Ikea Case Study

1. A short Historical Perspective of the case, the company and the decision situation

a. History: IKEA was founded in 1943 by Ingvar Kamprad in Southern Sweden, and maintains its status as a privately held company. The company specialized in furniture that could be sold as a kit and assembled in customers’ homes. IKEA stores were located outside of big cities in areas with ample parking and space for large showrooms. In the 1950’s the company took its Scandinavian designs at very low prices throughout Scandinavia. IKEA’s competitive advantage lies in the size of its stores and large production runs to keep stores stocked. The company expanded beyond Scandinavia to Germany, followed by expansion throughout Europe, Asia, and North America.

b. Corporate culture and business model: The company uses relatively few sales clerks on sales floors, giving employees more responsibility and freedom than usual in retail stores. The company focuses on using a lean organizational strategy. In fact, there are only four layers separating the chief executive from checkout workers. To draw in customers, the company uses limited advertising, word-of-mouth, and through its catalog, which is the world’s largest publication distributed free of charge.

c. Antecedent of the decision situation: IKEA was a Swedish furniture retailer, virtually unknown outside of Scandinavia.

d. Decision(s) to be made: Where, when, and how to expand into new markets, particularly entering the U.S. market.

2. Situation Assessment---External Analysis

a. Customer Analysis: The company targets young and price conscious consumers. In addition, the company focused on marketing its stores to people in transitional stages of their lives. In the U.S., the market is much larger, dispersed, and more diverse culturally than other markets.

b. Competitor Analysis: In European markets, particularly Germany, barriers to entry included several entry barriers which needed to be overcome to enter the furniture retail market. In the U.S., there is strong domestic competition among furniture retailers. In Europe, advertising is used to attract new customers, while in the U.S., advertising is used to retain current customers.

c. Market Analysis: In general, entry barriers to the furniture retail market include government policies and limitations on store locations due to the size of stores and required parking areas. Differing consumer preferences for products based on geographic location must be considered within the industry. For example, in the U.S., sales of bedroom furniture rose 30-40% after furniture was adjusted to U.S. consumer size preferences.

d. Environmental Analysis: Supply chains are key to competitive position within the industry, and are the biggest barrier to entry into the U.S. market. The