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Ikea Company Case Study

Essay by   •  June 23, 2011  •  Case Study  •  3,513 Words (15 Pages)  •  2,203 Views

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IKEA Company Background;

The IKEA Group is one of the most popular furniture retailers in the world and it has also emerged as one of the fastest-growing furniture retailers in the United States mostly in part due to its Management of Operations. It was originally founded in 1943 by Ingvar Kamprad when he was just 17 years old who decided very early in life that he wanted to establish his own business to make his living. He started up the business with some money that his father had given to him for succeeding in his studies and he began by selling basic household products out of a catalog at discount prices. One of his first ideas and one of the first products that he sold was boxed matches that he made a good profit on because he purchased them so cheap in Bulk from Stockholm, Sweden. In 1947 he came up with a marketing plan and began to sell furniture which was manufactured in the forests close to where he lived. He did so well selling furniture that he then discontinued all his other products and six years later in 1953 he opened up his first furniture showroom so that people could actually see what it is they were buying. This was such a good operational management idea that in 1955 he began designing his own furniture and in 1958 his first store was built in Almhult, Sweden. It was the largest furniture display store in Scandinavia at the time. IKEA was the world's most heard about furniture retailer and the company didn't even release any profit figures publicly until 2002 only when IKEA became recognized as one of the world's top furniture retailers because its brands were considered to be the most valuable in the world. As a result of its operations management system it had in operation 154 stores in 22 countries worldwide with sales fast approaching $12 billion and servicing 286 million customers a year. It had gained so much popularity by then that it soon became recognized as one of the fastest-growing furniture retailers here in the United States as well and had 14 stores here with plans to open up as many as 9 more by 2003. The reason why IKEA was able to succeed was because of its operations management. The company keeps tight control of its spending costs and has an operational system in place to understand the market and how to fulfill the needs of its customer base. To sum it up the products they sell are considered an outstanding value for the money.

Summarizing this case;

Since the IKEA Group has emerged as one of the fastest growing furniture retailers in the United States and now looks to become one of the leading furniture retailers ever in such a large market. The company has set an aggressive and very ambitious goal to have 50 stores in the US by 2013. Looking at IKEA's growth rate over the past decade, it seems possible for IKEA to reach this goal. However, the company is faced with several market challenges: Knowing that there is growing competition from several other furniture companies in the United States which to me seems to always be the #1 concern in American businesses that need to satisfy different customer tastes and preferences in furniture retailing. So in order to address these challenges, IKEA needs to apply market leadership strategy and expand their total market size then defend that number one position by gaining and sustaining market share to finally achieve their goal.

In identifying some the issues or areas that can be improved IKEA faces several challenges:

IKEA seems to have a reluctance to change furniture styles or add more types. Unfortunately as we all know the mind set of Americans typically is that furniture should last a life time and be durable, which does not appear to be in-line with IKEA's product strategy and to me it somewhat needs to be. So if IKEA does not want to go that route to increase and sustain market share in America then IKEA must change the America's attitude towards furniture as being worth buying but is OK to be disposable after a certain period of time and therefore if the cost is cheap enough just may work (this is a good point - change the rules if you don't want to conform to the current rules - question is can they do it). You see in America we feel furniture is something that adds value to our home and lifestyle so it's OK to spend a little extra on it but without incurring too much cost. Either that or IKEA must convince Americans there is value added in a more expensive high-end furniture retailer and then they could begin to manufacture it. The problem is IKEA has to keep lower prices than other typical American furniture retailers because there are no delivery and credit services offered. Whereas a typical American furniture retailer offers or advertisers free delivery service, on top of experienced personal interior design advice, credit and or easy payment plans and more of a large selection of products. So IKEA has to compete not only in price, but also in the value added services punch line or marketing approach that other furniture retailer's offer as a package sold together along with the furniture purchased. Another challenge that IKEA faces in America is that there is a different customer base with different preferences and needs than in other countries. This is because there is a strong ethic mix here in the United States. The company has to remember that IKEA originated in Scandinavia and has to modify its products to suit America's furniture market. Recommendations for IKEA to continue to grow would be just like many other popular companies and products like the cell phone industry for example the furniture retail industry which currently is under a lot of competition and pricing pressure. So now is a good time as well as ever because there is growing demand for home furnishings along with growing environmental awareness issues and therefore if IKEA can combine their product strategy with some type of Environmental campaign pertaining to the forest or wood as their primary resource or ingredient then it can give their company sustainability into its next phase of market leadership and also long into the future ( This is also a good point - we haven't seen many "Green" furniture companies this could help them set themselves apart from their competitors.).

What factors account for IKEA's success to date?

Once IKEA had established the target retail price for a given product, the company would then begin selecting a supplier to manufacture it. IKEA worked with 1,800 suppliers in more than 50 countries, so they always looked for cost reduction thru outsourcing their products without the company sacrificing any of their quality standards. For further cost reductions and to save more money on labor and production, the



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