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IKEA Case Study

Free Essay Sample «IKEA Case Study»

IKEA is a global retailer of furniture and household items with approximately 70-year history of success. The company’s strategy is the unified requirements to the exterior and interior designs of its retail stores, products’ style, price policy, and non-changing focus on the middle-class customers. They always appreciate furniture of plain design and low prices, and they remain loyal due to the company’s extended assortments, adaption of furniture to their “national” preferences, effective promotions, delivery services, and on- line sales.

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IKEA developed its products in Sweden and then gradually started to retail them at the international markets. In 2011, its annual profit was 18 million U.S. dollars with 230 stores in 33 countries. IKEA is a global cult brand easily recognizable by large warehouse stores decorated in the colors of Swedish flag (blue and yellow). In general, a store offers its customers over 10,000 items with a possibility to buy not only furniture, but also stylish accessories to make their home design complete and comfortable (Charles, 2011). Moreover, store’s premises are arranged in a special “eye-catching” way, when a customer has to go through each department to reach the checkout area.

Simple clean Swedish lines of all IKEA products in a combination with law prices give a sense of “affordable happiness for everyday life”. As a result, customers, spend ten times more money than they planned. In addition, the company’s promotions and special offers, such as IKEA coupons, discounts, savin programs, free shipping, on-line sales, attract crowds both to their regular and on-line stores. (IKEA Promo Codes, 2013). However, the strongest IKEA global advantage is its focus on the prices reduction by 2-3% annually by optimizing its “suppliers’ chain in 53 countries. Among 1,300 suppliers, IKEA tries to find the most appropriate ones for the manufacturing of each item. Thus, the essence of IKEA’s strategy is to establish the minimum reasonable price for the item with the help of finding the most appropriate supplier of it.

At the initial stage of expansion, IKEA outsourced its production from Sweden to Poland, where suppliers offered their services at lower prices due to cheaper labor force and materials costs. Further, such best-sellers as Klippan love seats resulted in the idea of working with suppliers in each big market to reduce the shipping and rent costs. It led to 40% cost reduction for seven-year period, starting from 1999. Thus, IKEA’s strength is outsourcing production to the major local markets.  However, IKEA has to put big efforts to control how the production and quality standards are met. This process required regular visits of IKEA representatives to the local production sites to inspect the production lines, working conditions, and quality of materials and products. Investments into the inspection programs increase indirect costs. Moreover, local laws on ecology, waste unitization, and animal welfare require expensive initiatives. (The IKEA Group approach to sustainability, 2011). In other words, the increased indirect costs and expensive eco-friendly and ethic technologies under the locall legislations are IKEA’s weaknesses.

In early 1990th when IKEA entered the United States, it adapted its furniture to preferences of American customers. IKEA redesigned its European furniture to American “king-size” standards (mainly for beds, wardrobes, etc.) that resulted in the sales increase. Then IKEA implemented the same strategy in China, adapting its furniture to a typical layout of China apartments and offering delivery services in urban arrears. Moreover, IKEA actively promotes on-line sales, providing catalogues and brochures to “watch and buy on-line”. (IKEA Online Shop – Home shopping, 2013). Thus, IKEA’s today strategy is a combination of traditional requirements, adaption of local markets preferences, and the use of contemporary on-line possibilities. 

To sum up, IKEA has been a successful global retailer of furniture and household items from 1943 thanks to its unified requirements to their stores and products’ design and loyalty to their middles-class customers, who appreciate “plain comfort at affordable prices”. IKEA cuts costs outscoring their supplies to the main markets, adapts its furniture to the markets of the United States and China, runs effective promotions, offers delivery services and on-line sales. Thus, a formula of IKEA’s global success is the combination of its best traditional practices, dynamic adaptation to the markets’ preferences and on-line commercial activities multiplied by the never-ending loyalty to their target customers. 

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