, a snack bar, Swedish food boutique, and a child-care center for customers. The restaurant and caf have been given central status at newer USA stores built on a clover-leaf shape, with sales floors radiating off from the foodservice facilities. Pricing strategy The IKEA concept is based on low price, and products are designed to offer prices that are 30 to 50 per cent lower than fully assembled competing products. 18 Keeping within this constraint, IKEA responds to different customer needs using a three-level pricing strategy: low, medium, and high. 19 The affordability of IKEA products is due to several busienss practices, including target-pricing, whereby a product is priced first then designed and sourced accordingly. Other elements of IKEA business that keep prices low are: high volume purchasing; low-cost logistics (hence the flat-packs), and inexpensive retail space, mainly in suburban areas. IKEA's prices do vary from market to market, largely because of fluctuations in exchange rates and differences in taxation and tariff regimes, but price positioning is kept as standardized as possible.20

Communications strategy IKEA's promotions are effected mainly through its catalogs, websites, and the IKEA Family loyalty program. All stores follow a communications prototype, with catalogs, printed materials, and websites designed to conform to the IKEA look. Websites (www.IKEA.com) are examples of tailored uniformity, featuring the same type of information on all 26 websites and seven mini-sites. However, the sites feature different photos and colors, and information based on the location and market familiarity with the concept, and many feature a choice of several languages. The seven mini-sites are standardized, simply offering contact information and map/directions (such as IKEA Saudi Arabia).21 The company has turned increasingly to online marketing, and has even indulged in the viral marketing fad, whereby customers forwarded a promotional message to friends via email and SMS. 22 Primary communications are centered on IKEA catalogs, of which 45 editions are printed in 23 languages with a worldwide circulation of over 118 million copies.23 The catalogs are uniform in layout except for minor regional differences. Other specialized publications include Smart Kitchen, IKEA View, Professional Office Furniture, and IKEA Summer.24 IKEA advertising is designed to be unique and provocative. The company's communications goal is to generate word-of-mouth publicity through innovative and sometimes groundbreaking approaches. IKEA has featured ground-breaking advertising in several markets, earning the ire of some conservative groups. For instance, company ads have used homosexual couples, just-divorced women, teenage pregnancy, and marijuana as a topic in its ads. Perhaps the most controversy was sparked by IKEAs Netherlands campaign featuring a male homosexual couple with their daughter. For a view of IKEAs portrayals of lesbian and gay worlds, visit: www.commercialcloset.org (a review of gay advertising) or www.gfn.com (the Gay Financial Network). According to Irena Vanenkova, IKEAs head of public relations in Russia, a good example of innovative communications by IKEA was a competition to find a handsome cat with a Swedish heritage to enter the new Russian showroom on opening day (cats are considered to bring Russians good luck), generating publicity and good-will through 20 publications and websites that would have otherwise cost thousands of rubles. 25 IKEA's thirtieth birthday celebrations in Switzerland were characterized by a thought-provoking use of the Swiss flag on a somber and staid background, emblazoned with '30 years of democracy in Swiss home furnishings'. The official-looking artwork was counterbalanced by pricing offers using the number '30' such as sofas normally priced at 900 Swiss Francs selling for 30 Swiss Francs.26 On a quieter front in communications, IKEA is active on environmental and socialresponsibility programs, providing the company with exposure in the press, and a themed emphasis in their communications materials.

