Case Study :

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. The name IKEA was derived from kamprad's initials (IK) and the first letters of the Elmtaryd farm and the village of Agunnaryd where he grew up (EA). Over the years, the company grew into a retail titan in home furnishings and a global cultural phenomenon, what BusinessWeek called a "one-stop sanctuary for coolness" and "the quintessential (evolutionary) cult brand." IKEA inspires remarkable levels of interest and devotion from its customers. Each year more than 650 million visitors walk through its stores all over the world. Most need to drive 50 miles round-trip but happily make the effort in order to experience IKEA's unique value proposition: leading-edge design and functional home furnishings at extremely affordable prices.

IKEA's Scandinavian-designed products are well made and appeal to the masses. To stay relevant and fashionable, the company replaces approximately one-third of its product lines each year. Most have Swedish names such as HEKTAR lamps, BILLY bookcases, and LACK side tables. Kampard, who was dyslexic, believed it was easier to remember product names than codes or numbers. Besides featuring fashionable and good-quality products, IKEA stands out in the industry because of its bargain prices. The company's vision is and always has been "to create a better everyday life for many people". As Kamprad said, "people have very thin wallets. We should take care of their interests." A high percentage of its customers are college students and families with children.

IKEA continuously seeks out new ways to run its businesses more efficiently and pass those cost saving to the customer. In fact, it reduces prices across its products by 1 percent to 3 percent annually. How can it do so? For starters, IKEA engages the customer on many levels, including have the customer do all the shopping, shipping, and assembly. Further, IKEA's floor plan is designed in a winding, one way format featuring inspirational room settings, so consumers experience the entire store. Next, they can grab shopping cart, pay for the items, visit the warehouse, and pick up their purchases in flat boxes. Consumers load the items in their cars, take them home, and completely assemble the products themselves. This strategy makes storage and transportation easier and cheaper for the store.

IKEA has also implemented several company-wide strategies to keep operational costs low. The company buys in bulk, controls the supply chain, uses lighter packaging materials, and saves on electricity through solar panels, low-wattage light bulbs, and energy from its own wind farms in six different countries. Its stores are located a good distance from most city centers, which helps keep land costs down and taxes low. While the firm owns most of its stores worldwide, they also use agents under franchising agreements in some parts of the world. Interestingly, customers go through a similar experience in any IKEA store where some services are adapted to cater for cultural differences between markets.

When IKEA develops new products, its designers and product developers start with a low price tag first and then work with one of their 1350 suppliers around the world to develop the product within that price range. Designers are efficient, and waste is kept to a minimum. Most of IKEAstores resemble a large box with few windows and doors and are painted bright yellow and blue- Sweden's national colors.

Most of IKEA's products are sold uniformly throughout the world, but the company also caters to local and regional tastes;

In China, it stocked 250,000 plastic placemats with "Year of the Rooster" themes, which quickly sold out after the holiday.

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.

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.

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.

IKEA is known for its quirky communication campaigns, which help generate excitement and awareness of its stores and brand. It ran an advertising campaign inviting customers to be the "ambassador ofKul" (Swedish for fun), but in order to collect the prize, the contestants had to live in an IKEA store for three full days before it opened, which they happily did. Thousands of people will line up for a chance to win prizes and IKEA furniture. In Sweden, IKEA launched a Facebook page for the manager for a new store. Anyone who could tag his or her name to an IKEA product on the profile page won that item. The promotion created thousands of tags. IKEA has evolved into the largest furniture retailer in the world with approximately 300 stores in 38 countries and revenues topping $36 billion, in 2013. The majority of sales still come from Europe, but the company has aggressive plans to expand the $11 billion brand further into Asia, India, and the United States. IKEA does control its communication campaigns worldwide.

Based on case material only, answer the following questions:

1.What philosophy does IKEA seem to adopt towards its target markets? Explain your answer (3 marks).

2.What pricing method is most relevant to IKEA's prices? How does such method fit with IKEA's philosophy and marketing mix. Explain your answers (5 marks).

3.In relation to IKEA's communication, (a) what types of media are mostly applied by IKEA? (b) What communication appeal do IKEA's communication campaigns seem to apply? (c) Based on case material, does IKEA apply a push or pull strategy when communicating with its target markets? Explain your answers (5 marks).

4.What distribution channels does IKEA adopt? How integrated are those channels? What are the benefits can IKEA achieve from such distribution choices (4 marks).

5.What growth strategy does IKEA apply? Explain your answer (3 marks).