Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Case 17 Lecture Notes
IKEA Slowly Expands Its U.S. Market Presence
Case 17 IKEA Slowly Expands Its U.S. Market Presence*
Synopsis: IKEA is known around the world for its stylish, quality, and low-cost furniture
and home furnishings. The company’s success is based on a strategy of
operational excellence in production, supply chain operations, and marketing.
IKEA—wildly popular in Europe—has leveraged its brand reputation to penetrate
markets in other countries. However, its penetration of the U.S. market has been
hampered by a weakened economy and the inconsistency between the traditional
U.S furniture market and IKEA’s low-cost operating philosophy. IKEA must find
a balance between its operational excellence strategy and U.S. consumers’
demands for customization, good service, convenience, and quality.
Themes: Operational excellence, target marketing, product design, branding strategy,
positioning, global marketing, pricing strategy, supply chain strategy, retailing,
implementation, customer relationships, SWOT analysis, strategic focus
Case Summary
IKEA is one of the most popular and iconic brands in the world. From the beginning, IKEA was
founded on different principles—namely, frugality and low cost. Most furniture companies offer
service and advice in settings where salespeople compete for sales commissions. However,
IKEA founder Ingvar Kamprad recognized that customers were willing to trade off typical
amenities to save money. Today, the no-frills frugality is the cornerstone of the IKEA caché and
the reason for its immense popularity. IKEA’s marketing strategy is based on building customer
relationships. IKEA’s vision and core operating philosophy makes this clear:
The IKEA Concept: Provide functional, well-designed furniture at prices so low
that as many people as possible will be able to afford them. Creating a better
everyday life for the many people.
IKEA provides stylish, functional, low-cost home furnishings that customers must assemble
themselves. This enables IKEA to save money on manufacturing and distribution, which they
then pass on to customers in the form of lower prices at retail. To compensate for the customer
having to do-it-themselves, IKEA offers other services that make this proposition a little more
attractive. These extra services include in-store child-care and play areas, restaurants, and longer
store hours.
Today, IKEA is Sweden’s best-known export. The company had 2011 worldwide sales totaling
EUR 25.2 billion and an annual growth rate of almost 7 percent. Roughly 79 percent of IKEA’s
sales come from operations in Europe, with North America and Russia/Asia/Australia
contributing 14 percent and 7 percent, respectively. The company has 131,000 employees and
* Michael D. Hartline, Florida State University, prepared this teaching note for classroom
discussion rather than to illustrate effective or ineffective handling of an administrative situation.
Case 17 Lecture Notes
IKEA Slowly Expands Its U.S. Market Presence
more than 325 IKEA stores in 38 countries, with 287 of these stores in 26 countries belonging to
the IKEA Group. The remaining stores are owned and operated by franchisees. There are
currently 38 U.S. stores, with 11 stores in Canada. IKEA had originally planned to have 50 stores
operating in the United States by 2010, but the 2008-2009 worldwide economic recession slowed
IKEA’s plans.
IKEA considers the United States an important part of its plans for global expansion. The U.S.
standard of living is higher than most countries; however, most American consumers actively
buy into the cost-conscious mentality. The value of the U.S. dollar is stable and not prone to
wide exchange rate fluctuations. The United States has very high Internet usage, and IKEA’s
sustainability efforts are welcomed by a wide margin of the consuming public. Another factor
that makes the United States favorable to IKEA is its melting pot of cultures. The IKEA Concept
can appeal to the different lifestyles and ways of life found in the United States.
Despite these advantages, IKEA must address two key issues regarding U.S. expansion. The first
is the need to adapt to the preferences of U.S. consumers. American consumers are very
demanding and tend to reward marketers that go out of their way to address individual tastes and
needs. Further expansion into the U.S. market will require IKEA to adapt its offerings and stores
to local tastes—a marketing strategy that is much more expensive to deliver and contrary to
IKEA’s cost-conscious operating philosophy. Another adaptation issue involves IKEA’s
promotional strategy, which must be tailored to U.S. standards. For example, most of IKEA’s
television commercials are considered too “edgy” for American viewers.