Target market IKEA executives tend to be vague about their target markets, and the comment on the topic from the country manager for Japan Tommy Kullberg is typical. In an interview with Nikkei Weeklys Asako Ishibashi, he stated that the company targets families with young children and young people starting a home, from virtually all social categories. These are people who tend to have a young mental age.27 Industry analysts refer consistently to first-time home buyers, young families, and people renting their homes. Distribution IKEA has a division devoted to business travel logistics, primarily to allow company representatives to visit manufacturers in order to ensure that working conditions are optimal, and that products are made in accordance with IKEAs code of environmental and social responsibility.28 The primary countries of origin of IKEA products are: Sweden (14 percent), China (14 percent), Poland (8 percent), Germany (8 percent) and Italy (6 percent). 29 Manufacturers ship the components or finished products to large warehouses, such as the central one in Almhult, or to one of the other 25 distribution centers in 15 countries. 30 About 30% of the products are shipped directly to the stores which are, in effect, warehouses. 31.To facilitate the shipping, IKEA developed IKEA RAIL, the only private rail freight forwarding company in Europe.32 The network of subcontracted manufacturers numbers nearly 1,800 in 55 different countries, with 42 trading services offices in 33 countries, for which the company uses an online suppliers portal to negotiate bids and order supplies, such as nuts and bolts from IKEAs internal supplier-to-supplier division.33 IKEA does not offer home delivery but IKEA stores cooperate with local companies that offer small trucks for rent, delivery, and even furniture assembly service. 34 IKEA offers a mail order service and very recently introduced an online ordering facility in some countries; however in its first stages the cumbersome system was not well received. IKEAs competitors? There is no global competitor for IKEA. The company has used its relatively low prices, stylish design and offbeat image, environmental performance (no PVC products, no sweatshop workers), and immediate gratification via do-it-yourself delivery in order to attain a unique positioning. No other large company in this sector has pioneered so many supply chain innovations, including long-term and on-line collaboration that is spiced up with civilized competition between suppliers. No other international furniture company offers such a universal appeal. Competitors are inevitably smaller than IKEA, and may be able to compete with the Swedish monolith on one of the above points, such as low price, but not

simultaneously on all of them. The experience of shopping at IKEA is likewise unique: although lacking in sales people, store facilities present many opportunities for the shopper to maximize the benefits of shopping IKEA-style. Measuring tapes, pencils, handy order forms, desks to write on, realistic mini-showrooms, and user-friendly merchandising are examples of this. IKEAs day-trip dimension is also inimitable, with signature foodservice, childrens entertainment, and even child care. Its a big country. Someones got to furnish it... IKEA in the USA IKEA entered the U.S. market in 1985, quickly establishing three outlets in the north-east, and experiencing such success that a major warehouse near Philadelphia was followed by others around the country. Since 1985, 16 more stores have been opened in the U.S. and the company has grown to become the seventh largest furniture retailer in the country. 35 Plans call for 50 stores across the U.S. by 2013, with nine slated to open or re-open within the next year or so. 36 IKEA quickly learned from its early experiences in North America. Firstly, people considered their glasses to be too small in order to add ice--a singularly American habit. In addition, bed sizes needed to be changed according to standard North American measurements. Generally, furniture was made wider and larger for the USA, changing IKEA's conception of a world-wide appeal. In terms of merchandising, IKEA stores tend to display easily identifiable color and design combinations, to guide the customer a bit more than they were accustomed to doing in Europe.37 To gain awareness in a relatively new market, IKEA has been inventive, including among its promotions the Living Works of Art exhibit as part of downtown Chicagos Home Suite Home campaign. Three couples lived in the heart-shaped exhibit, made up of IKEA furniture for several days, thereby earning US$15,000 for charitable causes. 38 Another example is the recent unbring campaign in the USA that included a dedicated website, television, print, direct, outdoor, and wildpostings.39 The unbring campaigns manifesto clearly situates IKEA as an idiosyncratic company of Swedes, fighting for liberty and beauty for all40 For more on the campaign, see www.unboring.com.

