CASE STUDY: The IKEA Approach

IKEA is a Swedish multinational conglomerate based in the Netherlands that designs and sells ready-to-assemble furniture, kitchen appliances, home accessories, and various other goods and home services. Started in 1943 by Ingvar Kamprad, IKEA has been the world's largest furniture retailer since 2008.

Bulleting!

Our business model is to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.

This was the headline in IKEAs yearly summary report for year ending 31 August 2015. It reported a revenue increase of 11.2 per cent to 32.7bn (26.2bn, $42.5bn), profits of 3.5bn and share gains in most markets. IKEA continued to be the worlds largest home furnishings company with some 9500 products in 375 stores in 28 countries. The company had 172,000 co-workers (of which 40,000 were in production and distribution).

The home furnishings market

By the late 2000s home furnishings was a huge market worldwide with retail sales in excess of $US600bn in items such as furniture, household textiles and floor coverings. More than 50 per cent of these sales were in furniture stores. The table below compares the geographical spread of the market and IKEA sales by region.

	Europe(incl Russia)	AMERICA	ASIA/PACIFIC
% Global Market	52	29	19
% of IKEA Sales	72	18	10

IKeas competitors

The home furnishings market was highly fragmented with competition occurring locally rather than globally and included competitors of several types:

Multinational furniture retailers (like IKEA) all of whom were considerably smaller than IKEA. These included, for example, the Danish company Jysk (turnover 2.9bn).

Companies specialising in just part of the furniture product range and operating in several countries such as Alno from Germany in kitchens.

Multi-branch retail furniture outlets whose sales were mainly in one country, such as DFS in the UK. The US market was dominated by such players (e.g. Bed, Bath & Beyond Inc. with revenues of some $US12bn).

Non-specialist companies that carried furniture as part of a wider product range. In the UK, the largest operator was the Home Retail Group whose subsidiary Argos offered some 53,000 general merchandise products through its network of 840 stores and online sales. It was number one in UK furniture retailing. General DIY companies such as Kingfisher (through B&Q in the UK and Castorama in France) were attempting to capture more of the bottom end of the furniture market.

Small and/or specialised retailers and/or manufacturers. These accounted for the biggest share of the market in Europe. In 2014, it was estimated that the UK market was about 10.2bn 7 of which IKEA had 1.7bn share (16.7 per cent).

Required

Discuss IKEA marketing competitive strategy (Generic Strategy). How has the company been able to capture a huge market share globally?