IKEA: Stylish Furnishings at affordable prices

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Swedish company IKEA is a mass market producer of cheap and stylish home furnishings that appear to transcend national boundaries. The company was founded in 1943 by Ingvar Kamprada small town handyman from southern Sweden, who devised the company name by combining his initials with the first initials of his farm (Elmtaryd) and the parish (Agunnaryd) where he was raised. Today IKEA’s business mission is clear. In the words of the company founder, “We shall offer a wide range of furnishing items of good design and function, at prices so low that the majority of people can afford to buy them.”

Since expanding internationally in 1973, IKEA’s incremental growth approach to spreading into overseas markets has continued. Today the company is the world’s largest retailer. Now located in more than 25 countries, with over 120 outlets, the company almost tripled its turnover worldwide between 1984 and 1990. Offering affordable and varied furniture is central to IKEA’s strategy. The company maintains its cost advantages by doing what it does best and concentrates on its core business and on the adoption of a long term strategy.

IKEA’s ability to maintain its success across so many markets is impressive. Some studies suggest that one possible reason for this success is that when prices are very competitive, cultural barriers became smaller and it becomes easier to reach a larger percentage of the total furniture buying population. To maintain its low cost base, the company needs to shift volume, which it does by selling broadly the same range of stylish, flat packed Swedish products in all of its stores worldwide.

Price is not the only reason for IKEA’s success. In the design of its stores and products IKEA has done much to appeal to consumers’ underlying reasons for buying. The company understands that shopping is a purposeful activity: people buy in order to make their lives richer. In IKEA’s case, the challenge has been to make the apparent essence of a Swedish lifestyle – beautiful homes and high quality living – available at affordable prices.

IKEA has also done the opportunity to innovate where it can. For example, the retailer recently opened its first New York outlet, a 7,400 square food scaled down version of its usual 200,000 square foot stores. The “boutique-style” outlet is essentially a marketing vehicle for the company. Known as the Marketing Outpost, the shop aims to concentrate on only one product at a time. Every eight to 12 weeks IKEA will close the store for a complete refit and transformation.

Consumer interest in IKEA has revived the flagging fortunes of furniture retailers. In areas where new IKEA stores have opened, the company’s lively approach has led to an increase in the time spent shopping for home related products. Research also suggests that the proportion of their income that consumers are prepared to spend on those products is increasing. IKEA therefore believes it is competing with purchases of new cars and holidays – anything that claims the disposable income in the consumers’ pocket – not just with other furniture retailers.

Although the company does not deliberately use demographic and psychographic variables to segment its customer base, IKEA products seem to appeal particularly to people in their twenties and thirties. In order to expand the product line further into other life cycle stages, the company is trying to grow with its customers by adopting a policy of offering products that cater for families with teenage and those whose children have left home.

While IKEA recognizes that consumers shop to improve their lives, the company also acknowledges their practical needs. People are much more likely to visit retail outlets that are conveniently located and where the shopping experience is fun. IKEA meets these important needs by locating its stores close to motorways and by offering extensive parking, child care, toilets and restaurant facilities. A full range of furnishings is presented in real room settings that combine expensive, high risk purchases such as living room suites and carpets with cheaper, lower involvement items such as pictures, ornaments and lampshades.

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