IKEA

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IKEA IN THE USA

I.Summary

IKEA is the world's largest furniture retailer, which specialized, standardized but in stylish, inexpensive Swedish design. Its fully owned store has 150 in 8 countries worldwide with sales of $7 billion (Michael and Ronkainen, 001). The company-pioneered move toward globalization in the furniture industry and perhaps one of the most successful multinational furniture retailing firms operating based its unique concept that furniture sold in kits that assembled by the customers at home. Furthermore, IKEA also gain advantages from its supplier worldwide through high-secured contract with high volume production that allowed selling its product in lower price (Groland Schoch, 17). The founder of IKEA Ingvar Kamprad, established system that its costumers as 'prosumers' and its supplier as the customers (Michael and Ronkainen, 001). The system has created value that allowed its product available in lower price but still in a good quality. Moreover, IKEA also has advantages from its unique advertisement that using catalogue throughout the world.

However, in the first of their move toward expansion to North America in 185 was not successful as in Europe. The problem was in 10 where the company needs to change its approach for such a different in tastes and preferences. As the results, IKEA North America sales had tripled to $480 million in 14 and it doubled in 17 to $00 million (Hill, 001).

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II.Introduction

IKEA is one of good example of the International company which compete in global marketing and expand their business in furniture specialized. The 'Swedish design' company success is based on the relatively simple idea of keeping the cost between manufactures and customers down. Therefore, this case study will examine of IKEA international company and its element through answering the three questions provided.

III.Question 1

What has allowed IKEA to be successful with a relatively standardized product and product line in a business with strong cultural influence? Did adaptation to this strategy in the North American market constitute a defeat to their approach?

Answers

According to IKEA founder, Ingvar Kamprad it has concept to offer a variety of home furnishing of good design and function at price so low in order to attract people to buy them (Michael and Ronkainen, 001). IKEA has successful in international business market with emphasis through three long-term strategies, which an organization can build its core competencies (Olsson, 16).

1.Achieve overall low-cost leadership in the industry

.Market production that are differentiated

.Focus on market segments for growth in cost and differentiation

IKEA perform its competitive positioning by performing key internal in value chain at lower cost and better than its competitors perform. IKEA introduce value system between its consumers and suppliers as "prosumers" by means half producers and half consumers (Michael and Ronkainen, 001). In this system, the customers are suppliers of a time, labor, information knowledge and transportation. On the other hand, the suppliers are customers, receiving technical assistance. Customers are informed in the catalogue of what IKEA provide and what they are expected to add to the final process. It is clearly that value-chain modification makes IKEA different from its competitors (Hodgetts and Luthans, 000). Those are the explanation of IKEA's value chain from the diagram below.

Sources The case study " IKEA in the USA", Page 1

To pursue this concept the company is using the subcontracted manufacturers all over the world for supplies. Because the company produce same product all over its stores, therefore it order a large amount of item to its suppliers. By means of this system, IKEA gain in economic of scale which refer to reduction in cost by production in large volume to fulfill its products needs which numerous and big size. However, IKEA still control for the design to maintain the quality and the style. Furthermore, most of the suppliers are from low labor countries and near to material needed. In exchange, IKEA provide them with technical assistances, lease of equipment and long-term contract (Michael and Ronkainen, 001). Furthermore, IKEA has gain in learning effect which refer to the cost saving that comes from learning by doing (Hill, 001). IKEA has life experience in furniture specialist production. Its designer has work together with the suppliers, which counted nearly 0 in 64 countries throughout the world (Michael and Ronkainen, 001) to produce standardized product to its market at a lower cost. The knowledge that its designer had is communicated carefully with the suppliers to meet the standardized products need.

In the second strategy, a differentiation strategy is aimed at delivering products that are different from the competition in particular market. In this case, IKEA has modified the cost leader and value chain that makes them different in one target market that is Young people of all ages (Michael and Ronkainen, 001). The standardized product that IKEA offered is also reflecting that they are differentiating its product.

Sources The case study " IKEA in the USA", Page 1

Moreover to achieved strategic positioning and give value added to its customers. To facilitate shopping, IKEA provide catalogue, tape measures, shopping lists and pencils for writing notes and measurement. IKEA also could reap the cost from its choosing of the stores, where most of the locations are not in city. However, IKEA provide its consumers with car rental companies that offer van or truck with lower rates. To give consumers additional convenience, some of its stores provided with cafeteria, child play and large spaces of parking (Hodgetts and Luthans, 000).

In the third strategy, it is clearly stated by Ronkainen that IKEA focusing on one particular target segment that is young people of all ages. As indicated from IKEA vision statement, that they provide the products with quality but at low cost (IKEA home page, http//www.ikea.com/about_ikea/our_vision/how.asp), and focusing at one particular strategy, it is proved that IKEA applying differentiation strategy. However, the similar target market that IKEA pursue is not stopping them to be cultural sensitivity. In one example, IKEA which has been importing "Swedish, furniture design" to America customer has found a new concept to export "American style" of IKEA for European market (Michael andRonkainen, 001).

From the historical experience of IKEA expanding into US market in 185 until 10 was quite succeed (Hodgetts and Luthans, 000). However, in 10 when first expanding to North America was not successful as before. According to Hodget and Luthans, IKEA ran into difficulties for several reasons

᠖Different tastes in furniture and a requirement for more customized furniture. For instance, European bed design were not wide enough for American consumers, also IKEA did not sell matching bedroom accessories suitable with American preferences. American glass needs bigger size where they can put a lot of ice. In one story of Groll and Schoch is said that American buy European vast for glass drink. (Hodgetts and Luthans, 000).

