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Ikea's Strategy in Sweden - What Were the Sources of Ikea's Successful Entry in Furniture Retailing in Sweden?

Essay by   •  September 11, 2011  •  Case Study  •  1,788 Words (8 Pages)  •  3,480 Views

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1. IKEA's strategy in Sweden

- What were the sources of IKEA's successful entry in furniture retailing in Sweden?

During the post-war boom, young householders were looking for stylish and affordable furniture instead of the tradition hand-down furniture from the older generations. Kamprad saw opportunity when he saw that the cartel formed by both the Swedish manufacturers and retailers kept prices high causing the price to rise 41% faster than other household products. He then decided to enter the market by offering low-cost furniture to the majority of population while retaining style and function.

As the furniture cartel knew that with the offering of stylish low-cost furniture by IKEA, Kamprad was a great threat to their business and profit. Hence Kamprad faced great resistance from the furniture cartel when he first participated in the annual furniture trade fair in 1950's. The furniture cartel first banned IKEA from selling direct to customer, and then banned them from displaying price during the trade show, and eventually cutting off his source of supplies in Sweden. Faced with all the resistances in Sweden, Kamprad began to source for alternative suppliers in Poland. Which to his joy, he managed to bring down his cost even more resulting in even lower-priced furniture.

By year 1961, IKEA turnover was 80 times larger at over SKr40 million compared to an average furniture store. Kamprad being aware of the market trend and shopping habits was able to effectively capture the market. With the development of informative catalogs, knock-down kits and cash-and-carry concept. Along with targeting the middle to low income population, Kamprad is able to capture a much larger market as compared to the cartel formed by the Swedish manufacturer and retailers (see figure 1). With the economies of scale it allows Kamprad to price IKEA products lower. This in turn successfully reinforced IKEA's market position and market share in Sweden as a low-cost furniture provider with stylish design.

Figure 1 - Long Tail Graph

2. IKEA's strategy while expanding internationally

- How important was internationalization to IKEA?

- What challenges did IKEA face while expanding internationally, and how did it overcome them?

It is crucial for IKEA to continue to expand bigger so that they can have even larger economies of scale which can drives cost down and increase sales. In the early 1970's, Kamprad saw the critical need for IKEA to expand internationally when the growth for the Swedish furniture market was stagnating.

IKEA faced several challenges when it starts to expand internationally. One instance was when IKEA first entered the Switzerland market, where its furniture was made using dark wood, of traditional design and sturdy construction. On the other hand IKEA's furniture was made using oaks or pinewood, of contemporary design and furniture in knock-down kits. In addition, IKEA stores uses self-service and cash-and-carry concept as compared to service-intensive which was a norm then. All these are a direct opposite of what the market in Switzerland is offering at that time.

IKEA overcome these challenges by distributing half a million of catalogs to create awareness along with the use of unconventional advertising to dismiss negative impression on IKEA's and its products. IKEA managed to attract 650,000 visitors in its first year.

As IKEA expanded, competition among stores was tremendous. Even though with competition, innovative ideas was being generated. However it also leads to separation from the parent company identity. IKEA overcomes this by standardizing each and every store; from the goods being displayed at the showroom, down to the arrangement for each product.

In order to overcome the challenges IKEA faced during expansion internationally, 2 groups where form; Expansion Group and an Operations Group. This ensures that IKEA expansion can be done smoothly and quickly. However in order to maintain the low-cost advantage that IKEA has; purchasing, designing and distribution was kept centrally controlled. This is because most purchasers are from Småland, which are well known for their thriftiness.

IKEA also faced the shift in its targeted consumers group, as the median age and income raised; its original targeted market will be shrinking. IKEA overcome this by changing the company's crazy Swedes image and shift it to quality image. IKEA also expanded into other market such as the office furniture to capture a larger market.

3. Organization capabilities of IKEA

- What were the management processes by which IKEA coordinated and controlled its Europe-wide operations? How effective were they?

The management process was very much driven by Kamprad and his view of life. Kamprad wants IKEA to move away from status and convention, and this will make employees more at ease. IKEA management also often stressed simplicity and attention to detail. Kamprad also often mentioned that "Waste of resources is a mortal sin at IKEA". The root of IKEA spirit is frugality and wants to spread this idea down to all its employees. IKEA management often hires younger, more open recruits as this not only drives down cost. It also ensures that the employees are not immersed in another cultural so much so that they are unable to adopt IKEA strong and unique culture. With the use of IKEA ambassadors which are trained personally by Kamprad, they are assigned to key positions to spread the company's philosophy and values, and also

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