IKEA’s product characteristics
IKEA products are offered with stylish functional designs and high quality to influence on customer satisfaction (Gillespie, Jeannet & Hennessey, 2010). Quality for the firm means that the products are functional and safe to use. The quality is maintained at national standards through test laboratories established by the company.
In these laboratories, the products are tested in order to align with the customer demands in terms of design, price and function as well as with regard to stability, safety and durability.
The products are tested during the development stage and when they are already in the stores. Therefore, the products are not only characterized by quality attributes such as durability and stability but are also attractive with a variety of features designed to attract a wide range of consumers.
IKEA competitive advantage lies in the retailing strategy that has continued to challenge traditional house-hold goods retailing. The focus on good quality at low cost and store convenience is obviously the source of competitive advantage. The firm operates as a framework using non-conventional relationship with suppliers and customers. By redefining the supplier and customer roles, the firm maintains low cost.
The actions of the clients had to be malformed from outlet backing, dawdling delivery of stuff prearranged and locality in built-up and uptown shopping areas to voyaging to country-side stores, retailing objects in full-size warehouses namely sales areas with the minority sales personnel, transportation of the objects home in sachets as well as amassing them individually.
In fact, the catalogue lends a hand to the clients, enlightens their novel responsibilities besides explaining the rationale which causes them prevail in the latest dissection of labour.
IKEA stores are equipped with cafeterias; strollers, childcare facilities, and other equipment that help customers look over furniture and household products. Clients acquire the dreary cartons enclosing the stuffs and proviso indispensable, procure or lease a roof shelf offered by the hoard or warehouse to ferry all their stuffs home without problems.
Not unlike the unusual responsibility which the IKEA regulars have been posed to participate in the supplies, nearly all traders have vitally partaken responsibilities in ensuring that the stratagem succeeds. This is because few of the company products are made in the stores and components to make the products may have been sourced from different suppliers.
The corporation operates intimately with traders, offering methodological support in the mechanization to preserve eminence standards whilst maintaining minimal outlays (Gillespie, Jeannet & Hennessey, 2010).
Traders as a result become incorporated in the complete structure of cast list allied to IKEA, attached to novel souks with merchandise erudition and premium products.
Indeed, such a set-up of interactions with the corporation at the interior joint hit the road from the industrial trade customs. It is therefore the commercial involvement and the identical consumerist setting strategies which positions IKEA spaced out like a trendsetter.
Motive that generated first IB activity decision
When IKEA began the democratic design or a design that was good and lowered the cost of production significantly, other retailers were disadvantages as they could not match the low prices of the products offered by the company. This situation was heightened by the self-assembly concept that was new to the industry which reduced costs significantly.
Unfortunately, the established retailers had greater influence on the industry players and managed to prevent IKEA from sourcing its designs from local manufacturers. The high demand and focus on cost reduction could not be achieved through in-house designs and the company was motivated to look for manufacturer elsewhere (Gillespie, Jeannet & Hennessey, 2010).
The fact that only in Poland could IKEA find a manufacturer who could meet the standards of IKEA products was also a great motivator for the company to move into the country. Entry into Polish market required one to value the things considered important in building business relationship such as decision making. Kamprad entered the market as the sole decision maker of IKEA which was valued highly by the Polish people.
The Polish people looked forward to long-term contracts to the advantage of the company in terms of sustained production. The industry also lacked new technologies and they viewed the firm as an opportunity to acquire such technologies. Indeed, IKEA made a multi-seeking investment by escaping from the industry forces in Sweden while at the same time aiming to increase efficiency through cheap production in Poland.
Poland was the best place for internationalizing where petty things like vodka consumption could create good business relationship. As Gillespie, Jeannet and Hennessey (2010) put it, “alcohol consumption apart, the relationship that IKEA established with the Poles was to become the archetype for future relationships with suppliers”.
The second IB activity
The second international business activity was triggered by the Kamprad ambition to exploit growth opportunities elsewhere as the opportunities were limited within the Sweden market. In spite of the company proximity to European markets, the market fragmentation and high cost retailers was a great motivator to the entry of IKEA business.
The company was determined to take the new experience that had proved to be successful in home market to the new markets. As expected, the company elegant functional designs, low prices, and the self-service store format was relieve for many consumers in other European markets.
