Service Innovation of IKEA’s self-service in China

Service Innovation of IKEA’s self-service in China

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According to Chinese officials, the living standards improved steadily during 1980s and 1990s, also, a plenty of families recent years are prone to have their own homes as soon as they can afford. (Zhan, 1998) Under this condition, the competition among the furniture market becomes more and more fierce. In today’s market, some sellers provide more kinds of variable furniture with colorful appearance or high technology. Also, there are some companies provide the commodities with a lower price. However, these are all short-term attractions because all the companies can copy these tricks so it does not have a high distinction degree. Then, how to use innovative methods to stand out from the competition is a big problem. The self-service offered by IKEA solve the problem properly. IKEA is a Swedish furniture mart run by a 17-year-old boy Ingvar Kamprad in 1943 and entered China in 1998. The self-service provided by the firm is very attractive and really helpful for the problem mentioned before. This essay will divided into four parts generally. First, it will give an introduction on self-service and the operation process including distribution channels, position and finance. The second part will elaborate the theories applied in the service. Next paragraph will analyze the advantages and disadvantages of the service. Finally, some advice will be given to the service according to the present and future situation in China.
The Operation Process in IKEA
The self-service in IKEA is reflected in several ways. When the customer first enters the market, he can take a brochure; a ruler made of paper and a pencil for free so that he can get knowledge of the products and record the length of the furniture. The shopping area is decorated as numbers of model houses; it has children’s rooms, living rooms, bedrooms, washrooms and kitchens. All the products IKEA sales are displayed in the show area. As it shown in the picture 1, the consumer can follow the trace that IKEA provide and he can visit all of the rooms.
Picture 1 Picture 2
Different from the shops in China which set up a signal writes “no touch”, customers are welcomed to sit on those furnishings and feel them which make the “show rooms” exist as “experience rooms”.

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All the price tickets stuck on the furniture are classified into red and yellow ones, different colors mean different approaches to pickup the goods. The red one means consumers can pick up goods directly or go to the furniture area or household area to pick up what they want. The yellow ones let clients consult a salesperson to print orders before taking delivery of the goods. After that, trolleys are provided for people to pickup by themselves. Small products are separated into different types and shown in the market hall as the picture 2 reveals. The big furniture is gathered in the furniture area and is flat packaged so it is convenient to transport but the consumers need to assemble these furnishings themselves at home. After entering the market, almost all the shopping steps need to be finished by the customers and the assistant will never come and try to sell their products.

Another distribution channel is set by putting all products information on the IKEA’s official website. Customers can login to create a new shopping list and print the list. Hence, they can bring the shopping list to IKEA and directly pick up the goods.

In the self-service distribution channels, IKEA provides two channels for consumers to get the products. The first channel by choosing products in the store provided for the consumer who has enough time. The website channels for the person who are too busy to spend much time in the mall. So, it can be seen that IKEA position the service to the different consumer groups. Moreover, the service position strategy is closely related to the service concept and it helps to target the consumer group in the market. IKEA is famous for providing inexpensive, modern and durable products to consumers. Thus, the service concept calls for satisfying clients’ needs, presenting high living standard and creating a beautiful life. Moreover, an exclusive service needs to consider the market environment, psychology of customers, the life habits and the cultures. People in different regions have different market conditions.

In terms of the source of IKEA’s financing condition, it is specific and different from other companies which managers insist to use the company’s cash flow to build the service system. IKEA creates the main financial principles to make sure the finance is stability, independence and flexibility. From IKEA’s Group Yearly Summary FY12, all the money used in investment comes from the cashflow. This abundant capital base gives IKEA more abilities to select the direction of future investment. In 2012, total assets increased from €41.9 to €44.8 billion, the increase in assets ensured IKEA has more confidence to look at future growth (IKEA Group Yearly Summary, 2012)

Theories of Self-service
According to Edvardsson and Bo Enquist (2011), service innovation includes new services, new technology, new organizational models, different form of leadership, new procedures and new business models. IKEA used service innovation in service processes to motivate the sale of an operation, promote the steady growth. However, in IKEA, innovative services not only create new and better service for consumers in seeking a good impression, but also focus on how to allocate available resources in particular ways for consumers to use these to co-create value with seller. The clients as resource integrators focus on service dominate logic which it is the foundation of the service innovation to co-create value (Baron & Harris, 2008). IKEA set an innovation process by integrating a novel combination of service, letting customer as co-producer and using technology innovation to package their products.

IKEA is a profitable company and a global leader in the furniture industry and its success cannot be separated from a suitable market position. Setting a right service concept makes a great contribution for IKEA to enter a unique market place successfully. IKEA view itself as a service provider despite of a product retailer, and pay its attention to ‘solution to real-life problems' and devote itself to providing a ‘better life’ for most people. Knowing what customers want and satisfying their expectations are important for a company. Managing consumers’ expectation well plays an important role in managing an excellent service (Zeithaml & Bitner, 1996). As Wietze and Tom (2002) claimed trying to make the concept clear to develop a united service concept is a crucial element in the ‘reproduction formula. So, it is significant for IKEA to clarify the service concept when the company decides how to position its service to customers before entering a new market.

