Strategy
IKEA’s strategy is coherent as its products, design, manufacturing, stores, marketing, and management fit together perfectly. At IKEA, the new product development process is overseen by a product-strategy council which consists of senior managers. Once the product priority is established, the product development sets retail price. The effectiveness of this strategy is based on the fact the target price ranges are set 30% to 50% lower than the prices of the main competitors. IKEA maintains the strategy of the low-cost furniture retailer, and the extensive market research allows setting much lower prices. Moreover, the separate matrix is set for each product type. Manufacturers are identified only when the price range has already been set. IKEA managers seek to balance cost-efficient labor with product quality standards. The process of the choice of materials is also cost-sensitive: IKEA chooses inexpensive materials, but the high-quality level is guaranteed. Nevertheless, it is a usual practice for IKEA to redesign the product many times with a single purpose: to squeeze the product into a shipping pallet. Multiple redesigns undermine the effectiveness and coherency of the strategy.
Vision
Despite these multiple redesigns, IKEA’s strategy is consistent with its vision statement. According to the vision statement, IKEA strives to offer a wide range of furniture with good design and at the lowest prices. While the second objective is met successfully, the statement on the good design is not completely justified. Numerous redesigns and a lack of local responsiveness minimize the value attributed to design. As a result, IKEA’s customers pay attention to the price only while the design is accepted as it is. Moreover, IKEA claims that it responds to the needs of people throughout the world and is able to meet their different needs, tastes, dreams, and aspirations. However, this statement is not consistent with the strategy. The vision statement ends with the outline of self-service benefits. In particular, customers are empowered to choose the furniture they want and pick it up at the self-service warehouse. Most items are packed flat and must be assembled individually at home. Undoubtedly, there are many people who enjoy the process of furniture assembling, but there are many more customers who may find such a shopping experience inconvenient.
Shopping
In addition, IKEA’s strategy is deficient in many areas compared to the full-service furniture retailers. As IKEA strives to fit the design to shipping boxes, customers may not be satisfied with the quality of the furniture products. Upon entry to the store, potential buyers are coerced into a predetermined path through model bedrooms, kitchens, living rooms, and bathrooms. Thus, the customers may not have the freedom to go to the department they are interested in the most. In other words, many customers may find such a shopping experience a waste of time. Moreover, shoppers need to do some preparation prior to coming to the IKEA store. IKEA encourages its customers to make a list of what they need for their homes and to take measurements of the spaces. Moreover, self-service may not be sufficient in the choice of such large products as furniture. Expert advice is always welcomed, but IKEA customers may not find it at IKEA stores.
Growth Plans
The goal of IKEA is to have 50 stores in operation in the United States by 2013. This goal is achievable and reasonable as IKEA is the fastest-growing furniture retailer in the country. According to analysts, IKEA builds huge stores and offers great prices. IKEA has managed to create a unique niche in the furniture market. Nevertheless, it is not completely justified to claim that IKEA has an opportunity to become the leader in the U.S. furniture retail market. Furniture of Scandinavian design makes IKEA unique, but it may not be welcomed by American consumers. According to the statistics, IKEA sales in 1993 were $4.1 billion while only in ten years, the sales increased to the level of $12.2 billion. This growth in revenue reveals that IKEA has a successful experience in expanding its operations overseas. At the same time, North America and Asia regions constitute only 18% of all sales. It means that IKEA is not as successful in these regions as it expects. However, IKEA adjusts the number of stores located in each country to the demand. For example, Germany accounts for 20% of all IKEA sales through 30 stores. The United Kingdom accounts for 12% (11 stores) and the United States for 11% (14 stores). At the same time, IKEA occupies 14th place in the rating of the leading U.S. furniture retailers. The growth plans are not justified for the North American market: the sales are not increasing, Scandinavian furniture is not welcomed, and the purchasing rates are not impressive. More focus should be paid to the European market.
Challenges
The primary challenge faced by IKEA’s managers is a lack of local responsiveness in the global strategy. Maintaining the lowest furniture prices in the industry may not be enough to keep the demand growing. Culturally specific customers (in India or China, for example) do not find the Scandinavian-style furniture appealing. If IKEA is to pursue an aggressive global expansion strategy, more attention should be devoted to design adjustment. Regarding the U.S. furniture retail markets, retailers compete mainly on quality and service. Even though IKEA positions itself as a high-quality producer, lack of service minimizes the chances to gain a loyal customer base. The U.S.-based retailers train personnel on how to educate customers on products, while IKEA does not pay sufficient attention to this matter. In relation to these challenges, two recommendations appear: 1) introduce local responsiveness in addition to low-cost strategy and 2) focus on improving customer service to replace the self-service approach.
Smaller Stores
I would not recommend IKEA to open smaller stores downtown or close to residential neighborhoods. Firstly, small stores do not fit the overall strategy IKEA promotes. Secondly, small stores will not include a wide range of products. The reduced choice will discourage potential buyers. Moreover, self-service may not be applicable in the setting of the smaller stores. On the other side, smaller stores can be exceptionally successful in the United States. Taking into account the insignificant level of sales in the North American market, stores of smaller size will give IKEA an opportunity to create a presence and gain customer loyalty. Smaller stores are new to IKEA’s strategy; therefore, senior managers should consider the financial side of the decision: smaller stores may not be efficient enough to keep prices at the lowest possible level.