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Inside IKEA’s Digital Transformation

• Thomas Stackpole

A Q&A with Barbara Martin Coppola, IKEA Retail’s chief digital officer.

How does going digital change a legacy retail brand? According to Barbara Martin Coppola, CDO at IKEA Retail, it’s a challenge of remaining fundamentally the same company while doing almost everything differently. In this Q&A, Martin Coppola talks about how working in tech for 20 years prepared her for this challenge, why giving customers control over their data is good business, and how to stay focused on the core mission when you’re changing everything else.

What does it mean for one of the world’s most recognizable retail brands to go digital? For almost 80 years, IKEA has been in the very analogue business of selling its distinct brand of home goods to people. Three years ago, IKEA Retail (Ingka Group) hired Barbara Martin Coppola — a veteran of Google, Samsung, and Texas Instruments — to guide the company through a digital transformation and help it enter the next era of its history. HBR spoke with Martin Coppola about the particular challenge of transformation at a legacy company, how to sustain your culture when you’re changing almost everything, and how her 20 years in the tech industry prepared her for this task.

• Thomas Stackpole is a senior editor at Harvard Business Review.

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Deconstructing The Global Furniture Giant – Absolute Business Model of Ikea Explained

By Aditya Shastri

Quick Read   Explore the IKEA business model in this comprehensive case study. Understand how IKEA’s innovative approach to affordable, stylish furniture drives its global success and market leadership.

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Imagine treasure hunts where the prize is your dream living room – that’s IKEA. Their stores inspire with room layouts showcasing furniture’s potential. The secret? Flat-pack designs that disassemble for easy transport, saving on storage and letting you be your own furniture-building hero.

Efficiency is key. IKEA sources materials globally in bulk to keep costs low. Plus, their multi-use designs appeal to a wider audience. Those checkout impulse buys (hello, cinnamon buns!) add up too!

Sustainability matters at IKEA. They use recycled materials and promote energy-efficient appliances. They also prioritise good working conditions. This approach is a core part of IKEA’s business model, focusing on affordability and sustainability.

Want to dive deeper in this IKEA’s business model case study, just like we did in the SWOT analysis of Wikipedia ? Let’s begin our journey of understanding IKEA from its inception.

Source: Google

Starting small in 1943 with a young Ingvar Kamprad at the helm, IKEA began by selling affordable household items like pens and wallets. Their mission? To make well-designed furniture accessible to everyone.

They hit a home run with flat-pack furniture in the 1960s, making it easier to transport and assemble these stylish pieces yourself. Today, IKEA is a global giant with over 450 stores, keeping Ingvar’s dream alive by offering good design and functionality at low prices.

They’re also champions of sustainability and keeping their environmental impact low. Even though they started in Sweden, IKEA has become a multinational brand, bringing their signature style and affordability to countries around the world. Their stores are known for their unique layout, complete with room displays that inspire customers to create their dream living spaces.

The success of IKEA’s business model lies in this combination of affordability, sustainability, and innovative design. So next time you’re looking for stylish furniture that’s easy on the wallet and the planet, consider a trip to IKEA.

IKEA Case Study: What’s New With IKEA?

Examining IKEA’s business model reveals numerous innovative strategies and developments aimed at maintaining their market leadership. Here’s what was buzzing around IKEA recently:

• New sustainable materials: IKEA is introducing new sustainable materials into its products, such as recycled plastic, bamboo, and cork.
• More affordable options: IKEA is committed to making its products more affordable for everyone, and is introducing new affordable product lines in 2023.
• More online and omnichannel shopping options: IKEA is expanding its online and omnichannel shopping options, making it easier for customers to shop for IKEA products however they want.
• New product collaborations: IKEA is partnering with new designers and brands to create new and innovative products.
• New focus on home improvement: IKEA is expanding its focus on home improvement, and is introducing new products and services to help customers make their homes more stylish and functional.
• New focus on sustainability: IKEA is committed to sustainability, and is working to reduce its environmental impact and operate more sustainably.
• New stores: IKEA is opening new stores in new markets around the world.
• New digital services: IKEA is developing new digital services to make it easier for customers to shop for and use IKEA products.
• New focus on customer experience: IKEA is focused on improving the customer experience, both in stores and online.
• New focus on inclusion and diversity: IKEA is committed to creating a more inclusive and diverse environment for its customers and employees.
• New focus on social responsibility: IKEA is committed to making a positive social impact, and is working to support its communities and employees.

Understanding IKEA’s business model is essential to appreciating how these initiatives align with their mission of affordability, sustainability, and innovation.

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Let’s now understand the target audience of IKEA better with the help of a buyer persona.

IKEA Case Study:Buyer Persona of IKEA

A buyer persona generally refers to the detailed information of an ideal customer of a company. When it comes to IKEA, people from India use it the most. This buyer persona will help you understand the attributes of a regular IKEA user.

Buyer’s Persona

Minneapolis, Minnesota

Profession:

Interior Designer

• Affordable Home Furnishings
• DIY and Creativity
• Sustainability
• Functional Design

Interest & Hobbies

• Interior Design

Pain Points

• Assembly Challenges
• Limited Customization
• Store Crowds
• Product Availability

Social Media Presence

From the table above we can conclude that an ideal IKEA User is motivated by affordable home furnishings, DIY creativity, sustainability, and functional design, with interests in interior design, gardening, reading, and cooking.

Buyer personas are a powerful tool used by countless companies to refine their marketing strategies. Explore our library of digital marketing case studies to see how various companies leverage buyer personas. You’ll discover the wide range of buyer personas employed across different industries, providing valuable insights you can apply to your own marketing efforts.

The marketing strategy of UNIQLO is a fabulous example of this. Their approach is sure to spark your interest – and perhaps even inspire your own marketing tactics.

Business Model of IKEA

Ikea case study: market share & market analysis.

IKEA holds a dominant position in the global home furnishings market, with an estimated market share of around 12% in 2023 (source: Statista). The business model of IKEA leverages its extensive supply chain, economies of scale, and efficient logistics to maintain competitive pricing. Market analysis reveals a growing demand for affordable and sustainable home furnishings, trends that IKEA continues to meet with its product offerings. The company’s ability to adapt to changing consumer preferences and invest in digital transformation ensures its continued market leadership.

IKEA Case Study: Product Offerings

IKEA’s product offerings include a wide range of home furnishings and accessories, from furniture and kitchenware to textiles and lighting. The brand is known for its flat-pack furniture, which reduces shipping costs and allows customers to easily transport and assemble products. This business model of IKEA focuses on offering services like home delivery, assembly, and interior design consultations. The introduction of smart home products and sustainable materials reflects IKEA’s commitment to innovation and environmental responsibility.

IKEA Business Model: Target Audience

Source: ikea.com

Young adults, families, and urban dwellers who prioritise affordability, style, and functionality in their home furnishings form the core customer base of IKEA’s business model. These customers are typically budget-conscious but still value good design and quality.

IKEA offers a wide variety of furniture catering to diverse tastes and lifestyles. This includes modern minimalist pieces, traditional styles, and rustic options. IKEA furniture allows for customisation and multi-use, making it appealing to a wider range of needs.

Demographic segmentation is a key pillar of the business model of IKEA. This allows them to tailor their marketing and product offerings to specific customer groups. One important segment IKEA targets is young, cost-conscious individuals like students or young professionals. These customers, typically with incomes between $15,000 and $50,000, are likely furnishing their first apartments or homes and prioritise affordability.

In essence, IKEA uses demographic segmentation to understand their diverse customer base and tailors its offerings accordingly. This allows them to attract a broad audience seeking stylish and functional furniture at accessible prices.

IKEA Business Model: Funding & Investors

IKEA is a privately held company, primarily owned by the Stichting INGKA Foundation, which was established by Ingvar Kamprad. The company has not required external funding rounds due to its strong financial performance and reinvestment strategy. IKEA’s revenue model is reinvested into the business for expansion, innovation, and sustainability initiatives. This self-sustaining financial model supports IKEA’s long-term growth and stability.

IKEA Business Model: Revenue Model

The IKEA revenue model is based on direct sales of home furnishings and accessories through its retail stores, online platform, and catalogues. In 2022, IKEA reported revenue of €44.6 billion (source: Inter IKEA Group). The company’s affordable pricing strategy, combined with its high-volume sales, ensures substantial revenue. Additional revenue streams include food sales in IKEA restaurants and service fees for home delivery and assembly. The diversified revenue model of IKEA ensures financial resilience and growth.

Business Model Of IKEA: Marketing Strategy

IKEA’s marketing strategy focuses on affordability, sustainability, and customer experience. The brand uses a mix of traditional advertising, digital marketing, and experiential marketing to reach its audience. IKEA’s iconic catalogues, engaging social media campaigns, and in-store experiences create strong brand loyalty. The company also leverages data analytics to personalise marketing efforts and improve customer engagement. Collaborations with designers and influencers enhance IKEA’s appeal and visibility.

Many companies, like IKEA, recognise the power of digital marketing to promote their brand and generate profits. It’s clear that digital marketing is shaping the future of marketing. Understanding its importance, YouTube, a major digital platform, emphasises the value of learning digital marketing skills.

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Business Model Of IKEA: Value Proposition

IKEA’s value proposition lies in offering well-designed, functional, and affordable home furnishings. The brand’s commitment to sustainability and innovation further enhances its appeal. IKEA’s flat-pack furniture and efficient supply chain reduce costs, which are passed on to customers. The IKEA shopping experience, from inspirational store layouts to comprehensive services, ensures high customer satisfaction. The value proposition of IKEA ensures a loyal customer base and strong market presence.

It refers to a competitive solution a company uses to make its products to gain a larger market space.

• DIY system Flatpack: This system is suitable for the present building size required anywhere.
• Using renewable energy sources: It helps to maintain an environmental/commercial balance.

Business Model OF IKEA:Operational Model

IKEA’s business plan includes an operational model which integrates a global supply chain, economies of scale, and efficient logistics. The company sources products from over 1,800 suppliers in more than 50 countries, ensuring quality and cost-effectiveness. IKEA’s flat-pack design reduces transportation and storage costs, enhancing operational efficiency. The company’s investment in digital transformation, including online sales and smart home solutions, ensures seamless operations and customer convenience.

IKEA Case Study: Strategic Alliances & Partnerships

IKEA forms strategic alliances with suppliers, designers, and technology partners to enhance its product offerings and operations. Partnerships with sustainable material suppliers support IKEA’s environmental goals. Collaborations with designers and brands, such as the Virgil Abloh collection, bring unique and limited-edition products to customers. Alliances with technology firms enable IKEA’s business to innovate in areas like smart home solutions and e-commerce.

IKEA Case Study:Technological Innovations

IKEA invests heavily in technology to enhance its products and customer experience. The company uses digital tools like the IKEA Place app for augmented reality furniture placement and the IKEA Home Planner for room design. Innovations in sustainable materials, such as recycled and renewable resources, reflect IKEA’s commitment to environmental responsibility. IKEA’s business plan is to focus on technological advancements ensuring continuous improvement and market differentiation.

However, technology is just one pea in a pod. Just like Uber leverages digital marketing to connect with riders and drivers, this powerful skill set can benefit anyone looking to stay ahead in today’s digital world. Enrolling in the best digital marketing course online can equip you with the knowledge and tools to create targeted campaigns, reach new audiences, and achieve your goals.

Unsure where to begin? Consider attending a free digital marketing certification masterclass . This can be a great way to explore the world of digital marketing and see if it aligns with your interests.

IKEA Business Model: Corporate Social Responsibility (CSR)

IKEA’s CSR initiatives focus on sustainability, community support, and social responsibility. IKEA’s business plan aims to become climate positive by 2030, reducing more greenhouse gas emissions than its value chain emits. IKEA promotes sustainable living through products like solar panels and energy-efficient lighting. Community initiatives include supporting refugees and providing disaster relief. The IKEA Foundation, funded by Stichting INGKA Foundation, supports global humanitarian projects and environmental initiatives.

Business Model of IKEA: Failed Campaigns of IKEA

IKEA more than often grabs attention with its unique marketing. But, there have been a few times when the campaign failed to connect with the audiences and gained backlash.

