The Management of IKEA Investments: Case Study

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Introduction

There are many international companies that started as back door workshops and street exhibits. However, with time, dedication and commitment they have expanded their operations beyond their nation’s boundaries and are now ranked among the best companies in the world (Stevenson 18). This paper is a case study analysis that explores major issues in the management of IKEA investments.

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Company Background

Ingvar Kamprad is the owner of this company having established it in 1943 to offer cheap household commodities to middle and low income earners. Home furnishings were introduced in 1947 and later Kamprad opened a furniture showroom. This saw the company start to produce customized designs that reflected consumer needs and market trends (Haight 12). This was a major turning point that made the company expand its operations and opened Scandinavia’s largest furniture display shop in Almhult. Thereafter, the company managed to open other furniture stores in Europe, North America and Asia. Today, this company has a working capital of more than $ 12 billion and produces the most valuable products in the world.

Identification

This company has specialized in producing furniture that is essential for daily use at home, offices and various government institutions and organizations. This means the company has conducted research on the requirements of quality household furniture to enable them to produce quality items (Travers 34). Initially, this company was selling a variety of household commodities and was experiencing marketing problems due to product diversities. Currently, the company’s sales are huge as is reflected in the data below.

Year Dollars Euros
1999 8.3 7.7
2000 10.3 9.5
2001 11.2 10.4
2002 11.9 11.0
2003 12.2 11.3

Consequently, there were many giant competitors that were already well established and could not match the speed of this company. However, when this company started specializing in furniture there was a bright light at the end of the tunnel as clients trooped to their showroom (Robertson 68). Most customers assume that companies that specialize in a single line of production produces cheap and quality goods compared to those that sell a variety of goods.

Secondly, these household products (furniture) are basic requirements in all homes and this means they are on demand throughout the year. People are always searching for new houses and apartments and every time they move they must replace or acquire some items. In addition, most wooden items are not long lasting and must be repaired after some time. Some people prefer having new items instead of repairing old ones since these repairs are sometimes costly and change the appearance of moist items; therefore, prestige and pride push them to acquire new ones.

Thirdly, advertising and marketing are key product promotion tools that create a difference between production and sales. This company has managed to offer quality services to its customers making them willing and ready to continue shopping even when there is no urgent need to do so (Travers 43). The company uses catchy phrases in advertising and informing customers about their products (specifications, quality and availability). There are many avenues including website and magazines used by this company to offer information to consumers.

Moreover, the company employs qualified workers and trains them to ensure they are able to offer quality services to their clients (Solnik 71). The attendants have adequate experience and knowledge regarding product specifications, materials and shipment requirements to enable clients to shop without inconveniences. This ensures customers get quality services that reflect their compensations, sacrifices and trust in the company.

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IKEA’s product marketing strategy is one in a million and enables the company to make use of the available market trends. The figure below gives a brief description on how this company plans to capitalize on new consumer trends. This product matrix table enables the company to set commodity prices, identify gaps and monitor product trends to enable then to plan next steps.

Style
Price range
Modern
(minimalist)
Young Swede
(bare bones)
Scandinavian
(sleek wood)
Country
(neo-traditional)
High
Medium
Low

Lastly, the company appreciates the value of time and space in providing their services to consumers. The main shopping showrooms have childcare centers to enable parents to shop without the disturbances associated with curious children. In addition, there are cafes tailor made to offer delicious traditional meals that attract shoppers’ attention. This company produces disassembled products to enable clients to carry their purchases without worrying about space in their vehicles (Daniels 43).

There are enough, secure parking bays for customers to park their vehicles without worrying about additional parking fees or uncontrolled traffic in public parks. In addition, the show rooms are extremely large for easy movements of workers, clients and goods within and outside the shops. The table below shows the sizes of various showrooms across America.