IKEA’s self-service could be seen as an innovative combination or linkage of new service system and service elements. The service distribution channels show that the combination of services is not same with some unrelated diversification services, but a tightly integrated which offers some additional value to the customers. Simply put, it is similar to a one plus one is greater than two situation. From the consumer’s aspect, it is important for the service provider to make the additional value created by integrated service higher than separated services and offer better products with lower prices and convenient service (Baker & Faulkner, 1991). Thus, integrating service may have a chance to create differentiation and customization. From the example of IKEA, providing an integrated and transparent service system would keep and attract more attention from customers.

Another innovation appears in IKEA’s self-service is regarding the customer as a co-producer which means the borderline between the producer and consumer is not very obvious so the transformation flexible (Vandermerwe, 1993). So, customers would have opportunities to change their role into a co-producer. For instance, in IKEA, managers rearrange the selling activities and let consumers take over part of them, such as picking up and delivering goods. IKEA let clients involved in the service delivery system by motivating and integrating. In addition, they use technology in a new way by flat packaging and encourage customers to take home on their own. So, in the self-service system, technology is also helpful to motivate customers act as co-producers.

Advantages and Disadvantages
The self-service system brings many benefits to both IKEA and consumers, and it is a new service concept in the market to offer reciprocal benefits to achieve common progress. For IKEA, the innovative service has contributed to the expanding of the corporation and the growth of sales which in turn increase its economic influence. The self-service can be seen as a standardization of the service system and enables IKEA to achieve the economy of scale and reduce costs. As Sundbo (1994) said, the standardization of the service management system plays a crucial role in searching economy of scale and reducing costs. The self-service helps reduce the costs of hiring salesman and to give more chances to decrease the goods price because the fixed costs have been cut down. For customers, they can get cheaper products in IKEA and play in the new role of co-producer not only client any more. Therefore, consumers could feel freer and which inspires them to have more willingness to buy products.
However, the self-service also owns some disadvantages and potential risks. Although the self-service may bring consumers a more fashionable and convenient way to get commodities, some of them may be still not clear about their role in the new service system. In the long run people are familiar with traditional shopping approach, all services are provided by employees rather than themselves. A study shows that 89% of firms exists the problem that staffs and customers are confused about their roles in the new service (Easingwood, 1986). Without the understanding on the role in the new service process, the action of consumers’ participation would be limited (Larsson and Bowen, 1989). Another problem is the imbalance in the service system involving its delivery system, business philosophy and culture, market segment, service concept, and its image (Normann, 1984, 1991) which is challenging for the companies.

Analysis of Chinese Conditions and Suggestions

It is figured out in the report published by Miller (2004), the shopping age range in China is expanding, the age range used to be from 20 to 30 and it is approaching 45 years old recently. In the future, the scope of the buyers will enlarge and needs some changes. The acceptance ability of the older consumers is much poorer than that of the youngsters. So IKEA needs to put more effort into promotion and education to the customers. The distribution of more pamphlets and publicity through the internet can appeal more Galbraith consumers. Galbraith consumer is a kind of buyer who is influenced a lot by advertisement and really needs to be encouraged to try the self-service in IKEA. At the same time, Douglas consumers, who are easily effected by their social interactions, can come as well.

Human labor is much cheaper in China than in Western countries. It leads to a number of people choose to adopt the paid assembly service provided by IKEA. Meanwhile, the development of China is rapid these years; it is mentioned in the China Daily (2012) that the government is trying their best to narrow the wealth gap. In the future, the distinction between the rich and the poor will be not that obvious and the purchasing power will become stronger. Considering this trend, IKEA should optimize its assembly service in order to satisfy the consumer needs more perfectly.

Moreover, most of Chinese customers are Venblen consumers, the kind of consumer that needs the distinction from others. The “show off” psychology impel them prefer to spend more on their living rooms compared with bedrooms because the private bedroom cannot be seen by the visitors. Also, because of the fact that Chinese kitchen are usually quite small so the investment to the kitchens is less. From this perspective, IKEA needs to focus on the furniture in the dining rooms more and cut the expenses spent on kitchens and bedrooms.

Anyhow, quality is Quality is the fundamental segment for the consumers. There was some negative news about IKEA in the past several years that some commodities were called back because of the poor quality. In the article published by Coles (2013), she mentions IKEA recalls children’s beds because of some safety hidden dangers. It often has a bad influence on the IKEA’s reputation. Just based on the guarantee of quality, the advantages of uniqueness of the self-service can be reflected. Creating competitive advantages is a mainly dynamic process instead of a strategic achievement. To seize the opportunities in the developing global market, IKEA needs to value innovative service concept to maintain the consumers’ loyalty. It is mentioned by Casperrr (2013) that self-service is the existence as a USP (unique selling point), while the unique level determines the core competitive power of IKEA all over the world.

This article is focus on the self-service provided by IKEA and introduce the two different distribution channels in detail. This service is positioned in several different ways on the basis of distribution channels and cultural diversity. Furthermore, IKEA regard itself as a service provider other than a seller and let consumers participate in the process. In terms of the source of finance, IKEA uses the asset that comes from the company’s cash flow and it successfully covers the cost that used to combine the diversity separated services.
Although this service system has several weakness such as the time assuming for customers to get used to the new form as well as the difficulty in balancing numbers of factors of the whole system, it still achieve a huge success through declining cost and consumer-involvement in the process. Furthermore, with the development of China, the consumers and the company will accept this model very soon so the shortcomings should not be the blocks. In contrast, with the guarantee of the quality, the spreading promotion and peculiarity can bring IKEA to the zenith of the furnishing competitive market.

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