Here are a few examples of failed campaigns of IKEA:

• IKEA’s ‘Book of Love’ catalogue: In 2012, IKEA released a catalogue for Saudi Arabia that featured photos of women without headscarves. This caused a lot of controversy in the conservative country, and IKEA was forced to apologise and withdraw the catalogue.
• IKEA’s ‘This is How the Many Live’ campaign: In 2013, IKEA launched a campaign in the UK that featured photos of real people’s homes. The campaign was intended to be relatable, but many people found the photos to be depressing and unrealistic.
• IKEA’s ‘The Wonderful Everyday’ campaign: In 2016, IKEA launched a campaign that featured families from different backgrounds living together in harmony. The campaign was intended to be inclusive, but some people found it to be unrealistic and even offensive.
• IKEA’s ‘How to Live Small’ campaign: In 2019, IKEA launched a campaign that featured people living in small spaces. The campaign was intended to be aspirational, but some people found it to be insensitive to the challenges of living in poverty.
• IKEA’s ‘Life is Not an IKEA Catalog’ campaign: In 2020, IKEA launched a campaign that featured furniture being peed and vomited on. The campaign was intended to be humorous and relatable, but many people found it to be gross and distasteful.

IKEA Business Model: Brand’s Top Competitors Analysis

Just like other businesses, IKEA also has its fair share of competitors. While there are so many out there here are some of top competitors of IKEA

• Wayfair: Competes with IKEA in online home furnishings, offering a wide range of furniture and decor with a strong focus on e-commerce.
• Home Depot: Provides a broad selection of home improvement products and services, attracting DIY enthusiasts and professionals.
• Ashley Furniture: Known for its affordable and stylish furniture, competing with IKEA on price and design.
• West Elm: A subsidiary of Williams-Sonoma, offers modern and contemporary furniture, appealing to design-conscious consumers.
• Amazon: Competes in home furnishings through its vast marketplace, offering a wide range of products and convenient delivery options.

The IKEA business model exemplifies innovation, efficiency, and sustainability in the home furnishings industry. Its diverse product offerings, strategic partnerships, and technological advancements ensure sustained growth and market leadership. As IKEA continues to evolve, it remains a transformative force in global home furnishing.

As we wrap up our analysis of the impressive business model of IKEA it’s clear that staying up-to-date with the latest trends and techniques is key to success in the digital marketing world.

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FAQs About Business Model of IKEA

IKEA's business model focuses on providing affordable, well-designed home furnishings through a global supply chain and efficient logistics.

IKEA makes money through direct sales of home furnishings, accessories, food sales in its restaurants, and service fees for home delivery and assembly.

IKEA’s main products include furniture, kitchenware, textiles, lighting, and accessories for home furnishing.

IKEA’s top competitors include Wayfair, Home Depot, Ashley Furniture, West Elm, and Amazon.

IKEA uses technology for augmented reality furniture placement, room design planning, and innovations in sustainable materials.

IKEA's target audience includes young adults, families, and urban dwellers seeking affordable, stylish, and functional home furnishings.

IKEA holds approximately 12% of the global home furnishings market.

IKEA’s CSR initiatives focus on sustainability, climate positivity by 2030, supporting refugees, and global humanitarian projects.

IKEA’s value proposition is offering well-designed, functional, and affordable home furnishings with a commitment to sustainability and innovation.

IKEA markets its products through traditional advertising, digital marketing, iconic catalogues, social media campaigns, and in-store experiences.

Author's Note: My name is Aditya Shastri and I have written this case study with the help of my students from IIDE's online digital marketing courses in India . Practical assignments, case studies & simulations helped the students from this course present this analysis. Building on this practical approach, we are now introducing a new dimension for our online digital marketing course learners - the Campus Immersion Experience. If you found this case study helpful, please feel free to leave a comment below.

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Aditya Shastri

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Leads the Learning & Development segment at IIDE. He is a Content Marketing Expert and has trained 6000+ students and working professionals on various topics of Digital Marketing. He has been a guest speaker at prominent colleges in India including IIMs...... [Read full bio]

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Table of Contents

Ikea target audience, ikea marketing channels, ikea marketing strategy, ikea marketing strategy 2024: a case study.

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Ikea serves the unique functional needs of each target audience, with special attention to 16-34-year-old adults. It has solutions for:

• Single people not living at home
• Newly married couples
• Families with the youngest child under six
• Older married couples with dependent children
• No children families
• Labor force
• Professionals 

Thus, it uses the following types of product positioning :

• Mono-segment positioning. It appeals to the needs and wants of a single customer segment that is cost-conscious and prefers value for money.
• Adaptive positioning. It believes in periodically repositioning products and services to adapt to changes in customer preferences. Its Swedish furniture chain considers the dynamic nature of customer preferences. For instance, its latest products reflect increasing minimalism on the global scale. 

Ikea utilizes the power of the following marketing channels: 

• Mobile Application
• WebEngage: Email, SMS, and Whatsapp Marketing
• Social Media
• Telecalling
• Commercials

The Ikea marketing strategy contributes majorly to its success because it's original, imaginative, and distinctive while maintaining a transparent value proposition.

A Creative, Consistent Brand Theme

From the Swedish national colors on its buildings to rich meatballs in its store cafeterias, Ikea's marketing strategy reflects its cultural heritage proudly. It infuses all elements of their identity with a sense of self-assuredness that maintains their identity in the market of stiff competition. 

Emphasizing Affordability and Sustainability 

Understanding that a simple tiered strategy won't encourage repeat business, Ikea extends customization, flexibility, and mix-and-match furniture modules. It effectively combines the elements of affordability and sustainability in its marketing strategy to ensure success.

While the furniture options don't pledge a lifelong guarantee, the products are built to last. Even its reusable shopping bags reflect its commitment to sustainability.

Sponsorship and Influencers 

IKEA-sponsored comedic series Easy to Assemble. Its innovative content marketing was way different from a furniture product demo. Incorporating sponsored digital marketing campaigns and social media influencers have boosted the Ikea marketing strategy. 

Ikea’s Easy to Assemble Series

Exceptional In-store Experience

Ikea brilliantly displays products employing the best lighting systems to generate more sales. It strategically arranges best-matched items in mock rooms to encourage impulse purchases and inspire decor. The company also extends excellent customer service to provide a memorable experience and incite customers to come back for more.

Ikea’s Store Decor for Inspiration

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Website and Mobile Application Marketing

Ikea ensures an optimal mobile website's speed, button displays and gesture controls on its website and mobile app to retain and attract individuals to the site. It carefully invests in its UI/UX , enquiry-based chatbot, and regular updates on new offers, discounts, and promotions. 

One of the most successful marketing moves includes downloading its 3D modeling app to envision a dream home. It's one of its most successful marketing moves that allows IKEA to upsell its low-demand items by creating a desire in its customers to revamp the room.

Ikea’s Website With Engaging Content

Ikea's SEO (Search Engine Optimization)

Ikea's marketing strategy aims at enhancing the site's visibility for relevant searches to attract the attention of new and existing customers. It includes the right product-specific keywords and Google advertisements to further augment its organic ranking .  

Ikea Ranking for Bookcases on Google’s First Page

Ikea's SMM (Social Media Marketing)

Ikea's handles are very active on digital marketing platforms like Facebook, Instagram , Twitter, and Youtube . Their digital presence is impressive, with more than 30 Million likes on Facebook, 1 Million followers on Instagram, 5.3k followers on Twitter, and 41.2k subscribers on YouTube.

Ikea’s Instagram Profile

Its Instagram bio links to its website. The website also has links to its various social media posts. Its 'view shop' and 'call' options for product catalog and direct assistance, respectively, are a testament to a well-crafted Ikea marketing strategy.   

Ikea’s Youtube Advertisements 

IKEA also conducts free online workshops that lure lots of enthusiastic customers, resulting in gaining leads.

Ikea’s Online Workshop Ad

Content Marketing

Ikea relies on its content marketing strategy to create a distinguished presence amongst furniture brands. Its commercials, print ads, social media, and website stands out with attention-grabbing content. It combines innovation and humor to present the brand's core values and inspire people. 

Ikea’s Captivating Commercial 

Ikea Marketing Strategy bears testimony to a well-thought and structured marketing venture. Sign-up for our Digital Marketing Specialist and learn more about marketing case studies published by Harvard Business. You will be taught by experts from facebook and Purdue University. Sign-up for the course TODAY!

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IKEA Global Marketing Strategy 2024: A Case Study

Since its founding as a mail-order business in the late 1940s in Sweden, IKEA has grown to become a global retail giant with 422 stores in over 50 markets. However, the company faced challenges in 2017 with the passing of its founder and the rise of online shopping. To navigate these obstacles and continue its success, IKEA implemented a strategic global marketing strategy that focused on consistency, localization, and innovation.

IKEA’s Target Audience

IKEA caters to a diverse range of customer segments, including bachelors, newly married couples, families with young children, retirees, students, and professionals. Recognizing that each segment has unique needs and preferences, IKEA employs mono-segment and adaptive positioning strategies to effectively address their target audience .

IKEA Marketing Channels

IKEA utilizes a variety of marketing channels to reach its customers. These channels include online marketing through its website and mobile application, social media marketing, commercials, print ads, and physical stores. By leveraging these channels, IKEA ensures a comprehensive and integrated marketing approach that reaches customers across multiple touchpoints.

IKEA Marketing Strategy

A key focus of IKEA’s marketing strategy is affordability and sustainability. The company offers competitive prices and sustainable products to cater to eco-conscious consumers. Additionally, IKEA creates a consistent brand theme that showcases its cultural heritage, emphasizing affordability, sustainability, and a positive customer experience.

IKEA’s Store Decor for Inspiration

One of IKEA’s unique marketing strategies is its store decor. IKEA designs its stores to inspire customers, showcasing imaginative room setups and offering a wide range of furniture and accessories. This in-store experience creates a lasting impression and encourages customers to envision their own spaces with IKEA products.

Website and Mobile Application Marketing

In the digital age, IKEA understands the importance of optimizing the user experience on its website and mobile application. By prioritizing seamless browsing and shopping journeys, IKEA ensures that customers can easily find and purchase their desired products online.

Key Takeaways:

• IKEA targets a diverse range of customer segments, employing mono-segment and adaptive positioning strategies.
• The company utilizes various marketing channels, including online marketing, social media, commercials, print ads, and physical stores.
• Affordability and sustainability are key focuses of IKEA’s marketing strategy.
• IKEA’s store decor creates an inspiring and immersive shopping experience .
• The company prioritizes optimizing the user experience on its website and mobile application.

Through the implementation of its global marketing strategy, IKEA has successfully expanded its brand presence worldwide and established itself as an industry leader. Its emphasis on affordability, sustainability, and customer experience has earned it recognition and accolades, such as being ranked 62nd on Fortune’s ‘100 Best Companies to Work For’ list in January 2005. With its innovative marketing initiatives and dedication to employee welfare, IKEA continues to thrive in the ever-evolving retail landscape.

As Pernille Spiers-Lopez, IKEA’s President, expressed, “We are delighted to be acknowledged as one of the best companies to work for. Our success is a result of the dedication and passion of our employees, who play a crucial role in driving our global marketing strategy and ensuring customer satisfaction.”

IKEA’s global success can be attributed to its ability to effectively target and cater to a diverse range of customer segments. The company recognizes that every individual has unique lifestyle preferences and needs when it comes to furnishing their homes. As a result, IKEA’s target audience comprises a wide range of individuals, including bachelors, families with young children, newly married couples, retirees, professionals, and many others.

By analyzing the market and customer preferences, IKEA has developed a comprehensive understanding of its target audience’s demographics, values, and buying behavior. The company follows a mono-segment positioning strategy, focusing on a single customer segment that places a high value on cost-consciousness and value for money.

Cost-conscious consumers play a significant role in IKEA’s target audience. These individuals are looking for affordable yet stylish furniture and home decor solutions that do not compromise on quality. IKEA’s pricing strategy enables the company to offer a wide range of affordable products, making it accessible to a broad customer base.

In addition to cost-conscious consumers, IKEA also appeals to families. With its focus on providing functional and practical furniture, IKEA’s offerings are designed to meet the needs of families with children. From storage solutions to kid-friendly designs, IKEA understands the challenges families face and offers solutions that are both practical and aesthetically pleasing.

Professionals and retirees are also part of IKEA’s target audience. Professionals seeking stylish and modern furniture for their homes can find a wide variety of options at IKEA. Likewise, retirees who are downsizing or looking for functional and durable furniture appreciate IKEA’s range of products that fit their needs.

Overall, IKEA’s target audience is as diverse as the products it offers. By understanding the specific requirements and preferences of different customer segments, IKEA ensures that its products and marketing initiatives resonate with its target audience and meet their expectations.