᠖Difficulties to transfer Swedish design economical culture to the American market. For instance, the different measures where in Europe is centimeters where in America is inches. When they are trying a curtain, the size of curtain is different (Hill, 00)

Therefore, some adjustments have made to the approach. For instance, IKEA increasing its joint with local supplier and use local sources develop product within their core competence for the local market as well as the increasing responds to local market in American preferences (Hill, 00). As the results, IKEA North America sales had tripled to $480 million in 14 and it doubled in 17 to $00 million (Hill, 00). Moreover, IKEA experiencing learning and has made a new concept to export "American design" to European market (Michael and Ronkainen, 001). In other words, it was true that IKEA experiencing some difficulties during expanding in North American market, however IKEA still keep their basic approach and gain new learning to its company culture that may led to increasing its sales.

IV.Question

Which features of the "young people of all ages" are universal and can be exploited by global/regional strategy?

Answers

•Ronkainen have stated that the principal target market of IKEA, is composed of people who are young, highly educated, liberal in their cultural values, professional workers, and not especially concerned with status symbols, which is similar across countries and regions in which IKEA has an existence (Michael and Ronkainen, 001). As to achieve IKEA's mission is to offer a wide range of home furnishing items of good design, function, excellent quality and durability, at price so low, IKEA targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The matches IKEA customer is young low to middle-income family. Modern and simple life style of IKEA's design is certainly attracted of its target market.

•According to Grol and Schoch the target market of young people in IKEA is the typical of global company that the similarities are come into view in each of countries market (Hodget and Luthans, 000). IKEA advertisement used television, magazines, billboards and newspapers, but all markets had the same advertisements, whether it was in California or New York. Ikea no longer uses this technique. Ikea now has different commercials for different regions in the world. This is another example of how their global strategy had to be changed (Young, Chandonnet, Long, http//www.hed.msu.edu/internationalretailing/company/IKEA/body_ikea.html). Nevertheless, IKEA also has marketing strategies for different types of consumers within different regions. For Instance, in April, the Ikea in Singapore held an innovative promotion. They held a sleepover in the store for 100 guests (Young, Chandonnet, Long, http//www.hed.msu.edu/internationalretailing/company/IKEA/body_ikea.html). Customers were allowed to spend the night on the bed of their choice and in the morning, they were given the option of purchasing the bed at a 50 percent discount. The promotion was used to introduce the smaller framed Asian customers to the European sized beds. The promotion went over well and received good response. Moreover, IKEAs catalogs have played a primary role in advertising success. The catalogs are convenient and attractive. They emphasize the quality of design and illustrate practical home furnishings. The catalog is issued to a wide range of potential consumers within close geographic proximity of the target area and is usually distributed before the opening of a new store (IKEA home page, http//www.ikea.com/about_ikea/our_vision/how.asp). The catalogs do not offer Ikeas entire product range. The sales from direct mail is not a big portion of Ikeas total sales, the catalogs are a key factor to invite customers into the stores.

V.Question

Is IKEA destined to succeed everywhere it cares to establish itself?

Answers

•IKEA is not destined to succeed everywhere it cares to establish itself. With all of their expansions, there are some possible concerns for the future. One of those concern is emerging of demographic trends such ageing people will force the organization to broaden its focus strategy (Young, Chandonnet, Long, http//www.hed.msu.edu/internationalretailing/company/IKEA/body_ikea.html). Furthermore, as expanding emerging also it will be more difficult to respond to national needs and cultural sensitivity issues. It is highly questionable whether the current centralized design and research development department is able to understand global customer needs and satisfy all of them better than the local competition. For instance, Scandinavian customers like furniture in light pastel colors. On the other hand, American prefers darker and classic designs. Presently, Ikea ignores this issue and pushes its Scandinavian designed furniture into the American market (Olsson, 16).

•Long-term contract with suppliers may demand more control as the expansion continuing. It may led to the imitating of knowledge expertise that would threat to the IKEA concepts and adopt by local competitors (Olsson, 16).

I.Conclusion

In conclusion, IKEA is one of the largest retailer home furniture, which offering unique, quality, stylish and lower cost products to the international consumer of Sweden furniture home design. In their system, it approaches three long-term strategies on its core-competence. Moreover, IKEA has global target market, which is similar in difference countries; however, they have made some changes for the adaptation in international expansion. Finally, it has approved that the ability of IKEA's international expansion would be success if the company realize of the differences.

Bibliography

Books

•Fletcher, R and Brown, L. 1. " International Marketing An Asia-Pacific Perspective", Pearson Education, Prentice Hall, Frenchs Forest, ( P. 5, 1, 465)

•Hill, C. 001, "International Business Competitive in the Global Marketplace, Postcript 00", rd edn, McGraw Hill, New York, (P. 7-)

•Hodget, R and Luthans, F. 000, "International Management Culture, Strategy and Behavior, International Edition", 4th edn, McGraw Hill, (P. 1-)

Article

•Grol, p and Schoch, C. 17, "IKEA Managing Cultural Diversity", Hodget, R and Luthans, F. 000, "International Management Culture, Strategy and Behavior, International Edition", 4th edn, McGraw Hill, (P. 1-)

Case Study

•Michael, C, R and Ronkainen I. 001. "IKEA in the USA", International Marketing", 6th edn, Harcourt, P. 10-14

Internet

•IKEA home page, Available http//www.ikea.com/about_ikea/our_vision/how.asp),

•Olsson, J. 16, "IKEA of Sweden", Available http//www.geocities.com/TimesSquare/1848/ikea.html

•Young, Chandonnet and Long. "IKEA", Available http//www.hed.msu.edu/internationalretailing/company/IKEA/body_ikea.html

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