Marketing Management

Question 1- IKEA
IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad. The company, which
initially sold pens, Christmas cards, and seeds from a shed on Kamprad’s family farm, eventually grew
into a retail titan in home furnishings and a global cultural phenomenon, what Business Week called a
“one-stop sanctuary for coolness” and “the quintessential cult brand.”
IKEA inspires remarkable levels of interest and devotion from its customers. In 2008, 500 million visitors
walked through IKEA stores, which are located all over the world. When a new location debuted in
London in 2005, about 6,000 people arrived before the doors opened. A contest in Atlanta crowned five
winners “Ambassador of Kul” (Swedish for “fun”) who, in order to collect their prizes, had to live in the
IKEA store for three full days before it opened, which they gladly did.
IKEA achieved this level of success by offering a unique value proposition to consumers: leading-edge
Scandinavian design at extremely low prices. The company’s fashionable bargains include products with
unusual Swedish names such as Klippan loveseats for $279, BILLY bookcases for $60, and LACK side
tables for $8. IKEA founder Kamprad, who was dyslexic, believed it was easier to remember product
names rather than codes or numbers. The company is able to offer such low prices in part because most
items come boxed and require the customer to completely assemble them at home. This strategy results in
cheaper and easier transportation as well as more efficient use of store shelf space.
IKEA’s vision is “to create a better everyday life for the many people.” Its mission of providing value is
predicated on founder Kamprad’s statement that “People have very thin wallets. We should take care of
their interests. IKEA adheres to this philosophy by reducing prices across its products by 2 percent to 3
percent annually. Its focus on value also benefits the bottom line: IKEA enjoys 10 percent margins, higher
than its competitors such as Target (7.7 percent) and Pier 1 Imports (5 percent). IKEA sources its
products from multiple companies all over the world rather than a handful of suppliers as many furniture
retailers do. This ensures the lowest price possible, and savings that are passed on to the consumer.
Today, IKEA works with approximately 1,300 suppliers from 53 countries.
IKEA’s stores are located a good distance from most city centers, which helps keep land costs down and
taxes low. The average IKEA customer drives 50 miles roundtrip to visit an IKEA store. Many stores
resemble a large box with few windows and doors and are painted bright yellow and blue—Sweden’s
national colors. They save energy with low-wattage lightbulbs and have unusually long hours of
operation; some are 24-hour stores. When a consumer walks through an IKEA store, it is a very different
experience than most furniture retailers. The floor plan is designed in a one-way format, so the consumer
experiences the entire store first, then can grab a shopping cart, visit the warehouse, and pick up the
desired items in a flat box.
Many IKEA products are sold uniformly throughout the world, but the company also caters to local
tastes.
1. In China, it stocked 250,000 plastic placemats with “Year of the Rooster” themes, which quickly sold
out after the holiday.
2. When employees realized U.S. shoppers were buying vases as drinking glasses because they
considered IKEA’s regular glasses too small, the company developed larger glasses for the U.S. market.
3. IKEA managers visited European and U.S. consumers in their homes and learned that Europeans
generally hang their clothes, whereas U.S. shoppers prefer to store them folded. Therefore, wardrobes for
the U.S. market were designed with deeper drawers.
4. Visits to Hispanic households in California led IKEA to add seating and dining space in its California
stores, brighten the color palettes, and hang more picture frames on the walls.