IKEA is a complex business, comprising retail businesses, franchising, product development and design, supply-chain businesses like Schwedwood, and manufacturing management, distribution using conventional channels and IKEA RAIL, massive warehouse operations, real estate, foodservice operations, and even the ownership of local competitors like Habitat in the UK and France. The pan-European IKANO Bank and real estate services company is also owned by the Kamprad family. In Sweden in the 1990s, IKEA designed and sold houses. The

Bo Klok Project (live smart in Swedish) wood-frame houses were pre-fabricated and built with Swedish developer Skanska, in two Swedish cities. Efforts have been made to bring the project to the UK and other markets. Of course, home-buyers were given a 3000 SEK gift certificate for IKEA merchandise.41 As a reflection of this complexity, IKEA founder Ingvar Kamprad told the Swedish newspaper Smaalandposten in an interview that, contrary to his earlier position as an engine of growth, he now worries that the firm is expanding too quickly. In particular, he cites concern that in an economic downturn, some IKEA stores may have to close. Papa Ingvar, as he is known to many IKEA employees, said that he felt the responsibility for potential lost jobs was a very heavy burden.42

Questions 1. Furniture styles and home trends are usually thought to be linked to cultural attitudes and perceptions. How can a global company like IKEA successfully market its standardized products in so many countries? Based on your visit to IKEA websites for several familiar countries, give some suggestions for improvement to the communications director.

2. Why do IKEA products receive Swedish-sounding names? What is the role of IKEA's Swedish image, and its Swedish country of origin in the companys image policy? 3. How can IKEA continue long-term to market its wares to people with a low mental age around the world? Can the company remain true to its original mission, culture, and massappeal through so many complex changes? 4. Regarding Ingvar Kamprads worries about the firms expansion, do you agree that the company is expanding too quickly or into too many different sectors? What marketing problems do you expect this growth will cause in the short and long term?

Anonymous (2003) IKEA founder worried over growth, BBC News World Edition, 3 January, 2003. Retrieved 4 January, 2003 from http://news.bbc.co.uk/2/hi/business/2626387.stm
2

Anonymous (2003) The worlds largest family businesses, Family Business, (undated). Retrieved August 30, 2003 from http://www.familybusinessmagazine.com/topglobal.html.

Wheatley, Malcolm (2001) IKEAs financial furnishings, CIO Magazine (online), September 1, 2001. Retrieved April 30, 2003 from http://www.cio.com/archive/090101/passport_ikea.html.
4

Inter IKEA Systems B.V. (2003) IKEA Global Select country site(web page). Retrieved 17 December, 2002 from http://www.IKEA.com.
5

Inter IKEA Systems B.V. (2002), Acceuil propos dIKEA (web page). Retrieved 17 December, 2002 from c
6

Inter IKEA Systems B.V. (2002), Facts and figures (web page). Retrieved 17 December, 2002 from http://www.ikea.com/about_ikea/facts&figures/facts_figures.asp.
7

Inter IKEA Systems B.V. (2002), FAQsWhat new IKEA store openings are scheduled? (web page). Retrieved 17 December, 2002 from http://www.ikea.com/faqs/faq.asp#store1.
8

Anonymous (2002), Eastern Europes largest mall opens on MKAD, The Moscow Times, 17 December, 2002. Retrieved 17 December, 2002 from Business Source Primer at http://search.epnet.com.
9

Anonymous (2003) IKEAs flat pack revolution changing rooms in Russia, Evening Standard London (online), April 24, 2003. Retrieved April 30, 2003 from http://hoovnews.hoovers.com.
10

Anonymous (2002), IKEA plans five Russian stores by 2006, The St. Petersburg Times, 12 November, 2002. Retrieved 17 December, 2002 from Business Source Primer at http://search.epnet.com.
12

Anonymous (2002) IKEA aims to double revenue in region, Business Times, 26 November, 2002. Retrieved 17 December, 2002 from Business Source Primer at http://search.epnet.com.
13

Inter IKEA Systems B.V. (2002), Press Room IKEA to invest in Japan (web page). Retrieved 17 December, 2002 from http://www.ikea.com/about_ikea/press_room/press_release_int.asp?pr_id=568 .
14

Anonymous (2002) IKEA aims to double revenue in region, Business Times, 26 November, 2002. Retrieved 17 December, 2002 from Business Source Primer at http://search.epnet.com.
15

Inter IKEA Systems B.V. (2002), About IKEA Our vision (web page). Retrieved 17 December, 2002 from http://www.ikea.com/about_ikea/our_vision/better.asp.
16

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
17

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.

