Background
IKEA, a leading Swedish home furnishing retailer, was founded in 1943 by Ingvar Kompred with a vision to service young and price-conscious consumers with a wide range of its knock down furniture sold at competitive prices.
Traditionally, IKEA has been known to maintain low-cost operations by contracting and maintaining dedicated independent furniture supplier networks, developing innovative modular designs whose components could be mass produced, maintaining relatively few sales clerks, using a classic cash-and-carry approach to trim costs at a minimum, selling the same type of furniture all around the world to benefit from the economies of scale, using a flat management strategy to enhance fast decision-making processes, abolishing internal budgets to check on expenditure, and utilising inexpensive advertising strategies such as word-of-mouth and limited advertising to promote sales revenue.
Recently, IKEA has been involved in expanding into international markets to reach out more customers and hence leverage its competitive advantage and profits.
For instance, the company succeeded in setting store locations in Switzerland in Germany and even proceeded to become the furniture provider of choice for young and price-conscious customers despite facing supply difficulties as well as cultural and regulatory obstacles in these countries.
Although the company faced minimal entry barriers in many European countries due to its European history and origin, it did receive unique challenges when gaining entry into the American market due to a host of problems as discussed below.
Statement of Problems
IKEA faced a host of entry barriers while attempting to gain access to the American market not only due to a diversified population and great cultural diversity demonstrated by potential customers, but also due to strong local competition and imitations. Indeed, the company had not faced such entry barriers before while attempting to gain access to European markets, hence the need for their further exploration. The underlying problems for IKEA’s entry into the American furniture market include:
Creation of stable supply networks – IKEA’s operation costs drastically rose upon entry to the American market because it used to source its products from suppliers in Europe. There were unique logistical problems involved in transporting these products to U.S. markets that guaranteed an attractive consumer base.
IKEA had to move with speed to recruit local suppliers to reduce the dependency of imports and hence cut down on costs. The U.S. suppliers also needed to be trained on more efficient methods to use in the production of furniture so that quality was not compromised in attempts to cut down on costs.
Product adaptation issues – Upon entry into the American market, IKEA soon realized that some of its products were not reconfigured to the expectations and desires of U.S. customers.
For instance, its European-style beds were somewhat narrower and longer than the standard American beds and hence customers could not buy them despite their high quality and low cost as their existing mattresses and beddings could not fit the beds. Again, IKEA’s management was called to attention to solve the adaptation issues with the view to increasing sales purchases and therefore achieve profitability and competitiveness.
Unique advertising and promotion challenges – IKEA had traditionally relied on word-of-mouth, limited advertising and the use of catalogues delivered free of charge to customers residing in areas where the furniture retailer had set up business.
However, upon gaining entry into the American market, IKEA’s management soon realized that the traditional advertising strategies could not bring positive outcomes in the American market due to a competitive retail market and diversity of the consumers, which made the traditional word-of-mouth advertising less powerful that it had been in ethnically homogenous European countries.
Additionally, many American consumers did not identify with the traditional Moose symbol used in other European countries to advertise IKEA products as it was considered strange, provincial and, in some quarters, projecting the wrong image. These unique promotion and advertising challenges necessitated IKEA’s management to go back to the drawing board and devise advertising strategies that could fit well into the American market.
Floor layout issue – Traditionally, IKEA utilised a floor layout approach that necessitated consumers to obtain an inventory tag number upon deciding what they wanted to purchase and then proceeding to find the kit on the rack in the expansive stores without much assistance from the sales clerks. However, this layout plan proved to be a major problem in the American market owing to customers’ buying behaviour, leading to long queues and declining sales as customers left empty-handed.
Again, this was an issue that IKEA’s management needed to solve to make any headway in the American furniture market. American consumers are averse to long waiting times, hence IKEA’s management was once again tasked with a responsibility of developing and implementing strategies that would reduce the long queues and enhance customer service experience while maintaining operational costs at a minimum.
Non-available stock – this problem was related to the difficulties experienced in the supply chain networks as IKEA attempted to import products from European-based suppliers and furniture makers to stock local stores in diverse locations across the United States. To remain competitive, IKEA had to move fast in the recruitment and training of local suppliers to ensure that listed products were available for the customers when needed.