IKEA’s Global Marketing Strategy
1. What were the sources of IKEA’s successful entry in furniture retail business in Sweden?
The sources of IKEA’s successful entry into the furniture retail business were IKEA’s low prices and resilience. First, Ingvar Kamprad, the founder of IKEA, began selling furniture
in his mail order company. Then he was faced with a social problem and turned it into a business opportunity. Since 1935, furniture prices rose faster than any other retail good at 41%. Kamprad responded by creating a line of furniture priced so that all could afford it. The present furniture cartel attempted to stifle Kamprad’s growth and success. The cartel banned Kamprad from selling directly to the consumer at shows, then managed to persuade the manufacturing cartel to stop supplying Kamprad with furniture. Kamprad responded by supplying elsewhere and now could charge even lower prices. IKEA
’s success was due largely to low prices
and Kamprad’s ability to capitalize on bad situations.
2. What forces are driving changes in the industry?
Originally, the postwar boom helped drive the furniture industry’s change. World War II drained the life out of many households, and newer innovative changes were sought by many. The tradition of handing down furniture from generation to generation was quickly disappearing in most households. IKEA helped shape the postwar household by offering new furniture styles at a very reasonable price. With low costs came a new innovative style and a comfortable atmosphere to shop in.
4. What factors do you see as critical to competitive success in the furniture industry?
Ingvar Kamprad believes that a company's "identity", company guidelines, profile, selection, quantity, quality and price are critical to the success a company will have in the furniture business. Another factor that could add to the success of a company in the furniture business is internet marketing and selling along with catalogs of the company's merchandise.
The range of products should cover the total home area, indoors as well as outdoors, with fixed furniture or loose furniture. The profile a company will want to bring to the table will give competitors and buyers a direct image of the company. There should be a wide selection of products along with the quantity of stock to sell to all customers. Quality and price are also an important factor but should be left up to the consumer to decide what they are looking to do in the long run. With the use growing popularity and use of the internet, online marketing should be one of the critical aspects of a successful furniture business and the always popular catalogs that are available by mail or in the store.
Another key factor in the furniture business would be to acquire the ability to purchase low-priced materials and to check if there are less expensive quality alternative materials available. Developing long-term relationships with suppliers is another factor that would increase the probability of being successful in the furniture industry.
5. How important was internationalization to IKEA? What challenges did IKEA face while expanding internationally, and how did they overcome them?
Internationalization of IKEA was extremely important because it propelled many of IKEA's top managers to positions of responsibility, broadens the area for sales, increase profit and brought IKEA into many new market places. It was very important for IKEA to go international because the Swedish furniture market is very saturated.
One of the challenges that IKEA faced was the fact the median age and income level in most developed countries were expected to rise while IKEA's target market segment of young low-to-middle income families would be shrinking. To overcome this problem IKEA decided to expand to other areas of furniture like office furniture and more traditional furniture designs for the older richer people. IKEA also had to deal with exchange rates and adversity in the economy.
One of the biggest concerns was whether IKEA would be able to retain the company's cultural values with its rapid growth and increasing graphic spread. The company over came this with good management, a strong work force and very strong company values. But perhaps the biggest concern was how the company would fair without Ingvar Kamprad. Kamprad responded to this concern by saying "The IKEA ideology is not the work of one man but the sum of many impulses from all the IKEA leadership. Its supporting framework is massive".
6. What were the management processes by which IKEA coordinated and controlled its Europe-wide operations?
Following the orders of the owner Ingvar Kamprad, management was there to direct the employees, but overall motivate them as well. It was supposed to be a very comfortable environment to work in, while being very cost effective. Management processes also stressed simplicity and attention to detail; they coined the phrase “Retail is Detail.” Kamprad was known for being frugal and made it known with such comments as “waste of resources is a mortal sin at IKEA. Expensive solutions are often signs of mediocrity. An idea without a price tag is never acceptable.” Another highly used tactic was to hire young recruits because of their lower costs, and reserved enthusiasm for the company.
7. What was Ingvar Kamprad’s role in the development in IKEA?
Ingvar Kamprad played a significant role in the early development of IKEA. He founded the company just after the end of World War II. During this time period, furniture prices rose 41% faster than the prices of other household goods. Kamprad commented “We shall offer a wide range of home furnishing items of good design and function at prices so low that the majority of people can afford to buy them.” It was this strategy that catapulted his business. Kamprad opened a second outlet in Stockholm, Sweden in 1965. Between 1965 and 1973, Kamprad opened seven new stores in Scandinavia. With this move, he captured 15% of the market share. Kamprad then expanded into Europe in 1974 in Munich. Kamprad fought opposition to his growth from competition successfully. By the end of the 1970’s, IKEA had 50% of the German market with 10 stores in West Germany.
The reason behind Kamprad’s success is his philosophy. His focus is not on profit alone, but improving the quality of life of the people. He is seen as a visionary – someone that has forever changed consumer needs and caused a structural shift in the furniture retailing industry altogether.
During all of his expansion, Kamprad remained in control of the company. He appointed expansion executives in charge of expansion into certain regions, but he remained in control of them. Kamprad always remained an integral part of the company’s development. He then appointed a new president, Anders Moberg.