IKEA CASE STUDY
Q1.Upon making its entry into the US market in 1985, IKEA struggled withlow sales for over a decade. The main reason was the firm had notidentified a niche market in the American furniture market. Itsproducts did not meet American preferences such as havingmeasurements in inches as opposed to centimeters and furniture sizes.The market was thus dominated by Wal-Mart, Office Depot and otherplayers who understood American preferences better. These existingplayers also targeted the higher end market through premium priceditems in the belief that good design furnishing was a preference forthe wealthy only. The furniture industry through assembled orunassembled furniture was thus serving a small but moneyed section ofthe market. IKEA identified a niche market in the ordinary Americanswho would take up house furnishing encouraged by low prices. As such,IKEA took up unassembled furniture option among other options to cutcosts which translated to lower prices and worked on the designs andfunctionality of furniture to meet American standards. The firm alsosought to concentrate on certain areas notably the kitchen, livingroom and bedroom. Other areas such as office furniture are alsoserved with that section offered the option to deliver, assemble andinstall products. Sourcing supplies in bulk, unassembled furniture,self service among other cost cutting measures ensured the firm keptprices low to attract price sensitive American shoppers, a sectionwhich has remained its niche market ever since. Nonetheless, the firmhas introduced more complex designs to tap into higher incomeconsumers in a bid to grow revenues.
Q2. Taking a look at what the firm has achieved so far, I wouldrecommend increasing the number of outlets to reach as many people aspossible. Given that the firm has already identified its niche marketas price sensitive Americans looking for functional furniture andhousehold items, the firm should capitalize on making these productsaccessible and reachable to majority of Americans. This can beachieved by increasing the number of outlets in the country and canalso be achieved by increasing the product range. The firm shouldthus target high population areas in populous cities with a higherratio of college and university graduates starting a new life andthus have a higher likelihood to purchase furniture as they startlives as civilians.
Anotherrecommendation would be advancing into IKEA branded line ofelectronics such as televisions, radio sets, washing machines andrefrigerators. Although this market is already well served byexisting players, there is no single player that has managed toexclusively serve the price sensitive consumers without sacrificingon quality. Current brands in the market such as LG and Samsung andhave an almost similar pricing model. Other players that compete onprice are Chinese based. Americans tend to associates Chinese brandswith low quality. Therefore, as a Scandinavian brand, IKEA has anupper hand in country of origin that Chinese players and thus caneffectively use the los pricing strategy to win new market segment.Additionally, IKEA has excelled as a home and office furnishing brandname and hence creating IKEA branded or non branded high qualityelectronics would serve the market very well. The firm can achievecost cutting through global sourcing in bulk from independent andcontract manufacturers. This way, the firm can brand itself as aone-stop home furnishing outlet and even offer packages comprising offurnishing and basic electronics needed in any home.
Analternative product range expansion would entail venturing intobuilding/construction materials. The firm would be supplying suchmaterials under a different brand of stores or the IKEA brand tocompete with other players n the category such as Home Depot. Thisway, the firm would adequately address the homebuilding front as awhole. Ideally, the firm can expand into prefabricated buildingmaterials and infuse style and ‘green’ materials to tap into theenvironment-conscious niche market which is growing by the day.
Moon,Y. (2004). IKEA invades America. HarvardBusiness School.