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Ghaayathri
CASE STUDY ON IKEA
2009
This case study gives a brief over view of IKEA , it’s history, the
concept, the store and it’s performance. It also looks at the
sustainability of the concept.
Ghaayathri P
GAPR09RM082

2. Contents
IKEA HISTORY ........................................................................................................................ 3
THE IKEA CONCEPT .............................................................................................................. 4
Vision ..................................................................................................................................... 4
Business Idea ......................................................................................................................... 4
Marketing positioning statement............................................................................................ 4
Value Proposition................................................................................................................... 4
Great Functional Design .................................................................................................................. 5
Extensive Range and Variety ........................................................................................................... 5
Customer Value............................................................................................................................... 5
Right Quality.................................................................................................................................... 6
Convenience.................................................................................................................................... 6
THE IKEA MARKETING MIX ............................................................................................... 7
THE IKEA STORE.................................................................................................................... 7
Location ................................................................................................................................. 7
Format .................................................................................................................................... 7
Visual Merchandising ............................................................................................................ 8
Other Services ........................................................................................................................ 8
IKEA‟s PERFORMANCE......................................................................................................... 9
Sales ....................................................................................................................................... 9
Expansion............................................................................................................................. 10
IKEA‟s SUSTAINABLE BUSINESS MODEL ...................................................................... 11
The Supply Chain ................................................................................................................ 11
Primary sector ...................................................................................................................... 11
Secondary sector .................................................................................................................. 11
Tertiary sector ...................................................................................................................... 12
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3. IKEA HISTORY
The IKEA story begins in 1943, when founder Ingvar Kamprad, born in southern Sweden,
established his own business at the age of 17 from the money his father
gave him for succeeding in his studies. The name IKEA is formed from
the founder's initials (I.K.) plus the first letters of Elmtaryd (E) and
Agunnaryd (A), the farm and village where he grew up. IKEA originally
sold pens, wallets, picture frames, table runners,
watches, jewellery and nylon stockings -
meeting needs with products at reduced prices. In the 1950‟s he
turned IKEA into a proper furniture retail store with various
furniture designs, advertising and using a catalogue and showroom
to reach more people and potential customers. The IKEA concept
started to take its destined shape in 1960s – 1970s. A few new
stores were opened during this era and new hero products were launched and the first IKEA
restaurant opens in 1960s.
The IKEA furniture stores saw a dramatic expansion of their
stores into different countries including UK, France, Italy and
even USA. In the 1990s, the store grew even more. The number
of products increased along with the number of stores all over the
globe. But this decade is very special for the group because
Children‟s IKEA was introduced at this time-period only. The focus
shifted to catering families with children. The IKEA group was
created during this time and the responsibility towards customers
and environment became a priority to make good business. In the
2000s, the IKEA expands further, reaching the
new markets of Russia and Japan. This is the
time when the group associated itself with many environmental and social
projects. In 2006, IKEA launched its own food label covering about 30
percent of the 150 products in its food range. The range focuses on high-
quality food products based on Swedish recipes and tradition, for a low
price. The products have an IKEA label and are sold in Swedish Food Markets in IKEA
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4. stores and are also served in IKEA restaurants. Thus the history shows how, over six decades,
IKEA went from the woods of southern Sweden to being a major retail experience in 44
countries around the world.
THE IKEA CONCEPT
Vision
“To create a better everyday life for the many people”
Business Idea
"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.”
Marketing positioning statement
"Your partner in better living. We do our part, you do yours. Together we save money."
Value Proposition
GREAT
FUNCTIONAL
DESIGNS
RIGHT CUSTOMER
QUALITY VALUE
IKEA
EXTENSIVE
CONVENIENT
RANGE and
SOLUTIONS
VARIETY
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5. The IKEA‟s value proposition stems from its positioning statement which is “We do our
part”. IKEA is committed to designing great products in terms of convenience, functionality,
price and quality and hence delivers clever solutions and great value to the customers. They
achieve this by using the best of supply chain practices, lean management, minimising retail,
production and distribution costs and using inexpensive materials in innovative ways.
Great Functional Design
Easy to use, practical and yet attractive are the mantras for IKEA
design. It follows a no frill approach and allows the customer to
customise to a large extent; hence one does not have to pay for the
unnecessary add-ons. For example: even boxes at IKEA, the lids are
priced separately and can be bought separately. Innovation is the key
to the great designs that IKEA produces which simplifies everyday home furnishing needs.
