How standardization benefits a business process and commercialisation? What has allowed IKEA to be successful with a relatively standardised product and product line? How does the experiential marketing approach help improve sales in Ikea? Which features of ‘young people of all ages’ are universal and can be exploited by a global/regional strategy? How does Corporate Social Responsibility (CSR) attract customers? How does IKEA adapt its strategy for competing in international markets? IKEA’s Social Initiative was created to manage the company’s social involvements on a global level. Why?

1. IKEA: A Better
Everyday Life
Lecturer: Sergio Pinzon

2. Introduction
IKEA, the world’s largest home furnishings
retail chain, was founded in Sweden in
1943 as a mail-order company and
opened its first showroom 10 years later.
From its headquarters in Älmhult, IKEA
has since expanded, with worldwide sales
totalling €34.1 billion from 355 outlets in
29 countries in 2017 alone. The retail
giant now employs 149 000 ‘co-workers’
and delivers 9500 products across the
IKEA range.

3. Fig 1-
International
expansion

4. IKEA’s worldwide sales
• The IKEA Group has expansion plans
and interest in markets in India,
Ukraine, Brazil, Mexico and New
Zealand, to mention a few. As it stands,
the Group’s organisation can be broken
into four key regions: Europe, Americas,
Asia–Pacific and Russia. Of the
individual-country markets, Germany is
the largest, accounting for 15 per cent
of company sales, followed by the US at
14 per cent. The phases of expansion
are detectable in the worldwide sales
shares depicted in Figure 2

5. IKEA’s
worldwide
sales, financial
year 2017

6. Ikea believes in
diversity and equality
• IKEA believes in diversity and equality.
Of its 200 managers, about 49 per cent
are women. These managers are led by
country managers from 14 different
nationalities, few of whom work in their
home country. There are 8000 co-
workers in Asia and Australia, 16500 in
North America and 106500 in Europe.

7. The IKEA Concept
Ingvar Kamprad, IKEA’s founder,
formulated the company’s mission as
being ‘to offer a wide variety of home
furnishings of good design and function at
prices so low that the majority of people
can afford to buy them’. IKEA’s principal
target market, which is similar across the
countries and regions in which the
company has a presence, is composed of
people who are young, highly educated,
liberal in their cultural values, white-collar
workers and not especially concerned
with status symbols.

8. The IKEA Concept
• IKEA follows a standardised product strategy, with a
universally accepted product assortment around the
world. Today, it carries an assortment of thousands of
different home furnishings that range from plants to
pots, sofas to soup spoons and wine glasses to wallpaper.
The smaller items are carried to complement the bigger
ones. IKEA has limited manufacturing of its own
products, but does design all of its furniture. Its network
of subcontracted manufacturers numbers nearly 1074 in
over 55 countries. IKEA also has 24 pick-up and order
points in 12 countries, 43 shopping centres in 15
countries and 26 customer distribution sites in 13
countries.

9. The IKEA Concept
Additional economies are reaped from the size of
IKEA outlets: the blue-and-yellow buildings
average 28000 square metres in size. IKEA stores
include babysitting areas and restaurants and are
therefore intended to provide the value-seeking,
driving consumer with a complete shopping
destination. In 2017, IKEA’S restaurant, bistro and
Swedish food market turnover alone totalled €1.8
billion. IKEA managers state that their
competitors are not other furniture outlets, but
rather all attractions vying for consumers’ free
time. By not selling through dealers, the company
hears directly from its customers.

10. The IKEA Concept
Management believes that IKEA’s designer-to-
user relationship affords an unusual degree of
adaptive fit. The company has ‘forced both
customers and suppliers to think about value in a
new way in which customers are also suppliers (of
time, labour, information and transportation),
suppliers are also customers (of IKEA’s business
and technical services) and IKEA itself is not so
much a retailer as the central star in a
constellation of services’. Figure 3 shows IKEA’s
value chain.

11. Figure 3: Ikea Value chain

12. Marketing mix
Although IKEA has concentrated on
company-owned, larger-scale outlets,
franchising has been used in areas in which
the market is relatively small or where
uncertainty may exist regarding the
response to the IKEA concept. These
markets include Hong Kong and the United
Arab Emirates. IKEA uses mail-order in
Europe, North America and Australia.

13. Marketing mix
IKEA offers prices that are 30 to 50 per cent lower
than those of fully assembled competing products. It
can offer these prices as a result of large-quantity
purchasing, low-cost logistics, stores being located in
suburban areas and its do-it-yourself approach to
marketing. IKEA’s prices do vary from market to
market, largely because of fluctuations in exchange
rates and differences in taxation regimes, but price
positioning is kept as standardised as possible. The
company’s operating margins of approximately 10
per cent (compared to 5 per cent at US competitor
Pier 1 Imports and 7.7 per cent at Target) are among
the best in the home furnishings market. This profit
level has been maintained while the company has
steadily cut price. For example, the price of its
BJURSTA dining table has decreased by 70 per cent
since 2007.

