Service Strategy of

IKEA

2013

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Table of Content

1. Introduction

i. History of IKEA 4

ii. Current Situation of IKEA 4

iii. Insights of IKEA 5

iv. Objectives of IKEA 5

v. Time line of IKEA 6

2. Why IKEA as a service organization? 7

3. Marketing Mix of IKEA

i. Product 8

ii. Price 9

iii. Place 9

iv. Promotion 9

v. People 10

vi. Physical Evidence 10

vii. Process 10

4. Service Strategy of IKEA 11

5. Overall Cost Leadership Strategy 12

6. Developing Complementary Services 14

7. Globalization Strategy 16

8. Conclusion 18

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1. Introduction

IKEA is a privately established, international home products franchiser that sells flat

pack furniture, accessories, and bathroom and kitchen items in their store around the world.

The company which pioneered flat-pack design furniture at the affordable prices is now the

world’s largest furniture retailer.

i. History of IKEA

The IKEA concept began when Ingvar

Kamprad who was age 17 years old, an

entrepreneur Smaland province in southern

Sweden, had an innovative idea. So when Ingvar

started his furniture business in the late 1940s, he

applied the lessons he learned in Smaland to the

home furnishing market.

Ingvar Kamprad

Ingvar’s innovative idea was to offer home furnishing products of good function and

design at prices much lower than competitors by using simple cost cutting solutions that did

not affect the quality of products. Ingvar used every opportunity to reduce costs, and he

scraped and saved in every way possible-except on ideas and quality. The name IKEA

formulated in a very creative way. The initials of Ingvar Kamprad came to first 2 letters I and

K, plus the first letters of Elmtaryd, and Agunnaryd, which are the names of the farm and

village where he grew up.

ii. Current situation of IKEA

As the world largest furniture franchisers they offer specific customer service in many

countries. IKEA concept journey continues with its global operation in 40 countries, with 330

stores and 154,000 workers.

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IKEA Store in Singapore

Initially its operations as a

seller of home furnishing

products, IKEA today diversified

its product into prefabricated

housing and food. Describing their

primary target market, IKEA’s

Business idea is to offer a wide

range of well designed, functional

home furnishing product at a low

price. The target market is very

broad. They are aiming to appeal to people of all ages, sexes, geographic location, all who

have one thing in common and that is the price preference.

iii. Insights of IKEA

Vision:

“To create a better everyday life for the many people”

Mission:

“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”

Market Positioning:

“Your partner is better living. We do our part, you do yours. Together we save

money”

iv. Objective of IKEA

To produce cheap and affordable product for the public/ customer and better life for

those who can’t afford expensive product.

Absorbing the maximum from the current resource base without harming to the

sustainability of the world.

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v. Time Line of IKEA

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2. Why IKEA as a Service Organization?

IKEA is selling furniture franchiser which is now spread to more than 40 countries so

why learning IKEA as a service organization? IKEA does not sell furniture items to the

customers they just sell a furniture life style to their audience instead of selling what they

produce. It has constructed its store how houses really exist. From that they create a dreamy

house in the customers mind and if a living room this is how it should be. According to the

Service Marketing concepts it is known as the “Servicitation”, selling a product and a

service concept together.

Not like another furniture retailer, IKEA have its own values so before moving on to

the Service strategy analysis we drafted a model to understand more about IKEA. Based on

how the IKEA has created its value to the customers and its business model we have built up

a model to position the IKEA (Table No. 1).

Table No. 1 IKEA model

IKEA positioned not as a furniture retailer but as a service provider by

providing solutions to the real life problems as it is focusing in making contribution to a

better life for a majority of people.

Business Model

Value

Based

Control

Based

Value

Creation

Logic

Long term

& Multi

Perspective

Short term

& Financial

Value

Service

Dominant

Product

Dominant

IKEA

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3. Marketing Mix of IKEA

The IKEA is the organization which offers wide range of well designed, functional

home furnishing products at a low price. The target market is very broad. There for we can

see that the Marketing mix of IKEA has well defined to creative value for their customers and

retain them for a long time.

