Background:

IKEA is a multinational group of companies that designs and sells ready-toassemble furniture (such as beds, chairs and desks), appliances, small motor vehicles
and home accessories. It is one of the world's largest furniture retailers. IKEA was
founded in 1943. The name is made up from the initials of the founder, Ingvar Kamprad
and the first letters of the farm Elmtaryd and the village Agunnaryd in rural southern
Sweden where he grew up. IKEA retailing, with its Swedish roots, is based on a
franchise system. Inter IKEA Systems B.V., located in Delft, The Netherlands, is the
owner and franchisor of the IKEA Concept. The IKEA Concept starts with the idea of
providing a range of home furnishing products that are affordable to the many people,
not just the few. It is achieved by combining function, quality, design and value - always
with sustainability in mind. The IKEA Concept exists in every part of their company, from
design, sourcing, packing and distributing through to their business model. Their aim is
to help more people live a better life at home. IKEA stores are operated by a number of
different franchisees in 29 countries.
IKEA offers a wide range of well-designed, functional and affordable home
furnishing products. The founder of the IKEA Operations, Ingvar Kamprad, wanted to
create an ownership structure that stands for independence and a long-term approach.
The company is known for its modern architectural designs for various types of
appliances and furniture, and its interior design work is often associated with an ecofriendly simplicity.In addition, the firm is known for its attention to cost control,
operational details, and continuous product development, corporate attributes that
allowed IKEA to lower its prices by an average of two to three percent over the decade
to 2010 during a period of global expansion.
The IKEA Group operates throughout the whole value chain from range strategy
and product development to production, distribution and retail.

QUESTIONS:
1. What are IKEAs competitive priorities?
IKEA's competitive priority is creating a product at a low cost but with a
good quality. The key points are price, design and function. The companys
corporate mantra is "low price with a meaning". Unlike other companies, IKEA's
products are 30 to 50 percent below the competitions. Their price may be cheap
but their products don't look like one. IKEA designers design IKEA products
starting with identifying the functional need and the price or cost of such product.
They put logic in the design of the products to be introduced which helps IKEA to
price lower than the competitions while maintaining certain quality standards. As
other companies price gets higher, they choose to get lower but both have the
same quality of products. They dont want their customers to feel cheap by
creating a product with a good quality and a modern design at a less expensive
price.
2. Describe IKEAs process of developing a new product.
IKEA starts the process for designing new product by picking how much
the new product will cost. The low price begins at the drawing board. It helps to
determine color, design and materials used. In the case of the Trofe mugs, to
produce the right mug at the right time, they had to take environmental-friendly
colors like green, blue, yellow, or white as these pigments cost less than other
shades, such as red. The team behind a new product at IKEA consists of
designers, product developers, and purchasers of materials who get together to
discuss design, materials and suitable suppliers. Each specialist contributes their
knowledge.

Next

they choose

manufacturer;

they determine

which

manufacturer can produce the new product most efficiently. The task of
developing product never ends. Coordinating with good supplier, IKEA is able to
produce products which are inexpensive but not cheap. And next they design the
product. IKEA uses internal competition to find a designer and select a design for
production. Design process begins with writing a brief that explains the products
price, its function, the materials to be used, and the fabricators capabilities. Then
it is sent to brief the IKEAs staff designers and freelancers, and refines promising

