IKEA – Strategy in a Nutshell

Customer Profile

The customer profile is the global middle-class. They are interested in items such as bookcases, side tables, storage units. They are aspirational. They are delighted by the value but also the philosophy of style and good design and frugality. Spending amounts are very similar around the world.

The target market is well-understood. IKEA appeals to the emotional needs of the group as well as the functional. The physical brand is consistent internationally. Cultural differences are taken into account. The core strategy and positioning is the same around the world.

However, each country has cultural differences. For example, Americans fold their clothes and want deep sofas, quality textiles and large sizes. Italians hang clothes. Japanese expect high quality materials and fabrics, more than low prices.

Positioning

IKEA strives to be positioned as a Lifestyle. The philosophy is stylish, frugal, sustainable, affordable. Shopping is an ‘experience’ which surprises and delights. Walking through an IKEA store is a journey of discovery – imaginative opportunities for lifestyle improvement at home, and now the home itself.

Strategy

IKEA’s strategy is to deliver value to the aspiring middle classes and cutting costs at every point. Product designers must build stylish simple furniture at a low cost. This means innovative materials are developed (such as resins and chip board combinations).

Customers walk through the store in a retail experience designed to stimulate pleasure and prolong visits and thereby sales. Furniture design is able to be disassembled thereby reducing storage costs. Customers deliver their own flat product and self-assemble.

Value Chain

Throughout the organisational chain, the culture is one of thrift. Staff travel economy class. Staff appear as the catalogue models.”Waste is a mortal sin”. Ongoing supply chain management includes restructuring suppliers in regional areas.

The result is an excellent integration of all Activity Systems to strengthen the strategy and block imitators.

Pricing

IKEA aims to reduce prices by 2 to 3% per product each year. This may be sustainable with ongoing product innovation. It is anticipated they will need twice as much material next year and the supply is at bottleneck. It is uncertain whether they can continue growing at this pace without restructuring materials supply chain.

Profitability

Pretax profits are estimated at $1.7 billion.
The 10% operating margin is very low for the category. Revenues growing approx 15% p.a. It is in growth, which large scale rollouts into new markets this year.

Challenges

Challenges – materials are the lynchpin for continued growth at this pace. Continued cultural modifications will need to be made to the global ‘template’.

There is also a challenge to keep the experience ‘fresh’. As it takes several hours to mocha though an IKEA store, the appeal for convenience could threaten the longevity of the model.