IKEA’s Strategy

Ikea Stores

IKEA Company is engaged in the design and implementation of furniture and accessories for home created for the mass market. The concept of IKEA furniture is that most of the furniture it offers customers can assemble at their own homes; goods are carried in flat boxes, thereby reducing logistics costs and service, which leads to lower cost of production. IKEA stores are spread all over the world, and, despite of similarities in them and holding on to general companys philosophy, every country requires a special approach. The purpose of the paper is to analyze three culturally different markets (Japan, Germany and Russia) to research the IKEAs strategy in each of them, and to investigate the companys internationalization program.

Choice of Brand

IKEA is a good example to show how a company successfully finds and adapts to new market conditions. There are three reasons for the choice of IKEA as an object for analysis. First, the company has a strict corporate culture and special philosophy that is unique and no company has the same. Second, the company is successful at competing and holding competitive advantages at any market. Finally, IKEA still does much to adapt to special cultural and mental conditions of a new country.

IKEAs main competitive advantages are low-cost production of quality products with simple design and products related to them. Low prices are saved due to the absence of such services as credit, delivery and assembly of furniture (The secret of IKEA’s success 2011). IKEA orders furniture only where it can be cheap to produce. The company develops its own furniture design and establishes control over certain kinds of vendor performance. The furniture is designed in accordance with the standard dimensions of wood raw material; the same attention is paid to package size and the convenience of storage.

IKEA is a major developer with experience, i.e. it invests heavily in the construction of the largest hypermarkets. IKEA uses a new method for the production and distribution of furniture, which consists in the fact that the furniture is made in the form of separate elements, and then, the trade organization develops design, after which assembly of furniture is carried out by the consumer. With its stores situated outside the city, which helps it to save on rent, IKEA keeps prices low. All stores have a mother and child room and children’s room, which is very convenient for women with children because 60% of customers visiting IKEA are women (The secret of IKEA’s success 2011). Stores are built in the form of a maze: from input to output, there is one road that passes through all departments. Buyers have the opportunity to jump over several departments, but not always. This labyrinth on the trading floor is the invention by IKEA (The secret of IKEA’s success 2011). In addition, the unique corporate spirit within IKEA is also a competitive advantage for the company, which makes it look more original than its competitors do and gives an opportunity to avoid clich`s.

The general strategy applied on all markets abroad IKEA uses only honest company competing strategy methods in its operation: improving product quality, expanding the range of additional services, increasing the company’s image, reducing production costs, among others They study the range of competitors, and if any new product that could be added to a range of IKEA goods is detected, the company’s designers are encouraged to develop something similar. Management monitors how competitors offer their products to customers. On the other hand, IKEA can provide competitors with the organization of retail trade or procurement concept. However, the corporate spirit of IKEA is impossible to simulate, due to which IKEA is a truly unique company. Corporate spirit implies that all the staff know that they are a team working towards a common goal. “Together” is the key word in the IKEA ideology, and combined with the correct organization of production and sale of goods, this puts it in a strong competitive position.

It should be stated that the most important competitive advantage of IKEA is the company’s strong brand with unique values and distinctive characteristics, which attracts a large group of consumers. One of the main competitive advantages of the company is the high level of professional training, well-regulated logistics, competent marketing policy, which gives a good basis for further competition. IKEA should pay attention to the location of stores, as well as focus on the development of retail space in the regions. In addition, it would be important to focus on the development of self-service delivery of goods to consumers. To provide information to their customers, the IKEA distributes products catalogs, which present the design and the description of the furniture. The company also runs ongoing promotions and all kinds of sales.

The strategy implemented by IKEA should be attributed to the group of strategies to create and retain competitive advantages, in particular the cost minimization strategy (strategy of leadership in costs). The distinctive feature of this strategy is that cheap does not mean low quality (Dahlvig 2012). The furniture produced by IKEA is characterized by high overall quality, and together with the low price, these factors have a strong influence on the success of the company as a whole. The main components of the company’s strategy include self-service model while the buyer can easily understand everything unaided; low cost of furniture; provision of special facilities for customers. Additionally, IKEA stores have long working hours; kindergarten right in the store; the ability to use the inventory to facilitate the delivery of furniture; lack of dependence on suppliers; low production, transportation and material costs (Yohn 2015).

In regard to the strategy of IKEA in foreign markets, it is the same for all countries where the company is present. The first IKEA stores always open in major cities, and only then, it can reach the customers in regions. This strategy is effective because, according to studies that have been conducted by IKEA management, people living outside the big cities are most often not innovators and are not inclined to dramatically change the apartment style and the style of life (Yohn 2015). Such people are more inclined to massive furniture made of real wood with exquisite elements, so they require more time to adapt to modern trends (Yohn 2015). IKEA opens its stores not in city centers but on the suburbs to save money on the rent of land, which in turn allows it to make the prices of their products even more accessible.

