Ikea Case Study 95w3y

1. What are IKEA's firm specific advantages? Country specific advantages? 1.1.

The furniture industry has long been localized with most players from the industry concentrating on the domestic market only. Swedish furniture industry boasted of the best player in the market IKEA who for the first time decided to go global. They decided to go in for an ethnocentric view of global marketing with their products being shipped after un assembling the parts to bring down shipping costs. Another innovative move by IKEA was the move to involve the customer in its value chain to bring down costs drastically. With IKEA’s products the customer did the assembling himself at home. IKEA also had a very successful culture that facilitated its expansion into various countries. However, this ethnocentric view did not turn out to be successful in the USA where in they ran into a few problems like different tastes in furniture and cultural change. In addition, more competition and changes in Swedish laws on furniture made expansion into the USA very difficult. Longer shipping periods added to the expansion woes and IKEA had to adopt a more adapted culture to enhance sales in the USA.

1.2.

IKEA’s most important company specific advantage was its value for money. IKEA used this advantage for its expansion plans all over the world. IKEA when they failed in the USA had to highlight this specific advantage to bail them out of the financial crux they had gotten into.

1.3.

Convenient to use and rigid in structure was another company specific advantage that IKEA could have looked at as IKEA focuses on involving customers in the assembling process. This advantage could be a big hit in markets like the USA where each person has the basic expertise in home working such as plumbing and fixing furniture.

1.4.

One more company specific advantage that IKEA has is its legacy of quality in different countries. IKEA has always maintained the best quality in all the countries that it has opened outlets in.

1.5.

After the initial adjustments in strategies, IKEA can focus on many USA centric advantages like making a day of shopping for the house. Americans love legacy and they appreciate the low cost conceptual legacy of IKEA.

1.6.

Swedish products like Volvo have been welcomed before in the USA and IKEA was accepted in the later stages after the initial hiccups stage.

1.7.

Country specific cultural slogans like “low price but not at any price” which highlighted quality were welcomed by the US citizens.

2. What are the cultural factors which make expansion abroad in retailing difficult? What has made it possible in IKEA's case? 2.1.

2.2.

Cultural Factors that make abroad expansion difficult in retailing 2.1.1.

Consumers all over the world don’t have the same preferences and tastes.

2.1.2.

Management style is different between countries.

2.1.3.

Different line of education between countries.

2.1.4.

Laws and politics differ among the countries.

2.1.5.

Religion and language.

2.1.6.

Social organization, technology and material culture 2.1.6.1.

For IKEA for instance, IKEA store location can be a problem in China, where the population have no cars, therefore, IKEA locates its store inside the cities in China. The price is also a problem, where a cheap price can be an expensive one somewhere else.

2.1.6.2.

Culture is seemed to have been embedded in elements of society, which are religion, language, history, education, family, arts, entertainment, and education. These elements are cultural forces that influence the cultural messages as symbols, rules of behavior and knowledge. These factors are important in the selection of goods and services, the consumer’s decision process. Therefore the culture influences buyer behavior. Therefore, in retailing, the strategy of the product, the price, the location, and the promotion is links with the culture of the country.

Specific Cultural Reasons with reference to IKEA’s expansion Having seen the factors that make the expansion in retailing abroad difficult, we are going to refer to specific cultural reasons, which make IKEA’s expansion abroad not easy:

2.2.1.

Cultural adaptation Before its difficulties in the US, IKEA didn’t make specific adaptation when it entered into a new market, but followed always the exactly same strategy than in others countries.

2.2.2.

Different management style IKEA’s employees were assigned greater responsibilities and more freedom than usual in many traditional retail stores. Although this was not a problem in Europe and Japan, but in the US it was. In Canada the European management style had been successfully tested. The unusual great interdependence and authority of each individual employee in the IKEA system had been welcomed, but the individuals often asked for more direction and specific guidance

2.2.3.

Different consumer decision process

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The universal slogan and the moose symbol were not as valuable in the US as in Canada and .

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Different tastes. This refers for example to preferences of some designs, different size in beds that meant the US consumers were not used in European ones, and the meaning of colors, etc.

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American people are more interested in aesthetic and shopping style.

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Also they were not much happy with the “cash and carry” service and they wanted better and faster delivery at home, and do not enjoy queuing.

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Not everybody is used to do shopping outside cities, or can do, like Chinese.

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In America more media ments were needed. The word of mouth was not much successful as in Europe.

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Therefore, IKEA has met cultural problems, especially in the US, due to a lack of information about these cultural differences. Indeed IKEA didn’t conduct

any market research before entering new market, and didn’t use local expertise. However, the expansion abroad of IKEA has eventually been possible, even if they met some difficulties along the way. This can be attributing to the fact that IKEA concept is very effective, but also because the company have made special efforts to adapt its products and services to various cultural environments. 2.2.4.