IKEA employs a comprehensive range of marketing channels to connect with its target audience and promote its products and brand. These channels include:

The IKEA website serves as a central hub for customers to explore the vast range of furniture and home accessories. It provides detailed product information, inspiration, and allows customers to make purchases online. With a user-friendly interface and intuitive navigation, the website offers a convenient and seamless shopping experience.

Mobile Application

Recognizing the growing prevalence of mobile usage, IKEA has developed a mobile application that offers enhanced accessibility and convenience. The mobile app allows users to browse products, view augmented reality (AR) visuals through the IKEA Place feature, create shopping lists, and even virtually design their rooms using the Room Planner tool.

Social Media

IKEA effectively utilizes various social media platforms such as Facebook, Instagram, Twitter, and YouTube to engage with its target audience. Through creative and visually appealing content, IKEA showcases its products, shares design ideas, and fosters a community of home enthusiasts. Social media campaigns and interactive content encourage customer participation and build brand loyalty.

Commercials

IKEA strategically employs commercials on television and online platforms to reach a wider audience. These commercials highlight the brand’s unique value proposition, showcase its product range, and emphasize the emotional aspects of creating a comfortable and beautiful home.

Print ads in magazines, newspapers, and other publications serve as an effective channel for IKEA to showcase its products and disseminate promotional offers. By targeting specific demographics through carefully chosen publications, IKEA maximizes the impact of its print advertisements.

Perhaps the most iconic and tangible marketing channel for IKEA is its physical stores. These stores are meticulously designed to provide customers with an immersive and inspiring shopping experience. Customers can explore beautifully designed showrooms, test and try out products, and seek advice from knowledgeable staff. The physical stores remain an integral part of IKEA’s marketing strategy, facilitating brand engagement and driving sales.

Through a strategic combination of online and offline marketing channels, IKEA ensures that it reaches its target audience effectively, offers a seamless shopping experience, and maintains a strong brand presence.

IKEA’s marketing strategy revolves around its creative and consistent brand theme, blending affordability and sustainability to attract a wide range of customers. With operations in over 50 countries and generating $42 billion in annual revenue, IKEA has established its position as a leading furniture retailer worldwide.

One of the key elements of IKEA’s marketing strategy is its focus on affordability. Recognizing the significance of pricing affordability, especially in emerging markets like India, IKEA tailors its offerings to provide value for money. In India, for example, they introduced smaller-sized furniture pieces to cater to compact living spaces.

Another important aspect of IKEA’s marketing approach is sustainability. With a commitment to environmental responsibility, IKEA implements sustainable practices in their operations, including efficient packaging, low transportation costs, and standardized product lines.

Furthermore, IKEA leverages sponsorship and influencer marketing to enhance its brand visibility. Collaborating with influencers and partnering with events and organizations, IKEA successfully expands its reach and engages with its target audience.

IKEA’s in-store experience also plays a vital role in their marketing strategy. The carefully crafted store decor, inspired by the unique Scandinavian design heritage, not only showcases IKEA’s products but also inspires customers with different interior design ideas. Additionally, the IKEA restaurants provide a wide variety of vegetarian and vegan options, contributing to the overall shopping experience.

Complementing their offline efforts, IKEA invests in various marketing channels such as commercials, print ads, social media, and their website. By creating engaging content and leveraging technology such as augmented reality (AR) apps, IKEA enhances the customer experience and ensures a seamless shopping journey.

IKEA’s global expansion is facilitated through its franchising model, ensuring operational control and standardization while requiring franchisees to pay back a percentage of revenue. Moreover, INGKA Holding oversees the majority of IKEA stores’ operations, management, furniture design, and manufacturing, resulting in a high level of centralization.

Competitors find it challenging to replicate IKEA’s strategy due to factors such as volume, global sourcing capabilities, and its unique Scandinavian design heritage. Suggestions for future success include modernizing customer catalogs with interactive tablets to provide personalized shopping experiences.

IKEA’s commitment to providing a memorable in-store experience goes beyond its product range. The store decor itself is carefully designed to captivate and inspire customers, creating a welcoming atmosphere that encourages exploration and creativity.

One key aspect of IKEA’s store decor is its lighting systems. Effective lighting is strategically used to highlight products and create an inviting ambiance. By illuminating different areas of the store, IKEA ensures that customers can easily navigate and discover their desired pieces. The clever use of lighting also adds a touch of warmth and sophistication to the overall shopping experience.

Another distinctive feature of IKEA’s store decor is the use of mock room setups. These fully furnished rooms showcase how IKEA’s products can integrate seamlessly into various living spaces. By presenting a complete picture, IKEA helps customers visualize their own homes with its furniture and accessories. Customers can explore and interact with the mock setups, experiencing the quality, functionality, and design firsthand.

IKEA’s store decor aims to provide inspiration, guiding customers in creating their ideal living environments. The artful arrangement of room displays demonstrates how different pieces can be combined and styled to create a harmonious and personal atmosphere. Whether it’s a cozy bedroom or a functional workspace, IKEA’s store decor sparks creativity and encourages customers to reimagine their own homes.

With its store decor, IKEA creates an immersive and enjoyable in-store experience. It’s not just about browsing and purchasing; it’s about being inspired and exploring the possibilities. From the moment customers step into an IKEA store, they are greeted with an environment designed to ignite their imagination and make their shopping experience memorable.

Throughout the store, customers can find ample seating areas where they can take a break, reflect on their choices, or simply relax. The inviting ambiance and comfortable seating create a welcoming atmosphere, allowing customers to fully immerse themselves in the IKEA experience.

And of course, the famous IKEA cafe adds to the overall store experience. Customers can indulge in a selection of affordable Swedish treats, further highlighting IKEA’s commitment to customer satisfaction beyond furniture sales. Whether it’s grabbing a cup of coffee or enjoying a delicious meal, the IKEA cafe provides a delightful break during the shopping journey.

With its carefully curated store decor, IKEA aims to inspire and empower customers to create their dream homes. By showcasing products in beautifully arranged rooms, utilizing innovative lighting systems, and offering a comfortable and enjoyable shopping environment, IKEA ensures that the in-store experience is as memorable as its iconic furniture designs.

As the world’s largest furniture brand, IKEA understands the importance of providing a seamless online experience to its customers. With over 4.3 billion visitors on its website in 2022, IKEA’s online presence is undeniable and pivotal to its success.

To ensure optimal user experience, IKEA invests in its website and mobile application, focusing on factors such as website speed, intuitive navigation, and responsive design. These aspects contribute to a user-friendly interface that enhances the overall browsing and shopping experience.

One of the key features that sets IKEA apart is its commitment to user interface and user experience (UI/UX) design. By prioritizing UI/UX, IKEA creates a visually appealing and intuitive platform that captivates customers and encourages them to explore further.

IKEA also leverages innovative technologies to engage users and enhance their shopping journey. For instance, the brand offers a 3D modeling app that enables customers to visualize how IKEA products would look in their own homes. This interactive experience not only assists customers in making informed purchasing decisions but also contributes to the brand’s positioning as a leader in user-centric design.

Furthermore, SEO optimization plays a critical role in IKEA’s digital marketing strategy. Understanding that most users do not go beyond the first page of Google search results, IKEA invests in SEO techniques to enhance visibility and organic ranking. This focus on SEO helps attract online visitors and drive conversion rates.

The success of IKEA’s website and mobile application marketing is evident in the brand’s achievements. Despite the challenging market conditions, IKEA’s conversion rate of 1.7% surpasses the industry average of 0.5%. Additionally, with 4.3 billion visitors in 2022 alone, IKEA reiterates its position as a top choice for consumers worldwide.

IKEA’s Social Media Marketing (SMM)

IKEA understands the power of social media in reaching and engaging with their target audience. With a strong presence on platforms such as Facebook, Instagram, Twitter, and YouTube, IKEA leverages these channels to showcase their products, inspire their customers, and foster a sense of community.

Through visually appealing content, IKEA captivates their audience by providing them with design tips, showcasing customer stories, and highlighting their latest product offerings. By sharing relatable and aspirational content, IKEA has successfully created a connection with their followers, nurturing brand loyalty and advocacy.

One of the key elements of IKEA’s social media strategy is their collaboration with influencers in the home decor and lifestyle space. By partnering with these influencers, IKEA is able to tap into their reach and credibility to showcase their products in real-life settings. These influencer collaborations not only provide social proof for IKEA’s products but also generate excitement and interest among their target audience.

Furthermore, IKEA’s social media profiles serve as a gateway to direct communication with their customers. They provide links to their website, allowing users to explore and purchase products directly. This seamless integration between social media and e-commerce enhances the customer experience and drives conversions.

However, IKEA’s social media journey has not been without its challenges. In the past, they experienced a decrease in positive brand preferences among viewers due to a social media campaign that deviated from IKEA’s established brand image. The mismatch between the campaign’s execution and the brand’s personality led to confusion and discontent among their audience.

Feedback from viewers on YouTube highlighted the disconnect between the campaign and IKEA’s target audience, potentially impacting brand perception and social media engagement metrics. Learning from this experience, IKEA recognizes the importance of articulating their brand essence through future social media campaigns and aligning their storytelling approach with the key features of their furniture series.

Efforts to refine their social media strategy also extend to IKEA’s website. Addressing the issue of slow speed, there are recommendations to improve mobile speed by 7.62 seconds and enhance desktop website speed by 2 seconds. By optimizing the website’s performance, IKEA aims to reduce bounce rates and provide a seamless browsing experience for their customers.

Overall, IKEA’s social media marketing plays a crucial role in generating brand awareness, fostering a sense of community, and driving customer engagement. Through their strategic use of platforms like Facebook, Instagram, Twitter, and YouTube, IKEA continues to inspire and connect with their target audience, solidifying their position as a leader in the home decor industry.

Content Marketing

Content marketing is a crucial component of IKEA’s overall marketing strategy. By creating engaging content through various mediums such as commercials, print ads, social media, and their website, IKEA effectively communicates its brand message and connects with its target audience.

One of the key elements of IKEA’s content marketing is storytelling. They craft narratives that resonate with consumers by presenting relatable scenarios and everyday life situations. Through these stories, IKEA showcases how its products can solve common challenges and enhance the home environment. By focusing on real-life experiences, IKEA creates a connection with their audience and positions their products as solutions to their everyday needs.

A great example of IKEA’s successful content marketing is their sponsored miniseries “Easy to Assemble” in 2008. This miniseries generated millions of views and created significant buzz on social media, effectively capturing the attention of their target audience. This success demonstrated the power of storytelling in engaging consumers and building brand awareness.

In 2011, IKEA launched the “Share Space” campaign, which encouraged customers to share their own home designs and ideas, fostering a sense of community and further strengthening the brand’s connection with its customers through user-generated content. This campaign generated thousands of submissions, showcasing how IKEA’s customers play an active role in shaping the brand’s identity.

In recent years, IKEA has also embraced influencer marketing, collaborating with influencers on social media to create authentic content featuring their products. This approach allows them to reach new audiences and leverage the influencers’ credibility to promote their brand. It’s part of their strategy to stay relevant and engage with younger consumers, especially millennials and Gen Z.

To incorporate technology and enhance customer experiences, IKEA launched an app in 2020 that utilizes Augmented Reality (AR) to help customers visualize furniture in their homes. This innovative approach demonstrates IKEA’s commitment to incorporating emerging technologies into their content marketing strategy.

Overall, IKEA’s content marketing efforts revolve around engaging their audience through compelling stories, relatable scenarios, and innovative approaches like AR technology. By creating valuable and inspiring content, IKEA builds brand loyalty and positions itself as a trusted and aspirational brand in the home furnishings industry.

Through these successful content marketing initiatives, IKEA demonstrates the power of storytelling, user-generated content, influencer collaborations, and technology integration in engaging their audience and driving brand awareness.

IKEA’s Global Expansion and Localization

IKEA, with over 50 years of experience in international business expansion, has successfully established its presence in 52 countries worldwide. The company’s global expansion strategy combines standardization and localization to adapt to diverse markets and gain a competitive advantage.

One of the key factors contributing to IKEA’s global success is its ability to create franchise agreements that ensure consistency among its global stores while promoting a modern and managerial culture. This approach allows for efficient operations and a seamless customer experience across different markets.

To cater to local preferences and demands, IKEA strategically develops new supply chains in each market it enters. This enables the company to offer products that resonate with the local customers while maintaining its commitment to affordability and quality. For example, in markets like India, IKEA offers locally sourced mattresses and sofas made from local materials.

IKEA’s localization strategy goes beyond product adaptation. In its expansion into India, the company conducted thousands of home surveys to understand local preferences and cultural practices. This valuable market research informed product modifications, pricing strategies, and even the menu of IKEA’s stores in India.