Extensive Range and Variety
IKEA has positioned itself to be the one stop destination shop for all home furnishing needs.
It covers all home solutions, ranging from kitchen , bedroom,
bathroom , living rooms to office solutions as well. It not only
has furniture, but even small home decor products, lighting,
carpets, small kitchen knick knacks, storage boxes, kids toys,
etc. Not only does it house such a range of product categories,
but offers great depth in each category as well and hence
appeals to a large population. These products are very practical, appealing and modern and
hence for everyday use.
Customer Value
IKEA‟s pricing strategy is not plain “low price”, but value for money.
IKEA uses excellent supply chain concepts, reducing and eliminating
wastes at every stage and hence can offer good value to customers.
They are known for the close relationships with their suppliers, which
enables them to make a real difference, by buying good quality and
economical production in bulk to keep the prices low. They also make
all their furniture packing flat to reduce transportation and assembling costs. They also reduce
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6. on retail costs, but having simple warehouse type retail spaces in the sub – urban area, hence
reducing rental costs. They also cut down on the costs in sales personal, as IKEA customers
need to pick up their own merchandise and clear their own trays at the food court.
Right Quality
Keeping the customer in mind, IKEA doesn‟t invest in unnecessary expenses and focuses on
appropriate quality for the right use. For example, the back
panels of most of their book shelves are usually inexpensive
material, as it does a good enough job. At the same time, they
don‟t comprise on quality and ensure that the customers know
about this by putting up demo pieces in the retail outlets. All
their products undergo rigorous tests to ensure they meet the
required quality and safety standards.
Convenience
“All home needs under one roof”, with ready stock, provides at most
convenience to the IKEA shoppers. The simple return policy, simple
display of product information , the touch and feel of the products,
helps customers make most of their decisions by themselves.
Customer Service representatives, though few in number are always
ready to help the customers. The children‟s play area, the family
great value restaurant, special events, catalogues, seasonal themes, etc definitely provide
convenience to the customers.
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7. THE IKEA MARKETING MIX
The long standing tradition of IKEA„s marketing communication is primarily focusing on
print media like catalogues, newspaper ads, etc. However, it has expanded to TV, radio and
recently the internet medium. The IKEA website offers virtual home solution concepts and
prices as well.
IKEA focuses on 4 areas primarily for all its marketing communications:
 Product Range
 The Store
 Catalogue
 Advertising and PR
The IKEA catalogue requires special mention as 70% of the annual marketing spends are
reserved for this. With 38 different editions in 17 languages reaching 28 countries, a total of
110 million catalogues were distributed last year.
THE IKEA STORE
Location
The stores are usually located in sub- urban area and in standalone formats, with good
parking facility. This creates a complete shopping experience for IKEA‟s customers.
Format
The IKEA store is a warehouse format, no frills blue and yellow building which are usually
around 300,000 sq feet. The layout is a race track format, which guides the customer through
the entire store in one direction. However, as the path is wide, customers can easily stop and
look at displays and products without blocking the way for others.
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8. Visual Merchandising
The beautifully designed IKEA products are themselves appealing, and to add to this visual
treat, the stores have beautiful little concepts showcasing a
complete furnished model rooms for each section of the house.
A lot of colour coordination is used in the product placement
to enhance the entire experience of
their shoppers.
A few products in motion are placed
to further attract attention at the same
time enhance the quality perception of IKEA products. The products
are well placed and the price tag gives all the required information,
including the designer‟s name. The lighting is mix of soft yellow
lights, with good focusing white lights on the main products.
A pleasant aroma of the IKEA restaurant fills the store, and the
music is usually light and enjoyable. The design of the products and
the store interiors are changed often to make sure that the customers
get to see something new all time and hence increase the store visits.
It also places inexpensive products complementary to the big ticket
items, to let the customer know that the products they thought they never required would
enhance their lifestyle. By rotating one fourth of its product line every year, they manage to
keep the product desirable, fresh and relevant.