As the above chapter proved IKEA as a service organization, the marketing mix 7 P’s

for the IKEA is as Follows.

i. Product

The service products are the heart of services marketing strategy. It include with a

core product which meet primary needs and supplementary elements which value

added/enhance services

When we consider about the IKEA the core product is well designed functional home

furnishing product and supplementary services can be identified as follows. These service

will enhance the value of the service provide by IKEA and will assist to supply the core

product successfully. For an example the element order taking the IKEA has basically

physical and online order taking process. Under that any customer can search from online

about IKEA web site and see information and then order throe home furnishing. The

important thing is it has a specific schedule for their orders, customer can order by seeing the

schedule. It has created according to delivery process of geographical area.

Another example for consultation element, IKEA use basically guidance book which

include how customers can assemble their home furnishing product correctly. In addition that

in the store of the IKEA, there is always consulting sellers to assist customers when they

chose and take purchase decision by consulting them as such as, how to assemble them, what

are the specific advantages.

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ii. Price

Payment of service means the price. The IKEA uses reasonable and affordable prices

for their furniture. Costs are cut and way necessary to be able to sell the product for less and

still turn a profit. They use large volumes and flat packaging to cut cost. The transports are

economic from the furnisher via the stores, to the customers, there are expensive than most

competitors, and they are outside city centers to keep price even low.

iii. Place

IKEA is internationally expanded company. They expand their show rooms to

Europe, North America, Asia and Australia. Customers can come and see product in the show

rooms and also customer have to go web side and see product, after delivered to home,

because of online store customer’s to easy buy product.

Structure of IKEA

iv. Promotion

How we communicate product to customer, mean promotion. IKEA are using TV

advertisement campaigns, catalog and online advertisement. As well as IKEA provide home

delivery service to its customer, shoppers are guide by properly and after sale service to the

customer.

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v. People

Human resources in the organization can be identified as the people. Front line

employees who are directly involve with customer, IKEA has sales people in the front stage.

Who are supports to customer to select furniture product and also provide information about

the furniture product. Back stage customer not directly involves with customer who are make

product or who are executive and top level employees. IKEA has furniture makers and

managing people in back stage.

vi. Physical evidence

Design service escape and provide tangible evidence of service preformed acnes.

IKEA has no of show rooms expansion globally. That show rooms very attractive and family

friendly environment and give the perfect nature of a house. And also IKEA provide

restaurant and safest play area to children. IKEA use in delivering furniture own vehicles.

vii. Process

IKEA selling process mostly depends on show rooms. Customer come and see

furniture, after select furniture and payment, and delivering furniture to customer residual by

using IKEA’s delivery vehicle. And also IKEA Company sells tire furniture true online.

IKEA customers have gone online and select product and online payment for furniture, after

deliver the furniture by IKEA.

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4. Service Strategy of IKEA

We have done a critical analysis on IKEA to gain insight on their service strategy.

First thing what we identified about IKEA is that it is not just a furniture retailer but provides

solutions to lot of people for an affordable price. Here the affordable price does not mean low

quality products but it derives lower cost products. So the first strategy in IKEA is the

Overall Cost Leadership. They maintain their cost in a lower level without harming to its

quality.

IKEA as a famous furniture franchiser it faces for a huge demand in every day. So we

analyze how they manage the demand with their capacity. According to the capacity they

have large show room which has optimized capacity allocation. So we thought about the

other side how they manage the demand. They are maintaining a restaurant chain along with

their stores with their inhabitant and also cultural foods. They have used the strategy of

Developing Complementary Services in managing their demand.

IKEA started in Sweden but now it has spread to 40 countries with 330 stores. It is a

global company it has expands the company to every country as it is. It is not a furniture

retailer but a Franchiser which has maintained the same standard for every country. We

identified its Globalization Strategy and the factors they used in entering to these countries.