18

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
19

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
20

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
21

Inter IKEA Systems B.V. (2002), Global directory (web page). Retrieved 17 December, 2002 from http://www.IKEA.com.
22

Beeler, Amanda (2000) Virus without a cure Advertising Age, 17 April 2000. Retrieved 17 December from the Advertising Educational Foundation at http://www.adage.com/paypoints/buyArticle.cms/login?articleId=9529&auth=.
23

Inter IKEA Systems B.V. (2002), Acceuil propos dIKEA (web page). Retrieved 17 December, 2002 from http://www.ikea.fr/ms/fr_FR/about_ikea/splash.html.
24

Hatch, Denny (2003) Case Study, IKEA, Swedens Jewel, Target Marketing (online) May 18, 2003. Retrieved May 18, 2003 from http://www.targetonline.com.
25

Hatch, Denny (2003) Case Study, IKEA, Swedens Jewel, Target Marketing (online) May 18, 2003. Retrieved May 18, 2003 from http://www.targetonline.com.
26

Inter IKEA Systems B.V. (2003) 'IKEA Family: Ftez avec nous', (web page) undated. Retrieved 17 June, 2003 from http://www.ikea.ch.
27

Asako Ishibashi (2002) IKEA brings back Scandinavian design (interview of Tommy Kullberg of IKEA, with Asako Ishibashi) Nikkei Weekly Page published online by the Danish Furniture Promotion Center, July 22, 2002. Retrieved April 30, 2003 from http://www.denmark.or.jp.
28

Inter IKEA Systems B.V. (2002), Acceuil propos dIKEA (web page). Retrieved 17 December, 2002 from http://www.ikea.fr/ms/fr_FR/about_ikea/splash.html.
29

Inter IKEA Systems B.V. (2002), Facts and figures(web page). Retrieved 17 December, 2002 from http://www.ikea.com/about_ikea/facts&figures/facts_figures.asp.
31

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
33

Gilbert, Alorie (2000), IKEA to build supplier portal, CNET.COM, 26 March, 2002. Retrieved from CNET.COM at http://www.verticalnet.com/company/news.html.

34

Inter IKEA Systems B.V. (2002), Global directory (web page). Retrieved 17 December, 2002 from http://www.IKEA.com.
35

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
36

Margonelli, Lisa (2002), Business 2.0, Vol. 3 Issue 10, p106-113. Retrieved 17 December, 2002 from Business Source Primer at http://www.epnet.com.
37

Gilligan, Gregory J. (2002) 'IKEA on the move', Siam Future, July 28, 2002. Retrieved December 17, 2002 from http://www.siamfuture.com/asiannews/asiannewstxt.asp?aid=2401.
38

Anonymous (2001) IKEA takes art to a new height with its Suite Home Chicago entry, Furniture World, June-July, 2001. Retrieved December 17, 2002 from http://www.furninfo.com/news/newsindex0601.html. Press Room Skewed reality and humorously frank discussions are the central theme of the new IKEA unbring ads. Retrieved 17 December, 2002 from http://www.ikea.com/about_ikea/press_room/press_release_int.asp?ap=4 .
41 40

Inter IKEA Systems B.V. (2002), The unbring manifesto, book one, Retrieved 4 January, 2003 from http://www.unbring.ca.
41

Slavin, Terry (2001) IKEA in pre-fabs plan for low-paid, The Guardian (online), November 25, 2001. Retrieved April 30, 2003 from http://society.guardian.co.uk/keyworkers/story/0,1266,606148,00.html.
42

Anonymous (2003) IKEA founder worried over growth, BBC News World Edition, 3 January, 2003. Retrieved 4 January, 2003 from http://news.bbc.co.uk/2/hi/business/2626387.stm.

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