Introduction
IKEA states in their business idea: “We shall offer a wide range of home furnishing items
of good design and function, at prices so low, that the majority of people can afford to buy
them”(IKEA 2005). IKEA manage to keep costs low by their superior relationship with
their suppliers were they buy low-cost components in huge quantities. Together with
efficient warehousing and customer selling service it passes on to customers resulting in
lower prices, anywhere from 25 – 50 % lower than its competitors. However, at the same
time they manage to operate with 8 – 10 % profit margins, much higher than the industry
average (Norman and Ramirez.1993).
We have made a short and simple SWOT analysis to get an overview their capabilities.
Strengths Weaknesses
High variety offering right range of products
Higher margins than competitors
Economies of Scale
Logistics – inventory management
Long term relations with suppliers
The business culture
Organisational capabilities adapting change
Market leader – Category killer
High service level – few stock outs
Low lead time
Good product information Too big may increase bureaucracy
Franchising higher control cost
Mass marketing expensive
Charismatic leader hard to replace
Search cost for cheaper components
Market surveillance keep up with trends
Opportunities Threats
Expanding Asian market
New technology may lower marketing cost
More focus on environmental issues New trends individualism
Time is money people do not have the time to put products together
Too dominate defence position man hamper innovation
The key elements to IKEAs winning formula are well known: simple, affordable,
functional, high quality, Scandinavian design, an extensive product line, knock-down
furniture kits that customers transport and assemble themselves, low cost, unique logistics,
huge stores located in suburban areas with plenty of parking space, day-care facilities and
restaurants. To focus only on low cost and low price is to miss the true significance of the
companies business innovation capabilities. IKEA has systematically redefined the roles,
relationships and organizational practices of the furniture business, so they can offer lower
prices and the right variety of products. IKEA has been able to grow globally in an
industry that traditionally was a fragmented and dominated by local actors.
In Theodore Levitts famous article Marketing Myopia (1960), he stresses that it is
important to define and to know what need to fulfill. The founder of IKEA Ingvar
Kamprad had interest in the home furniture industry primarily because of social reasons.
He wanted to respond to increasing prices of home furniture. Prices grew 41 % faster than
other household goods from 1935 to 1946. He commented that:” IKEAs aim is to change
