IKEA: Improving Accessibility

Introduction
IKEA has been an innovator in the international furniture industry for almost 70 years and has shown that innovation in its North American sector for the past 25 years. Its presence in the US, however, has been expanding slowly even though the companys brand equity has been consistently strong in the market. With unique products offered at competitive prices backed by supportive promotions, IKEAs placement strategies in the US are majorly lacking. Its crucial that we make the IKEA brand more accessible to current customers while also finding ways to target new customers as well. To allow consumers more accessibility, we have the option of opening more locations throughout the US, focusing these locations in cities, or partnering up with another retailer to get IKEAs products into a completely original market. Though all could achieve the goal eventually, the latter provides the most time-efficient strategy. So we propose that IKEA forms a strategic alliance with a mass merchandiser to gain back some market share with this newfound competitor during economic hard times. We also think that IKEA can build its online presence as well as some promotional tactics to support this venture. Overall, IKEA will meet its goal of expanding brand presence throughout the US, improve its placement and cater to the needs of its consumers, and increase its share of market in the US furniture industry while increasing IKEAs revenues.

Identifying the Problem

IKEA has been creating a better everyday life for the many American people ever since the Swedish company expanded into the US in 1985. A home products store that offers furniture for every room in the house and a wide selection of Swedish food, IKEA has found its home in 35 US locations out of its 280 stores worldwide. The international SBU, parented by the Ingka Holding BV company, reported revenues of $33.2 billion in 2010, a 7.7% increase from 2009 (IKEA Group). North America, obviously including the US, was responsible for 15% of IKEAs total revenues in 2009, making this IKEAs second largest geographical market and an important player in the global company (Datamonitor). As we look at IKEAs presence in the US, we see that the brand has become a retailer of home furnishings that offers a product range focused on good design and function at the everyday low prices strategy: it provides generally high involvement items at a continuously low price when compared to its competitors (IKEA Group). IKEA has built a worldwide reputation that proceeded itself before its entry into the US and the company has continued to construct a strong brand equity here. The brand has been ranked ninth according to Verdicts retailer Consumer Satisfaction Index because of these low prices, the stores atmospherics, and its well-designed products (Datamonitor). Low prices have been made possible by the fact that all IKEA products are made with quality but money-saving materials, packaged in flat-packs that allow the consumer to assemble the products on their own (saving IKEA labor and shipping costs), and designed with environmental sustainability in mind. IKEA has stressed
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affordable prices so much that it even designed its production process and various distribution centers to make this possible (IKEA Group). These low prices have made the retailer a competitive player in todays economy where American shoppers are strapped to spend money on such disposable goods as furniture. IKEA is also turned to because its product offering goes above and beyond furniture products by designing its retail outlets with a store layout that allows customers to visualize and interact with the brands merchandise before purchasing. Its Swedish food selection and childrens play area also contribute to the store atmospherics. IKEA has promoted these products primarily through its extensive seasonal catalog that is distributed to all of its current customers and through commercials, viral marketing and print advertisements to reach new audiences. Now that weve identified where IKEA has succeeded with its strengths in product design, pricing strategy, and promotional tactics, we can see that the brand has a weakness in the placement element of the marketing mix. Most of the US locations lie in rural areas to decrease operations costs that then result in less expensive products overall. However, these locations are few and far between. The ones that do exist are often hard and costly to get to in an economy with such high gas prices. This weakness is where we focus our attention as we try to improve IKEAs positioning among its consumers, but first lets pinpoint some of the companys opportunities and threats that also play a role in its current and future success. IKEA is an international brand that has its highest concentration and revenues percentage in Europe because it was founded and started its growth there. Now that it
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has been present in the US for over 25 years, a huge opportunity lies in vastly expanding in this territory. IKEA has also recently allowed online shopping on its site and this product benefit could be continuously built on as well. In its US market, IKEA faces massive threats in both a still-struggling economy and a wide competition. The furniture industry as a whole is highly fragmented and none of its players have a market share greater than 5% (Gotaas). Not only does the brand compete with furniture stores such as Ashley Furniture, Ethan Allen, Pier 1, and Restoration Hardware, but it has found a new competitor in the mass merchandisers like Wal-Mart, Target, and Costco. With the US economy in such a downturn for the past few years, not only are Americans spending less on disposable items like furniture, theyve also turned to onestop, discounted stores as their primary retail outlet to decrease spending on gas prices and more expensive products. Mass merchandisers have capitalized on this opportunity for themselves by offering more and more diversified products so that a consumer that comes in for one product, might be led to purchase another (Mass Merchandisers US). This strategy combined with the economic conditions have caused mass merchandisers to grow by over 30% since 2005, making them the fastest growing retail channel (Home FurnitureUS). This has created intertype competition in the furniture industry as traditional furniture or home stores also now have to contend with retailers that once specialized in only grocery or other goods. Four of the top ten furniture retailers are now mass merchandisers too: Wal-Mart, Target, Sams Club, Costco (Home Furniture US).
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Solving the Problem

