link for Resume download Academia

Home Infocard RESUME References For Recruiters & HR PowerPoint Navigation Portfolio
More PowerPoint
Webdesign/Management
Academia


Some Background Information:
The Loyola MBA program has deeply incorporated the Harvard principle of teaching complex business subjects through cases. 'Marketing Strategy' in Summer 2007 was no exception. One of the most interesting cases discussed in class covered the business culture and US expansion plans of Swedish furniture retailer IKEA.
The following text not only covers important background information from the case but also presents a variety of suggestions how to improve IKEA's current marketing strategy.

More articles:

Book Review T. Friedman 'The World is Flat'
Some Lessons to learn about Trade
A search for answers in healthcare
Sarbanes Oxley - Good or bad for Corporate Governance?


Stephan Kroker-Bode

Marketing Case "IKEA Invades America" (June 2007)

GB 702.61: Marketing Strategy; Professor Jennifer Gunner, MBA

Case Summary

 For a German immigrant arriving in the United States in late 2000 the Swedish company IKEA was welcomed as a link to "Old Europe" with its different tastes and lifestyles. It also became quickly a symbol of America's effectiveness and service orientation.
The Harvard Case "IKEA Invades America" features the History and Business Strategy of this amazing company, which was in 2002 the world's top furniture retailer.

The numbers from 2002 given in the case are outdated and have significantly improved. While IKEA operated 154 stores in 22 countries in 2002, today [June 2007] it is 35 countries/territories and a total of 254 stores (224 of them in 24 countriesas owned by the IKEA Group itself). Germany continues to lead with 40 stores (30 in 2002) and 19% of sales (20% in 2002), followed by the United States with 29 stores (14 in 2002) and 11% of sales (with the same number in 2002 and similar percentages in the UK). Sales for the IKEA group during the financial year 2004 totaled 14.8 billion Euros (all current data can be found at the company's website).

Founded in 1943 by 17-year old Ingvar Kamprad IKEA has positioned itself in a marketing sector far beyond the original Low-Price/low Quality and Design niche. Their corporate slogan 'Low price with meaning' captures the commitment to offering tasteful, well designed products (equally related to function and appearance) which continues to be - but do not look - 'cheap'. It reflects the company's philosophy of 'democratic design' for "people throughout the world with many different needs, tastes, dreams, aspirations … and wallets" fostering "A better everyday life" (quoting Ikea's vision statement; page 5 in the HBS case and also available online).

The company's success in the United States was not immanent after opening the first store 1985 in Philadelphia. Americans first didn't like the products. I personally love the quote of an IKEA manager related to American kitchenware serving-size preferences, stating that "People told us they were drinking out of the vases." [page 7]. Through innovative high-profile advertising campaigns Americans were helped to get a more 'commitment-free approach' to furniture.

IKEA's philosophy is best described by managing director Josephine Rydberg-Dumont: "We don't think we're going to live one way always. Our feeling is: It's just furniture. Change it" [page 8]. This attitude was especially opposed by potential competition like high end specialty retailers such as Ethan Allen, Thomasville or Jordan's Furniture. Their sales consultants still try to educate the customer about durability and longelivity of the products while selling the idea of furniture lasting a lifetime.
These retailers compete heavily on selection, tend to offer a high number of product types with many additional sub-styles - which leads to huge inventories. They also offer delivery services or setting up new furniture in the customer's home. All of this - a large number of high-touch sales consultants, inventories and included transport or assembling services - causes significant price increases.
The opposite alternative for "Big-ticket" furniture is dull and unattractive low end products, sold by general discount retailers like Wal-Mart.

IKEA followed from the beginning a third path. The company promoted longlivity and quality via store-based 'show-cases' (like the legendary seat crunched by a machine several hundred times a day). It optimized the structure of their product portfolio of currently 9,500 articles through a Product/Price 'Matrix' of maximal 4 styles and 3 price ranges. It put every element in its supply chain under a constant competition (this includes the 1,300 suppliers in currently 53 countries as well as the internal design teams).
But most importantly IKEA 'outsourced' significant cost drivers directly to the customer. Following "a lucky inspiration of an IKEA employee" removing table legs to let it fit into a car the company focused from the very beginning on flat packaging and final assembly by the customer - increasing this way transport volume by six times and reducing required storage space, transport damage and labor costs.

It is not unusual that IKEA products are redesigned multiple times to maximize the number of products that could be squeezed onto a shipping pallet.
This helps to keep costs - and prices - low. Some revenue is used for extra services like in-house child-care or subsidizing IKEA restaurants. But a significant amount of money is also spent for Social & Environmental Responsibility Programs which includes forestry projects or UNICEF support for children in Angola, Uganda and India (see the website for details). IKEA is very engaged in environmental topics like offering energy-efficient products (e.g. light bulbs), encouraging recycling and fighting Globalization externalities like child work or sweatshops (while investing nevertheless in developing countries, China leads the top 5 purchase countries with 18%).