However, localization also comes with challenges. IKEA has had to navigate different cultural and regulatory environments, such as in Russia where foreign ownership of land regulations require the company to lease, rather than own, its stores.

To address concerns about labor practices, IKEA has strengthened its supply chain management and responsible sourcing practices. The company invests in ensuring fair labor conditions and has taken measures to address past criticisms, such as accusations of forced labor in East Germany.

As IKEA expands into new markets, it invests in local marketing campaigns, forms partnerships with local influencers, and engages with local communities to build brand trust. This approach fosters a sense of familiarity and authenticity, enhancing customer loyalty and brand recognition.

In conclusion, IKEA’s global expansion and localization strategy have been instrumental in its success. By balancing standardization and localization, IKEA adapts to local markets while maintaining its competitive advantage. Through franchise agreements, strategic supply chains, and market research-driven adaptations, IKEA offers quality products at affordable prices worldwide.

The success of IKEA can be attributed to its innovative marketing strategy, which has allowed the company to dominate the furniture industry and grow from a small business in Sweden to a global empire. By offering affordable and functional furniture with clean lines and functionality, IKEA aims to make well-designed furniture accessible to everyone, catering to a wide range of consumers.

Through its strategic initiatives, including store decor, website optimization, social media marketing, and content creation, IKEA has effectively engaged its target audience and built a recognizable brand identity. Sustainability is a key focus for the company, resonating with environmentally-conscious consumers and aligning with the growing demand for eco-friendly practices.

Moreover, IKEA’s approach of allowing customers to assemble their own furniture not only differentiates the brand but also reduces costs. The company invests heavily in market research and customer insights to align its products with customer preferences, ensuring that its offerings are relevant and desirable.

In conclusion, IKEA’s marketing case study showcases the power of strategic initiatives, company culture, and leadership transition. By continuously innovating its marketing strategies, maintaining consistency in messaging and visual identity, and embracing sustainability, IKEA has successfully positioned itself as a market leader in the home furnishings industry, both globally and in new markets such as South Korea and India.

What is IKEA’s global marketing strategy?

Who is ikea’s target audience, what marketing channels does ikea utilize, what is ikea’s marketing strategy, how does ikea create an inspiring in-store experience, how does ikea optimize its website and mobile application, what is ikea’s social media marketing strategy, how does ikea utilize content marketing, how has ikea expanded globally while maintaining localization, what are the key takeaways from ikea’s marketing strategy, related posts:.

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Nina Sheridan is a seasoned author at Latterly.org, a blog renowned for its insightful exploration of the increasingly interconnected worlds of business, technology, and lifestyle. With a keen eye for the dynamic interplay between these sectors, Nina brings a wealth of knowledge and experience to her writing. Her expertise lies in dissecting complex topics and presenting them in an accessible, engaging manner that resonates with a diverse audience.

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Exploring digitalisation at IKEA

International Journal of Retail & Distribution Management

ISSN : 0959-0552

Article publication date: 15 March 2022

Issue publication date: 19 December 2022

The paper aims to clarify how an incumbent retail organisation explores digitalisation for its existing business.

Design/methodology/approach

The paper draws from an in-depth case study of home-furnishing retail giant, IKEA conducted with semi-structured interviews, participant observations and document analyses.

In the exploration phase of digitalisation, three major activities – interpreting, interrelating and integrating – illuminate how the exploration process can be organised in practice.

Originality/value

Although digitalisation ranks amongst the most significant ongoing transformations in retail businesses, research on how incumbent retail organisations have engaged in exploring digitalisation in practice has remained scarce. The paper contributes insights into digitalisation processes in retail businesses that may also apply to other trends affecting the retail industry.

• Digitalisation
• Exploration

Hagberg, J. and Jonsson, A. (2022), "Exploring digitalisation at IKEA", International Journal of Retail & Distribution Management , Vol. 50 No. 13, pp. 59-76. https://doi.org/10.1108/IJRDM-12-2020-0510

Emerald Publishing Limited

Copyright © 2022, Johan Hagberg and Anna Jonsson

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode

1. Introduction

Digitalisation , defined as the “integration of digital technologies into everyday life by the digitization of everything that can be digitized” ( Hagberg et al. , 2016 , p. 696), ranks amongst the most significant ongoing transformations in business, one that has introduced new ways of doing business whilst challenging established ones ( Leeflang et al. , 2014 ). As such, digitalisation has been characterised as a disruptive change that tests industries, their accepted logics and even individual businesses (e.g. Verhoef et al. , 2015 ; Hänninen et al. , 2018 ).

In literature addressing retail, digitalisation has received increased attention from both consumers' and retailers' perspectives ( Frasquet et al. , 2021 ), including in terms of omni-channel strategies ( Verhoef et al. , 2015 ), business models ( Jocevski et al. , 2019 ), multi-sided platforms ( Hänninen et al. , 2019 ) and the reconfiguration of retail stores ( Hagberg et al. , 2017 ). Most recently, according to Hänninen et al. (2021) , such research has integrated far more discussion and theorising about digitalisation across the value chain. However, the organisational processes that catalyse the incorporation of digital technologies in retail businesses – in March's (1991) and Winter and Szulanski's (2001) terms, the exploration phase – have received less attention. Therefore, this paper focusses on that very phase – the early stage of digitalisation – to contribute insights into digitalisation in retail ( Hänninen et al. , 2021 ) whilst answering the call for research on “how firms adapt their business models in response to external threats and opportunities” ( Saebi et al. , 2017 , p. 567).

The paper aims to clarify how an incumbent retail organisation explores digitalisation for its existing business, even as potential disruptions, their meanings and their consequences remain uncertain. To that purpose, the paper builds upon an in-depth case study on IKEA, an established firm in today's dynamic retail sector, an environment in which digitalisation especially urges business actors to rethink their ways of doing business and attracting customers ( Hänninen et al. , 2018 ; Blom, 2019 ; Jocevski et al. , 2019 ). It draws upon first-hand experiences with, and insights into, how IKEA has explored digitalisation, even when the concept was relatively elusive and how it would affect IKEA's business. In describing IKEA's exploration phase and what digitalisation has meant for its business, the paper delineates three major activities of that exploratory process: (1) interpreting what digitalisation means, (2) interrelating digitalisation and the existing business and (3) integrating new ideas and solutions in light of digitalisation.

In what follows, we review literature on digitalisation in retail and research focussing on that process's exploration phase and development in businesses. Next, we describe the methodological considerations made for our case study on IKEA. After that, we present our findings in terms of three major activities that guide the exploration phase. We conclude the paper by discussing our findings in relation to the literature and addressing our research's limitations.

2. Literature review: exploring digitalisation in retail

Having significantly impacted retail in recent years, digitalisation has become an important topic in research on the industry ( Hänninen et al. , 2021 ), especially regarding specific applications of digital technology – for example, the use of smartphones in physical retail settings ( Fuentes et al. , 2017 ; Grewal et al. , 2018 ), augmented reality ( Scholz and Duffy, 2018 ; Caboni and Hagberg, 2019 ) and digital signage ( Dennis et al. , 2012 ; Jäger and Weber, 2020 ). Studies on specific technologies have been accompanied by broader frameworks for integrating various digital technologies into retail, not only by turns based upon their usage and retailers' objectives ( Wolpert and Roth, 2020 ), their social presence and consumers' convenience ( Grewal et al. , 2020 ) and their use in relation to shopping behaviour at various stages of the customer's journey ( Rosengren et al. , 2018 ; Blom, 2019 ; Roggeveen and Sethuraman, 2020 ), but also by general frameworks of what digitalisation implies for retail business overall ( Hagberg et al. , 2016 ). In such studies, digitalisation in retail has received sustained attention regarding several aspects of consumer behaviour ( Hure et al. , 2017 ; Pantano and Gandini, 2018 ), the retailer–consumer interface ( Hagberg et al. , 2016 ; Roggeveen and Sethuraman, 2020 ) and retailers' ways of doing business ( Verhoef et al. , 2015 ; Hänninen et al. , 2018 ). The processes in which incumbent retailers develop their businesses in light of digitalisation, however, have received far less attention.

Because digitalisation, understood as the integration of digital technologies, is arguably not a binary shift from one stage to another but an ongoing process without a clear beginning or end ( Hagberg et al. , 2016 ), its exploration in retail warrants a more processual perspective, particularly regarding its influence on how retail organisations alter their businesses (cf. Langley, 1999 ). Along with frameworks addressing how retail businesses can integrate digitalisation in various ways, the actual processes that may result in digital integration need to be explored and modelled. That need directs our attention to the exploratory processes through which retail businesses may approach digitalisation and, more specifically, to how digitalisation consequently influences established business models. Especially for the latter reason, we gave priority to incumbent retailers, whose business models and established ways of conducting business often confront such considerations.

Despite extensive research on what constitutes a business model, understandings differ about how to define, explore and leverage one. In fact, Teece (2018 , p. 41) has estimated that there are probably as many definitions of business model as there are models themselves. According to Ritter and Lettl (2018) , a business model, simply put, is a company's “way of doing business”. In this paper, considering how business models have been discussed in retail settings ( Sorescu et al. , 2011 , p. 4), we broadly understand a company's business model as representing “the firm's distinctive logic for value creation and appropriation”.

Although various external events may necessitate changes to ways of developing and operating businesses, digitalisation itself is not an event but an emergent, comprehensive and uncertain phenomenon. Indeed, digitalisation can span several external and internal aspects of businesses, as well as pose myriad implications for individual business models. To date, though scholars interested in digitalisation have examined different approaches to innovating business models, from making gradual, evolutionary adjustments to radically altering them ( Berends et al. , 2016 ; Inigo et al. , 2017 ; Snihur and Wiklund, 2019 ), how the exploration phase of digitalisation is understood and organised merits further investigation.

Following March's (1991 , p. 71) definition, exploration refers to searching for, innovating and experimenting with something novel. The concept as used by March (1991) is often considered in relation to exploitation, which refers to refinement, efficiency and implementation of “old” routines or certainties in an organisation. As noted by He and Wong (2004 , p. 481), researchers in strategic management, organisation theory and managerial economics have applied the two concepts in order to understand how innovations occur and how an organisation learn and develop dynamic capabilities to meet change. Previous studies either focus on the trade-off between exploration and exploitation or the balancing act between the two as discussed within literature focussing on ambidexterity and means for developing dynamic capabilities (e.g. Benner and Tushman, 2003 ; He and Wong, 2004 ; Vahlne and Jonsson, 2017 ). The two concepts have also been applied in processual research describing the evolution and development of an organisation. Winter and Szulanski (2001) use the two concepts when outlining their theory of replication as strategy and suggest a two-phase model where the organisation first enters the exploration phase “in which the business model is created or refined” (p. 731) and then move on to the exploitation phase. The argument that exploration and exploitation can be understood in terms of different phases of a process has been adopted also by researchers focussing on, for instance, retailers' internationalisation process ( Jonsson and Foss, 2011 ), the transition into retail omni-channel strategies ( Picot-Coupey et al. , 2016 ) and reverse knowledge flows within franchise organisations ( Friesl and Larty, 2018 ). Still, how the exploration phase is organised and how it can be understood remains to be further investigated. To the best of our knowledge, there is a dearth of research focussing specifically on the exploration phase and how it develops in practice. Whilst existing studies do explore the exploration phase, it is also discussed in relation to the exploitation phase with focus on the outcomes rather than the processual aspects of the phase as such. For this paper, we zoom in on and examine the exploration phase and how it can be understood in the context of retail digitalisation. In particular, when emergent trends such as digitalisation, a change process, challenge established business models, more comprehensively re-engaging the exploration phase can become essential.

3. Methodology

Investigating a complex phenomenon such as digitalisation, and given our aim, calls for a qualitative in-depth case study ( Eisenhardt, 1989 ). According to Dyer and Wilkins (1991 , pp. 615–617), case studies aim to “provide a rich description of the social scene”, “describe the context in which events occur” and thus offer opportunities for other researchers to see “phenomena in their own experience and research”. In that sense, rich, explorative case studies provide avenues for future research or, as more broadly conceived by Doz (2011 , p. 588), “offer the opportunity to help move the field forward and assist in providing its own theoretical grounding”.

