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DMGT 7330-Case Analysis

Stiofan Forsha

on 14 July 2010

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Transcript of IKEA

Strengths Long standing history

Strong brand image

Low price leader

First mover advantage

Supplier relations

Staff commitment

Cash and carry concept

Product variety

Unique advertising


Weaknesses Opportunities Threats Promotion Place Succession management hindered

Ethnocentric management

Over standardization-unresponsive to local preferences

Rapid expansion makes it hard to maintain unique culture

Cheap/lower quality

Stockpiled warehouses

Obesssion with cost control "satisficing"

Global expansion opportunities

Economic downturn

Worldwide internet growth usage/online sales

Move into contract markets (university dormitory, urban development)

Market environmentally friendly products and production methods

Changing demographics/consumer tastes

Product imitations

NGO's (environmental concerns, labor practices in supply chain)

Furniture cartels/associations with quality standards supported by governments

Government pressure for financial disclosure

Rise in median age and income in developed countries shifts target market out of IKEA segment 2005 2006 2002 2009 2010 1943

IKEA is founded by Ingvar Kamprad
When Ingvar Kamprad is 17, his father gives him money as a reward for succeeding in his studies. He uses it to establish his own business. 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 sells pens, wallets, picture frames, table runners, watches, jewelry and nylon stockings - meeting needs with products at reduced prices. 1943 1945 1953 1958 1965 1953

Furniture showroom opens in Älmhult, Sweden
This is an important moment in the development of the IKEA concept - for the first time customers can see and touch IKEA home furnishings before ordering them. The showroom is born out of a price war with a main competitor of IKEA. As both companies lowered prices, quality was threatened. By opening the showroom, IKEA clearly demonstrates the function and quality of its low-price products. The innovation is a success; people wisely choose the products with the best value for money.

The first IKEA store opens in Sweden
The first IKEA store in Älmhult has 6,700 square meters of home furnishings! At the time, it is the largest furniture display in Scandinavia. 1965

Largest IKEA store opens in Stockholm, Sweden
Thousands of people queue for the opening of the 31,000 square meters flagship store, IKEA Kungens Kurva. The store has a circular design, inspired by New York's Guggenheim Museum. The store's success leads to the opening of a self-serve warehouse - an important part of the IKEA concept is born. Additionally, Accenten is opened, where customers can buy quality cooking items at a low price. 1974

IKEA arrives in Germany
The first IKEA store opens in Munich. The success in Switzerland paves the way for a rapid expansion into Germany, which today is IKEA's largest market. 1974 1984 1984

IKEA FAMILY, the new customer club, is launched. Today, IKEA FAMILY is in 16 countries (over 167 stores) and has about 15 million members. 1986

Ingvar Kamprad retires from Group Management to become an advisor to the parent company INGKA Holding B.V. Anders Moberg becomes President and CEO of the IKEA Group. 1985 1986 Case Issues Background Price IKEA's pricing strategy is to offer products at prices so low that the majority of people can afford them. Product IKEA Stores

a. Historical Store Growth
1954 1964 1974 1984 1994
Number Stores 0 2 9 52 114

b. Country’s First Store
Year Country City

1958 Sweden Almhult
1963 Norway Oslo
1969 Denmark Copenhagen
1973 Switzerland Zurich
1974 Germany Munich
1975 Australia Artamon
1976 Canada Vancouver
1977 Austria Vienna
1978 Netherlands Rotterdam
1980 Spain Gran Canaria
1981 Iceland Reykjavik
1981 France Paris
1983 Saudi Arabia Jeddah
1984 Belgium Brussels
1984 Kuwait Kuwait City
1985 United States Philadelphia
1987 United Kingdom Manchester
1988 Hong Kong Hong Kong
1989 Italy Milan
1990 Hungry Budapest

Exhibit 6 Extract

1. The Product Range – Our Identity

Range: to cover the total home area, indoors as well as outdoors, with loose as well as fixed home furnishings. This range shall always be limited.

Profile: Our basic range shall be…simple and straightforward…durable and easy to live with…(and) shall express design, color and joy. In Scandinavia it should be regarded as typically IKEA and outside Scandinavia as typically Swedish.

Quality: Throw-away products is not IKEA. But, quality should never be an end in itself. It should always be adapted to the consumer’s interests in the long run.

