Question:
Case Study
IKEA Company
IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad. The
company, which initially sold pens, Christmas cards, and seeds from a shed on
Kamprad’s family farm, eventually grew into a retail titan in home furnishings and a
global cultural phenomenon, what BusinessWeek called a “one-stop sanctuary for
coolness” and “the quintessential cult brand.” IKEA inspires remarkable levels of interest
and devotion from its customers. In 2008, 500 million visitors walked through IKEA
stores, which are located all over theworld. When a new location debuted in London in
2005,about 6,000 people arrived before the doors opened. A contest in Atlanta crowned
five winners “Ambassador of Kul” (Swedish for “fun”) who, in order to collect
theirprizes, had to live in the IKEA store for three full days before it opened, which they
gladly did. IKEA achieved this level of success by offering a unique value proposition to
consumers: leading-edge Scandinavian design at extremely low prices. The company’s
fashionable bargains include products with unusual Swedish names such as Klippan
loveseats for $279, BILLY bookcases for $60, and LACK side tables for $8. IKEA
founder Kamprad, who was dyslexic, believed it was easier to remember product names
rather than codes or numbers. The company is able to offer such low prices in part
because most items come boxed and require the customer to completely assemble them at
home. This strategy results in cheaper and easier transportation as well as more efficient
use of store shelf space. IKEA’s vision is “to create a better everyday life for the many
people.” Its mission of providing value is predicated
on founder Kamprad’s statement that “People have very thin wallets. We should take care
of their interests.” IKEA adheres to this philosophy by reducing prices across its products
by 2 percent to
3 percent annually. Its focus on value also benefits the bottom line: IKEA enjoys 10
percent margins, higher than its competitors such as Target (7.7 percent) and Pier 1
Imports (5 percent). IKEA sources its products from multiple companies all over the
world rather than a handful of suppliers as many furniture retailers do. This ensures the
lowest price possible, and savings that are passed on to
the consumer. Today, IKEA works with approximately 1,300 suppliers from 53
countries. IKEA’s stores are located a good distance from most city centers, which helps
keep land costs down and taxes low. The average IKEA customer drives 50 miles
roundtrip to visit an IKEA store. Many stores resemble a large box with few windows
and doors and are painted bright yellow and blue—Sweden’s national colors. They save
energy with low-wattage lightbulbs and have unusually long hours of operation; some are
24-hour stores. When a consumer walks through an IKEA store, it is a very different
experience than most furniture retailers. The floor plan is designed in a one-way format,
so the consumer experiences the entire store first, then can grab a shopping cart, visit the
warehouse, and pick up the desired items in a flat box. Many IKEA products are sold
uniformly throughout the world, but the company also caters to local tastes. In China, it
stocked 250,000 plastic placemats with “Year of the Rooster” themes, which quickly sold
out after the holiday. When employees realized U.S. shoppers were buying vases as
drinking glasses because they considered IKEA’s regular glasses too small, the company
Case Study
IKEA Company
IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad. The
company, which initially sold pens, Christmas cards, and seeds from a shed on
Kamprad’s family farm, eventually grew into a retail titan in home furnishings and a
global cultural phenomenon, what BusinessWeek called a “one-stop sanctuary for
coolness” and “the quintessential cult brand.” IKEA inspires remarkable levels of interest
and devotion from its customers. In 2008, 500 million visitors walked through IKEA
stores, which are located all over theworld. When a new location debuted in London in
2005,about 6,000 people arrived before the doors opened. A contest in Atlanta crowned
five winners “Ambassador of Kul” (Swedish for “fun”) who, in order to collect
theirprizes, had to live in the IKEA store for three full days before it opened, which they
gladly did. IKEA achieved this level of success by offering a unique value proposition to
consumers: leading-edge Scandinavian design at extremely low prices. The company’s
fashionable bargains include products with unusual Swedish names such as Klippan
loveseats for $279, BILLY bookcases for $60, and LACK side tables for $8. IKEA
founder Kamprad, who was dyslexic, believed it was easier to remember product names
rather than codes or numbers. The company is able to offer such low prices in part
because most items come boxed and require the customer to completely assemble them at
home. This strategy results in cheaper and easier transportation as well as more efficient
use of store shelf space. IKEA’s vision is “to create a better everyday life for the many
people.” Its mission of providing value is predicated
on founder Kamprad’s statement that “People have very thin wallets. We should take care
of their interests.” IKEA adheres to this philosophy by reducing prices across its products
by 2 percent to
3 percent annually. Its focus on value also benefits the bottom line: IKEA enjoys 10
percent margins, higher than its competitors such as Target (7.7 percent) and Pier 1
Imports (5 percent). IKEA sources its products from multiple companies all over the
world rather than a handful of suppliers as many furniture retailers do. This ensures the
lowest price possible, and savings that are passed on to
the consumer. Today, IKEA works with approximately 1,300 suppliers from 53
countries. IKEA’s stores are located a good distance from most city centers, which helps
keep land costs down and taxes low. The average IKEA customer drives 50 miles
roundtrip to visit an IKEA store. Many stores resemble a large box with few windows
and doors and are painted bright yellow and blue—Sweden’s national colors. They save
energy with low-wattage lightbulbs and have unusually long hours of operation; some are
24-hour stores. When a consumer walks through an IKEA store, it is a very different
experience than most furniture retailers. The floor plan is designed in a one-way format,
so the consumer experiences the entire store first, then can grab a shopping cart, visit the
warehouse, and pick up the desired items in a flat box. Many IKEA products are sold
uniformly throughout the world, but the company also caters to local tastes. In China, it
stocked 250,000 plastic placemats with “Year of the Rooster” themes, which quickly sold
out after the holiday. When employees realized U.S. shoppers were buying vases as
drinking glasses because they considered IKEA’s regular glasses too small, the company