Other Services
The children‟s play area is well known for its high safety standards
and customers can drop off their kids right at the entrance and
enjoy a leisure shopping experience. The IKEA restaurant is
mostly in the centre of the store and hence the customer can at any
time take a break and head to the restaurant before he resumes his
shopping. They have large parking facility and hence customers can
easily load their products into their cars and drive home.
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9. IKEA’s PERFORMANCE
Sales
The figure below shows the sales of
IKEA group over the years. All the
numbers are in billions Euros. IKEA
had managed to double its sales in a
period of 5 years from 1999 to 2005.
The sales of the company have been
steadily growing at the rate of 15%
from year 2005 to 2008. Despite the
economic downturn in 2009, IKEA
sales increased by 1.4% and during recession, IKEA‟s low prices become even more relevant
to the customers. In 2009, the IKEA group totalled 21.5 billion Euros, while the food
services reached 1.03 billion Euros.
Europe still accounts for 80%
of its sales, with Germany
being the highest contributor at
16%. The US market alone
accounts for an 11% , followed
by France 10% , UK and Italy
at 7%. IKEA is yet to tap the
potential of the Asian Market.
The first entry in the Asian
Market was in Japan in the
1970‟s as a joint venture didn‟t
turn out to be fruitful venture
and exited in 1986 and it is only in 2006 that IKEA re-entered Japan with full ownership.
During the year 200, it entered China.
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10. Popular to the common belief that most of IKEA‟s products are sourced from Asia, two- third
of its suppliers are in Europe and only one third in Asia. IKEA has a total of 1550 suppliers in
55 countries.
Expansion
The grand total of 301 IKEA stores in 37 countries, speaks volumes about the company and
it‟s far reaching presence. The IKEA Group itself owns 267 stores in 25 countries:
Australia, Austria, Belgium, Canada, China, Czech republic, Denmark, Finland, France,
Germany, Hungary, Italy, Japan, Netherlands, Norway, Poland, Portugal, Russia, Slovakia,
Spain, Sweden, Switzerland, United kingdom and USA.
The other 34 stores are owned and run by franchisees outside the IKEA Group in 16
countries. These are Australia (2), the United Arab Emirates (2), Cyprus (1), Greece (3),
Hong Kong (3), Iceland (1), Israel (1), Kuwait (1), Malaysia (1), the Netherlands (1),
Romania (1), Saudi Arabia (3), Singapore (2), Spain (4), Taiwan (4), and Turkey (4).
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11. IKEA’s SUSTAINABLE BUSINESS MODEL
The Supply Chain
IKEA‟s core strength, besides its design, stems from its strong supply chain practices. The
various stages are:
 raw materials in the primary stage
 manufacturing in the secondary stage
 Distribution and retailing services in the tertiary stage.
Primary sector
IKEA works closely with its primary sector suppliers to ensure that it is receiving sustainable
and environmentally friendly raw materials. IKEA designs its own products and throughout
this process makes sure that the impact on the environment is minimised. The firm uses a tool
called the „e-wheel‟ to measure the environmental impact of products. This looks at
resources, production, use and recycling for each product. Around half of IKEA‟s products
are made of wood. This is a good source of material as it is recyclable and renewable. Other
production processes which help support sustainability include:
• tables made from recycled plastic
• rugs made from off-cuts
• Products made to stack for more efficient transportation.
IKEA works with suppliers to reduce waste or use waste products in further manufacture. To
help it has a Code of Conduct called the IKEA Way (IWAY).
Secondary sector
The IWAY Code helps manufacturers by making sure that they apply sustainable principles.
It also insists that they follow laws, health and safety requirements and do not employ child
labour. It states that materials from non-sustainable sources should not be used. The Code
raises standards for all concerned. IKEA also works with other organisations to support the
Code. These include children‟s charity UNICEF and the World Wildlife Fund.
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12. Tertiary sector
IKEA has more than 260 shops in 36 countries set up to provide a retail experience that meets
consumer needs. Stores are large and customers can pick their own purchases. Further
services are provided through the IKEA catalogue and home delivery. IKEA also has set up
initiatives to support sustainability within the company by:
• aiming to recycle up to 90% of its waste
• removing carrier bags from its stores
• subsidising public transport and encouraging cycling (with a new bike given to
each employee)
• giving low-energy light bulbs for employees
• Using only hybrid vehicles as company cars.
Bibliography
www.ikea.com
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