Our in-depth case study focussed on IKEA, a global home-furnishing retail company, and its work with developing an understanding of digitalisation. IKEA is a particularly interesting case that has attracted practitioners seeking a benchmark in a hitherto successful business model (e.g. Jonsson and Elg, 2006 ; Edvardsson and Enquist, 2011 ; Burt et al. , 2016 ). IKEA has frequently been used as an empirical example in the business models literature (e.g. Hedman and Kalling, 2003 ; Sorescu et al. , 2011 ) and subject to in-depth case studies of the development of specific aspects related to the IKEA business model over time (see e.g. Salzer, 1994 ; Jonsson, 2007 ; Tarnovskaya et al. , 2008 ; Edvardsson and Enquist, 2011 ; Hellström and Nilsson, 2011 ; Burt et al. , 2016 , 2021 ). In addition, there are several studies of various aspects related to digitalisation, including store format development ( Hultman et al. , 2017 ) and comparison of IKEA's digital catalogue and website ( Garnier and Poncin, 2019 ). IKEA has also served as an in-depth case for studies of exploration in relation to exploitation and replication ( Jonsson and Foss, 2011 ; Vahlne and Jonsson, 2017 ). The present study adds to this literature through an in-depth case study of IKEA's digitalisation process in an early explorative phase.

In the ten months from September 2014 to June 2015, we observed IKEA's work on exploring digitalisation and the trend's potential impacts on various parts of the organisation's business model and participated in a project undertaken in support of such exploration. In that form of action research ( Patton, 1980 ), engaging in IKEA's internal exploratory work as researchers allowed us to understand digitalisation's implications by discussing them with representatives at IKEA, which, at the time, considered knowledge of those implications to be important because they, along with digitalisation itself, remained unknown. Using such methods enabled us to contrast findings from interviews with findings from observations and synthesise the results in light of theory ( Ghauri and Grönhaug, 2002 ). In particular, our case study revolved around two ongoing projects and the processes of working within them: IKEA's “E-Commerce Programme”, later named the “Multichannel Transformation Programme”, and a project designed as a pre-study addressing the future role of IKEA's physical stores and the challenges and opportunities that they face amid digitalisation.

We collected data with three overlapping methods: in-depth semi-structured interviews, participant observations and document analyses (for an overview, see Table 1 ). As for the first, we conducted 21 interviews with senior executives with different functions in different departments at IKEA as detailed in Table 1 . Using purposeful sampling, we interviewed IKEA managers and employees working with and/or preparing for the organisation's digitalisation about their experiences with and thoughts on the concept of digitalisation and its implications. The interviews combined retrospective questions about IKEA's business model with questions about current situations experienced by the interviewees and prospective enquiries about IKEA's future in relation to digitalisation. All interviews began with open-ended questions about digitalisation in general and digitalisation at IKEA in particular. As the interviews progressed, questions became more structured and delved into the future role of IKEA stores, the specific challenges that IKEA faces, whether they will affect the IKEA concept and if so, then how. All interviews were recorded and transcribed verbatim and translated into English in those cases the interviews were made in Swedish.

Meanwhile, participant observations involved three meetings – before, during and after data collection, respectively – with the project manager of the pre-study to discuss the overall project. Those meetings lasted 11 h and 36 min in all. We also engaged in both in-store observations and meetings, lasting 10 h in total, whilst visiting an IKEA store in the Altona borough of Hamburg, Germany that operates as a test store for new concepts (e.g. urban proximity, technical solutions and delivery solutions). The local managers who accompanied us during our in-store observations also met with us twice: once with five other store managers and once with five employees from different departments. We conducted both meetings as group interviews guided by the same questionnaire used in the individual interviews. During all observations, we took field notes for data about the employees' perspectives and what digitalisation meant in practice. That information was valuable when conducting interviews with IKEA managers responsible for strategic decision-making and for translating digitalisation into IKEA's business model. Last, we also collected documents and visual communication, both public and internal, for analysis. The internal documents contained information about the pre-study, the “E-Commerce Programme”, the “Multichannel Transformation Programme” and the movie “ Shop with Laura ” (see Table 1 ) and public documents included information about the IKEA history, vision and business idea statements. Documents were collected on the basis of their mentioning during the interviews or participant observation sessions. These constituted sources of detailed information preserved from the time in which they were written and less dependent on the informants' memories. Throughout data collection, we facilitated informants' validation of the data on several occasions (cf. Silverman, 2006 ), which afforded us the opportunity to discuss our observations and findings with the participants. Apart from our participant observations, we also hosted two internal workshops with the project manager of the pre-study to discuss our findings.

To analyse the data, we used systematic combining ( Dubois and Gadde, 2002 ) – i.e. alternated focus between our empirical material and theory – whilst developing our case study and the emerging framework. For integrity's sake, we triangulated the three major sources of data – participant observations, interviews and document analysis ( Silverman, 2006 ) – during all four steps of data analysis. First, we coded the transcripts with reference to keywords and phrases related to digitalisation and its consequences for the retail industry in general and IKEA in particular. In that step, we adopted an emic perspective that prioritised the perceptions and understandings of the informants ( McCracken, 1988 ). Second, following Langley's (1999) suggestion, we took a narrative approach to comprehending the process-related data, namely by drafting a general description of the process with illustrative quotations from material collected in the field ( Berends et al. , 2016 ). Third, whilst working abductively between the empirical material and our emerging analytical framework, we used theoretical coding ( Charmaz, 2014 ) to sort, integrate and organise the material to represent a three-phase process. In so doing, we gradually shifted to an etic perspective – i.e. from the informants' perspective to our own perspectives as observers of the empirical material. Fourth and finally, we reorganised the material and wrote a case narrative structured according to the three abovementioned activities as presented next.

4. Exploring digitalising: the IKEA way

In the past 70 years, IKEA has grown from a small, family owned company in Sweden into the world's largest retailer of home furnishings. Arguably, IKEA's rapid international expansion resulted from the three-phase development of a formula that has been replicated in all markets where IKEA has entered an expanded, where the first phase commenced by exploring IKEA's business idea and opening test stores in markets outside Sweden ( Jonsson and Foss, 2011 ).

IKEA's business idea builds upon two concepts – the idea concept and the concept in practice – that together define what, in theoretical terms, could be understood as IKEA's business model. Whereas the idea concept refers to IKEA's vision “to create a better everyday life for the many people”, its philosophy of co-creation (i.e. “We do our part, and you do yours”) and the central role of IKEA stores, the concept in practice refers to IKEA's practices of examining specific sets of variables whilst adjusting to local markets ( Jonsson and Foss, 2011 , p. 1,090). The two concepts are mutually dependent; if the concept in practice does not change, then the practices of the idea concept will eventually become irrelevant and not reach “the many people”.

In 2014, drawing from insights during its internationalisation, IKEA realised that digitalisation could be both a challenge and an opportunity amid its recently declining expansion. For decades, IKEA had experienced outstanding success in replicating its business model: an average yearly increase in sales of approximately 8–10%, the constant meeting of new sales targets and a steady rate of expansion, with 12–14 store openings per year. In 2013, however, IKEA's steady growth declined in some markets, as the rapid worldwide growth of e-commerce in retailing continued to challenge physical stores and change the competition. In response, the company decided to decelerate its international expansion in favour of exploring what digitalisation could mean for their established business model. At IKEA, it was, therefore, considered increasingly important to return to a state of exploration in which key variables describing the idea concept and the established concept in practice would be re-evaluated. Moreover, as increasingly more young employees at IKEA sought new, 21st-century ways of reaching “the many people” – i.e. current and potential customers – both IKEA's employees and customers began looking for digital solutions and new ways of working.

In the following sections, we recount how IKEA engaged in exploring digitalisation in the IKEA way and how it (re)imagined reaching “the many people” in the shifting retail landscape. The story begins when the intersection of digitalisation and IKEA's business model was becoming increasingly apparent but not yet regarded as a phenomenon that would require radical changes, and it ends six months later, when the exploration phase resulted in an understanding and approach that we term the re(in)innovation of IKEA's business idea. In particular, we discuss how IKEA interpreted, interrelated and integrated digitalisation with its established ways of doing business. Although we have structured our discussion in three subsections, each addressing one of those three activities, the activities should not be considered as occurring along a linear path but instead as three aspects of the exploration phase.

For an overview of the activities and related steps, please see Table 2 .

4.1 Interpreting digitalisation

In 2014, aware that IKEA retailers in the USA were witnessing a cannibalising effect on their physical stores because of e-commerce, IKEA took its first steps towards exploring digitalisation. IKEA realised that its E-Commerce Programme launched only a year prior, could not simply be rolled out as initially planned but needed to be informed by a discussion about what e-commerce and digitalisation would mean for sales in IKEA's physical stores. Although digitalisation was becoming a widely discussed concept in retail at the time, it had remained undefined, and it was unclear how, or even whether, it was distinct from e-commerce. Recognising that possibility, IKEA's global expansion manager initiated several internal projects to explore what digitalisation meant and how it might relate to IKEA's business idea.

E-commerce is how we do business electronically, so it's about selling: selling online. But digitalisation is much bigger than that […] It's about the whole company, because it involves, for example, online learning. I think that e-commerce is not just about selling; it's about fulfilment, the buying process. (Development Manager, E-Commerce Programme)

Digitalisation is broader than e-commerce. It's also more about how we approach customers: how we communicate and how we ensure that all of our customers have the same knowledge, whether they're buying things in the store or online. Digitalisation is something that happens in the store. It's how we provide all of the information to our customers: where the products come from, what they do and how you can use them. (Supply Manager, IKEA Supply AG, Logistics)

As that quotation suggests, despite references to what digitalisation might mean and what it truly is, its signification remained vague. Even so, it appears that digitalisation might have generally been understood as offering digital information to customers. Making sense of digitalisation thus involved distinguishing digitalisation from e-commerce to not only explain how the concepts differed but also make digitalisation manageable for and relevant to customers.

So, all of a sudden, the amount of information that we have about people and how they live, move, interact etc. is phenomenal. And it's in combination. It's not urbanisation only; it's urbanisation plus digitalisation that gives us the opportunities. It's an example of how combined trends can become very powerful. (Digital Business Manager, Inter IKEA Systems B.V.)

It is exponential because every new invention in the digital space is built on previous ones. So, it's a combined effect that creates exponential speed. So, ignoring it, as Kodak or Nokia did, will be very dangerous. On the contrary, it can be very powerful, like for Apple, Google, Facebook, etc.

For me, digitalisation is a moving target. Its content is changing all of the time. To some extent, we use a lot of digital technology already—it's just that it’s outdated, right—so we're changing how we digitalise instead of digitalising something that is not digital. (Global Retail Logistics Manager, Retail Logistics IKEA of Sweden)

Gradually, it became clear that digitalisation not only needed to be understood in the sense of selling goods online but would have broader implications for the company. As a case in point, when observing customers who had already developed new shopping behaviours – using mobile phones to search for products from both outside and inside stores, for example – IKEA realised that new mobile solutions had to be integrated with traditional retail logic. As a result, IKEA unveiled the “Future Role of the IKEA Store in a Multichannel Environment” project to emphasise the need to understand and combine related trends. The project was initiated to jumpstart a shift towards what IKEA called a “seamless customer journey”. Consisting of five sub-projects, the project prompted the redefinition of the E-Commerce Programme and later evolved into the Multichannel Transformation Programme.

Digitalisation means nothing, I would say. Because what we want is to secure a solution for when you, the customer, move between the store and the web. It might be a digital solution, but it can also be a physical solution, or something else. The only thing that's important is to solve some sort of need and to learn more about those needs. (Group Retail Manager, Global Retail Services IKEA Group)

The expansion manager also emphasised that instead of simply focussing on defining digitalisation, routines and skills need to be developed for facilitating “disruptive developments” and finding new solutions and ways of testing new ideas. Understanding how various activities were organised and integrated was also considered to be pivotal. The idea addressed in many interviews – namely, that digitalisation both enables and requires the integration of knowledge – was explained as enhancing the focus on customers and their experiences. That perspective marked a shift into the phase in which IKEA began actively exploring what digitalisation meant to its ways of doing business by revisiting the idea concept and the concept in practice.

Altogether, the first activity of the exploration phase, interpreting, refers to ways of understanding and making sense of digitalisation and the changes that it was considered to imply. The process can be described as encompassing three steps: differentiating (i.e. distinguishing and delimiting digitalisation from other concepts), combining (i.e. making connections between digitalisation and other trends and concepts) and concretising (i.e. defining digitalisation and making it actionable). Building upon lessons from that work, IKEA transitioned into the second activity of exploration where it began relating digitalisation more explicitly to IKEA way of doing business.