Before they decide in entering to a country it conducts a research on the feasibility and

sustainability of it. For an example they have once tried to enter to the New Zealand market

but according to the research finding there will be a huge traffic jam in Auckland if they open

a store so they give up the idea.

As the conclusion of the strategies of IKEA they used 3 main strategies to become

successful in shorter time period. They are;

Overall Cost Leadership

Developing Complementary Services

Globalization Strategy – Franchiser – Multi Country Expansion

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Store arrangement of IKEA

5. Overall Cost Leadership

IKEA have affordable

prices and lower profits

margins with them to treat

majority of people. Without

harming the quality of the

products they minimize the

cost in a lower level to become

the Overall Cost Leader. They

use several practices to keep lower cost level. When we

consider about IKEA the target market is young buyers in

search of stylish and fashionable furniture and house hold accessories at a low cost. For their

customers, the firm offers home furnishing that combine good design, functionally and

acceptable quality at low price. Although low cost is always a priority, IKEA emphasize

several activities to keep it cost low. It also offers some differentiated feature that appeal to

its target customers, including in store play room for children, wheel chairs for customers

use, and extended hours.

Limited Customer Service

IKEA is not a wide range of service provider it only presents the available products

with them and sells if a customer need. They sell packages of furniture items without

assembling it; the customer has to assemble them by themselves. It leads to decrease

assembling cost, storing space and all the other unnecessary costs. Another thing is that the

IKEA does not provide transportation service to the customers if they want they can request

for transport facility. That is why they say “We do our part – You do your part”

Assembling part to customers

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Self-Selection by Customers

With the explanatory catalogs, informative displays and labels they provide the detail

assistance for the customers. So they keep fewer sales staff and give the freedom to walk

around the store and select their item. They have arranged the furniture items in packages and

after customer select item for them they deliver with the assistance of assembling. This

procedures lead for lower level cost and customer satisfaction.

Front Page of IKEA catalog

Low Manufacturing Cost

IKEA use 100% sourcing from their long term partners who have strong relationship

with them. They keep the relationship which worth for both parties and it allows gaining huge

financial benefit for the IKEA. Another significant fact is that the IKEA has their own

plantation in some countries which will be a sustainable benefit for the organization.

Modular Furniture Design

IKEA use in-house design focused on the manufacturing cost and capabilities of the

customers, they do not outsource designer from outside as they need to match the designs

with the cost and consumer expectation. This allows them to gain a competitive advantage by

decreasing the cost.

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6. Developing Complementary Service

Development complementary service is one of the demand and capacity management

strategies. The important thing of this strategy is diverting waiting customer as profitable

customer. Every firm has some waiting time/Queue when delivering their service. But the

important thing is a firm can manage their demand by using complementary service strategy

to reduce the waiting time and manage it to gain profitable advantages. According to its

customer will feels that they are not in the queue, but they are enjoying the waiting time.

According to it we can categorize IKEA’s main complementary service element as

follows.

Large & unique store

Supervised play area for children

IKEA restaurant café.

The IKEA store is most important and

attractive thing of the IKEA. It has to be in

order to offer comprehensive range of

product that people can take home

immediately and enjoy the same day, as well

as to inspire people in realistic room setting

and real life home.

Swedish Meatball

IKEA have used unique store to facilitate complementary services by encouraging

the visitors to take their time and get comfortable with IKEA home furnishing solution and

product is realistic room setting and real life home to sit ,lie down, open & close drawers, to

compare styles, prices & imagine the possibilities. The goal is that everyone will enjoy their

visit to an IKEA store by consuming complementary services as mentioned below.

If the kids don’t want to shop, they can play in the supervised area. it may be hard to

get them to leave, but they can be tempted with a treat from the IKEA .

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Restaurant and café, visitors can reward

themselves for successful shopping with a plate of

Swedish meatballs and buy a bag of meat balls

from the unique IKEA Swedish food market in the

exit area for the most IKEA stores .Because

Swedish meat balls is very popular fast food type

among people. So IKEA as identified that

opportunity as a complementary service option.

