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Case Study IKEA

In today's economy, customers play increasingly active roles in service value creation and cocreationmore than they ever have before. They create service value for themselves through active involvement and customization and they enjoy value-in-use of the service over time through their own continued engagement and actions. Value-in-use refers to the value that customers get as they use products and services for various purposes in their own lives, most often independent of the provider. Rather than "delivering value," companies are often simply providing platforms for customers to create value for themselves. Customers also cocreate value together with service providers through direct interactions online, over the phone, or in person. Through these types of interactions, customers and service providers bring their resources together to cocreate unique value. These expanded customer roles are probably most apparent in the world of Internet based services and apps, where customers play active roles in producing service value for themselves with little or no personal interaction with the service provider.

Global retailer IKEA is a company that has built its strategy around expanded customer roles since the company opened its doors in the 1950s. Headquartered in Sweden, IKEA is today the world's largest home furnishings retailer, operating in 28 countries with over 300 physical stores and a major online presence including products and services. Known for its "do-it-yourself" or "DIY" business model, IKEA engages customers in tasks that are not typical for a furniture retailer. At IKEA, customers create their own value by finding and picking the products they want from IKEA's warehouse shelves, loading them and transporting them to their own homes, assembling the furniture, and then using these purchases to support their lifestyles. The customer is a clear creator of value in this context and value-in-use comes when the furniture is assembled and used in the customer's personal space. IKEA also provides extensive online catalogs, tools for creating personalized designs, and in-store assistance from designers if desired. Thus, IKEA is a cocreator of value through the resources it makes available to customers and the interactions it has with them.

Terms like collaboration, coproduction, cocreation, and value-in-use are becoming increasingly common across industries in strategic discussions and in new business models. While definitions of these terms are still evolving, it is clear that innovative services have emerged as companies begin to think about their customers as "value creators" and "value cocreators" rather than "value recipients." IKEA understands this and has built its highly successful business model on this kind of thinking. Companies are also recognizing that the customer is engaged in a larger ecosystem of services, products, and people that revolve around the products and services they purchase from any one company. In the IKEA example, the ecosystem for an individual customer might include services related to finding a home or apartment, professional design services, home products from other providers, services from other home trades (e.g., painting, tile work, or electrical), and family and friends who are involved in home furnishing decisions and use. As companies expand their view of what it means to serve the customer and recognize the varied and essential roles that

customers play in value creation, opportunities for innovation and new business models abound. As they look outside their immediate sphere of influence into the customer's broader ecosystem, even more opportunities reveal themselves.

IKEA of Sweden has managed to transform itself from a small, mail-order furniture company in the 1950s into the world's largest retailer of home furnishings. In 2015 more than 300 stores in 28 countries generated more than 31 billion euros in sales. The company sells simple, functional, yet well-designed furnishings, charging significantly less than its competitors.

THE "DO-IT-YOURSELF" (DIY) CONCEPT

A key to IKEA's success is the company's relationship with its customers. IKEA has drawn the customer into its production system: "if customers agree to take on certain key tasks traditionally done by manufacturers and retailersthe assembly of products and their delivery to customers' homesthen IKEA promises to deliver well-designed products at substantially lower prices." In effect, IKEA's customers become essential contributors to valuethey create value for themselves through participating in the selection, transportation, and assembly processes. IKEA has made being part of the value creation process an easy, fun, and pleasant experience for customers. The company's stores are a pleasure to shop in. The stores are set up with "inspirational displays," including realistic room settings and real-life homes that allow customers to get comfortable with the furnishings, try them out, and visualize the possibilities in their own homes. To make shopping easy, free strollers and supervised child care are provided, as are wheelchairs for those who need them. When customers enter the store, they are given store maps, tape measures, pens, and notepaper to use as they shop, allowing them to perform functions commonly done by sales and service staff. Once customers have made their selections, they find the boxed furniture in the IKEA warehouse and load it onto carts. After payment, customers take their purchases to their cars; if necessary, they can rent or buy a roof rack to transport larger purchases. Thus, customers also provide furniture loading and delivery services for themselves. At home, IKEA customers take on the role of manufacturer in assembling the new furnishings following carefully written, simple, and direct instructions. To accommodate customer needs, IKEA does have a fee-based delivery, assembly, and installation service for products over a certain price.

GLOBAL ADAPTATIONS

IKEA prints catalogs and provides detailed websites in many languages, making its products and instructions for their use accessible worldwide. In addition to tailoring its catalogs and websites, another key to IKEA's successful global expansion has been the company's policy of allowing each store to tailor its mix according to the local market needs and budgets. For example, when the Swedish retailer first expanded to the United States, executives quickly learned that Americans prefer larger drinking glasses, bigger beds, and more closet space.

On the other side of the world, Chinese customers save a high percentage of their income and are extremely price sensitive, so the prices there were initially the lowest in the world to lure the Chinese customers into the stores; $1 placemats and 12 ice cream cones are examples. And some

furniture items were 50-60 percent less than similar items in the United States. Amidst the price changes, IKEA learned that its "furniture for the masses" positioning was confusing consumers. What IKEA had not realized was that in China, IKEA was seen as an aspirational brand by many consumers. IKEA subsequently altered its targeting strategy to focus on younger middle-class consumers to help maintain its aspirational brand status. The response has been extremely positive, with 21 IKEA stores now open in China. The Beijing store that opened in 2006 is the largest IKEA store in the world outside of the flagship store in Sweden.

In addition to price variations, the store layout in Chinese stores was also adapted to reflect the design of many Chinese apartments. Because many of the apartments have balconies, the stores have a selection of balcony furnishings and displays. And because Chinese kitchens are generally small, relatively few kitchen items and furnishings are shown. Even IKEA's famous DIY assembly concept has been adapted to some extent in China. Because fewer people have cars and therefore use public transportation, IKEA has more extensive delivery service in China than in most countries. And because labor is cheaper in China, many customers choose to have their furniture assembled for them rather than doing it themselves. Another interesting adaptation to Chinese culture is IKEA's acceptance of extensive browsing by customers, in some cases even allowing customers and their children to nap in the display bed areas.

IKEA'S SUCCESS

IKEA's success is attributable in part to recognizing that customers can be part of the business system, performing roles they have not performed before. The company's flexible implementation of this idea through clearly defining customers' new roles and making it fun to perform these roles is the genius of its strategy. Through the process, customers around the globe cocreate their own experiences and contribute to their own satisfaction. And IKEA continues to experience financial success and acceptance globally with its strategy. In 2015 sales increased by 11.2 percent to 31.9 billion euros over the previous year. The number of visits to their stores increased to 1.9 billion visits, up 21 percent from 2014.

Answer the following Questions in the light of the chapter discussion and considering the material provided in the IKEA case.

1.Discuss the general importance of customers in the successful creation and delivery of service experiences.

2.Why might customer actions and attitudes cause the service performance gap to occur?

3.Discuss the customer's role as a productive resource for IKEA. Describe a time when customers played this role.

4.Discuss the customer's role as a contributor to service quality and satisfaction.

5.Discuss the customer's role as a potential competitor.

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