Clearly, IKEAs biggest problem lies in its lack of accessibility to its US consumers. The few locations in such a large and able territory are causing IKEA to miss out on revenue. It has yet to fully take advantage of its US presence and is now being faced with a further challenge in its competition. Fortunately, IKEA can combine its biggest weakness with the previously outlined opportunities and weaknesses to solve the problem. One simple solution, and the one that IKEA is currently pursuing, would be to open more locations throughout the US to allow more consumers access to the brand. Though this solution is ideal, its slow-moving. Over 25 years only 35 stores exist in the US territory, which averages out to be less than two new stores per year. Even if we wanted to pick up the pace of this expansion, economic conditions would make this solution rather expensive. And still the problem remains that locations are primarily rural and out of the way for our customers. Suggesting stores to be added in urban locations would again, also be ideal, but it would definitely be costly. One way that IKEA has been able to keep its prices down has been through its real estate choices in less expensive areas. Trying to expand into cities would increase these operating costs immediately. Stores would also be limited in size in urban environments, simply due to lack of space and IKEAs anticipated choice to try to keep prices down with a smaller store in more expensive real estate. This would hugely affect the IKEA experience: the widely preferred layout would need to change and inventory levels couldnt be as extensive.
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Instead, lets explore another option. IKEA has an opportunity to pursue market development, or in other words, present its current products in new markets. The furniture industry is facing the mature stage of its life cycle due to market acceptance, low rate of technology change, and slow growth and one way to manage this phase would be through market modification (Gotaas). So where would these new markets be? The best option would be to market to those consumers who are seeking out mass merchandisers as their primary retail outlet for all of their goods, including home furniture products. And the best way to reach those consumers is directly through those mass merchandisers, themselves. The proposed strategy would be to enter IKEA into a strategic channel alliance with a mass merchandiser. The mass merchandiser would be used as a marketing channel to be a reseller of some of IKEAs product lines. This would not be an opportunity for co-branding because IKEA would want to completely maintain its brand equity through the partnership and this can be best achieved in an alliance. The alliance would be similar to Nike or Adidas selling its shoe products in other retail outlets (sporting goods stores, shoe stores, etc) while still having their own branded marketing channels (online stores, Niketown, etc). This proposed alliance, however, would be exclusive and both IKEA and the mass merchandiser would enter based on reciprocity, or the agreement that the mass merchandiser would only buy from IKEA and IKEA would only sell to the mass merchandiser. This allows IKEA to distribute selectively which will help to avoid cannibalization that might take place if IKEA were to distribute to multiple retail channels in addition to its branded stores. IKEA can also combat
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cannibalization of its brand by only offering select product lines at its chosen mass merchandiser and continuing to offer its extensive product mix only at its stores. This tactic could drive new consumers that found the IKEA product at the mass merchandiser to continue to seek out IKEA products online and at the exclusive store locations. Current consumers would also know that they could continue to find all of their favorite products at these sites. With the wide range of mass merchandisers in the US market, which one should IKEA partner with? The ideal alliance would exist between IKEA and Target for many reasons. First and foremost, both parties of the alliance would be able to better compete with their competitors. Wal-Mart has established itself as both the largest furniture retailer and the largest mass merchandiser. Wal-Mart outsells Target (its nearest competitor) by more than four times (Mass MerchandisersUS) and is beating IKEA in its own industry as IKEA is only the third largest furniture retailer (Home FurnitureUS). An alliance between IKEA and Target would allow both to compete head to head with their number one competitor while partnering with other strong contenders in the industry. IKEA would also be able to compete with other major furniture retailers such as Ashley Furniture Industries and the like while Target can continue to stand out from the mass merchandisers of Kmart, Costco and Sams Club. Its important that IKEA only enter into a strategic alliance with one mass merchandiser to achieve reciprocity and to best avoid cannibalization that could occur with intensive distribution. And the other top mass merchandisers that happen to be strong furniture retailers dont fit with the IKEA brand like Target would. Though Wal8

