Question: Every day, more than 1 million customers visit IKEA stores worldwide to buy everything from beds and baskets to bookcases and bathmats. The Swedish-based retailer has grown to more than 225 stores worldwide with annual sales of $18 billion by offering 7,000 home furnishings that are well designed, functional, and affordably priced. Its customers like the contemporary look of IKEA's products-and they don't mind assembling their purchases to save money. IKEA is always driving costs down in manufacturing, marketing, warehousing, and raw materials so that it can pass the savings along to customers. Year after year, the retailer lowers its prices by an average of 2 to 3 percent by buying in bulk, searching for the most efficient suppliers, and sticking to simple, contemporary styles. For a company that buys from 1,700 suppliers, including some that are thousands of miles from company headquarters, even small efficiencies quickly add up to significant savings. Although IKEA's customers are frugal, they want fashionable furniture that fits their personalities and lifestyles. In fact, the store's appeal cuts across demographic lines. Some customers who can well afford to shop at posh emporiums come to IKEA because they like the combination of chic design, down-to-earth functionality, and speedy assembly.
Any item that must be assembled at home is accompanied by clear step-by-step instructions and illustrations, reassuring to even the most inexperienced do-it-yourselfer. Customers in many countries have responded enthusiastically to IKEA's formula. After expanding beyond Sweden to Norway and Denmark, the company opened stores in Europe, Australia, and North America. More recently, IKEA has come to Russia, Japan, and China. By 2010, fifty IKEA stores will dot the United States from coast to coast. Product names such as Billy bookcases and Klippan sofas are standard throughout the world and reflect the company's Swedish origins. However, IKEA's designers are careful to modify products for local tastes. "Americans want more comfortable sofas, higher-quality textiles, bigger glasses, more spacious entertainment units," says the head of IKEA North America. Designers and researchers visit customers' homes to observe how they use furniture. As a result, when IKEA makes bedroom furniture for the U.S. market, it adds deeper drawers because "Americans prefer to store most of their clothes folded," notes the product manager. In Europe, product measurements are provided in centimeters, whereas in the United States, measurements are provided in inches. IKEA translates its catalogs into thirty-six languages and distributes 160 million copies every year. Here again, IKEA looks for ways to minimize expenses.
It has all products photographed at a large European studio and transmits the images electronically to printing plants in the different regions where catalogs will be distributed, saving on shipping and mailing costs. Every detail, from paper quality to type size, is scrutinized to identify new cost efficiencies. IKEA's formula of fashionable, affordable, and functional furniture has won it a loyal following. Customers have been known to line up a week ahead of opening day for a chance to win prizes and fifteen minutes of local fame as the first to see the new store. If customers get hungry while they shop, they can drop into the informal store restaurant for a quick snack or a light meal of Scandinavian delicacies. The most popular dish is Swedish meatballs: Customers devour 150 million of these tiny meatballs every year. As popular as IKEA has become, CEO Anders Dahlvig sees plenty of room for growth because "awareness of our brand is much bigger than the size of our company." Still, no matter how large and fast IKEA grows, its focus will remain on keeping costs low to satisfy the target market's need for reasonably priced, welldesigned assemble-it-yourself home furnishings.16 For more information about this company, go to www.ikea.com.
1. Is IKEA's targeting strategy concentrated or undifferentiated? Explain your answer.
2. Which of the variables for segmenting consumer markets is IKEA using, and why are these variables appropriate?
3. What combination of techniques might IKEA apply when preparing sales forecasts for North America?