Swedish company, Ikea, has experienced many triumphs throughout the business history. Founder Ingvar Kamprad created a successful business from a financial gift his father gave him. There are several factors that contribute to Ikea’s success. These factors include their low cost price strategy, the design of their store, and the shopping experience for customers. Ikea’s low cost low pricing structure. Ikea’s low cost pricing strategy was a key to their rise to success. It started in 1951 when Ikea abandoned all its other catalog products to focus solely on low priced furniture.
In the beginning, Ikea’s furniture was produced by local manufactures. The pivotal point in Ikea’s history came in 1955 when competitors forced manufactures to boycott Ikea. It was at this time the company started to produce their furniture in house. At this point, an Ikea employee proposed to remove legs from a table for easier transport (case citation). This was the birth of the flat packaging system. The flat packaging system reduced cost drastically. Ikea learned through this process that they could ship more products for less.
The company estimated that its shipping cost was six times less shipping furniture disassembled (case citation). Not only did the cost for the company decrease the customers received lower pricing and easy transportation home. Ikea found more ways to cut cost with new product development. As the company expanded to other countries, it identified manufactures that would keep a balance of cost-efficient labor, while maintaining the product quality standards (case citation). Ikea’s engineers were developing new ways to construct the furniture. Their focus was to identify which material would be the best for constructing the furniture.
Ikea engineers use a combination of inexpensive wood and fine woods to construct furniture pieces. Ikea’s low cost low price structure was genius. The flat packaging system was brilliant because it was more efficient. Selling disassembled products was a huge factor to their success. The engineering process of the furniture provided insight as to how economical the company is. By using lower price woods on the less visible low stressed areas of the furniture, while simultaneously using high end woods on the most visible high stressed areas of the product, allowed the company to carry out its low price persona to the fullest.
Ikea truly wanted to provide a quality product to its customers at a conveniently low price. Ikea’s design battles Ikea had low priced furniture but it was horribly designed. The furniture was not ascetically pleasing. Ikea’s design took a turn for the better. The company started to design more pieces that appeased the customer’s eye. It had proved challenging for the company to have a combination of form, functionality, and affordability (case citation). Ikea developed the “Democratic Design: Low Price with Meaning” vision statement.
This statement outlined Ikea’s goal for the low priced, nice quality, and affordable furniture access to all. Ikea’s customer shopping experience Ikea’s perception of the ultimate shopping experience contributed heavily to its success. The setup of the store was to engage its customers, and create a convenient shopping environment. Customers were greeted to a 15,000 to 35,000 square meter warehouse of magic. Available at an Ikea location will be a childcare station, the variety of options and ideas, and a food court to create the ultimate shopping experience.
The atmosphere was free and inviting to lounge on model furniture while making your decisions (case Citation). The customer had a hand on experience when selecting their items and the luxury of a one stop shop. Ikea’s Scandinavia heritage is what makes them standout from competitors. Although Ikea is often imitated competitors can never duplicate the wonders of the Scandinavian company. Invading the American market was not an easy transition like the companies other stores, which yielded high customer turnouts for grand openings.
Americans were not as receiving to what Ikea had to offer in the beginning because they were attached to the old traditional furniture they already possessed. This turned around for the company through various marketing initiatives. Ikea launched a campaign named “Unboring” taunting and joking around with the American market about their attachments to their furniture. This campaign yields success because the American consumer responded to the funny ad in a favorable manner towards Ikea. From the years 1997 to 2001, Ikeas revenues double in the U. S. arket form $600 million to $1. 27 billion (case Citation). The United States became Ikeas third largest market and its in house restaurants grew to be in the top 15 fast food restaurants in America. II. Ikea’s Product Strategy and Product Range Ikea developed an interesting product strategy and product range. The company had a good idea to setup a council to effectively manage and oversee products the company carried. The company’s focus to study consumer spending with the competition, gave them insight on how to construct a better product that is more cost efficient.
The product range strategy was effective because it took gathered information and ranked the importance to come up with reasonably low prices for each product. Ikea was then able to identify more cost effective ways to get the product produce on a mass level once it obtained the information from the surveys and studies conducted on competition. Ikea’s willingness to proceed forward with the information gathered is intriguing. The company used the information to come up with cost effective design methods for the product. In essence Ikea is a resourceful company, and does not believe in wasting material, money, or knowledge.
It is mind boggling that the company would seek outside designers to compete with their in house designers to get the most low cost low price structure. The product strategy and product range is a brilliant concept of the company’s. The product price matrix Ikea uses is an effective way of organizing and interpreting data. This matrix helps the management teams at the company rank what’s important and less important in building a quality low priced product that would be 30% to 50% lower than competitors. The development of this model was advantageous of the company to easily identify an opportunities for exploration.