What are the Secrets of IKEA’s Success?

free essayIn some way, IKEA stores remind those of Wal-Mart. The company also appeals to low prices, its stores are located mainly in the suburbs, and the company crushes its competitors with its sales volumes. Society does not like Wal-Mart. Contrarily, people are much more lenient to IKEA. However, they always say that the furniture being sold by Swedish company is not of very high quality. However, as soon as IKEA opens its doors in the next European country, people are running to purchase furniture from Ingvar Kamprad. They cry out that they do not like it but they cannot resist the temptation. The fairest answer would be that people cannot resist the low prices, but there is more to it than that. The company also delivers a wonderful European atmosphere, which largely explains the fact that the “Old World” provides most of companies’ revenue. In addition, if to talk about furniture quality, it is very high. The only problem is that company’s furniture are quite similar to each other and that annoys people. However, it is not so important because the middle class goes to buy furniture in IKEA no matter what they think about it (Lewis, 2008). Company’s history began back in 1926, when Ingvar Kamprad was born.

Ingvar was born in a small Swedish town Almhult. His family members were already entrepreneurs but not very successful. His grandfather and grandmother were bargainers, which made his grandfather commit suicide because of large debts. Since childhood Ingvar showed an interest in commodity-money relations. Therefore, at the age of 5 years, the future founder of IKEA was selling matches. At school age, he tried a lot of things: selling a fish, seeds, cranberries, and even Christmas cards. Perhaps, it was his personal school as Ingvar Kamprad has no higher education. He did not study business and did not read any business books. All he knew was based solely on personal experience.

It may seem strange, but in 1943, he founded the first and the main company named IKEA, which was selling pens (Lewis, 2008). Before selling furniture Ingvar was importing pens from France for 5 years. He founded the company for the reason that the supplier required to do so to continue business partnership. However, 17-year-old Swede was still not able to register the company due to lack of money and his young age, so his father helped him. Sure enough, the name IKEA is the abbreviation. The first two letters are initials of Ingvar Kamprad, the third letter stands for the name of Ingvar’s father, and the fourth stands for the name of the parish where young Swede was involved. Sales of the firm have been growing up rapidly, and within 2 years Kamprad began to advertise it in local newspapers.

In late 40’s, Ingvar Kamprad turned his attention to an interesting point of local life that Swedish furniture cost quite a lot of money. If it was not luxury, it was certainly a great buy for many people (Lewis, 2008). He decided to fix it by converting IKEA to a furniture store. To begin with, future billionaire figured out where he could purchase cheap furniture in the country. IKEA began to acquire the cheapest chairs, coffee, and tables. At the same time, Kamprad gave names to everything that at that time was a novelty. Such a step allowed IKEA to make its furniture stand out from the competition. In addition, the public quickly spread the message of cheap furniture store.

Due to decent sales, Ingvar got enough cash to open his own factory. In 1951, he acquired a small plant in Sweden, where he began to produce cheaper furniture. It was nonsense in a country where furniture was an expensive commodity. It was virtually useless to start a price war with IKEA. Therefore, national association of sellers of furniture applied pressure to local suppliers working with IKEA. Taking advantage of their power, they were able to persuade them to stop working with the young company. That was a hard time for Kamprad. If there was another person in his place, it is possible that the story would have a sad ending. But for Ingvar (like for any other successful businessman), any major problem is a chance to look for new opportunities and development. It is hard to believe that problems can have a positive impact on the business. However, this failure of local suppliers has led to the fact that IKEA has become the largest furniture manufacturer in the world (Lewis, 2008).

Frustrated by this situation in his country, Ingvar started buying parts for furniture in Poland. The advantage of this approach was that it reduced costs, even despite the fact that it required transportation of details. The next step that minimized costs and lowered the price of the product for the end user was the fact that the Swede refused to deliver the furniture. All the furniture was delivered by means of buyers. However, it is clear that for this purpose, the company had to change its product dramatically, making it ready-to-assemble.

Thus, in 1947, IKEA issued the first printed catalog of company’s products, and today it became legendary (Lewis, 2008). Further, it scattered mailboxes of Sweden. Nowadays, it is possible to find this edition every year in the USA. An important rule, which was set about the directory, was the fact that prices stayed the same throughout all year. Sure, they may be reduced, but the goods in the catalog do not have to cost more not to mislead consumers.

In 1952, at the annual St. Frik Fair in Stockholm, IKEA presented its furniture at ultra-low prices for the first time. The country was in shock, but that was only the beginning. An important moment in the history of IKEA was a visit of Kamprad to the United States, where he found out about the famous Cash & Carry shops located in the suburbs (Lewis, 2008). This similar system was adopted by IKEA. Kamprad considered that the future belongs to cars as a main transportation means because it would be easy to get to the suburbs to buy furniture at low prices. At the same time, the stores would be built in the form of huge warehouses. Naturally, they would be self-service stored, where the consultants will help consumers. The first trading rooms of IKEA were opened in Stockholm and later in Almhult. It is important to mention that one of the main IKEA’s qualities is attention to additional services that can improve lives of customers (Lewis, 2008). Consequently, in 1950s, the company built small cafes, where customers could satisfy their hunger while shopping in a huge store. It was a wise decision since all IKEA stores were located in the suburbs. This means that there was a group of consumers who made the long way to IKEA. Availability of cafes in shops helped them relieve the fatigue of the road.