City Size of Showroom (M2)
Philadelphia 14,900
Washington-Woodbridge 28,000
Baltimore 18,700
Pittsburg 15,700
New Jersey-Elizabeth 32,700
Los Angeles-Burbank 22,500
New York-Long Island 20,500
Los Angeles-City of Industry 13,300
Los Angeles-Tustin 13,500
Houston 14,600
Los Angeles-Carson 19,900
Chicago-Schaumburg 40,000
San Francisco-East Bay 25,500
San Diego 17,700

This company has taken the world by storm and amazed most of its competitors by rising to the top positions within the last 30 years since its formation. It has managed to take advantage of the available gaps in the market to attract clients from different economic backgrounds (Lawton 56). Initially, the company produced goods that were traditionally meant for Swedes; therefore, these products would never have sold outside the Scandinavian countries. However, with time the company got hold of the major world markets after diversifying its production liners and produced goods that reflected modern tastes. Europe is the largest purchaser of the company’s products and purchases 82 %, followed by North America at 15 %) and Asia at 3 %. The table below shows how the company has managed to market and sale its products in various countries.

Country Sales (%)
Sweden 8
France 9
United States 11
United Kingdom 12
Germany 20

Additionally, people are always striving to save money for other activities and this force them to buy cheap but durable and quality goods. This company has ensured it takes advantage of its initiatives to produce cheap products by offering tenders to various manufacturers to allow competitive bidding (Swensen 34). The lowest bidder is usually given the contract after considering the quality of work expected. In fact, the company makes most of the product specifications and when a design is offered by a supplier there are high chances that it is modified to reflect some aspects like tradition and aesthetic values. Specialization has made this company to reduce production costs making its goods cheap and affordable by most customers.

In addition, one of the company slogans expresses the need to involve consumers in assembling their products and at the same time reduce the prices of their commodities. It is of essence that customers consider this offer and save money, space and time that are usually wasted when customers purchase assembled products. An item that would otherwise require a truck to transport it to a customer’s home can be conveniently packed at the back of a van since it is not bulky when disassembled. People are conscious about the value of space and time when making purchases and would go for commodities that are not bulky.

Moreover, most products get spoilt during transportation from the stores to the client’s home and thus lead to extra unplanned expenses. In addition, people living in rental houses always move to new establishments at least twice or thrice in their lifetime. This means they must move with their property which must be handled carefully to avoid breakages (Lawton 32). However, this company has taken care of this by ensuring they produce goods that can be assembled when the customers reach their destination. In addition, the company has support staff ready to offer assembling services to customers who may not have time for this.

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In addition, most people believe that purchasing new furniture comes with home makeovers that transform traditional house settings into modern home appearances. Therefore, they not only purchase furniture items but also other decorative items and an assortment of home utilities used in the kitchen, bedroom or dining area. This ensures that the house experiences a total change that enables visitors to identify significant changes (Daniels 48). Clients are expected to know the measurements of their rooms before ordering their products and they can contact the company to visit their homes to know what they require in terms of measurements, designs and materials for their products. This has enabled the company to continue opening new stores in different countries as is shown in the table below.

country Number of stores
Australia 4
Austria 5
Belgium 4
Canada 9
China 1
Czech Republic 3
Denmark 4
Finland 1
France 13
Germany 30
Hungary 2
Italy 7
Netherlands 9
Norway 5
Poland 7
Russia 2
Slovakia 1
Spain 3
Sweden 13
Switzerland 6
United Kingdom 11
United States 14

Analysis and Evaluation

One of the greatest production weaknesses is giving customers extra work to do. Some people would rather pay for their services to assemble products rather than moving around the room with bolts and nuts trying to assemble these products. Moreover, some individuals have busy schedules and assembling these products waste a lot of their time.

Secondly, people are not the same and some clients may fail to know how to assemble these products. They may spend hours trying to figure out how the end product should look like and this discourages them from purchasing similar products in the future. There are possibilities that finished/assembled products attract clients more disassembled ones due to appearance; therefore, this becomes a significant let down to the company (Maginn 34).

Moreover, most of these products are pulled and pushed by their users during cleaning and this weakens their joints. Therefore, even though transporting these products is less expensive and convenient compared to those already assembled there are other additional costs that are hidden at the time of purchase (Russell 23). Eventually, the total cost incurred in purchasing and assembling these products is almost equal to that of purchasing and transporting an assembled product.

