Case Study- IKEA

April 14, 2021

Case Study- IKEA

IKEA - Social Business Case Study

Meri Leka

Vladyslav Dibrova

Social Entrepreneurship

Dr. James Magnus-Johnston

April 13^th, 2021

Introduction

Our group decided to implement a social business case study based on research and analysis of a company called IKEA. Our primary goal is to investigate the vision behind the IKEA brand and how they affect its customers through the variety of their unique products and services as well as IKEA’s sustainability and corporate social responsibility initiatives.

IKEA is a multifaceted brand characterized by the use of environmentally friendly and renewable materials such as cotton and wood, a strong human rights stance, comfortable working conditions and democratic design of its products. To what extent is IKEA an environmentally friendly company? With home solar systems, vegetarian hot dogs and kitchen front panels made from recycled PET bottles, the team of IKEA strive to inspire people to change. After all, as Ingvar Kamprad said: "A good example is the most effective method."

Company’s background

IKEA attracts its customers through modern designs of their products providing a good value on their purchase.

IKEA originated in Sweden and was established in 1943 by a young entrepreneur Ingvar Kamprad.

It started as an idea to offer home furnishing products with innovative design and good quality of the material at the variety of different price categories in order to meet consumers’ demand. Today the company sells its products through 445 stores that are located in 36 countries all over the world.

IKEA’s corporate structure is divided into two main parts: franchising and operations. Its operations include the design and manufacture or its own furniture which are partially operated by INGKA Holding (INGvar KAmprad) which manages the network of 235 stores and the remaining part of the stores are operated by franchisees. The implementation of franchising strategy and the supply chain of over 2300 suppliers in 50 countries has enabled the company to grow at the rapid pace and establish a solid foundation of their brand becoming the most known ready-to-assemble furniture retail store.

IKEA is a world leading home and furniture products retailer that sells a variety of products including home decorations, accessories, bathroom and kitchen items, chairs, beds, sofas, storage cabinets, and much more.

Company’s benefit and the value it makes

The initial idea of the company’s strategy was to “offer a wide range of well-designed, functional home furnishing products at prices so low, that as many people as possible will be able to afford them”. The company’s value proposition is based on their cost consciousness, functionality and beautiful design. Through these three strategies, they empower and inspire people to grow and develop as individuals and create a better day-to-day life for many people.

Mission and vision

IKEA has a very simple mission statement that associates to their main focus as a company. The business provides a variety of practical furniture and home furnishing products at an affordable price. This helps the company create more customer loyalty as well as maintaining IKEA’s sustainability as a business.

The vision is as transparent as the mission statement: “to create a better everyday life for the many people”. This allows the company to reach a large number of customers by delivering low-cost goods that help more people live a better life at home.

IKEA range

-Design

Every IKEA product is designed with a practical need and a price in mind. The designers apply their extensive knowledge of advanced, low-cost manufacturing processes to produce useful, often style-oriented goods. Then depending on how the process of purchasing these goods go, this way the prices might go even lower than usual.

-Functionality

Customers’ needs keep changing over time. They need additional storage for their furniture and products. The designers have to make the most of a limited amount of space. That is why IKEA ought to produce functional yet affordable goods for their loyal customers. The company focuses more on the functionality that in the appearance of their products.

-Price

The Ikea product selection requires incredibly low-price levels because the IKEA vision seeks to serve to “the many people”. The designers do their best to reduce the cost involved in the producing of their products. They reuse materials that are left over from the manufacturing of one product in order to create an entirely new one. Customers at IKEA also help to keep prices down. They choose and pick up the goods themselves, then transport and install them at home following the instructions mentioned in the leaflet included in each product.

IKEA’s social value

Charity work

IKEA is active in a number of international humanitarian cause, most notably with UNICEF.

-The company donated money in order to help families affected from the Boxing Day Tsunami that occurred in 2004. They raised money through contributions and the sales of the IKEA Blue Bags.

-After the earthquake that stroked Pakistan in 2006, the company gave 500, 000 blankets to this cause.

- IKEA donated furniture for more than 100 Bridge school Organizations in the region of Liberia.

-After the Sichuan earthquake stroke in China in 2008, IKEA sold a particular kids’ toy and all the sales went for the children who were affected by this natural disaster.

Social Action

The IKEA Social Initiative was founded in September 2005 to oversee the company’s global social initiatives. The key partners are UNICEF and Save the Children. IKEA has donated more than 180 million USD while partnering with UNICEF.

-IKEA has raised 16.7 million euros to UNICEF and Save the Children from each euro of selling the sift toy during holidays.

-The company provided toys for kids that were affected by the cyclone in Myanmar.

Environmental Influence

Environmental coordinators work in all IKEA stores and distribution centers, focusing on training, water conservation, waste management, and energy control.

-IKEA has replaced polyvinylchloride from their products and packing.

-The company has reduced the use of formaldehyde in their products.

-Producing products made out of 100% plastic waste

-Minimizing the use of chromium for the metal surfaces of the furniture

-IKEA utilizes wood from safely managed forests

-The company uses recyclable materials only for their packaging

-IKEA provided reusable bags for their customers, strictly avoiding the use of plastic bags.

-The company makes sure to meet its environmental expectations even when producing and distributing the IKEA catalogue.

-IKEA makes every effort to ensure that the food served in the stores is both nutritious and environmentally friendly.

SWOT Analysis

SWOT analysis is a comparison and evaluation of a company's strengths, weaknesses, opportunities and threats in relation to its competitors, economy, customers and market trends. These analyses and assist companies with the awareness of existing and potential factors that influence business growth. Below is an analyzation of IKEA’s SWOT analysis.

