Answered: What does the IKEA story teach you…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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What does the IKEA story teach you about the limits of treating the entire world as a single integrated global marketplace? Is the company taking high risk by using that particular business strategy? Justify your answer.

Transcribed Image Text:CLOSING CASE smil alog M disiV W. er OTW IKEA-The Global Retailer bas IKEA may be the world's most successful global re- tailer. Established by Ingvar Kamprad in Sweden in 1943 when he was just 17 years old, today the home- furnishing superstore has grown into a global cult brand with 230 stores in 33 countries that host 410 Europe, plus three in the United States and two in China. To reduce the cost of the cotton slipcovers, IKEA has concentrated production in four core sup- pliers in China and Europe. The resulting efficiencies from these global sourcing decisions enabled IKEA to reduce the price of the Klippan by some 40 percent million shoppers a year and generate sales of €14.8 bil- lion ($17.7 billion). Kamprad, who still owns the pri- vate company, was identified by Forbes Magazine as the world's 11th wealthiest person in 2010. IKEA's target market is the global middle class who are looking for low-priced but attractively designed fur- niture and household items. The company applies the same basic formula worldwide: Open large warehouse stores festooned in the blue and yellow colors of the Swedish flag that offer 8,000 to 10,000 items, from kitchen cabinets to candlesticks. Use wacky promo- tions to drive traffic into the stores. Configure the in- terior of the stores so that customers have to pass through each department to get to the checkout. Add restaurants and child care facilities so that shoppers stay as long as possible. Price the items as low as possi- ble. Make sure that product design reflects the simple, clean Swedish lines that have become IKEA's trade- mark. And then watch the results-customers who en- between 1999 and 2005. Despite its standard formula, to achieve global suc- cess IKEA had to adapt its offerings to the tastes and preferences of consumers in different nations. IKEA first discovered this in the early 1990s when it entered the United States. The company soon found that its European-style offerings didn't always resonate with American consumers. Beds were measured in centime- ters, not the king, queen, and twin sizes with which Americans are familiar. Sofas weren't big enough, wardrobe drawers were not deep enough, glasses were too small, curtains too short, and U.S. size appliances didn't fit in the kitchens. Since then, IKEA has rede- signed its U.S. offerings to appeal to American con- sumers, which has resulted in stronger sales. The same process is now unfolding in China, where the company has already established eight stores by 2010. The store layout in China reflects the layout of many Chinese apartments, and since many Chinese apartments have balconies, IKEA's Chinese stores include a balcony section. IKEA also has had to adapt its locations in China, where car ownership is still not widespread. In the West, IKEA stores are generally located in subur- ban areas and have lots of parking space. In China, stores are located near public transportation, and IKEA offers delivery services so that Chinese custom- ers can get their purchases home.76 ter the store planning to buy a $40 coffee table and end up spending $500 on everything from storage units to kitchenware. IKEA aims to reduce the price of its offerings by 2 to 3 percent per year, which requires relentless atten- tion to cost cutting. With a network of 1,300 suppliers in 53 countries, IKEA devotes considerable attention to finding the right manufacturer for each item. Con- sider the company's best-selling Klippan love seat. De- signed in 1980, the Klippan, with its clean lines, bright colors, simple legs, and compact size, has sold some 1.5 million units since its introduction. IKEA origi- nally manufactured the product in Sweden but soon transferred production to lower-cost suppliers in Po- land. As demand for the Klippan grew, IKEA then de- cided that it made more sense to work with suppliers in each of the company's big markets to avoid the costs associated with shipping the product all over the world. Today there are five suppliers of the frames in ingA

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