Indeed, the original formula is successful worldwide because it’s:

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A new form of shopping experience: huge range of products, affordable but on quality, as knocked-down kits, for consumers to take home and assemble themselves.

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The product of IKEA is standardized, and can be bought by many different people, with different way of life etc. (example: young, family, gay, etc.)

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A new form of value: customers are also suppliers of time, and suppliers are also customers of IKEA’s business, and technical services. 2.2.5.

But, meanwhile, IKEA has made special efforts to adapt its activity, especially for the US:

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Product adaptation to be closer to the customer’s desire: for example reconfiguration of the size of the bedroom for the US market, different types of services, etc.

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Promotion adaptation: différent slogans, différent images, etc

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This adaptation has been enough to globalize IKEA’s concept, and the packaging, the distribution characteristics, and a great part of the product characteristics have been standardized.

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Therefore, IKEA succeeded to adapt its concept, but not discard it. Indeed, the brand positioning strategy is global consumer culture positioning, the brand is a symbol of a given global consumer culture, as well as foreign consumer culture positioning, the brand has been built around a specific foreign culture, Swedish culture, with the Swedish names of the furniture, Swedish restaurants, the colors of the Swedish flag, etc.

3. Describe how IKEA'S expansion has re-energized mature markets around the world and changed the competitive situation. 3.1.

Before the entry of IKEA in Europe and in the United-States, selling furniture was a fragmented affair, shared between department stores and small, family-owned shops. All sold expensive products for delivery up to two months after a customer’s order; companies didn’t lead a strategy of expansion.

3.2.

IKEA had broken several of the rules of international retailing: entering a market only after exhaustive study; catering for local tastes as much as possible; gaining local expertise through acquisition, t ventures or franchising. "We don't spend much money or time on studies. We use our eyes and go out and look, and say it will probably do quite well here. Then we may adapt, but quite often we stick to our opinions," says Mr. Anders Moberg, IKEA’s chief executive.

3.3.

Therefore IKEA changed the rules of the retailing industry. This was considered quite dangerous, because IKEA’s expanded its stores internationally without having data and information about the new country. But, it has been successful, in Europe, where the concept of IKEA is effective, without necessary adaptation. But, in the UnitedStates, IKEA had to struggle in the early years, and made several changes to its retailing formula to adapt to US requirements.

3.4.

Nevertheless, IKEA, with its competitive advantage, its size and resources, has changed the global markets: many small furniture retailers have disappeared, and there is now a trend for growth of largerscale retailers, and for an increased number of international retailers.

3.5.

The mature markets are re-energized firstly, with more competition, more aggressive strategy (promotion, ment, distribution strategy), but IKEA has also changed the consumer behavior. Indeed, consumers have a really fun shopping experience in IKEA, they are free to do what they want, there is no sales person to try to persuade them, they can go to the restaurants, etc. These experience influences the way of doing shopping in general, in the retailing environment, consumers want shopping to be a relaxing experience and fun. “Once in the store, customers are given tape measures, catalogs, paper and pencils, childcare strollers are available and restaurants with Scandinavian delicacies.

3.6.

Choosing furniture has become a matter of personality, lifestyle, and emotions in addition to functionality. IKEA’s management wants IKEA to be associated with the “warmest, most emotional furniture in the world”.

3.7.

Moreover, the market is re-energized because IKEA is the only one to offer products that can be bought by much different type of people, with different way of life, as we can see with the ments of IKEA in US, where they show different types of people, with different ages, different revenues, and different types of life.

3.8.

One other strong advantage of IKEA that energized the market is also the innovation: IKEA innovates all the time, with always new products, new styles, each year a catalogue where all the products are presented is launched, and the innovation is also for the marketing strategy, tools, with recently TV ment in Europe for instance.

3.9.

Furthermore, IKEA has modified the value chain approach, as we said before; consumers are also suppliers, off time, labor, information, knowledge and transportation.

3.10.

The headquarters provides carefully selected suppliers with technical assistance, leased equipment and the necessary skills needed to produce high quality items.

4. How does the TV advertising campaign initiated by IKEA overcome the entry barrier of high advertising expenditures? 4.1.

IKEA had planned to develop a series of eight TV advertising spots that featured people at different transitional stages in their lives, when they were most likely to be in the market for furniture.

4.2.

One spot featured a young family who had just bought a new house, another couple whose children had just left home, and so on.

4.3.

