Evaluation of IKEA. MBA Topic

IKEA’s Mission and Vision Statement
“To create a better everyday life for the many people. Our business idea supports this vision by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”.

Process Design of IKEA
　　IKEA deployed many strategies in its company. One thing is the product diversification in which this makes a wide array of products and choices for its customer. IKEA also used outsourcing strategy wherein they contract out the manufacturing for most of its products from different suppliers. They also used a different strategy like market segmentation for different nations based on its culture. They also produce customized products in order to meet individual customers demands. Its advertising and promotion activities was mainly focused on catalog s and include a mail order facility by advertising on local newspapers. They also negotiated a deal with local dairy delivery trucks to use the spare capacity in delivering the products to the local train station.
　　IKEA also provided stylish functional designs with minimalist lines that be cost efficiently manufactured under scntrol by suppliers and priced low enough to allow most people to afford them. The most important strategy or key features of IKEA were its famous self assembly strategy. Their efficiency in packing the furniture have given rise to cost saving in terms of reduced transport, warehouse costs, and avoiding damage in its products. IKEA ultimately cut its manufacturing cost by 50% by partnering with the Polish furniture manufacturer and has given to lowering its sale prices even more.
　　IKEA’s first store in Stockholm had an innovative circular design and it was located on the outskirts of the city with a spacious parking space and good access road allowing a large amount of customers and was well managed by the self-service solution wherein customers can enter the warehouse and load the packed furniture on trolleys and take them to checkout. They also added a restaurant for the customers to rest and it provide a relaxation place while they are shopping.
　　Some key features of IKEA in the selling environment are encouraging the staffs to interact with customers, placing their products in a room setting wherein the customers can touch and try them. The overall process of picking up the products from store and self-assembling it gave the customers a value of ownership in the products.
　　IKEA’s strategy were to always find ways to alter the design of furniture to save on the manufacturing cost and to have a location where customers could come and see IKEA furniture set up. IKEA’s standardized approach in operating within different countries gives them operational advantages in keeping the prices low and attractive for as many people as possible and they also want to create the same image everywhere. The standardization part of their business concept failed because different countries has different cultures and preferences thus having them to rethink their process design in US market.

Rethinking the process design for the US market
　　When IKEA penetrated the US market, it failed to meet its customers cultural demand. They also faced other retailers such as Walmart who provides general discounts and low priced goods. Other high end furniture retailers has knowlegeable staffs, home delivery service, home setup and interior designs for free or low charge. Due to the standardization process of IKEA, their products failed to cater the American needs. Their products, particularly the bed size, was measured in centimeters and not the king, queen, and twin size beds in which the local consumers are familiar. Other than the bed sheets not fitting the beds of IKEA, sofas are not big enough, wardrobe drawers are not deep enough, chairs, glasses, curtains and their other products did not fit the American size appliances. Despite the fact that their products are priced lower, this did not appeal to majority of the americans, catalogs and other forms of traditional advertisements did not have a sufficient effect to entice the consumers to buy their product. IKEA was forced to rethink their process and with it, they come to introduce the customization process in which they redesign the products according to the customers needs. They started acquiring larger stores and materials are outsourced locally to keep prices low. They also target younger customers who are more concerned with designs and the value of recycling. Since the younger demographic, composed of 20 to 30 year olds, are more inclined to watch commercials, they used TV commercials for advertisements and thus boosting its sales and revenues. Having the need to change their process from standardization to customization, they started gaining the foothold in the US market, giving them a boost of revenues, which doubled in a four year period from $600M in 1997 to $1.27B in 2001.