IKEA Invading America

IKEA, one of the largest furniture retailers worldwide. This text provides a synopsis of the article and commentary on the company's product strategy and product range. IKEA was established in 1943 in Sweden by Ingvar Kamprad, originally as a mail order business. Five years after inception, Kamprad ventured into the home furnishing business, subsequently opening the first furniture showroom in 1949. At the time, the showroom earned recognition as the largest furniture exhibition in Scandinavia.

Inspired by the democratic Swedish culture and keen on cost-consciousness, a customer-oriented product strategy, as well as unique, self-assembled designs, IKEA had become the largest furniture retailer globally by 2002, with 154 stores in 22 countries (in Europe, Asia, and North America), 286 million customers, and approximately $12 billion in sales. The company retails a wide range of home furniture and furnishings, including beds, kitchen cabinets, kitchen tables, sofas, dressers, as well as alarm clocks and trash cans.

Entering the American market was not an easy undertaking for IKEA, particularly due to the dominance of players like Wal-Mart, Office Depot, Costco, and a chain of other high-end and low-end retailers. The company established its first store in the U.S. in 1985, a decision that led to valuable lessons about the American consumer. Extensive market research led the company to learn that American consumers disliked its products as they hardly resonated with their styles and preferences.

With this knowledge, the company rethought its product strategy for the American market, specifically focusing on product characteristics and the shopping experience. By mid 1990s, IKEA had achieved significant improvement in the American market, and by 2002 the U.S. market was the third largest market for the company, with revenues in excess of $1.2 billion. The success of IKEA can in large part be attributed to its product strategy. Inspired by its mission to create a better everyday life for everyone, IKEA's product strategy is evidently customer-oriented.

The company seeks to provide high quality furniture at an affordable price. This is achieved by taking advantage of low-cost manufacturers in developing countries. The manufacturing process is preceded by a number of processes that further exemplify the company's customer orientation. First, product priorities based on consumer trends are established. This is followed by the determination of each product's target retail price based on a matrix that considers a number of factors, mainly price ranges, design, and competition.

The price determination matrix is a particularly attractive aspect of IKEA's product strategy. With each type of product having its own matrix, the matrix involves weighing three price ranges (low, medium, and high) against four product designs (Scandinavia, Modern, Country, and Young Swede). Considering the prices of competitors, the company then sets its price 30-50% lower. This low-cost approach without a doubt gives the company significant competitive advantage in the marketplace. More fundamentally, the company is able to more easily identify market opportunities.

Following price determination, the company then selects the manufacturer to produce the product, clearly emphasizing quality materials, product specifications, and cost efficiency. The next stage involves designing the product, a process that involves both internal personnel and external expertise. The design process takes into consideration factors such as price, functionality, materials, and manufacturer capability. This ensures customer preferences remain the priority throughout the entire production process. The design process does not necessarily end after production.

Indeed, it is common for the company to redesign products even after they have reached the store. This is often informed by the need to maximize frugality across the supply chain. The company's customer centeredness is also apparent in the unique shopping experience it provides for its customers. It offers self-assembles furniture, and its stores feature facilities such as ample parking, restaurants, and childcare centers. These facilities provide conveniences not offered by most furniture retailers.

For instance, customers who want to avoid the usual disturbance of kids while shopping can drop their kids at the daycare center. The concept of self-assembled furniture achieves two important things. First, it reduces shipping and transport costs, storage space, and damages associated with transport. Second, customers become more involved in the purchase process as they serve themselves. These two aspects enable the company to deliver its products at a more competitive price compared to most retailers.

IKEA's product strategy is admirable because of not only product design, manufacturing, shipping, and delivery processes, but.