Reference no: EM131283401

Entrepreneurial ideas can come from anyplace at anytime, and the founding of IKEA is a classic example of a happy accident. Ingvar Kamprad was just 17 years old in 1943 when, using money his father had given him, he began a household goods catalog. Realizing that his most profitable item was furniture, he began to focus on selling furniture in 1947. Who would have guessed in 1943 that his household goods catalog would one day become the world's largest furniture retailer, with annual sales of $12 billion to 286 million customers? IKEA now operates in 35 countries and is looking to expand both into more new markets and in the markets it currently serves. Kamprad realized that he had hit on a winning concept-the concept that still drives IKEA today.

It was a simple concept: Offer quality furniture at the lowest possible prices. According to the company's Web site, "The IKEA Concept is based on offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. Rather than selling expensive home furnishings that only a few can buy, the IKEA Concept makes it possible to serve the many by providing low-priced products that contribute to helping more people live a better life at home."58 The combination of high quality and low price easily translates across global markets.

To keep costs down, IKEA must always remain creative. It locates different steps of its production in different parts of the world to take advantage of the savings offered by buying less expensive products overseas. Perhaps the most innovative way IKEA has found to keep costs low is its choice to ship all of its products in flat packages, which keeps both shipping and storage costs to a minimum and also reduces damage during transit. Customers transport their flat purchases home and complete the final assembly themselves. IKEA stores and the services it provides (or does not provide) differ from those of other furniture retailers.59 The large, 15,000-35,000 square meter stores are divided into cheerfully decorated model rooms.

Customers can lounge on the furniture. The stores are largely self-service, so customers are encouraged to measure the spaces in their homes before they come to the store. Huge price tags appear on the furniture itself, and cards with design tips are displayed in kiosks throughout the store. IKEA also offers elaborate childcare centers and restaurants with Swedish delicacies, like smoked salmon and lingonberry tarts. Franchising has enabled IKEA to enter new markets but retain control over how those new outlets are organized and managed. Franchisees must demonstrate a firm commitment to the IKEA Concept and possess both extensive retail experience and enough financial resources to absorb the cost of constructing an IKEA store.

As IKEA enters each new market, it must make certain adjustments to its marketing mix. For example, to enter the U.S. market, it altered its European-style mattresses, which did notfit traditional American bed linens. Many Americans found the couches too hard and the dinnerware too small to accommodate their serving sizes. After it had made these necessary adjustments, IKEA took off in the United States. Entering Russia required different adaptations.

While they operate several stores across the country and a warehouse near Moscow, they have had problems getting local producers to deliver on time. Punitive tariffs designed to protect Russia's furniture industry from foreign competition can run as high as 80 percent. Russia's bureaucracy can also be difficult. Many contradictory laws make it almost impossible to follow every one.60 This combination of a commitment to its concept, an ability to take full advantage of globalized production, unique stores, carefully chosen franchisees, and the means to adapt the marketing mix to fit local needs have enabled IKEA to become a world-class furniture retailer.

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Questions

1. Consumers' tastes for furniture typically vary from region to region within a country, from country to country, and across various demographic dimensions, such as age, income, and education. Yet, though IKEA's product line is fairly narrow, it has been successful in virtually every market it has entered. Who is IKEA's target market? Why does IKEA have such global appeal?

2. IKEA uses franchising to enter new markets. Are there any other entry strategies that would be appropriate for IKEA to use? Why or why not?

3. How is IKEA positioned relative to other furniture retailers?