The second key issue is quality. Although American consumers are increasingly value-driven,
they also demand quality products. In this regard, IKEA’s low-cost, do-it-yourself concept
misses the mark for many potential furniture consumers. Many Americans view self-assembled
furniture as being lower in quality, and similar to the types of furniture one might buy at
Walmart or Target.
Facing these challenges, IKEA’s U.S. expansion has moved slowly. The company opened only
three U.S. stores from 2009 to 2012 and does not plan to open any new U.S. store in 2013.
IKEA’s low-cost, do-it-yourself marketing strategy is not a perfect match for U.S. tastes in
furniture retailing, nor does the company have the financial resources and marketing experience
to roll out a large number of products and stores simultaneously. The most recent economic
conditions have not helped either. As the company looks toward further expansion into the U.S.
market, it must consider a number of relevant issues in both its internal and external
environments.
Teaching Overview
Virtually all students have heard of IKEA, but only a few will have ever visited an IKEA store.
For that reason, it is a good idea to direct students to the IKEA website or an IKEA catalog prior
to discussing the case. It is important that students understand that every aspect of IKEA’s
strategy is based on maintaining a downward pressure on costs and operating expenses. Along
with the clean, frugal styling that IKEA uses in its product design, the company’s cost control
measures are vital to its low retail prices.
Case 17 Lecture Notes
IKEA Slowly Expands Its U.S. Market Presence
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
As the case points out, IKEA’s frugality will be challenged as it expands its store operations in
the United States. This is an excellent example of the challenges associated with the marketing
adaptation approach to international expansion. The key challenge in this case is how IKEA can
maintain its cost-conscious strategy while simultaneously adapting to the highly individualistic
nature of the U.S. consumer. Also, how can IKEA balance its limited service offerings with the
higher service needs of U.S. consumers?
SWOT Analysis
A full SWOT analysis is provided in the case.
Problem/Decision Statement
If IKEA is set on U.S. expansion, the company must find a way to meet customers’ needs and
wants at the lowest possible cost. U.S. consumers are accustomed to traditional furniture stores
that offer delivery and financing. Most U.S. consumers are not accustomed to assembling
furniture, and may not be willing to do so to save money.
Strategy Alternatives
1. Proceed with U.S. Expansion, But Expand Service Offerings—IKEA could proceed as
planned while offering additional services for the U.S. market. This might necessitate
offering pre-assembled furniture, regular home delivery, financing, as well as accepting
personal checks (which the company currently does not do). This strategy would raise
IKEA’s costs, but would make its stores more like traditional U.S. furniture retailers. The
company could impose extra charges for most of its added services. IKEA’s franchise
structure is perfect for this strategy; however, stores should be located near major
metropolitan areas.
Case 17 Lecture Notes
IKEA Slowly Expands Its U.S. Market Presence
Strategy Recommendations
IKEA could pursue any one of these strategies, as each has a different set of advantages and
disadvantages. Many students will argue against the first option because it simply doesn’t match
IKEA’s branding or experience. The second option is extremely viable, but could dilute some of
Implementation Issues
The overriding implementation issue is IKEA’s lack of experience in the U.S. market. If the
company were to pursue aggressive store expansion, it might want to hire a brand consultant that
is familiar with the U.S. market. Also, some of the potential added services (delivery, financing,
and assembly) might have to be handled by third parties if IKEA does not want to handle them.
Locating reputable third parties would be another key implementation issue.
Teaching Questions
1. Given the SWOT analysis presented in the case, what are IKEA’s key competitive
advantages? What strategic focus should the company take as it looks to further expand
into the U.S. market?
2. What factor is the biggest reason for IKEA’s growth and popularity: value or image?
Which is more important in the U.S. market? Why?