Mart has a new focus on offering green products, they have been questioned in other sustainability practices, which is something that IKEA is extremely passionate about (Datamonitor). This factor of Wal-Marts reputation combined with the fact that WalMart hardly needs IKEA to continue to succeed doesnt make the two an ideal partnership. Since Kmart doesnt have a clear identity among discount shoppers while IKEAs brand equity is so strong doesnt make these two a match either (Mass MerchandisersUS). Kmart also already has a strategic alliance with Martha Stewart products and one with IKEA would be a clear overlap. Finally, both Costco and Sams Club are based on bulk sales and this doesnt fit with IKEAs current product offering. Target is an ideal fit for an alliance with IKEA because they share a similar customer base. Target emphasizes style and low prices, customers tend to have higher brand expectations of the stores layout and overall products, and the mass merchandiser stresses emotional appeal, like fashion and quality of life, in its advertisements (Mass MerchandisersUS). All of these ring true for IKEA as well. As weve already discussed, IKEA stresses function, design and affordable prices that are offered in innovative store layouts. An alliance between the two could help build on all of these assets that are so clearly important to both retailers. Style could also be further explored as fashion is still a motivating factor in purchasing furniture and a need for branding is paramount (Home FurnitureUS). If these two stylish retail outlets collaborated, both brands would be reinvigorated with the support of the other. Another benefit to pairing with Target, is that the mass merchandiser is already familiar with this kind of partnership. Though most of its previous alliances were primarily co-branding,
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the process would be similar overall. Target has been an innovator in the mass merchandiser channel by teaming up with clothing designers like Isaac Mizrahi or makeup artists like Sonia Kashuk to offer these lines exclusively through their stores. The store is familiar with crafting advertisements to promote these lines and would be experienced enough to know how to do the same with added IKEA product lines. These previous brands have created success for themselves and for Target so there is evidence that IKEAs alliance with Target would too. So how would this alliance thrive? First, IKEA would have to enter into a buyersupplier relationship with Target where all of the above tactics would be discussed. Then, the two would need to launch a promotional campaign made up of advertisements to help both the IKEA and Target consumer understand the new alliance and to walk them through this learning curve. The advertisements could boast of the IKEA at Target product line that would enhance consumer perceptions of both brands. Finally, IKEA could capitalize on the online shopping opportunity that was defined earlier. With online retail spending is increasing yearly, IKEA needs to further develop its websites shopping capabilities (Datamonitor). To get our new Target consumers to get to the IKEA website, IKEA could include a promotional discount or incentive on the products offered at Target that strictly drive these customers to the IKEA website or IKEA stores. This way, current or new consumers who are looking for the entire product mix, not just the product lines offered at Target, are reminded that it is still fully available to them. This will also help to avoid cannibalization of IKEAs single-branded stores because further sales would be driven to take place there or on
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the website. IKEA can also further design its website to incorporate the room planner that already exists for kitchen products into every room of the house for those consumers who are looking for the IKEA experience without the ability to drive far to the rural locations.

Conclusion
IKEA has a unique opportunity to combine its weakness, threats, and opportunities by building on its strengths to create a solution that will drastically better the brand. By forming a strategic alliance with Target, IKEA can quickly distribute its products to many more millions of Americans without the heavy costs and time requirements of building more locations. At the same time, the brand can further contend with its competitors in both the furniture retailer and mass merchandiser channels by starting to take valuable share of market from both. IKEA can also simultaneously build its presence in the US through this expansion while working on its presence online. This proposed strategy will drastically increase the North American sector of the IKEA brand and contribute even more to the international companys revenues. It will give already loyal IKEA customers an easier way to access its products through these placement tactics and find and cater to new IKEA customers in outlets that are more suitable for them. This will easily increase consumer loyalty in both categories. And ultimately, IKEA will see increased revenues and profits from this business venture that will make it all worthwhile.

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Works Cited Gotaas, Mary. Furniture Stores in the US. Rep. IBIS World, 11 Mar. 2011. Web.

Home Furniture--US. Rep. Mintel, Mar. 2008. Web. IKEA Group Company Profile. Rep. Datamonitor, 2 Apr. 2010. Web. IKEA Website. IKEA Group. Web. <www.IKEA.com>. Mass Merchandisers--US. Rep. Mintel, July 2008. Web.

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