Appeal given to the customers

So we can identify that the IKEA have unique competitive advantage to manage

demand by giving the feeling that customers are don’t want to be waiting in the queue. They

have converted their waiting time profitable manner by their differentiated complementary

service strategies.

IKEA Restaurant & Cafe

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7. Globalization Strategy

IKEA operating in 41 countries, IKEA is a global destination store for home

furnishing, appliances, ready to assemble furniture, home accessories and kitchen products.

It is the world’s largest furniture retailer with more than 301 stores and 30 franchised units.

The largest market for the company is Germany with 44 stores followed by the United States

with 37 stores. IKEA applied Multi-country Expansion Strategy, so use same setting for

every county.

IKEA has plans to open its first stores in Croatia and Serbia in 2013, as well as a third

warehouse outside Barcelona, Spain in December. IKEA's plans for an India launch remains

in question as it awaits government approval.

IKEA standardization

Service Globalization Factors

Customer contact

Customer contact is front line operations. IKEA experiences many country-specific

advantages. First, IKEA's location in Europe made it relatively painless for the company to

spread throughout the rest of Europe. Along similar lines, IKEA has been able to send

employees who know the local language of foreign locations to set up stores, bringing the

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IKEA philosophy and standard practices along with them. IKEA also embraced its advantage

of its heritage, focusing on quirky advertising in North America.

IKEA try to keep the center of the company relatively lean, and not make too many

decisions centrally that would be better made in stores or factories close to customers and

suppliers. Therefore, they must have a strong group of co-workers who can make the right

decisions to support their strategies.

Customization

IKEA has standard setting for every country, so they have standard service policy.

However they had faced similar problem previously when it entered the United States. The

company initially tried to replicate its existing business model and products in the US. But it

had to customize its products based on local needs. American customers, for instance,

demanded bigger beds and bigger closets. IKEA had to make a number of changes to its

marketing strategy in the US.

Cultural adaptation

IKEA consider about cultural adaptation, so they use different method for different

culture specially their catalogs and advertising. Their biggest advantage was Ikea’s culture

and value. Culture is extremely important at Ikea, even more so than at other companies.

IKEA work hard to ensure that as new people come in, they understand who they are and

what they are trying to do. The people who work there genuinely want to be here and share

Ikea’s core values of cost consciousness and humility. As an example, in the 2013 IKEA

catalogue distributed in Saudi Arabia, women have been deleted from the picture.

Complexity

As for engineering capability, they continue to design most products themselves.

Their product designers don’t just sit in an office with a computer. They work in their

factories, and in the factories of their suppliers, designing products with the engineers there,

to help make them more efficient to produce.

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8. Conclusion

IKEA is formulated by a great entrepreneur Ingvar Kamprad in 1940 in Sweden. He

had a creative idea in furniture items which leads him to become the excellent brand in

Sweden. It is now the largest furniture retailer in the world with plenty of innovations and

wide range of designs. In figures it has 330 stores in 40 countries with 154,000 employees.

This furniture franchiser does not just sell furniture items but sell a solution to human

lives. It sells prosperous life styles to the customers for an affordable price. With the lower

cost and lower margins they set up reasonable price which majority of customers can offer.

With the explanatory catalogs they provide descriptive to their customers.

IKEA as a well-known and successful furniture franchiser use 3 major service

strategies. Overall cost leadership, Complementary Services Development and Multi-Country

Expansion are those 3 strategies.

For the cost leadership they use some practices such as limited customer services,

self-selection of customers, lower manufacturing cost and modular furniture designs. With

that they make their cost to a lower level. As the complementary service they maintain a

restaurant, café and safe & supervised play area. According to the globalization strategy they

involve with multi-country expansion strategy being a franchiser of selling furniture items.

With these 3 service strategies they have become very successful and the practices

they involve with leads for long term sustainability. We have done a critical analysis on all

the aspects of IKEA organization based on the service marketing concepts what we learnt and

got a good understanding on how it really applied in the real world.