The Huge Success of IKEA Stores - Case Study Example

IKEA The IKEA company was founded by Ingvar Kamprad in 1943, when he first started off selling matches and miscellaneous products (Solomon, 1991). In 1974, the company’s business expanded to include selling of furniture in 1947 and the first furniture showroom was opened at Amhult in 1953 (www.ikea.com). The IKEA stores are based upon the self-service model, where customers can walk around the store, inspect and touch the furniture before making a decision to purchase them. (Jeffreys 1992). The company has now expanded into a multi billion dollar business. The Company’s infrastructure and some of its unique features have a lot to do with its success. Apart from its self service model, it also designs flat furniture products, which the customer can assemble at home. (www.ikea.com). This allows for better storage during transportation with less damage being caused to the furniture. The ability to touch and examine furniture products before buying them is a feature that is appreciated by IKEA customers. The huge IKEA stores pack a variety of furniture in several different designs, which also offers an enormous variety for the customers in their furniture needs, all under one roof. Another secret to the Company’s success is its ability to offer quality products at the lowest prices. This is accomplished through the Company’s global network of suppliers, who bid competitively for projects because IKEA also buys in global quantities. The Company is thus able to select the suppliers who can provide the products at the most economical prices.(Solomon, 1991). Once IKEA has identified such suppliers, it seeks to achieve economies of scale by also providing finance to the suppliers in the event external financing sources are too expensive. (IKEA, 2004). In return for offering finance at lower interest rates, IKEA lays out some contractual conditions for suppliers to follow, such as specifying a lower price per unit, as well as the facility to buy the products from the supplier for a specific price. In this way, it is able to establish links with suppliers who are able to promote the goals of low prices, quality products. The cost control model is thus facilitated and maintained by implementing cost controls right at the very beginning of the design chain itself and by improving logistics by folding and stacking furniture as much as possible during the distribution and transportation process.(Economist 1994:201). As a result, customers who purchase IKEA furniture receive products that are not only low priced but also goods that are of superior quality and thus offer value for the customer’s money. The Company has also taken several significant steps to enable it to keep up with the changes that are taking place in the global environment. It makes use of technology through an Intranet program, which all of its 65,000 employees have access to and this Intranet comprises a network of websites, both individual websites for each store location as well as regional websites for each country (Babock, 2003). The Intranet enables the Company to maintain high levels of connectivity and connection among its stores, employees and suppliers. IKEA uses an intranet program that is internet based in order to train its employees, sourced from Sweden’s M2S Sverige AB and launched in 1997(Gleba and Cavanagh, 2005). The Intranet is also used to conduct surveys and provide training for employees, provide a forum for feedback and a storehouse of information for its suppliers. All of these measures result in a better system of supply chain management, with better trained and informed employees, which in turn produces a higher degree of customer satisfaction with their shopping experience at IKEA. The business of retailing which IKEA is involved has been further improved through the addition of kiosks. One example of such a kiosk which has been examined in a case study conducted by Rowley and Slack (2003) is that of allowing customers of IKEA to view the sofas that they are considering purchasing covered in various fabrics which are available in that range, thereby providing the customer a more educational and informative shopping experience that is likely to result in the selection of a product that meets the customer’s taste and requirements.(Rowley and Slack, 2003). IKEA has also realized and incorporated the benefits of customer relationship management into its IT processes. Through its portals, the Company engages its customers directly in the product search, selection, assembly and delivery process and the automated services help the Company to keep its costs low.(Johnson and Selnes, 2005). However, in order to accommodate the increasing number of customers in IKEA’s portfolio without simultaneously increasing costs, the Company has developed an automated customer service representative named Anna, which provides responses to specific questions from customers about particular items or company policies by retrieving the relevant information from the various IKEA websites. In this way, the company is able to maximize customer potential for every customer without incurring additional costs to achieve that end.(Johnson and Selnes, 2005). Exploration of the IKEA model: The major thrust of IKEA has been on providing quality while simultaneously keeping prices down. The Company therefore operates on the basis of Porter’s Generic strategies, where the strength of the Company arises out of its cost advantage (Bartol and Martin 1993:213). This gives rise to three broad generic strategies – cost differentiation, leadership and focus. IKEA gains its advantages by selling its products below average industry prices in order to gain market share. This has improved its competitiveness in the market. In addition, the Company also emphasizes a centralized form of control and a standardization of the product due to the universal nature of furnishings, rather than differentiating the product to suit local tastes.