IKEA even developed one spot that featured a homosexual couples, two men talking about furnishing their home. It was a daring step applauded by most advertising experts and impartial observers. The campaign had a positive impact on IKEA’s image and on IKEA’s sales. The company has continued the trend. One thirty second TV.

4.4.

Spot showed a divorced woman buying furniture for the first time on her own. These sort of TV ments which made a new trend among all kind of customers (psycho graphically).

5. Should IKEA expand further in the United States or focus on other countries? By following an incremental approach, IKEA expanded its activity in Europe, then in Canada, and finally in the United-States. This strategy allowed IKEA to accumulate experience first, before moving into other markets one after the other. But, this experience has not been enough for the United-States, where IKEA met certain difficulties, because this market is very different from the countries where IKEA is already implemented: •

Larger market population dispersed, cultural diversity, strong domestic competition, California: difficult to build a supply network but in East Coast: less attractive than California

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US management style different from the IKEA management (and Europe management).

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Word-of-mouth less powerful than in Europe.

Implementation of IKEA in the US initially had been a failure because: •

Consumers regretted the long queue, and no available stock

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Competitors with the same concept (‘Stor’)

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Lack of adaptation for the US market: size of beds, etc.

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Problem of suppliers.

After this failure, IKEA succeeded finally to adapt its activity: Product: •

Adaptation like the dimension of its bedroom.

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More quality with US suppliers through random checks.

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New cash s to decrease customers queue

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New store layout

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New service like next-day delivery

Price: •

Cut prices because of recruitment of US suppliers.

Promotion: •

Advertising necessary (more than in other markets)

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Strong slogan: “It’s a big country. Someone’s got to furnish it”

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TV advertising attracting different kinds of consumers.

Place: •

Huge size of the stores: 200,000 square feet.

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Large inventory and parking space.

Advantages and disadvantages of an expansion in the US: The Company: •

Objective to be global leader of furniture

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Retailer Standardized

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Need to be always flexible

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Expensive to import furniture from Europe (shipment)

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Threat to lose its concept, and competitive advantage, with too much adaptation

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IKEA has already lost a lot of money in US

The Market: •

Huge markets, huge demand.

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Household furniture market is one of the most important worldwide.

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High purchasing power

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Many competitors, especially US firms that dominate the market, being more competitive

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US tastes differ from European.

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Environment -Political and economic environments are stable

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Huge countries, with big differences between consume

If IKEA preferred to stop its expansion in the United-States, it has to focus on other foreign markets. The European markets are already mature markets, with IKEA domination; the company has already a rather good position in Canada, which is a difficult market. Therefore, it appears relevant to recommend IKEA to expand in “new country”, or new part of the world as Asia. The advantages and disadvantages to entry in Asia, like in China: The Company: •

Objective: worldwide leader, but has no stores in Asia

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Has the financial resource to enter in China

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Necessary to do a really huge adaptation-Necessary to do huge investments, this could be expensive

The Market: •

Huge market hence possibility to find local suppliers with very low costs.

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Less cultural diversity than US

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Cultural problems probably more important than in US

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Relatively lower purchasing power, with high inequalities.

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Threats of new competitors, copied the same concept of IKEA, and with lower costs

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Environment

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Less and less export restrictions

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More risky than US

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Entered ‘free market’ recently

If IKEA decide to enter in China, it will be really preferable to follow the retailing rules for IKEA this time. Indeed, an adaptation of the strategy of IKEA (4P) is obviously necessary, therefore, IKEA needs to conduct extensive a market research, and make use of local expertise. Action plan: •

The solution of a further expansion in the US appears preferable than an entry in a new market, such as China, according to the tables of the advantages/disadvantages of each country.

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Indeed, even at the beginning of the expansion in US it proved difficult for IKEA, the company has made many adaptations now, by making several

changes to its retailing formula to adapt to US requirements. The concept of ‘fun shopping experience’ is likely eventually to succeed in the US.

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IKEA has to follow the strategy of differentiation and the cost leadership, to keep being the leader of the market, and has to be flexible to adapt itself to the market conditions. Indeed, IKEA should that the furniture market cannot be standardized globally; country specific characteristics will always exist. Therefore, even if a great part of the activity of IKEA is standardized, some elements, specially the promotion, have to be adapted to the specific culture of the country.

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To reach this flexibility, IKEA can allow local centers to take its own decisions, to be independent, but in the same time, local stores have to keep following the main concept of IKEA to maintain the global brand.

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Moreover, the current centralized system suppresses creativity and freedom on the individual store level. A t venture approach could replace Ikea's franchising concept and increase cultural sensitivity and operational controls through the establishment of strategic networks. Such alliances could also increase market coverage, without Ikea losing its focused strategic intent on one particular market segment.