Lastly, furniture is not on high demand compared to other products like foodstuffs and electronics. When a person buys a bed it may take their entire lifetime and they will never buy another bed or some will change their beds at most twice in their lifetime. This means that if everyone decided to buy a new bed today they may never buy another one and this means the company will not make sales for the next 15 or 50 years. Therefore, the company should focus on items that are on high demand to maximize on sales (Stevenson 25). Moreover, people are less likely to change their furniture than they do their clothes, shoes and foodstuffs.

IKEA is without doubt one of the fastest growing companies in the world in terms of market penetration. However, this company faces enormous challenges ahead due to several reasons. First, most of its products are wooden and this means the company relies on nature for raw materials (Stevenson 7). There are growing concerns to legislate policies that will ensure the available forest covers are protected (Swensen 56). Therefore, this company may soon run out of raw materials as nations struggle to conserve the environment.

Secondly, wooden products are becoming less common in most homes as people prefer metallic or plastic products to wooden ones. There are concerns that even though IKEA seems to be penetrating and widening its market in most countries this is a short term activity and is bound to retreat (Feibe 76). Therefore, this company has a bleak tomorrow basing on the fact that plastic items can be recycled, are light in weight and durable.

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Thirdly, most traditionalists prefer wooden items to plastic or metallic ones. However, this comprises only less than a quarter of the entire world population. Moreover, Americans, Asians and Europeans are the pioneers of change and modernization and they are slowly adopting new lifestyle (Olson 11). The younger generation is less likely than the older people to prefer traditional house settings and is more likely to use plastic and metallic items.

Lastly, according to the research conducted in 2003, IKEA was in position 14 in producing and selling house items. This shows that there is stiff competition from other similar companies (Davidson 52). Therefore, this company must struggle to beat giants like Wal-Mart and Office Depot among others to maintain its ground. Companies ranked below IKEA like Art Van and Kmart are also struggling to climb the ladder. In addition, people are establishing similar companies and struggling to make them known world over (Olson 17). Therefore, IKEA must develop effective strategies to ensure they continue making sales despite the cut throat competition.

Recommendations

IKEA should diversify its raw materials and avoid overdependence on trees and other natural sources that are not recyclable instead of using clay, marble, and plastic substances that are easily available from nature. In addition, they are environmental friendly and will not inconvenience other human activities.

Secondly, the company produces cheap durable goods that target low and middle income earners. However, this ignores the fact that there are rich people who like wooden commodities but will not buy them from stalls meant for poor people. Therefore, this company should produce products that attract all classes of income earners to make use of the available market.

Lastly, this company should develop long term strategies like recycling their old products. This will enable them to exchange their new products for old ones and keep their clients close. The company should establish a renewal department that will be contacting clients who wish to exchange their old products for new ones at a reasonable fee.

Conclusion

The difference between a winning and successful business is determined by how directors and managers make use of the available market trends. Most people fail to meet their targets and terminate their investments due to constant failures and inability to attract a market for their products and services.

Works Cited

Daniels, John. International Business. New Jersey: Prentice Hall, 2010. Print.

Davidson, Pierre. International Logistics: Management of International Trade Operations. New York: Atomic Dog, 2010. Print.

Feibe, Bruce. Complying with the Global Investment Performance Standards. New York: Wiley, 2011. Print.

Haight, Timothy. How to Select Investment Managers and Evaluate Performance. New York: Wiley, 2007. Print.

Lawton, Philip. Investment Performance Measurement: Evaluating and Presenting Results. New York: Wiley, 2008. Print.

Maginn, John. Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series). New York: Wiley, 2011. Print.

Olson, Russell. The Handbook for Investment Committee Members: How to Make Prudent Investments. New Jersey: Prentice Hall, 2009. Print.

Robertson, David. Global Investment Performance Standards Handbook. New York: Wiley, 2006. Print.

Russell, Robert. Operations Management: Creating Value along the Supply Chain. New York: Wiley, 2010. Print.

Solnik, Bruno. Global Investments. New Jersey: Prentice Hall, 2008. Print.

Stevenson, William. Operations Management: Operations and Decision Sciences. New York: McGraw Hill, 2011. Print.

Swensen, David. Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment. New York: Harper Business, 2009. Print.

Travers, Frank. Investment Manager Analysis: A Comprehensive Guide to Portfolio Selection, Monitoring and Optimization. New York: Wiley, 2004. Print.

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