IKEA creates the same conditions abroad as in the country of origin. All IKEA stores are designed according to general corporate philosophy with some amendments. IKEA does not specialize in specific products and offers its goods in a huge range. Visitors of IKEA stores are unable to run easily and quickly through the halls of the trade as they are literally forced to slowly move from one commodity to another exposure (Dahlvig 2012). IKEA represents all that is needed for the house; the company offers a huge selection of any goods, which makes it the main distinctive feature of the brand. IKEA employees claim that the diversity of goods is the hallmark of the company. IKEA is the seller whose customers are most involved in the trading process. People cannot mechanically select and buy furniture. Buyers need to find it in stock, arrange delivery and, finally, assemble it themselves. The exposition is designed in such a way to achieve interaction with the buyer; it makes customers touch the furniture, for example, sit on the bed. In order to provide its customers with the information, IKEA distributes catalogs.

In relation to the creative approach towards greater consumer participation in the sales process, the company uses numerous original ideas. There is a section with interactive products for children. Special events are organized in stores : from competitions for furniture assembly to the organization of London Zoo branches during school holidays (Dahlvig 2012). When IKEA first launched the sale of bedding line, customers were invited to spend a night in the stores.

Analysis of Culturally Distinct Markets

IKEA is the company, which has acquired its own individual corporate identity and values it. During the long years of IKEA being on the market, its style has entrenched in the minds of consumers. Now, it is recognized by almost everyone; thus, while entering new national markets, IKEA tries to change itself as little as possible. In addition, the changes, which the company still has adopt, are always made only for the benefit of IKEA and its consumers.

The main buyers of IKEA furniture all over the world are people between 30 and 40 years. In this segment of the market, consumers are usually characterized by a stable income; they can buy a new apartment and are ready to assemble furniture themselves. Marketing communications are the same worldwide. IKEAs distinct feature is indirect mailing of branded catalogs.

Japan

For many years, the main markets for IKEA were markets in Europe and North America. Harnessing the Asian region was expensive for the company. However, the potential of this region was huge for IKEA. For the first time, IKEA was trying to enter the Japanese market as early as in 1974, but the attempt failed. Experts name the two main reasons for the failure: the closeness of the Japanese market for foreign retail companies and, most importantly, the Japanese mentality (Rask, Korsgaard & Lauring 2010). Nowadays, IKEA faced with challenges such as logistics and special requirements for product quality. Over the past 30 years, the attitude of Japanese to the Western style has changed (Rask, Korsgaard & Lauring 2010). In Japan, the fashion for modern interiors appeared and became popular. Minimalism with its simple and clean lines has become popular among the local youth. In the interior, Japanese are increasingly using wood, steel and glass. This style is very much in line with the design concept of IKEA.

In recent years, Japanese consumers have differently perceived quality-price ratio. Earlier in this country, it was believed that high quality products would certainly be expensive. Today, Japanese know that high quality is quite compatible with a low price. The Swedish company IKEA is currently developing the Japanese market. This is the largest initiative of the company in the Asian market since five years ago when the Swedes came to the Chinese market. IKEA opened two stores in Tokyo, one – in late 2005, and the second one appeared at the beginning of 2006 (Rask, Korsgaard & Lauring 2010). Next, IKEA plans to open four to six stores in Tokyo and about the same amount in Osaka (Rask, Korsgaard & Lauring 2010).

IKEA has developed special marketing strategy for Japanese. For example, the most popular transportation means is trains. They are often used for advertisement, for example, there is a specially designed train for the Universal Studios Japan in Osaka. IKEA overtook that idea. The train decorated in IKEA style and furnished with brand furniture was initiated in Kobe. Soft seats resemble beds of Scandinavian furniture giant, and all the interiors represent the IKEA concept (Lutz 2015). Today, many Japanese live in small apartments slaughtered with things. This situation should be eliminated with the help of IKEA. Small apartments should be cozy and comfortable. By supplying cheap soft furnishing with good design, to the company aims at improving the daily living conditions of the Japanese.

In regard to the 4Ps analysis (product, place, price, promotion), the strategy that the company uses in Japanese market is the following. The products are the same as everywhere, but they are more adapted to small living areas of Japanese. IKEA stores are located outside the cities, but as the market of Japan is relatively new, now IKEA stores are situated outside Tokyo and Osaka. The specialty of placement is extremely high land prices. The prices at IKEA stores are relatively cheap, but higher than in Europe or Northern America. For Japanese, the given prices are affordable. Promotion is designed to follow common Japanese trends: advertisement on trains, advertisements for women ( in Japan, men are working and women are meant to have more time to choose and assemble IKEAs furniture).