Changes: Our basic policy to serve the majority of people can never be changed. Internal External SWOT Analysis Sales estimated at $4.5 billion Net Margin estimated at 8.4%
for net profit of $375 million Royalties Profits Inter IKEA Systems owns the IKEA trademark and concept Owned by Inter IKEA Holding, a company registered in Luxemburg This company is owned by an identically named company in the Netherlands Antilles, run by a trust company based in Curacao. Inter-IKEA Systems appears to make payments to I.I. Holding, another Luxembourg-registered group assumed to be controlled by the Kamprad Family 5 person executive committee, chaired by Mr. Kamprad, This committee appoints the boards of Ingka Holding Tax exempt, non-profit legal entity Stichting IKEA Foundation Channels funds to philanthrophy Parent for IKEA companies Financial Analysis Current Mix Conclusions Recommendations 1985

IKEA arrives in the USA
The first IKEA store opens in Philadelphia.

The first IKEA advertisements appear
Ingvar Kamprad's business outgrows his ability to make individual sales calls, so he begins advertising in local newspapers and operating a makeshift mail-order service. He uses the local milk van to deliver products to the nearby train station. Standardization Customization Products
Standardization Customization Products:
standardized "knockdown" design Price: low cost Price Sociocultural forces
attitudes toward product
color - varying significance
acceptance of new products
tastes and customs in markets
Economic forces:
product sophistication
infrastructure conditions in emerging markets
Competitive forces
quality levels
rate of product improvement

Competitive forces
competitor's prices
importance of price in marketing mix
Distribution forces
margins required Purchasing and Distribution:
"buy capacity" purchasing from about 1,500 suppliers in more than 40 countries.
Centrally controlled

Purchasing and distribution Sociocultural forces
acceptance of new kinds of outlets
differing shoping habits
Economic forces
outlet availability
dispersion of outlets
extent of self-service
Distribution forces
number of company distribution centers Promotion:
catalog backed with off-beat advertising Promotion Physical forces:
cultural pockets created by barriers
Sociocultural forces:
unfavorable connotations
attitudes towards foreign products/companies
Legal/political forces:
use of languages (misinterpretation)
media availability
Competitive forces:
promotional mix
choice of media in local markets Place:
Primarily Europe Place Scandinavia "Closet"
W. Europe "Close"
E. Europe "More Distant"
Australia "Distant"
South America
Middle East
Africa Organizational Structure Geographic Divisional
Added layers of management contrary to founders vision Ingvar Kamprad was seen as a visionary, who did not seem to believe in delegation.
He took a common sense approach to management-highly visible to employees, active in the day to day functions, appreciative of employee efforts, cost conscious in his personal life.
The culture was very informal; employees were casually dressed, stressed simplicity and attention to detail…..”Retail is detail”.
Anti-bureaucrat weeks-store managers were required to work in showrooms and warehouses
Cost conscious-“waste of resources is a mortal sin at IKEA”.
Creativity was highly valued.

Employees were often younger, more open recruits who were not only cheaper to hire, but easier to meld into the culture.
The average age of a store manager was 34.
Kamprad developed "Testament of a Furniture Dealer" as a means of spreading the IKEA philosophy during a period of rapid international expansion.
With the help of this document, the organization was able to retain much of its unique culture.
IKEA ambassadors were key staff members assigned the task of spreading the company’s philosophy and values by educating subordinates and serving as role models. Strategy IKEA had over 20000 product offerings. 2-3k items were prominently displayed in catalogs which accounted for half the company’s marketing budget. Wanted to have items available in the catalog for a period of 1 year.
Organization wide obsession with cost control. Led to constant search to find low priced materials, or alternative materials. In the early 60s, IKEA led the trend to replace traditional teak with less costly oak materials. In 1970s helped win the acceptance of pinewood furniture.
Long term relationships developed with suppliers. Often supporting them technically by assisting in developing their facilities, buying their machines, and setting up their operations. Purchased from about 1500 suppliers, and consolidated the purchases in 12 warehouses. Capacity was always fully utilized, allowing scale to drive costs down and maintain commitment to suppliers. As IKEA expanded, an internal competitiveness developed among the stores. The new stores would try to improve on the current stores which allowed for numerous innovative ideas such as the play areas for children and in-store cafes.
But this also led to unnecessary differentiation. Management took note of this and tried to install greater coordination and standardization to project a clearer IKEA image. Displays and internal traffic flows were standardized. “We want to create a unique ambience that makes IKEA not just a furniture store, but a family outing destination that can compete with the entertainment park and the zoo for family time.” Changing demographics-is globalization and a standardized product the best approach these days?
Overextending itself by such rapid expansion. Market entry simultaneously with UK, Italy, US and Eastern Bloc countries.
Concern about the future of the company without its founder and cultural guru, Ingvar Kamprad.
Conflict between cost consciousness and efficiency.
Case Problems Ingvar Kamprad
Full transcript