14. Marketing mix:
Promotion
• IKEA’s promotion is centred on its
catalogue and its store app. In 2017, the
catalogue reached 255 million people,
was translated into 33 languages and
was distributed throughout 48 markets.
The catalogues are uniform in layout,
except for minor regional differences.
IKEA’s advertising goal is to generate
word-of-mouth publicity through
innovative approaches. The company
estimates that its website is visited over
2.1 billion times and its showrooms
over 817 million times annually. The
IKEA concept is summarised in figure 4

15. Figure 4: The
ikea concept

16. IKEA in the Competitive Environment
• IKEA’s strategic positioning is unique.
As Figure 5 illustrates, few furniture
retailers have engaged in long-term
planning or achieved scale economies in
production. European furniture retailers,
especially those in Sweden, Switzerland,
Germany and Austria, are much smaller
than IKEA. Even when companies have
joined forces as buying groups, their
heterogeneous operations have made it
difficult for them to achieve the same
degree of coordination and concentration
as IKEA.

17. Figure
5:Competition
in furniture
retailing

18. IKEA in the Competitive
Environment
• The value-added dimension
differentiates IKEA from its competition.
IKEA offers limited customer assistance,
but creates opportunities for
consumers to choose (e.g. through
informational signage), transport and
assemble units of furniture. The best
summary of the competitive situation
was provided by a manager at another
firm: ‘We can’t do what IKEA does, and
IKEA doesn’t want to do what we do.’

19. Sustainability
• IKEA has set a sustainability objective requiring that all of its
activities have an overall positive impact on people and the
environment. It also stresses social responsibility towards
customers, co-workers, suppliers and the employees who
work for them, as well as towards the entire community.
Over the past 15 years, the company, together with partners
such as the World Wide Fund for Nature (WWF), the United
Nations Children’s Fund (UNICEF) and Save the Children, has
developed a broad-ranging environmental and social
program.
• Wood is one the main raw materials in IKEA’s furniture
products, and the company’s contribution to more
sustainable forest management can be seen in the company’s
IWAY Forestry Standard, which contains basic requirements
for all suppliers that supply solid wood, layer-glued veneer
and plywood. Among these minimum requirements IKEA has
established that the wood must not come from forests that
are harvested illegally or related to social conflicts, with
suppliers required to verify compliance.

20. Sustainability
• Cotton, another main raw material necessary
in the manufacture of IKEA’s textiles, is also
subject to policies that promote its sustainable
production. One hundred per cent of the
cotton used for IKEA products now comes from
more sustainable sources. IKEA has partnered
with WWF in order to provide hands-on
training and support for approximately 60 000
farmers in Pakistan and India, two of IKEA’s
main cotton-sourcing countries. Training on
better cotton-farming practices includes
reduced use of chemical pesticides, lower
consumption of water and a reduction in the
use of chemical fertilisers.

21. Sustainability
• IKEA believes it can help reduce the
carbon-dioxide emissions of its own
operations while supporting its
customers’ efforts to live sustainably.
IKEA buildings are home to over 750
000 solar panels and 416 wind
turbines, which together generate 73
per cent of the energy used in the
company’s operations. Five key
IKEA markets now offer solar-energy
systems to their customers, in
addition to the company’s ongoing
promotion of LED bulbs.

22. Sustainability
• IKEA’s Social Initiative was enacted in 2005 to
promote the rights of every child to a healthy, secure
childhood and access to quality education. As part of
the Initiative, IKEA works with two leading global
organisations for children’s rights, UNICEF and Save
the Children. IKEA invests in a range of programs
with a holistic approach to having an impact on the
lives of children, concentrating its longterm
commitments in South Asia – especially in India,
which is an important supplier to the company and
where children’s needs are dire and child labour is
prevalent. A similar program involves the company’s
SUNNAN solar-powered lamp. For every SUNNAN
lamp sold in IKEA stores, a similar lamp is provided
to enable children in homes without electricity to do
their homework.

23. Ikea vision
• IKEA’s vision is ‘to create a better
everyday life for the many people’. It
wants to offer good-quality, durable and
functional home-furnishing products.
The company is just as committed to
making the world better with its various
sustainability initiatives and
humanitarian efforts.

24. Tutorial 8- questions
1. How standardization benefits a business process and commercialisation?
2. What has allowed IKEA to be successful with a relatively standardised
product and product line?
3. How does the experiential marketing approach help improve sales in Ikea?
4. Which features of ‘young people of all ages’ are universal and can be
exploited by a global/regional strategy?
5. How does CSR attract customers?
6. IKEA’s Social Initiative was created to manage the company’s social
involvements on a global level. Why?