Germany

No other country has such a large number of IKEA stores as Germany: 46 branches (Lutz 2015). Even in Sweden, there are fewer of them: only 16 (Lutz 2015). Under the roof of almost every German home, whatever it may be, something from the Swedish manufacturer can be found. For 38 years, IKEA holds the position of the most popular furniture store in Germany (Lutz 2015). To advertise itself in Germany, IKEA has used various marketing moves. For example, promotions that the company ran constantly enjoyed tremendous success. Once IKEA proclaimed laundry day when all unmarried men had a chance to wash their socks in the shop (Lutz 2015). On another day, customers in the store could get the haircut, and during another advertising campaign, free bread was given to customers (Lutz 2015). IKEA learned Germans mentality. They save money in all possible ways and became the best customers of IKEA. Fifteen percent of sales rate in IKEA is accrue to Germans (Lutz 2015).

In regard to the 4Ps analysis (product, place, price, promotion), the strategy that the company uses in Germany is very similar to that in the country of origin. It is explained by closeness and common business specialties of European countries. The products are the same: wide range of goods for home including furniture. However, Germans along with Japanese appreciate quality more than any other nations. IKEA stores are also placed outside the cities. The prices at IKEA stores are relatively cheap and the same as in the rest of Europe. Promotion is designed to fit German mentality: practicality, frequent discounts, family-oriented. In addition, at first, IKEA used shock effect in advertising to attract Germans. The main obstacles in German market were overly strict business and legal rules.

Russia

As it has been mentioned before, IKEA is the company that has acquired its individual corporate identity and values it. However, for more successful performance, the Western retail players tried to adapt to Russia. IKEA developed the format of “MEGA” specifically for Russia (Kiselyova, Prentice, & Roche 2014). The unique format of shopping centers has provided success for both furniture stores and shopping malls in general. Today, “IKEA MOS (Retail and Property)” is the largest developer in the retail sector of Russia (Lutz 2015).

For Russia, IKEA designers have specially created interiors for apartments with an area less than thirty square meters. To penetrate the Russian market, IKEA has chosen the strategy of contract manufacturing, which allowed the company to organize the output abroad, without resorting to the final movement of the local market resources. That is, the company largely bases its activities through a small network of foreign partners working on a contract basis. One more specialty that also works in Russia is IKEA Family project that was launched to encourage regular customers (Lutz 2015). IKEA Family card is free can be obtained free. The card allows customers to get discounts on some goods. In addition, there purchase discounts for applied to products and in a cafe. In Russia, the owner of the card gets a free cup of coffee or tea. In some countries (including Russia), IKEA Family Live catalogue is issued to the holders of cards (Lutz 2015).

In regard to the 4Ps analysis (product, place, price, promotion), IKEA had to work with all the components to fit Russian furniture market. The product range is also big, but the furniture and designs were adapted to smaller Russian post-soviet apartments. IKEA stores are located outside the cities. The prices at IKEA stores are also not high, which was achieved by lowering tariffs and finding sources for production in Russia (for example, woods). Promotion is family-oriented; it includes discounts and sales promotions. The unusual aspect for Russians was the atmosphere of comfort and friendliness in the store, which is uncommon in many other places in the country. The biggest problems were high tariff rates and corruption. IKEA Company is not giving bribes to officials, and in Russia, IKEA has repeatedly faced with administrative obstacles that delayed the opening of stores.

IKEA is a great example of how retail stores can be organized as places of recreation and entertainment for customers. Families often come to the stores of the company for the whole day not only because they sell products that cause more interest than samples exposed on the shelves of the central streets but also because of the opportunity to actively participate in the process. IKEA always maintains the special marketing strategy, which means that the company transforms an ordinary shopping in a pleasant process that unobtrusively compels buyers to spend more money. The main strengths of IKEA is corporate uniqueness, preserving style and applying good strategies when entering foreign markets. The three markets chosen are situated in various regions in the world, with different mentalities and business rules. In Japan, Germany and Russia, stores save their original look (maze style), have regular catalogues and a very wide range of products. Customers from all three countries enjoy trying IKEA furniture before buying it and then assemble it by themselves. Stores are located outside the cities worldwide. However, IKEA takes into account the distinct features of the target country: in Germany and Russia mentality, in Russia and Japan living conditions. The company adjusts its services and furniture to attract more buyers.