Ikea Case Study Harvard

Alexia Molina

October 20, 2016

Professor Eshghi

Case 3:  IKEA Invades America

Graciela Uribe Ramos

1. The factors that account for IKEA’s success regard the specific designs of the company’s product, their specific cost efficiency plan and their product strategy. IKEA’s products are characterized as simple, however still unique with both functionality and style. The company also managed to convince their customers that while their products where cheap, they were not cheaply made. The second factor that accounts for IKEA’s success is their cost efficiency plan. The plan’s most important factor was “flat packaging” which regarded more storage space, an increase in the number of products that could be shipped as well as less reported damages to the product and reduced labor costs. Another aspect of IKEA’s cost efficiency plan involved using higher quality materials for the surfaces of their product that were visible and lower quality materials for the surfaces that were not visible, then allowing customers to pick up and assemble their own product that was guaranteed to be “trendy at the best possible cost”. The last factor that can account for IKEA’s success was their product strategy. This strategy accounted for a “product-strategy council” that involved a group of senior managers. These managers then established IKEA’s product priorities for the product developer to then use “the matrix” to set the desired retail prices. This intended matrix set benchmarks of prices approximately 30-40% lower than IKEA’s competitors. Each product had unique category types and price ranges, to help IKEA evaluate their products and see if there are gaps among their product lineup.

1. Some downsides to shopping at IKEA include life expectancy of the product and product pick-up and assemble. IKEA’s products do not last more than a few years or maybe two moving trips. This is due to the fact that while their products are made of quality materials, they are not made of high durable materials and neither are they intended to last a long time and much wear and tear. The other downside of shopping at IKEA is that customers have to pick up as well as assemble the products themselves. This represents a strong inconvenience for customers because although the products are in flat packaging, they are still heavy and often times as customers do not only buy one product, it is hard for them to pick up several boxes at once. Customers then also have to assemble the products themselves with reference to the instructions that IKEA provides which often times, are much more complicated and time consuming than they seem.

From a global perspective, IKEA excels at engaging their customers with their products that prove to be aesthetically pleasing and highly functional. However, from a closer perspective, a smaller scale, IKEA is seemingly only a warehouse of products rather than really being a store. This is due to the fact that IKEA’s “store” only houses their products and completes the purchase as customers chose the products, no other service is offered to the customer. Should IKEA wish to increase their customer lifetime value or preserve long-lasting relationships with their customers, they must learn to further engage with them, helping their customers truly solve their needs and not only just offer a solution. IKEA must understand that their particular designs are functional and encourage purchase, but they do not encourage customers to truly return to purchase them, should they encounter many issues assembling the product and become deeply satisfied with the product as well as their lack of assistance with the product.