The firm made its first move to Switzerland and then to Germany with great success. However, the company was slow to expand in the United Kingdom as the locally grown company, Habitat, had built a business similar in many respects (Gillespie, Jeannet & Hennessey, 2010). Like IKEA the company offered stylish products at low prices.
The entry mode of IKEA to European market was sort of a market-seeking investment that was undertaken to exploit new markets. The Sweden market was becoming saturated and could only offer limited opportunities for growth. The company was motivated to this investment by the constant market growth and large market size of Europe and aimed to serve the larger market.
According to Uppsala theory, after understanding the local market, the company could move to the nearest market (Switzerland), then to Germany, and so on. IKEA was met with great success after focusing on providing cheapest solutions as the competitive advantage.
However, the success in European market was not a straight forward endeavor. Foreign investments are usually pursued by established firms and with huge capitals. Although IKEA had made a good fortune in the Sweden market, moving capital from the country was a challenge.
The capital controls in Sweden probably prohibited investing abroad with home gained capital. IKEA had to tactfully make quick profits and get a positive cash flow going to the foreign investments. As Gillespie, Jeannet and Hennessey (2010) note, the European business was eventually reorganized and tighter controls were introduced.
The indicative U.S. characteristics for IKEA market
In the 1980s, IKEA began to expand into the United States market. This market attracted the company due to several reasons:
- the US had a very large customer base,
- the US people who had travelled considered themselves as risk-takers,
- the market was fragmented
- the potential customer could be identified with specific regions.
The success of the businesses relied on the sensitivity of the people to specific product attributes regardless of the origin. If the people regarded local products more than foreign products, the IKEA business would probably have been in danger.
IKEA entry into the United States market was focused on the consumers the company perceived to be potential customers. The firm opened its first store along the coastline with the belief that the people living along the coats were more exposed to foreign products (Gillespie, Jeannet & Hennessey, 2010).
The reason to focus on the travelling consumers was that the company was determined to sell products with European standards. Obviously, the success of such products would be uncertain in areas where consumers have no foreign experience. The success of this entry mode was to form the basis of establish before expanding the business elsewhere.
Unfortunately, the perceived success of the expansion could not initially be realized due to various challenges encountered. First, the company was sourcing many of the products from foreign countries, priced in the Swedish kronor, which was strengthening against the American dollar (Gillespie, Jeannet & Hennessey, 2010). This macroeconomic factor is a major determinant of consumer consumption.
The stores were also not enough to offer the same experience as in Europe. In addition, the Americans were culturally oriented to bigger things when compared to the European counterparts. European styles did not resonate with American consumers and all products offered by IKEA were smaller than those offered by local manufacturers.
For instance, American sheets did not fit IKEAS beds, sofas were not big enough, curtains too short, glasses too small and so on (Gillespie, Jeannet & Hennessey, 2010). In fact, consumers were mistaking the intended use of some products such as glasses.
In response to these challenges, IKEA changed its business strategy. The company changed from offering European styled products to American styled ones. Many products were redesigned to fit the American requirements.
The company also made larger stores that could offer a better experience for the consumers. IKEA again begun to source some products from lower cost locations and priced in dollars as an effort to reduce prices. In response to the changing culture, the company focused the designs and promotions on the younger generations and substantially boosted the sales.
The most interesting issue from the case
The IKEA international business expansion is not only interesting but unique. It is unique in that the motive to expand is not competition, but circumstances. The circumstantial aspect is depicted in the entry into polish furniture industry that proved to be a growth opportunity. The success of this entry was characterized by new cultures such as vodka consumption that were transferred into the organization lingering for years.
The interesting part is associated with the response of competition. In many cases, competitors always tend to imitate strategies that prove to be superior.
However, as IKEA expanded successfully by focusing on quality, low cost and customer experience, none of the competitors attempted to imitate the strategy as a result of the challenge. IKEA expanded to reach unimaginable global heights without any significant competitor emerging. Moreover, consumers in all markets tended to respond to the firm strategies even in uncertain market environments.
Reference
Gillespie, K., Jeannet, J. & Hennessey, D. (2010). Global Marketing. Florence, KY: Cengage Learning.