IKEA Analysis Today IKEA is progressing towards being one of the top furniture retailers in the world. In 2002, they served 286 million customers through 154 stores resulting in $12 billion in revenue. Although IKEA has several stores placed around the world, they are not always thought of as the most popular furnishing store in America. All the stores are self-service and are based on a do-it-yourself shopping experience. There are few contacts with customer service representatives within the stores, except for when the customer enters the transaction phase of their buying experience.
IKEA is proud to find the most cost efficient manufacturers for their products to in turn sell for a lower price to their customers. By replacing quality with low prices, IKEA has to step out of the normal standard of what a traditional furnishing store offers and take part in what is called a reverse positioning marketing strategy. Examples of the things that IKEA lacks are customer contact with employees, deliveries, assembling purchases, quality of products, style and culture adjustment. Lack of American adaptation has hindered the growth of IKEA by preventing them from being as successful as they are in other countries.
IKEA describes it’s customer as a person who adapts willingly to change, has a do-it-yourself mentality and is an early adopter of new technology. This person is most likely to be young, maybe a college student or a newly married couple that is living in an apartment or buying a starter home. This person dwells in a heavily populated area where land is abundant to accommodate the large-scale store and parking facilities. The products purchased are used for an array of household furnishings such as an entire kitchen, living room, bedroom, office and other decor.
IKEA has many competitors including mass-volume furniture retailers such as Wal-Mart, Rooms to Go, and Ethan Allen1. In regards to size, all of the stores listed above out number the amount of IKEA stores in the U. S. However, IKEA beats its competitor stores on square-footage of the actual store. Compared to its competitors, IKEA is most like Wal-Mart because of their “everyday low price” and quality. Whereas Rooms to Go and Ethan Allen are more expensive with a focus on higher quality. Since there are many bargain shoppers in the U. S. , we believe that IKEA has a great proposition to be profitable here. ____________________________________________________________________________ _ 1-See Figure 1: Leading U. S. Furniture Retailers IKEA’s competitors, Rooms to Go and Ethan Allen, have a different target market that is focused on a middle to upper-class society in which the consumer wants a long-lasting product and is willing to pay a higher price. Wal-Mart’s furnishing products consist of similar items that IKEA sells except for kitchen cabinets. Rooms to Go and Ethan Allen offer entire bedroom suites, living room and dining room furniture.
You can also buy the accessories displayed within the store set-ups just like IKEA. These stores all offer assistance to help you make the right selection. In regards to customer service in the U. S. , consumers are use to having employees answer questions and guide you through your purchase. Whereas in IKEA stores the customer is expected to be prepared for their shopping experience by knowing what they want, have measurements and a way to transport their purchases home for assembly. In America, the consumers would rather pay extra for additional attention, assembly and delivery.
The European style that IKEA offers is very unique and doesn’t really fit into the American culture. For example, most Americans prefer several styles to choose from rather than just the four that IKEA offers. In one room the average consumer may have a modern style but in another room they could have contemporary furnishings. Americans prefer a lavishly decorated room with detail while the European style of furnishing is based on the less is more analogy. The European measurements are on a smaller scale and are difficult to convert to the standard measuring system used in the U.
S. Location, Location, Location – This is one of the key factors in successfully marketing the growth of your business. IKEA has only placed its stores in metropolitan areas that are heavily populated and have the availability of space to accommodate an IKEA store2. By placing them in popular cities, it hinders their target market from gaining access to the physical store. The geographical location of the stores overlooks the majority of the target market for IKEA in surrounding smaller cities in which most of the consumers reside. The life style of the target market oes not include everyone in a large city. People in surrounding areas must be taken in consideration to grow the IKEA business. Existing Problem IKEA needs to think on a broad scale of how they can distinguish themselves among the current American market and create customer loyalty. Possible Solutions These are the solutions: implement more customer services, the IKEA lite store, offer American styles, informational kiosks and preferred customer program. IKEA has become very successful over the years in other countries, but growth has been slow in the U. S.
IKEA can continue to operate under the status quo and hope Americans adapt to their way of business. If IKEA is up for change, they can start with a major upgrade in their customer relations department. The current shopping experience works but in order to appeal to a larger target audience IKEA needs to improve in several areas. IKEA would first need to hire more employees to work the sales floor. By having more employees that are trained to provide knowledge and assistance in purchasing products, the shopping experience would be more pleasurable to the average consumer in their target market.
IKEA currently is a large-scale furnishing store that requires space to facilitate their needs within a community. An IKEA Lite store would offer the IKEA product to the target market in smaller surrounding cities in which the large-scale stores are located. The lite store would include a two-three of each of the popular floor set-ups for each room that they offer. The store would also be focused on decor and smaller furnishings that would accessorize the larger set-ups, but least likely be bought when purchasing a large item like a bedroom suite.