4.2 Interrelating digitalisation with established business ideas

Whilst interpreting digitalisation, informants increasingly reflected on what it would mean for IKEA's established business ideas. After all, the replication formula was being challenged by not only digitalisation but also urbanisation. Mounting criticism about globalisation and calls for de-growth were also seen as challenging the existing understanding of doing business – i.e. by selling furniture “to the many people” – and concerns for sustainability were identified as needing to be incorporated into understandings of digitalisation.

To ensure that all IKEA employees shared the same interpretation of digitalisation and how it relates to IKEA's established business model, it was considered to be necessary to visualise the future. To convince internal sceptics, it was considered to be especially important to also visualise how digitalisation could generate opportunities for sales and attract a broader customer base and thereby more fully reach “the many people”. It additionally required ideas about urbanisation, sustainability and ways of offering not only furniture but also services, both in terms of continuity and making it easier to shop. Some proposals even conceived collaborating with second-hand retailers or establishing an organisation that would create opportunities to sell recycled and/or used furniture.

We wanted to have a completely different kind of interaction with our customers: a completely different type of conversation, a completely different type of engagement. So, I made a video that I think is very entertaining. […] She [Laura, the protagonist] wants to decorate her children's room, and the videos show her journey until she's satisfied. (Web and Digital Manager, Web and Digital Retail Services)

To develop a “seamless” experience for customers, it was considered to be crucial to introduce multiple perspectives, which seemed to require visualising the journey of customers in order to ensure focus on their experiences. To that end, it was expressed that all perspectives in IKEA's value chain had to be considered, and a consensus was emerging that different perspectives needed to be integrated in order to realise digitalisation. It was also clear that integrating knowledge from various functions in order to avoid a silo mentality would require more effort.

Our model has been built on direct deliveries to our stores, where you [the customer] do your part, we do our part, and then we save money. We need to think about a completely different kind of integration in how we develop and how we lead the overall development. To make that happen, we're now investing billions in new infrastructure—large investments in IT—but that's not what will take us into the future . (Group Retail Manager, Global Retail Services IKEA Group)

It was necessary to look inwards and to involve different views and perspectives, both across different parts of the company and from the outside. The same informant underscored the importance of accessing different perspectives to also “integrate the outside perspective into our structure, so that we do not get too isolated and, in that way, also cultivate our own skills”. The involvement of different functions and external partners prompted discussions about what digitalisation meant in relation to the established retail logic of “You do your part, we do our part (and together we save money)”. As it became clear that digitalisation would inevitably affect IKEA's business model, the question of how that process would unfold increasingly became the topic of discussion.

In sum, the second activity of the exploration phase, interrelating, refers to assessing digitalisation in relation to established ways of doing business in three steps: visualising (i.e. what the future might look like), mapping (i.e. what functions, areas and parts of the business model will be involved) and evaluating (i.e. how digitalisation will affect the business model and current ways of doing business). Based upon insights from that work, IKEA advanced to putting lessons learnt into practice and began the third activity: integrating new knowledge with existing knowledge.

4.3 Integrating digitalisation into a business model

From the internal projects related to efforts of interpreting digitalisation and interrelating it to other trends, IKEA's managers concluded that its established business model needed an update and that the antidote, digitalisation, also offered an opportunity to fully realise the business idea of offering products and services to “the many people”. To that end, testing new ideas, learning from them and making any necessary adjustments were considered to be important tasks. Thus, to be able to integrate digitalisation with the business model, it was necessary to experiment with numerous ideas and solutions as was done at numerous IKEA locations. For example, at IKEA in Altona, new ideas and concepts were tested to see whether they could satisfy a more digital, urban segment of customers. The Altona store was not only constructed differently from the standard global store format, in terms of size and layout, but also to accommodate for trends in urbanisation. It had also been adapted to test new concepts in practice, including new logistics and distribution solutions, and the normal pathway through the IKEA store had been partly removed to attract customers passing by outside. In the United Kingdom, by comparison, as a result of exploring digitalisation and testing new digital solutions, IKEA had launched its first app.

Experiences from testing new ideas and solutions were transferred back to the IKEA Group and Inter IKEA Systems. Thus, an important step was reviewing and learning from those experiences followed by transferring them internally within the organisation. In relation to the Altona store, both IKEA's management team in Germany and the IKEA Group's management team followed the experiences closely. Beyond that, many employees from IKEA worldwide visited the UK and/or Altona stores simply out of curiosity.

That's the essence of IKEA. If you remove everything, then the core is what's left, and that's IKEA… [We] need to develop our concept, take it further and say, “This is how I see IKEA today”. We have to be on track and dare to test and create other formats… So, IKEA has to change; otherwise, it's the beginning of the end. (Group Retail Manager, Global Retail Services IKEA Group)

The concept manager also reflected on how those changes would affect the idea concept and the concept in practice, as well as the latter should not come at the former's expense: “I mean the concept, if we go back to it, and the vision… part of the recipe for success has been just doing things together, engaging people” (IKEA Concept Manager, Inter IKEA Systems B.V.). Thus, integrating digitalisation into IKEA's business also implied reconnecting with IKEA's roots and reflecting on the idea concept as “the core of the core”. After all, although IKEA was changing at the time and continues to change, it remains the same IKEA. In that sense, revising the business model appeared to be quite natural, for though it had always changed in one sense, in another sense it had also always remained intact. The conclusion was that to be able to sustain the idea concept, “the core of the core”, the concept in practice needed to change, which would imply searching for new formats and new solutions to further leverage IKEA's business. IKEA's managers realised that although the basic needs were the same, people had changed and were continuing to change, and the experiences of customers demanded far more focus. For those reasons, a new position, global customer experience manager, was created. The shift implied a return to the core of IKEA's concept and vision – “to provide products and services that are both cost-efficient and innovative” – and that digitalisation had forced IKEA to rethink its processes of achieving those ends. As another informant argued, the entire process of re-evaluating the way of doing business – i.e. the IKEA way – had alerted managers and employees not only to IKEA's strong vision and business model, but also its need to seize the opportunity to fully realise that vision and reach “the many people” both online and offline.

All of the work to prepare IKEA for the digital shift had prompted a return to the company's roots and the questioning of proven solutions, which is indeed one of IKEA's ten values, perhaps best be described as shifting from interpreting digitalisation and interrelating with IKEA's business model into integrating and turning it into practice. That integrative phase also precipitated how IKEA re(in)novated its business model. IKEA's approach of digitalisation could thus be understood as returning to the company's original idea; the understanding of the idea concept will never change, but the concept in practice has to be rethought and new ideas and practices tested and evaluated in order to continue to reach “the many people”. To that end, practising and testing new solutions were crucial strategies for IKEA, not to mention integral to the IKEA concept and its organisational culture.

In all, the third activity of the exploration phase, integrating, refers to the actual digitalisation of the business idea by steps of practising (i.e. developing and trying different solutions to test and learn from them), reviewing (i.e. sharing knowledge within the organisation to learn from practice) and revising (i.e. connecting and evaluating changes to the established business model in order to provide continuity).

5. Conclusion

This paper has sought to illuminate how an incumbent retail organisation approached digitalisation for its existing business at an early, exploratory phase when possible disruptions, their meanings and their consequences remained uncertain. To that aim, we have provided an account based upon our in-depth case study of IKEA and how the company explored digitalisation at an early stage. We have delineated the exploration phase as consisting of three chief activities – interpreting, interrelating and integrating – each of which we have detailed by identifying certain steps therein. Together, and with reference to IKEA's case, those aspects allow an understanding of the exploration phase.

Compared with previous studies on exploration and exploitation (e.g. March 1991 ; Winter and Szulanski, 2001 ) and specifically in the context of retailing ( Jonsson and Foss, 2011 ; Picot-Coupey et al. , 2016 ; Friesl and Larty, 2018 ), our paper contributes with insights on how the exploration phase is understood and organised in practice. The study further contributes to previous literature of IKEA's business model ( Hedman and Kalling, 2003 ; Sorescu et al. , 2011 ) and specific aspects of the IKEA business model (see e.g. Edvardsson and Enquist, 2011 ; Burt et al. , 2016 , 2021 ) by outlining the exploration phase in further detail. Although the activities of the exploration phase – interpreting, interrelating and integrating – stem from a specific case, we believe, following the potential of qualitative in-depth case studies ( Dyer and Wilkins, 1991 ; Doz, 2011 ), that they may provide value for analysing what digitalisation or any other current or future trend means to retail businesses apart from IKEA.

Because our study was performed at a relatively early phase of adapting the business model at IKEA, some of the outcomes of that process were beyond our study's time frame. However, conducting the study during the process afforded the advantage of revealing ambiguities, scepticism and reservations amongst employees and managers, all of which are important for understanding how retail businesses can be transformed in practice due to digitalisation. In hindsight, some of those uncertainties may be expected to fade or fall into oblivion once changes appear as a continuation of their antecedents and become institutionalised in the ordinary course of business, whether such a development occurs and, if so, then how it remains to be investigated. In any case, a key contribution of our study is the understanding of how an organisation such as IKEA, a global retail giant, organises its efforts to explore digitalisation in relation to its existing business. Still, as this study was conducted in a relatively early phase of the digital transformation, we believe that the findings may differ from later implementations when digitalisation has increasingly become a norm rather than an exception and retailers having increased abilities to learn from their and other's previous experiences. An important opportunity for further research would be to study more recent cases of exploration phases in relation to digitalisation as well as comparing incumbents and entrants as well as larger and smaller organisations.

Using a case study to develop an understanding of digitalisation in retail has advantages and disadvantages. On the one hand, it affords a more profound understanding of how retail businesses are transformed due to digitalisation in practice, as well as detailed insights into the practical work within the company (cf. Saebi et al. , 2017 ). On the other, however, it can be difficult to apply the results of case studies in forming a basis for scientific generalisation ( Yin, 2003 ). Although an analysis based upon a particular case can indeed provide an understanding of the practical process, that process is liable to differ between companies and between industries. In IKEA's case, as an organisation that many companies use as a benchmark due to its long-term success, no precedent construct existed for understanding how digitalisation in retail would look – for example, by relying on normative models – but instead surfaced as an emerging process. A better understanding of how a specific retailer has approached digitalisation complements current understandings of retail's digitalisation in general ( Hagberg et al. , 2016 ; Hänninen et al. , 2021 ). By extension, we believe that the suggested conceptual framework for understanding and organising the exploration phase could be a useful tool for retail managers to explore not only digitalisation, but also any other transformation and the consequences for their businesses.

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Acknowledgements

The authors contributed equally to this work. The paper is part of a research project with financial support from The Swedish Retail and Wholesale Development Council. The authors would like to thank Niklas Egels-Zandén for comments on an earlier draft of this paper, and also colleagues Catrin Lammgård and Malin Sundström who were also part of the research project. In addition, the authors would like to thank the people at IKEA who have contributed with their time and reflections, and in particular, the authors would like to appreciate Martin Hansson and Carole Bates for showing interest in this research and for inviting the authors to participate in the internal work of trying to interpret what retail digitalization means to IKEA.

Corresponding author

About the authors.

Johan Hagberg is professor of business administration specialising in marketing at the School of Business, Economics and Law, University of Gothenburg. His research revolves around the digitalization of retailing, consumption and markets.

Anna Jonsson is associate professor at Lund University, School of Economics and Management. Her research interests include learning and knowledge sharing in organizations and society. She has conducted research about various industries and organizations, including the retail industry.

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by Didier Bonnet , Michael R. Wade Published 15 February 2022 in Innovation • 8 min read

In an IbyIMD interview, Barbara Martin Coppola, Chief Digital Officer of IKEA Retail (Ingka Group), explains how she is helping to take the company, famous for its out-of-town stores and physical products, in a bold new direction.  

For nearly 80 years, IKEA has provided the world with its distinct style of ready-to-assemble home furniture, appliances, and accessories. IKEA is now one of the most recognized brands in the world, and its fame was built on quality physical products and analog distribution and business model. So, how does such a successful incumbent company stay relevant faced with the fast-changing realities of the digital economy?   

Four years ago, to accelerate its digital transition, IKEA hired Barbara Martin Coppola, a seasoned digital executive with global experience from Google to Samsung, with a remit to accelerate the digital transformation of IKEA.  

IMD Professors Didier Bonnet and Michael Wade asked Barbara how she faced the challenges of digitally transforming such an iconic global brand.   

What were the priorities of IKEA when you joined the company?  