Strength

-Affordability

Unlike their competitors who use design to justify a higher price of products, IKEA uses design to secure the lowest price possible. Therefore, the inexpensiveness of their products is the reason why customers come back. Till this day, the company is seeking ways to make their products more cost-effective while maintaining the level of products’ appearance and quality.

-Design

With the idea of constant innovation, they are able to create newly designed stylish products. In addition to that, they create products in the way, so it is easy to transport and assembly. In addition to that, IKEA products are also capable of being transported in packs or easily assembled by customers at home. This minimises the costs on transportation and storage.)

-Supply chain and franchising system (Based on their long-lasting relationship with suppliers, they are able to create and sell a large quantity of products at a rapid pace. It benefits both sides. While it is better for IKEA to wholesale, their partners are better off by not storing a large quantity of products in their warehouses.

-Brand recognition

IKEA is the most recognizable furniture brand worldwide. By dividing its corporate structure on operations and franchisees, they are able to reach over 600 million customers every year. Compiling IKEA’s cost-effective strategies and innovative designs, the company is able to remain well-known in the marketplace.

-IKEA products

IKEA offers a variety of different products depending on customer’s needs, preferences or purchasing power. In addition, the brand provides flexibility for its customers to assemble products depending on their preferences. This feature attracts customers for their decision-making process.

Weaknesses

-Negative impact on media and press

Due to the fact that the company is located in over 50 markets worldwide, it potentially faces some criticisms for different kinds of issues within stores. This weakness can influence negative publicity that can hurt customer’s loyalty and brand reputation.

-Poor balance of low-cost and good quality

It is a difficult goal to reduce the product cost while maintaining or improving the quality of products. This IKEA is yet to discover. However, it can make a negative impact on a company's grand image on the long run.

-Poor advertising

IKEA should focus on its marketing strategy. To create more interest in the IKEA concept, the company could improve its reputation in the eyes of the American public.

IKEA advertises mostly through its catalogues and focuses its marketing efforts on internal communication rather than external. Americans are less receptive to this form of advertising and are more likely to purchase goods advertised in more recognisable mediums including social media, blogs, or advertising through influencers. Likewise, the company may experience obscurity in terms of their products and environmental activities simply due to the lack of attention.

Opportunities

IKEA operates now globally in different countries in the world such as Japan, Norway, Germany, Australia, Canada, Hong Kong, Spain, France, Saudi Arabia, United States etc. Nevertheless, judging by the success that the company has achieved in these countries there are still areas that IKEA needs to consider as its future locations. That mainly involves countries in the Latin America. This way the company can reach an even considerable number of customers, increasing their sustainability as a business but also setting higher social goals to achieve in the near future.

Although the company has a variety of furniture and home furnishings that they provide to its customers adding more product to their catalogue can help the company increase the overall sales and provide a bigger selection of their products to its customers.

IKEA uses traditional ways of marketing such as their catalogues and website. They ought to keep up with the technological advancements and make use of the social media as a marketing strategy. This way the company can reach extensive customer segments and have a stronger marketing plan than its competitors.

Threats

One of the main threats that IKEA is facing at the moment is the establishment of the startup companies as well as current competitors of the company such as Sears, Wayfair, Amazon, Bed Bath& Beyond. These companies have a more efficient marketing strategy as well as better quality of the products. Therefore, it is essential for IKEA to keep up with innovation of new designs, new product expansion, and new cost-efficient strategies.

The business model canvas of IKEA

The lean business model of IKEA involves the following components such as key partners, key activities, venue proposition, customer relationships, channels, customer segments, key resources, cost structure, and revenue streams. The main key partners of the business model of IKEA consist of for-profit and non-for-profit partnerships. For-profit partners consist of harvesters, wood makers, manufacturing firms, transport and trucking firms, delivery companies and outfitting firms. Non-for-profit include World Wide Fund of Nature (WWF), United Nations International Children’s Emergency Fund (UNICEF), United Nation Development Programme (UNDP). Key activities include marketing and sales, customer service, furniture design and manufacturing. In addition to this, IKEA is constantly updating and integrating new products into their product portfolio. Through their value propositions, the company offers innovative solutions in order to gain a large space in the market. It includes affordable home furniture, IKEA experience in childcare, on site, dining, whole family experience, consumer electronics. They also offer the usage of renewable sources which helps to maintain a balance between environment and business. In managing customer relationships, IKEA attracts and retains customer’s attention through special discounts, offers for loyalty and family cards), limited in store accessories for lower cost, assembly and delivery for a fee, restaurant, and childcare. These components contribute to positive customer relationships with the company. IKEA targets a variety of customers through their market segmentation strategy based on geographical, demographical, behavioral and psychological characteristics. Based on these specifics, they target younger consumers who are focused on cost-efficiency, space saving and lifestyle. Apart from that spectrum, they also target small businesses and educational institutions.

Key resources include two integral components in their success. First is skilled personnel which is an important component in the supply system, and the large chain of suppliers in over 60 countries. In order to improve its market presence, IKEA uses the following channels: Ikea Superstores, Ikea Catalogs, Ikea family, Ikea stores website. Among all of them, website and email subscriptions are the most effective. In its cost structure, IKEA includes raw material costs, manufacturing costs, advertising costs, labor costs, transportation costs. Its initial revenue streams include furniture sales, food sales at restaurants, service fees that include delivery and assembly and accessories sales that consist of yarn, tools, towing equipment.

Conclusion

IKEA is well-known for delivering high-quality goods at affordable prices. The ability of the company to come up with new design ideas while maintaining low prices gives it a major competitive advantage. It has also shown a deep proclivity for philanthropy, creativity, and long-term sustainability.

IKEA is dedicated to developing goods and services that motivate people to make meaningful lifestyle changes, consume more sustainably, and live healthier lives.

Sources

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