Case Study: The Factor of Ikea’s Success
By: Jennyzhan • November 16, 2015 • Case Study • 1,016 Words (5 Pages) • 2,156 Views
The factor of IKEA’s success
This report will estimate the factor of IKEA’s success through 4Ps and its compare with competitors. And we also define the key value of IKEA as ‘low price with meaning’, which means that IKEA provide affordable democratic product with fancy appearance.
Price:
- Price setting: using price matrix, by surveying the whole market’s competition, IKEA always can detect the price gap between different level of individual product and set the relatively low price with 30%-50% discount for each product.
- Low price: oriented at mass market, the most essential factor of IKEA’s success is its steadily low price. Which is vitally accounted for the low COGS:
- its cost-efficiency strategies on selecting design and supplier: Competitions are used in selecting both supplier and design. IKEA has suppliers all over the world, a large number of suppliers all over the world enable IKEA to invest the most cost efficient investment one places maintain(eg: the labour in Chinese) .For design, even though IKEA has its own designers, they also make them to compete with others outside the company. Thus, IKEA can always compare different design and choose the best one to use.
-its cost-efficiency strategies on product: IKEA also pay attention to saving even on its product. It may use high-quality material for its skin layer and low-quality material inside. Which ensure the appearance of product fancy with a low cost.
-its unique transportation style: flat packages save the room (around 6 times of the normal transportation) and are more convenient for customer to deliver. Since shipping fee is an important expense, the product can even be redesigned to save more.
-self-service method: The sale part of IKEA is totally self-service, customer could do everything on their own including picking items, transporting it to home and even assembling. Which save a large amount expense of sales person, transportation fee for delivering furniture to customers’ house and assemble fee.
-inherit company culture: IKEA maintain the company culture that ’Waste is considered the deadly sin in IKEA’. This encourage the company always don’t waste.
- its large demand volume also create economic scales to minimize the cost of material, manufacturing and shipping.
Product:
- Low price with meaning (affordable democratic design): According SWOT (Analysis 4) IKEA’s products are well targeted to the remaining market blank. However the low price also means the short service life and the self-service method, which is conquered by the advertisement campaign and theme park method (SWOT Analysis 1,2) .
- Adequate selection: Product matrix allow IKEA to detect the market blank and provide adequate product selection for different types and levels. While, oriented at mass market, IKEA also limited the over-decorated furniture. Which save the inventory cost a lot especially compared with high-end competitors who provide many
- Shopping experience: According to SWOT analysis 2,IKEA’s shopping experience is convenient, free and relax.
Promotion:
- Theme park method: IKEA locate the model house in its store and allow people to try their furniture indoor which provide the instant impression for customer. Instead of educating customer the quality of furniture (which is IKEA try to avoid), it provide a place that customer can experience product by themselves.
- Advertisement campaign: IKEA promote its culture that ‘change your things, change your lifestyle’ to respond American’s traditional reluctance to change furniture which is carefully elaborated in SWOT Analysis 1.
- Supermarket sales method: IKEA also take the advantage of supermarket. The freedom self-service encourage customers to read every product and rise customer’s motivation to purchasing. Otherwise, for American, it’s their most familiar purchasing method which is also used broadly in clothes store like ZARA and H&M.
Competitor comparation:
The table below illustrate IKEA and its competitors:
| Price | Product | Service | |
Low-end company | low | Ugly; bad quality; the purchasing environmental are cheap; limited selection | ||
High-end company | high | Well-designed; good quality and long service life; many selection; | Provide assemble, deliver, and in-door service | |
IKEA | Price that relatively low, higher than low-end, much lower than low end. | Well-designed; short service life; good purchasing environment; adequate selection | no assemble, deliver and in-door service |
As we can detect from this table, low-end store provide bad product while high-end store’s inventory, delivery and assemble costs are high. IKEA is just the mix two types advantages. ‘low price with meaning’ earn mass market for those who want to purchase fancy furniture with reasonable price.
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