In 1963, IKEA entered the foreign market. It started its expansion from Norway. In addition, in 1960s, stores introduced a system of quality control that allowed company’s products to be recognized as best quality furniture in Sweden by several reputable journals. Soon, first IKEA store was opened in Switzerland.

Furthermore, it would be incorrect to assume that it is easy for IKEA to establish low prices for its products (Rumelt, 2011). The key to success is that IKEA has a well-organized cooperation between its design and production departments. Both are dependent on each other. By working together, they reject all unacceptable variations that may hinder development of the product or lead to higher prices for it in advance. At the moment of designing new products, the company determines which funds can be allocated to a new product and how they can be saved. It should be understood that IKEA adapts its prices for future customers. The prices at IKEA are set to target European family with an above-average income. The company conducted a lot of research, in which it determined how much money a family can spend on a particular product. On the basis of findings, a plan is developed. Few people know that when IKEA decides to create a new product, it defines how much it should cost first. Later, on the basis of this parameter, the company estimates the value of design development, manufacturing, logistics, and other things.

According to Rumelt (2011), company’s actions for strategy implementation should be consistent, precise, and coordinated with each other. Only then the company will receive a necessary push for development. The core strategy must contain definition of required actions. It is not about how to define each step in detail. However, it is important to know what actions do not conflict with each other.

It is important to consider relations between different parts of the business. The strength of each organization is defined by its weakest point. Working on strengths may be futile if it does not improve its weaker areas. Through analysis, it is necessary to take into account these constraints. Communication between business units may have a positive effect on the strategy. Coordination of actions allows IKEA to save the concept, which over the years was not copied by any competitor (Rumelt, 2011). To the outside world, IKEA looks like a well-coordinated organization, and it is true. There is a number of very important factors that have helped maintain the integrity of the company: a powerful mission and business idea of IKEA, values ??guiding company’s course of action, overall assortment, overall organization of distribution and procurement, and the concept of IKEA store (Rumelt, 2011).

According to Anders Dahlvig (2011), former CEO of IKEA, success secret in attracting and motivating good employees lies in a strong corporate culture. Here, it is important to look at some examples of IKEA’s corporate culture. Communication simplicity is one of the main corporate culture factors. It is about respect and kind treatment of each other, it is about how people respect each other regardless of their position. People in IKEA ignore visible and invisible barriers between managers and employees. They call each other by names. Managers and staff at all levels drive the same cars and have dinner together in one cafeteria. The company aims to get rid of all status symbols and establish trustful relationships between employees and managers (Dahlving, 2011). This is important to many colleagues and ensures their loyalty. Therefore, they are willing to stay and work at IKEA.

If to look at IKEA from consumer’s side, it is possible to say that the client can buy everything necessary for home here (Dahlving, 2011). However, there are several smart tricks. For example, if the customer likes pillows, then he or she can buy a cushion cover to them only in IKEA, because they are unique. IKEA boxes are suitable only to IKEA closets. In this way, the company attracts customers to its nets, and the customer, must to say, do not really mind. Another great convenience in IKEA is availability of pencils, paper meter tapes, and special paper allow customers to write a buying list and necessary warehouse location. This simple and inexpensive trick is not only a manifestation of care but also a tactical move. After the introduction of pencil and paper service, IKEA sales were raised by 7%. Furthermore, according to customer service standards, the buyer can just lie down on the couch or mattress and sleep. If the customer falls asleep, then consultants will not disturb him until the store is closed.

To sum up, the reason of IKEA’s success is originating from companies’ low prices strategy. Cheap, functional, and outstanding furniture is the main feature of IKEA. Moreover, IKEA was the first on the Sweden market, who imitated American Cash & Carry stores located in suburbs. In this situation, the company previously anticipated that car owners will easily get to the suburbs for cheap furniture. Finally, IKEA gradually developed a number of additional services that are in demand at the local level. For example, coffee shops in stores that help people come to their senses after a long journey or bike rental for special delivery of furniture to Copenhagen. Nowadays, company is managed by sons of Ingvar, who were prepared to the fact that sooner or later they will take the helm of father’s creation from their adolescence. Peter, Jonas and Mathias Kamprads divided spheres of influence: the older son manages finance, medium creates design, and the younger one provides ideological development. Their father, knowing how strong was his pressure on children and IKEA management, even promised not to interfere with their work and not to judge their actions.