Catalogs would also be available for shoppers to browse items that are sold in the large-scale facilities and have them shipped directly to their home. The American cultural style is very different than the Scandinavian style of furnishings. If IKEA were to replace some of their product mix with American design, they would sell more products. As of now, there are only four choices of furnishings styles in which there are high, medium, and low price grades. If IKEA cuts out the medium price grade and adds the most popular American esigns in place of the items removed they could increase their value proposition in the U. S. The kiosk would provide a cost efficient solution for customer service. These electronic kiosks will be placed in each department to assist customers with their shopping experience. ______________________________________________________________________________ 2 – See Figure 2: IKEA Stores in the U. S. They will replace the need for additional employees while giving the customer the chance to ask questions, look-up products in the available department, and walk them through the process of making their purchase.
IKEA is already successful, but in order to make sure their customer return they could offer a preferred customer program. This program would be an incentive for the customer to purchase items at IKEA. When a customer spends an accumulate amount of $500 or more they will receive one ten percent coupon available in the stores. The coupon will be an all-day shopping pass, meaning the customer can use it as many times as needed on the day it is first redeemed. This program will create loyalty to the customers that love IKEA and reward the customers for coming back. Consequences
On improving customer service, IKEA would need to invest in a larger staff and the training to ensure they are equipped with the skills needed to meet consumers’ needs. This may negatively affect the financial statements for IKEA if the funds are not available. It may also cause the low prices to rise to offset the overhead cost. On the other hand, the consumers that shop with IKEA would be more satisfied with their shopping experience because it’s what their accustomed to in America. The consequence of the IKEA Lite store could take potential traffic of sales away from the actual IKEA store.
This could cause the larger stores to loose profits. Positively, this will add another avenue for the IKEA customers to shop in a smaller store for minor purchases that are located closer to their town versus traveling to a large city. Sometimes the consumer can’t afford the time out of their busy lifestyle to travel a few extra miles just to shop at the large-scale store, therefore, having an IKEA Lite would be beneficial. The significance of adding American styles to the IKEA product line would create a welcoming for the American culture to IKEA and the target market in the U.
S. stores. This may be a devastating change for IKEA and may cause them to lose customers that like the European style. At the same time it would make the average shopper of IKEA in the U. S. more satisfied because they would have products that are designed more for their tastes. Most businesses will adapt to customs in which they submerge themselves in and change a few things in that region in order to sell more in return making more profit. The kiosk creates a way for IKEA to provide customer service without having to increase prices.
Also, by not having to hire extra employees it gives IKEA the initiative to answer more customers’ questions while saving money. Thinking on the negative side of kiosks, it could slow the flow of the traffic that IKEA creates within the store. We think this is a solution that will let IKEA remain in reverse position strategy. It will also help the Americans adapt to their way of retailing. Preferred customer programs have worked in department stores, so if IKEA would implement this they could attract more customers that want to buy to save more.
It is an incentive for the customers to shop IKEA because the customers feel like they have an advantage by shopping. When a bargain shopper makes a purchase they want to have the satisfaction of getting the best deal possible. In the beginning, the cost of giving the customers discounts will cost IKEA some profit, but as time passes it will even it out and IKEA will eventually gain profit. Solution IKEA wants to keep their reverse marketing position, but in order to do this they must use a non-traditional solution to the problem.
To prevent from deciding on a drastic change for IKEA, gradually implementing better customer relations will help grow the company. At first, IKEA would need their current software to track customer purchases and the cashier would be responsible for pointing out the amount needed until they receive their coupon. For the future, IKEA can offer membership programs in which the shopper can buy a one year subscription of receiving discounts during peak seasons such as back-to-school, Christmas and their birthday. Offering the preferred customer program and future membership program will build customer loyalty to their products.
Building loyalty attracts new customers because the satisfied customers will spread the word about the IKEA experience. At the same time, customers would be more excited about shopping at IKEA because it would be a more inviting atmosphere and they would return for more discounts. Application Based on other business operations, the most effective way to grow your is to adapt to the customers’ needs and what’s. For example, Wal-Mart in Japan is like a open-air market shopping experience because that’s what its cultural norm requires.
McDonald’s also adapts its menu to the food culture in that area as well. Just by watching the news you can tell that’s how businesses are grown. IKEA is based on a “reverse positioning” marketing strategy in which they wanted to be different than the normal adaptation that other business go through when moving to another country. IKEA can still be different by keeping its original marketing plan, but adapting slightly to making consumers feel at least a little bit welcomed into the European way of life. IKEA may be invading America, but America may be invading IKEA’s way of doing business.