410 million customers visited IKEA stores in 2006. The company describes their 'typical customer' as a person traveling abroad, not risk-averse, cultivated and being an early adopter of new consumer technologies. While the IKEA catalog was in 2006 still the most important marketing channel (a total of 160 million copies were printed in 52 editions and 25 languages), the Internet becomes more important. In 2006 the companies' website attracted 125 million visits worldwide.


Some suggestions to increase market penetration

 One of the few questionable elements in the company's philosophy is the idea of producing quality products which can and should be replaced frequently. This paradigm - if promoted too agressivly - can be emotionally linked to concepts of a 'Throw Away Society' and Consumerism that counteracts Ikea's efforts in recycling and environmental concern.

Interesting for the Development of new Marketing Strategies is IKEA's target customer base, especially their interest in IT and new Media / Entertainment tools. The company's Internet presence seems to be well managed; the website is organized, informative and visually appealing.
IKEA is definitely a prime company for innovative new marketing channels like Interactive Television, portable digital devices and In-Game-Advertising. Possible future applications might include advanced product placing and branding of IKEA products in virtual communities or homes.
On page 6 in the HBS case a reference to 'theme park' like childcare facilities can be found. It is not too far fetched to think about the next logical step of a 'real' IKEA Theme Park similar to the New Jersey based Hershey pendant.

IKEA is heading towards the ambitious task of expanding its market presence to 50 stores until 2010 (from 29 US stores today). Here are some additional marketing ideas to reach this goal:
  • (1) Concentrate on lucrative "sweet spots": Develop special promotions for young, educated people with limited budgets (respectively their parents supporting them). Start with a campaign for undergraduate students. Have a "First Wave Furnishing" campaign with special $500, $1,000 and $2,000 Gift-Cards. These Cards receive a 5%, 10% or 20% discount on all products bought in one visit using up the entire card. Consider linking this campaign with similar offers from partners. IKEA is using everywhere in its store desktop and monitor dummies from HP - have HP design a similar campaign with rebates if a PC is bought within one month of the IKEA Gift Card Purchase.

  • (2) Update your website to have more community features. Let young customers share their ideas about the ideal furnishing. Let them not only design kitchens in-house via a very unintuitive and complicated interface but give them a funny online tool (or even a SIM-like game) to create their dream apartment. Let them participate in a contest and permanently scan their ideas. Consider to change your design according to these proposals. These are your customers of tomorrow for which you built the 50 stores.

  • (3) Think about special online terminals close to your childcare facility and in your sales area. A childcare service alows parents to shop alone while kids have fun in a 'theme park' like environment. But this service is no longer available for kids older than 8 years and a beyond special height. There is a potential upcoming customer group in very young teenagers who are not yet really interested to follow their parents all the way but who are open for all technical gimmicks and especially proud if they are taken seriously. Therefore consider to have another area for kids age 8 to 14 with three to five computer terminals and a special IKEA game. Track their actions, integrate a very short questionaire with some non-disturbing questions (and a special incentive given later on), and provide promotions of targeted products which can be printed out (to give parents a 'hint' what to look for the next time).

  • (4) Place some more terminals strategically in your sales area. Design some special showrooms and have a terminal located in each corner. The screen shows the exact 3D view of the real room with all the furnishing. A simple touch let customers switch the color of all objects or let them replace items with other fitting alternatives. Provide as well a printout option conveniently summarizing all information related to the changes and the originally placed items. Have a barcode attached with the info so that all products can be quickly identified and ordered at different info areas in each IKEA store.

  • (5) Consider independent, 'stand-alone' IKEA restaurants. IKEA was already the 15th largest food chain in America in 2002. Why not go a step further and build franchised IKEA restaurants without the furniture segment everywhere in the United States.
    Let's codename them "IKEA Snack". They obviously should have a strong connection to the main company segment through intelligent advertising of IKEA products. This could be done in multiple ways - like using IKEA furniture, having catalogs available or placing public terminals somewhere. Think about including little LCD touch screens for browsing - and instant ordering - which are integrated in each table.

    Design the restaurants for young professionals requesting high quality meals with prices not significantly higher than other fast-food chains. Try to be a cost and quality differentiator in focusing on a relatively small set of offers available all day. But 'shine' with daily special promotions and don't forget to advertise IKEA food classics like its salmon or meatballs as signature meals.

    Have one extraordenary and exclusive lunch feature every day. Let customers collect points for every meal which they can use at IKEA (or partner) stores. Use the table touch screens for instant customer feedback. Let customers vote for the "Signature Meal of the week" which will be offered the following week with a 20% discount. The IKEA-Snack restaurants might start as loss leaders - but can drive significant business into Ikea's core furniture market.
    •


    Home |  Executive Resume |  References |  For Recruiters & HR |  Portfolio |  'Second Life' Presentation |  More PowerPoint |  More Webdesign |  Academia

                                     ©2008 Stephan Kroker-Bode