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Unformatted text preview: IKEA of Sweden 1-0 BACKGROUND. If retailers are to succeed in an overseas market, they must not only master the traditional skills of market segment cultural and economic traditions of the host country. (Ingvar Kamprad, quoted in Annual Report 1993) Ikea Svenska AB, founded in 1943 is the world's largest furniture retailer which specializes in stylish but inexpensive Scandinavian designed furniture. It has 128 fully-owned stores in 26 countries, visited by over 108 million people yearly, and worldwide sales of about $5.4 billion in 1994 (IKEA 1994). Ikea's success in the retail industry can be attributed to its vast experience in the retail market, product differentiation, and cost leadership. The company is, perhaps, one of the World's most successful multinational retailing firms operating as a global organization based on its unique concept that the furniture is sold in kits that are assembled by the customer at home. Refer appendix 1B for corporate performance. 1-1 MISSION. Ikea's mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them (IKEA 1994). The company targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The typical Ikea customer is young low to middle income family. 1-2 OPERATING STRATEGY. Ikea does not have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies. All research and development activities are, however, centralized in Sweden. In order to maintain low cost, Ikea shoppers are Pro-sumers - half producers, and half consumers (Normann, 1993: 70). In other words, they have to assemble the products themselves. To facilitate shopping, Ikea provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Car roof racks are available for purchase at cost and Ikea pick-up vans/mini trucks are available for rental (Economist, 1994: 101). Ikea's success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. According to Ingvar Kamprad, the founder of Ikea; "To design a desk which may cost $1,000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problems are often signs of mediocrity." (Chandler, 1993: 12) Costs are kept under control starting at the design level of the value-added chain. Ikea also keeps costs down by packing items compactly in flat standardized embalages and stacking as much as possible to reduce storage space during and after distribution in the logistics process (Economist, 1994: 101). Effective marketing through catalogues usually attracts the customer at first, what keeps customers coming back is good service. Ikea believes that a strong in-stock position in which customers coming back is good service....
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