(Magrath, 1990:38). This is a unique sales strategy which is different from the glocalization (Wellman and Hampton, 1999) policies other Companies are pursing in a global environment to modify or tailor products to make it more acceptable within a specific geographical location. Methodology: The proposed research study will examine the sales strategy of IKEA and its impact upon customer expectations through an evaluation of customer perceptions at a newly opened IKEA outlet. The aim and objective of the study will be to examine whether the standardization of the IKEA product has contributed to positive customer expectations, or whether the lack of differentiation to suit local tastes is likely to be handicap in long term customer satisfaction, which could also impact negatively on sales. This study will be based on a qualitative method but utilize a quantitative analysis method. Since the subject of the study is customer perception about IKEA’s product standardization policy, there is a subjective element involved. Qualitative methods lend themselves well to those studies where a special understanding of the issues is sought to be achieved and in the generation of a level of information that is fairly comprehensive. (Trochim, 2001). However, quantitative research methods aim to gather larger volumes of data in a numerical format, which can be subjected to statistical analysis. In this instance, the sheer volume of data required for a proper analysis mandates a quantitative approach as well. Bearing this in mind, the research tool which appears most appropriate is the survey questionnaire. Wiles and Cornwell (1990) have pointed out that since emotion is a multi dimensional phenomenon, verbal reporting tests will provide the best measure, through the development of typologies. Yet, the proposed study is a quantitative one that proposes to use numerical scoring, therefore, the proposed study will use a verbal measure that is measured by a numerical value. This numerical value will be ranked at five different levels, like a Likert Type scale (Kirakowski, n.d.), where the respondent will tick one of five answers, such as “Very important”, “Not at all important” or “somewhat important”. An example of this kind of questionnaire is the AIM questionnaire – Affect Intensity measurement Questionnaire. (Larsen and Diener, 1987: 34). This would allow for the collection of subjective participant attitudes in a numerical format. The questionnaire is a favored tool of many of those engaged in research, and it can often provide a cheap and effective way of collecting data in a structured and manageable form” (Wilkinson & Birmingham 2003). One of the disadvantages with the questionnaire method is that all items in the Likert style questionnaire must be accorded equal weight and any replication or duplication could produce a result of false significance. This kind of questionnaire also does not allow for the kind of detailed input into participant views as structured interviews. The questions selected in this instance are based upon eliciting IKEA customer impressions about the IKEA product and their expectations when a new store opens in town. Participants in the survey will be at least 75 customers at a newly opened retail outlet of IKEA. Convenience sampling will be used in selecting participants, because a random sampling method would involve selecting customers at two or three newly opened outlets and may involve more time and effort than is feasible within the time frame and constraints of this study. Sample Questionnaire: QUESTIONNAIRE Your gender: Your age: Please answer the questions below by ticking the most appropriate response. Please use the ranking below: 5: “Very Good” 4: “Good” 3: “Fair 2. “Bad 1. “Poor” Q1. How do you rate the furniture display in this new IKEA showroom? * 5 *4 *3 *2 *1 Q2. How do you rate the quality of the furniture that is available at this outlet? * 5 *4 *3 *2 *1 Q3. How do you rate the novelty of the furniture offered at this outlet? * 5 *4 *3 *2 *1 Q4. How do you rate the variety of furniture available at this showroom? * 5 *4 *3 *2 *1 Q5. How do you rate the durability of the furniture at this IKEA outlet? * 5 *4 *3 *2 *1 Q6. How do you rate the suitability of IKEA furniture at this outlet for your local climate? * 5 *4 *3 *2 *1 Q7. How do you rate the suitability of this furniture for your local tastes? * 5 *4 *3 *2 *1 Q8. How do you rate the suitability of this furniture for your local customs and needs? * 5 *4 *3 *2 *1 References: * Babcock, Pamela, 2003. “Sending the message: by blending technology and tradition, retailers get the word out to workers on the Sales Floor – Employee Relations” HR Magazine, November 2003. * Gleba, Beth and Cavanagh, Luke, 2005. “Applying the IKEA values to improving the Intranet”, Strategic Communication management, 9(6): 30-33 * IKEA, 2004. “Global Sourcing Strategy” Retrieved March 11, 2008 from: http://www.silf.se/kurser/seminarier/presentationer/IKEA__sven-olof_kulldorf_-_st_inkopardagen_2004.pdf * Jefferys, J.B, 1992. "The IKEA Group", IN Hast, A. (Ed.), International Directory of Company Histories, Vol. 5, MI: St. James Press. * Johnson, Michael D and Selnes, Fred, 2005. “Diversifying your customer portfolio”, MIT Sloan Management Review, 46(3):11-14 * Kirakowski, Jurek, No Date: “Likert and the mathematical basis of scales.” Retrieved March 11, 2008 from: at:http://www.keysurvey.com/likert_and_the_mathematical_basis_of_scales.jsp * Larsen, Randy J. and Diener, Ed, 1987. "Affect Intensity as an Individual Difference Characteristic: A Review," Journal of Research in Personality: 21(1), pp 1-39. * Magrath, A.J, 1990. "Do as the Romans, but retain distinctiveness." Advertising Age, 16:38 * Rowley, Jennifer and Slack, Frances, 2003. “Kiosks in retailing: the quiet revolution”, International Journal of Retail and Distribution Management, 31 (6/7): 329 * Solomon, Barbara, 1991. “A Swedish Company corners the business worldwide”, Management Review, 80(4): 10 * Trochim, William, 2001. “The Research Methods Knowledge base” (2nd Edn) Atomic Dog Publishing * Wellman, Barry and Hampton, Keith, 1999. “Living networked on and offline”, Contemporary Sociology, 28(6):648-64 * Wiles, J.A. and Cornwell, T.B, 1990. “A Review of Methods Utilized in Measuring Affect, Feelings and Emotion in Advertising”, Current Issues and Research in Advertising, 13(2): 241-275 * Wilkinson, David and Birmingham, Peter, 2003. “Using research instruments: A Guide for researchers”, Routledge Read More