When I joined IKEA, I was the first Chief Digital Officer in almost 80 years, the company was going through a deep self-reflection about its future directions. There were headwinds in the retail industry, consumers were changing their habits, the way they live their lives and their consumption patterns. Yet, when you think about IKEA, you think about those big flagship stores outside main cities, which is the model that, over the years, had served us well to grow the company. Now, with digital technology providing the opportunity to operate companies more efficiently and find new sources of growth with digital business models, IKEA had to embrace this digital wave quite urgently.   

In discussion with our CEO, we progressively realized that a digital transformation would mean changing deeply the way IKEA operated. But with one strong guiding principle. Every digital change was to be true to the values and the mission of IKEA. So, the remit was not to design a digital transformation “on the side” of the core business but to truly follow the firm core principles.  

“Now, with digital technology providing the opportunity to operate companies more efficiently and find new sources of growth with digital business models, IKEA had to embrace this digital wave quite urgently. ”

So, it was not about a digital strategy, but a strategy enabled by digital transformation?  

Absolutely. IKEA was very clear on its driving objectives, and the idea was that we needed digital to underpin and accelerate the execution of these objectives. On the surface, the driving objectives were not technology-driven, but fundamentally linked to our changing customers and our competitive position. The vision and mission were built around three core elements:  

• How do we become more accessible ? Given our traditional out-of-town locations.  
• How do we continue to be affordable ? Serving our wide base of customers from India to China, to Germany.  
• How do we become planet-positive ? Contributing to the sustainability of the world we operate in.  

I like to refer to these as the “Three Icebergs”, because the bulk of the digital work was to take place below the surface. Let me give you a tangible example. How do we become more accessible? When you start peeling the onion, it means that our customers have to be a click away from the brand, they have to be able to access a multitude of touchpoints even when they live within large cities. The consequences of doing that are profound as it means our inventory flows need to be different, it means the speed and agility which we operate the business have to be different, it means merchandising needs to be different and even the skills of the people delivering to customers need to change. This is exactly where digital needs to come to the fore.  

The change you describe implies you managed to execute your digital transformation across the natural silos in the organization?   

First, it needs a realization that the silos, particularly in terms of functions, needed to change themselves. To execute effectively, we also needed to build cross-functional teams bringing different expertise to tackle digital solutions end-to-end. It required a lot of human interactions, a lot of communication and a lot of stakeholder management. Second, it was about how we empowered those cross functional teams and give them the freedom to execute fast. We gave them decision rights to execute the change and produce the results. One thing I think we got right during the pandemic, is that we did not implement a heavy governance mechanism upfront with committees and layers of decision-making and approvals. We empowered the teams first and then formalized the governance later. And it was a business governance around three functions: Digital, Commercial and Operations. We had to remain pretty nimble, particularly during COVID, as the stores were closed, so empowering the front line and leading from behind was key to speedy execution.  

Discover IMD Program: Developing Digital Transformation Strategies

Digital and sustainability are the two major transformations facing businesses today, how do you reconcile the two  .

I see huge complementarity between the two transformations. It would be wrong to treat them separately. Digital is absolutely central to achieving our “Planet Positive” objective. Let me give you an example of how the two reinforce each other. One of the key sustainability goals of IKEA is to have a circular business model. One of the main implications is that we can follow the goods, trace the provenance of materials, monitor their usage and be able to get goods back for recycling. This is entirely based on digital product information, supply chain visibility and the data flows that underpin all these digital processes. You also need to digitally equip consumers through apps so they can see that information and be able to return an item to IKEA.   

We started a program last year where customers can sell products back to us for recycling. On Black Friday alone last year, we had 100,000 items sold back to us. And this is just the beginning, we plan to triple that number this year. We need to understand each component of the item to be able to recycle them effectively either by reusing materials or by reselling used items in the stores at a cheaper price – benefiting our affordability goal. Everyone benefits we save on goods and raw materials, we save on carbon impact, and we prolong the life of the products we make. I believe a lot of people will be happy with this. And it’s only possible because of our ongoing digital transformation.   

Our research shows that externally appointed CDOs often find it hard to navigate the complexity of large organizations, you seem to be a counter example?   

It’s a great question, you’re right, I’m only the second executive coming from outside IKEA in 78 years. And I’m not Swedish, I’m digital and I’m a woman. I think, first reporting directly to the CEO was an essential signal of the intent. Second, the CEO deserves a lot of credit for supporting me and putting in place the right conditions for the digital transformation to happen. I would also say that other executive team members were also extremely supportive, and that is a great help. 

I believe that what made a difference is that the whole executive team was aligned on the need to change. But, more importantly it was also about fitting into the values and the beliefs of the IKEA organization. To be honest, I was closely observed at the beginning, and I had to pass the “can we trust her” phase, way before any questions on my digital expertise. Once the confidence was established then we moved into the transformation execution. During this phase, we needed to bring proof points and early successes, so people went “oh, my god, this is working”. And started to believe in the power of digital to augment IKEA.    

If there’s one thing I have learned is that the human dynamics are essential to digital transformation success. How do we embed a digital mindset as a core component of the company’s leadership, and how do we bring the entire organization on the journey with us?  

Back to your question, I think it’s a lot about respecting what is and envisioning what could be. There is a sentence at IKEA that I really like and that capture that mindset: “Love the past and create the future.”  

This article is part of a series of “ Digital Leaders” interviews that IMD is conducting, to learn from real experiences from practitioners leading the digital transformation of large, global organizations.

Didier Bonnet

Professor of Strategy and Digital Transformation

Didier Bonnet is Professor of Strategy and Digital Transformation at IMD and program co-director for Digital Transformation in Practice (DTIP) and Leading Customer Centric Strategies (LCCS). He also teaches strategy and digital transformation in several open programs such as Leading Digital Business Transformation (LDBT), Digital Execution (DE) and Digital Transformation for Boards (DTB). He has more than 30 years’ experience in strategy development and business transformation for a range of global clients.

Michael R. Wade

TONOMUS Professor of Strategy and Digital

Michael R Wade is TONOMUS Professor of Strategy and Digital at IMD and Director of the TONOMUS Global Center for Digital and AI Transformation . He directs a number of open programs such as Leading Digital and AI Transformation , Digital Transformation for Boards , Leading Digital Execution , and the Digital Transformation Sprint . He has written 10 books, hundreds of articles, and hosted popular management podcasts including Mike & Amit Talk Tech . In 2021, he was inducted into the Swiss Digital Shapers Hall of Fame.

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How IKEA became a household name with digitalization, consistency, and experience

Table of contents, in the beginning....

Just about 80 years after it was founded, IKEA has become one of the world’s top furniture companies. Today, it’s known as a place where shopping is truly an experience, not just a chore. Between the popular food courts and handsomely designed showrooms, IKEA is simply a fun place to spend an afternoon — and be productive at the same time. 

Of course, the company wouldn’t still be in business if it wasn’t able to provide great products as well. Throughout the years, IKEA has carved out a name for itself as a company that provides unique and high-quality furniture at a great price — some assembly required. As a result, it’s particularly popular among young and thrifty shoppers. 

Here’s what the company’s numbers look like at a glance:

• In 2020, IKEA’s brand value was $17.97 billion
• By 2020, it had opened 445 stores worldwide
• It was the leading retail furniture company in Europe by turnover in 2019 ( €16.9 billion generated )
• Nearly 220,000 employees in 2020
• Over 800 million customers visited an IKEA in the US despite the pandemic
• Stores in over 50 global markets

In this strategy study, we’re going to explain how IKEA became not only one of the world’s leading retail furniture brands, but a global cultural icon. From rural Sweden to the global marketplace, this is the story of IKEA’s rise.

The vast majority of people alive today have never lived in a world without IKEA. In fact, many of us have fond childhood memories of walking through one of its stores with our parents and enjoying some tasty Swedish meatballs before heading home.  

But IKEA didn’t appear spontaneously. It was brought into existence thanks to the hard labor and ingenuity of one man: Ingvar Kamprad. To understand IKEA’s success, we need to understand the man behind it.

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The founder's first steps

Ingvar Kamprad was born in 1926 in Angunarryd, a small town in the Småland province of southern Sweden. Heir to a poor family of farmers, Ingvar was surrounded by financial insecurity and quickly learned the value of money and hard work. 

From an early age, Kamprad exhibited an entrepreneurial spirit. By the time he turned six, he had already started his first business selling matches, buying them on the cheap in Stockholm and selling them at a profit in his hometown. Two years later, he moved into the vehicle business, selling bicycles to his neighbors. As he grew older, his enterprises moved into various different products, ranging from Christmas tree decorations to fish to seeds and beyond. 

When Kamprad turned 17, his father made good on a promise to provide him with money if he succeeded in his schoolwork. He used that money to found what we now know as IKEA.

Kamprad founded IKEA while sitting at his uncle Ernst’s kitchen table in 1943, deriving the name from his own (Ingvar Kamprad), his family farm’s (Elmtaryd), and his hometown’s (Angunarryd). 

At the start, IKEA was not a furniture business. Instead, Kamprad sold small household goods, such as pens and wallets, which customers ordered through a mail-in catalog and would receive via milk truck delivery. This catalog was an essential feature of Kamprad’s business, as his rural location made it difficult to conduct business any other way. 

It wouldn’t be until 1948, five years later, that Kamprad would get into the furniture business and begin shaping IKEA into what we know it as today.

Necessity breeds innovation

Although many people imagine that businesses always start out with their unique selling propositions fully formed, this could not be further from the truth. IKEA is a perfect example of a company that grew into its own, finding its way not through some clear vision at the outset but through many small “aha” moments that shaped it into its current form. In fact, many of the features that we recognize IKEA by today came completely in response to difficulties — they were creative solutions to the problems Kamprad faced. 

Right out of the gates, IKEA made a name for itself as a retailer with extremely low prices.  In 1951, it launched its first catalog, which offered low-cost, chic, and stylish furniture with the convenience of mail-order shopping.

As appealing as budget-friendly options may be, they also raised concerns: customers simply couldn’t believe that quality furniture could be had at such a bargain. As a result, they began to worry about IKEA’s quality. 

To solve this, Kamprad came up with a solution: set up a showroom. Now, customers could come into his store, look at the furniture themselves, and walk away with it. Problem solved. 

But this wasn’t the end of IKEA’s pricing struggles. Although the consumers had been pacified, the producers were still unhappy — but for an entirely different reason. In 1955, the producers that IKEA used started boycotting the business, claiming the prices were too low.  Instead of viewing this as an insurmountable problem, Kamprad took it as an opportunity to bring manufacturing in-house.

The last major innovation came as a bit of a happy accident one year later in 1956. One day, as Kamprad watched an employee load up a customer’s table into their car, he noticed something interesting: the employee had removed the table’s legs to help it fit. 

Then it hit him: if Kamprad sold his furniture disassembled, he could fit more of it into a single truckload, thus saving money on shipping costs. Instead of trying to fit fully-assembled tables together, leaving tons of empty space in the truck, he could pack everything flat. 

This “aha” moment gave IKEA what is perhaps its most recognizable feature — it became a retailer of furniture that required assembly at home, thus making it cheaper, easier to carry out of the store, more efficient for delivery, and rather fun to set up.  Although flatpack furniture already existed, it wasn’t yet popular in Sweden. This observation showed Kamprad an untapped market opportunity. 

By the time IKEA had pivoted to flat-packing, it had achieved several milestones: it now manufactured all its own products, it ran its own showrooms, and it provided high-quality, low-cost products that appealed to young people. At this point, IKEA had stepped into its modern skin.

Key takeaway #1: limitations boost creativity

IKEA didn’t emerge from Kamprad’s kitchen as a fully-formed entity. Quite the opposite: the first thirteen years of operations were an experimental period during which Kamprad sought out solutions to the problems that confronted him.

IKEA’s development wasn’t visionary but reactionary. Although Kamprad always envisioned IKEA as a company that sold high-quality, low-priced products with mass appeal, it was the sum of Kamprad’s clever solutions over time, such as shipping disassembled furniture to save on packing space, that shaped IKEA into what it is today. 

All great businesses are essentially solutions to difficult problems. When faced with a seemingly intractable issue, business leaders should view it as an opportunity for growth, not as a disruption to their normal operations. For all you know, that nagging problem could be what turns you into the world’s next IKEA.

IKEA goes global

From the beginning, international expansion has been a cornerstone of IKEA’s growth strategy. And if you think about it for a minute, it makes a lot of sense: Sweden is a small country with a population of only 10 million. That imposes a pretty low ceiling as far as business growth is concerned. 

Ingvar Kamprad knew that if he wanted to grow his company, he would need to go beyond Sweden’s borders. But unlike many other brands (Walmart and Home Depot, to name a few), he actually succeeded in his internationalization project. In 2018, IKEA had company-owned stores in 24 countries and franchises in many more. Currently, there are over 50 IKEA locations around the world, and the company is continuing to expand. 