designs until settling on the one to produce. And next they ship the products to
IKEA distribution centers around the world. The key word is flat. Makings things
flat is an IKEA obsession. From vacuum packing pillows to producing
disassembled furniture, IKEA is devoted to not ship air with their products. Flat
packaging maximizes the space inside shipping containers and lowers the cost of
shipping. Lastly, after producing, the new product is now ready to be introduced
to the market and to be displayed in the IKEA store and be sold to the public. Instore displays are the key point of selling the products. Lavishly designed model
homes guide customers through the store on their way to purchases.
3. What are the additional features of the IKEA concept (beyond its design process)
that contribute to creating exceptional value for the customer?
The additional features that they offer are the relationships they have with
their suppliers, logistics and distribution, and the art of selling the products in the
store. IKEA opts for a good quality and yet low-cost product, that is why
relationship to suppliers is important. IKEA maintains a good connection with
them to avoid future misunderstandings. IKEA also strives for timeliness while
delivering the right number of goods to the right stores or branches. The goods
are based on the demand and requirements of each store. Distribution centers
are located just near ports, railways, and highways enabling IKEA to ship with
efficiency. There is also the IKEA concept of shipping their products as flat as
possible through disassembled ones in order to maximize the boxes used for
shipping. Lastly, IKEA concept of displaying and selling their products in the
stores is another distinctive feature. IKEA stores are designed with a maze layout
which has a predetermined path and category of home interiors that offers a wide
variety of ideas for a home design and solutions. The theory is that while
following a zigzag trail between displays of minimalist Swedish furniture, a
disoriented and undecided Ikea customer feels compelled to pick up a few extra
impulse purchases. And since IKEA focuses on the low price with a meaning
principle, the emphasis is always on the low-priced products, called breathtaking
items (BTIs), which are placed on risers and framed by a huge yellow price tag
notwithstanding the other products which are pricier and more design-oriented for

they also serve as substitutes for the BTIs. What makes it more interesting is that
IKEA asks their customers to assemble their furniture themselves. Customers
contribute to the low prices by selecting and buying the products, taking them
home and assembling them using instructions given.
4. What would be important criteria for selecting a site for an IKEA store?
a. Marketability
In selecting a new site for an IKEA store, the management must
consider the marketability of their products in the area. They need to
assess the lifestyle of the people in that location so that they may
know what products to boost and what not. Research must be done
to gear up the company of what they may expect in that location, the
furniture that are highly needed and commonly bought in the area,
the home furnishings that are appropriate to the kind of living the
place has and of course the culture of the people living in that area.
b. Distribution costs or shipping costs
They also need to consider whether the location chosen would not
bring too much costs that the revenues acquired would not be
enough to cover up the costs of getting the products in the said
location. The location must be closer to ports to reduce travel time
and to lessen costs of transferring it to the store.
c. Government intervention
The company also has to consider factors in entering a new location,
government laws maybe restrictive to foreign companies. Taxes
imposed to outsiders must be reasonable for them. Government
requirements must not be too restraining to be completed. And they
have to create good relationship with the government to avoid being
watched all the times.
d. Culture and Local Competitions

The consumer must be the number one factor to be thought of

because they are the main reason why they expanded in that area.
The company must understand the way the people think, move and
learn the things about their traditions. In that way they could adjust
their products to the tastes of their clients. They must also remember
that if they are going to penetrate in an area, it will be better if the
people are not hesitant to try new products especially foreign ones. It
will be bad if the people patronize too much of local products and
ignore foreign goods. Important questions to be bear in mind, can
they continue selling their products on the price they normally have or
should they reduce it more to compete with local goods.
e. Employees
Lastly, they must consider the people that would be working for them.
The human resource will be a great help or could be a cause for a
disaster. They need to consider the costs of wages and salaries of
the employees. They also have to consider other factors such as
culture and tradition of their employees. They need to be aware of
this to be able to adjust to their employees so that they could gain
loyalty in return.

Ateneo de Davao University

Jacinto Street, Davao City
Productions Management
IKEA CASE
GROUP 2:
BAE, Go Eun
CADA, Marrion Allana
CASTRO, Anthony Benedict
MENDIOLA, Myka Angela
PIDO, Nikki Louise
RAPISURA, Coleen
BSA-4D
MWF/1:30-2:30P/C205
July 13, 2015

Group no.: 2
Section: BSA 4D
Room: C205

Date: July 13, 2015

Day/Time: MWF 1:30-2:30
IKEA Case
Group Members:
BAE, Go Eun
CADA, Marrion Allana
CASTRO, Anthony Benedict
MENDIOLA, Myka Angela
PIDO, Nikki Louise
RAPISURA, Coleen