Let’s take a look at what made IKEA’s globalization so successful.

Patience is a virtue: starting local

At the start, IKEA threaded lightly. Although international expansion was clearly a goal from the start, as indicated by Kamprad’s maxim “it is our duty to expand,” IKEA didn’t come out with guns blazing. Its first expansion efforts were within markets it already fully understood: its neighboring Scandinavian countries. 

The first international IKEA branches were in Norway (1963) and Denmark (1969). Just going by the dates alone, it’s clear that this was by no means a rapid expansion. Kamprad took things slow, making sure to firmly establish his business in the local market. 

By 1973, Kamprad was positioned well: he had opened up stores in all three Scandinavian countries, and he had captured 15% of the Swedish market share. He was ready for his next step. 

Going continental

In 1973, Kamprad decided to take IKEA beyond the borders of snowy Scandinavia and into the broader international market. 

At the time, the German-speaking countries had the largest furniture markets. And beyond that, they were fragmented: 67% of furniture companies had fewer than three employees and were in expensive locations, meaning that there was a gap in the market for non-boutique, affordable furniture. Kamprad believed that “if it works in Switzerland, it’ll work anywhere,” and chose the quiet country as his next stop on the continent.

Kamprad selected a small suburb outside of Zurich, called Spreitenbach, as his entry point. This small area accounted for 20% of the consumer purchasing power, so was a logical choice. To promote the new store, he circulated 500,000 catalogs filled with off-beat advertising. Within a year, he had 650,000 visitors. The store was a smashing success. 

A year later, Kamprad opened a store in Munich, West Germany, that attracted 37,000 visitors in just the first three days. Over the next five years, IKEA conquered a 50% share in the German cash-and-carry market. To this day, IKEAs biggest market is Germany, where it has 53 stores. 

Although there was opposition from more traditional furniture retailers (and even some court-mandated penalties), by this point it was becoming clear to everyone in the industry that IKEA had something special. The model was here to stay, and competitors needed to start taking notes. 

Learning from your mistakes: IKEA's "secret' formula

From 1973 onwards, IKEA began to expand at a much more rapid pace. But it hit a snag: in 1974, IKEA entered the Japanese market. Although it stayed around for 12 years before closing down, the entry was ultimately a failure. 

What went wrong? At the time, IKEA thought it could export its current business model wholesale without making any changes to fit the culture it was expanding into. Japan had a very service-oriented culture, and the people didn’t take well to the do-it-yourself attitude that IKEA was offering. But IKEA was also not a fit with the Japanese market on a much more literal level: its products simply weren’t compatible with the size of the average Japanese home. 

Luckily, IKEA was able to learn from its mistakes. After its Japanese fiasco, the company began tailoring its expansions to the market much more thoroughly. In its 1985 US expansion, for example, it ensured that its products matched up with the sizes that Americans would expect. In its recent 2018 entry into the Indian market, it made sure to set up customer service booths, where employees can help customers build their products — an important feature given that India, like Japan, does not have a strong DIY culture. 

In an almost literary redemption story, IKEA re-entered the Japanese market in 2006. Its newer stores implemented features that meshed better with Japanese culture, such as assembly assistance, delivery, and of course: products that were hand-selected to fit Japanese homes.

By all measures, IKEA’s return to Japan was a success (as of 2020, there were nine stores across the country) and gives clear proof that not only has the company learned from its mistakes, but it has developed a truly mature expansion strategy. 

Key takeaway #2: learn from your mistakes and the customer is always right

Some of IKEA’s initial expansion efforts failed because the company was a bit stubborn — Kamprad believed that what worked in Europe should translate directly into every market.

This was a huge mistake. Within twelve years, IKEA’s first expansion into a non-European market had failed. But this failure wasn’t without its lessons. 

Japan taught Kamprad that his products needed to fit the customer, not the other way around. While he didn’t upend IKEA entirely to fit into new markets, he did make small but necessary changes that would help the stores integrate better into different cultures. 

On a conceptual level, business leaders should realize that every mistake is a learning opportunity. Although Japan started out as a failure, without this mistake under Kamprad’s belt, he likely wouldn’t have been able to catch his missteps, and he may never have learned how to successfully expand into foreign markets. 

On a more concrete level, the key takeaway here is that the same market entry strategy won’t work across the board. 

Ikea growth strategy

There are a lot of reasons why IKEA was able to make the global impact that it has — a talented founder at the helm, a successful market entry strategy, and an ingenious business model are just a few. 

But there’s something else that has helped IKEA climb the ranks and become one of Sweden’s largest cultural and business exports: differentiation. IKEA’s differentiation strategy can be divided into three prongs: 

• Swedish Design and Influence
• Cost leadership
• Unique experience

The sum of these three parts is a company that offers a unique and appealing product at a low cost and with a unique shopping and assembly experience. Let’s take a look at how IKEA was able to build a name for itself and stand out from the crowd. 

Swedish design

Today, Swedish design has become synonymous with sleek, minimalist, and aesthetically appealing furniture and interiors. Of course, IKEA didn’t invent the style itself —  its pioneers were the likes of Bruno Mathsson and Astrid Sampe. But even though Ingvar Kamprad wasn’t the mastermind behind Swedish design, it’s undeniable that his company helped bring the style to a worldwide audience. 

However, like most parts of IKEA’s development, its design language didn’t come out of the womb fully formed. In the early days, IKEA’s furniture offerings were fairly conventional — a far cry from the eccentric shapes and unusual colors it would later employ. At that time, IKEA differentiated itself primarily from a cost leadership and convenience standpoint. 

That said, even in 1954, the beginnings of IKEA’s signature designs were taking form. That year, the Lovet table,  one of IKEA’s most well-known designs, was introduced. The wood table was crafted to look like a leaf, giving it an eye-catching and aesthetically pleasing appeal. It also happened to be the first of IKEA’s flatpack offerings. 

By the 1970s, IKEA had truly entered its own, offering furniture that looked unlike almost anything on the market — at least at the same price point. Many of the pieces released during that time are still popular today, such as the classic Poäng chair. 

Swedish flair

But looking at the design of the furniture itself doesn’t tell the whole story. IKEA built up a brand aesthetic that exudes Swedishness in everything from the names to its logo, which uses the Swedish flag’s colors. 

Take IKEA’s product names as an example. Although the company learned that it needs to alter its catalog a bit for every new market it enters, one thing stays the same in every country: the names. Outside of Scandinavia, practically no one can pronounce them, but that’s part of their appeal — strange and alien-looking names like Poäng, Ektorp, and Famnig are intriguing and stand out from competitor offerings. 

There’s a good reason for those exotic names. Apparently, Kamprad struggled with dyslexia and decided to name the furniture after Swedish towns and villages, humans, and other applicable Swedish names. 

Ektorp sofa is named after a village just outside Stockholm

IKEA’s shift to Swedish branding evolved as it expanded into foreign markets. This makes sense — the exotic appeal of the Swedish language doesn’t have the same effect in Sweden. This development can be seen especially clearly in its logo design.

Originally, the IKEA logo was quite bland. In 1951, it was nothing but a reddish stamp with the name “ikea” stamped in the middle:

In 1967, IKEA’s logo almost entered its final form: a circumscribed name in capital letters with a rectangle surrounding it. 

Finally, in 1983, as IKEA was making significant advantages in its globalization effort and close to opening its first US store, it hit on the right design: the familiar gold and yellow logo.

If you’ve ever seen a Swedish flag, it’s clear where the logo takes its inspiration from. With this move, IKEA made it clear that it was a Swedish company, and that foreign flair helped differentiate it.

But there were still a few final touches that needed to be added. In 1985, when IKEA opened its first US store, it also launched the iconic Swedish meatballs, aka Kottbullär. Although the IKEA restaurant had been a feature of the store from the beginning (Kamprad firmly believed that “it’s tough to do business with hungry stomachs”), it was at this point that the menu took an even more decidedly Swedish turn. 

Swedish food became so important to IKEA’s brand image that nowadays, the last thing you see as you exit the store are bottles of lingonberry jam and Kottbullär available for purchase. 

Cost leadership and the "IKEA effect"

From the very start, IKEA was envisioned as a brand that would provide budget-friendly products to the masses. Although those products changed over time from small household goods to furniture, the mission statement stayed the same. 

In the end, IKEA succeeded in its mission. Today, IKEA is the go-to brand for young people in need of cheap furniture for their first houses and apartments — and frugal people of all ages aren’t shy to walk through IKEA’s doors either. 

Flat-pack and modularity

So, how exactly was IKEA able to keep its costs so low? For the most part, it comes down to IKEA’s reliance on self-assembled and flat-packed products. In the early days, IKEA sold fully-assembled furniture. It wasn’t until 1954 that Kamprad got the idea to pivot to flat-packed goods. 

This change provided several advantages. Obviously, it made shipping and transportation costs lower — with flat-packed goods, more products can be loaded up into a single delivery truck. Along the same lines, it also saved money on the manufacturing end because IKEA could essentially “outsource” the assembly work to its customers. 

But there was another advantage that came from this move: modularity. By requiring customers to assemble their products, IKEA can manufacture modular pieces that fit several different furniture items. This means that production lines can be streamlined and made more efficient. 

Similarly, by removing the assembly from the picture, IKEA also needs to hire fewer service employees, which saves on employee compensation costs. Although IKEA has begun adding more service centers in markets that don’t have a mature DIY culture, these costs are minimal compared to the expense of fully-fledged service initiatives.

The IKEA effect

This unique business model has a surprising and somewhat paradoxical side effect, commonly referred to as the “IKEA Effect,” which allows IKEA to make its products appear more valuable than they are. 

The principle behind the IKEA Effect is simple: people value things that they build themselves more than things that are built for them. There is a certain satisfaction that comes from spending an hour building your own sofa that simply can’t be had if you buy one pre-assembled. Doing the work yourself gives you a better appreciation of the value, and since people tend to think quite highly of their own craftsmanship, they will tend to view the furniture as well-made. 

This helps IKEA with a cost leadership sleight of hand: by asking customers to assemble their own furniture, they can keep their own costs low, while simultaneously making their customers view their products as higher-quality and more valuable.

A variety of strong and consistent production relationships

While many low-price retailers attempt to keep production costs low by pitting suppliers against each other and selecting the most competitive price offerings, IKEA takes the opposite approach. Instead of fostering competition among the suppliers it works with, it opts for collaboration. 

IKEA keeps production costs low by signing long-term contracts with its suppliers. The result is that IKEA is able to keep its costs low consistently, instead of constantly scrambling to find the lowest cost supplier. 

The strategy appears to work. IKEA has more than 1,800 suppliers in 50 countries , and it consistently has more than 95% of its inventory in stock. 

Additionally, IKEA does its best to source its wood close to its suppliers in order to keep transportation costs down. For example, in 2018, IKEA bought 25,000 acres of timberland in the US to provide raw materials to its suppliers. This also helps with the company’s sustainability initiatives. 

A unique and cost-saving experience

Although IKEA originally started as a primarily mail-order retailer, the showroom experience has become an integral part of the company’s branding and operations. It’s a devilishly clever strategy because, like the IKEA effect, it keeps business-side costs low while simultaneously providing a high-quality shopping experience to customers. 

If you’ve ever been to an IKEA, you’ll recognize one thing immediately: these stores are big. They are essentially repackaged warehouses. Within the store, customers are presented with realistic representations of how each furniture item might be used in a contemporary living situation. The displays are not sterile lineups — they feel alive, livable, and customers can easily see the functionality of each item.

To make the shopping experience even more pleasant, IKEA provides play areas for children and eating areas for hungry shoppers. The end result is a store that feels homey and comfortable despite the industrial scale. 

Although this may all seem entirely in service of the customer, it also confers several cost-saving benefits to IKEA. 

For one, IKEA specifically places its stores in more domestic areas, where real estate prices are lower and the stores can be more expensive. This saves the company from having to spend top dollar for competitive retail space in a large city. 

Secondly, by making stores so large, they can effectively function as both a warehouse and a showroom. As a result, IKEA can combine warehouse and showroom expenses into one, keeping total costs low. Of course, the fact that IKEA products are flat-packed also means that more products can be stored per warehouse, further reducing storage expenses.

Thirdly, the huge amount of space allows IKEA to present many different design possibilities to customers without the need for large numbers of staff to constantly rearrange furniture for shoppers.  

Overall, the end result is that the unique IKEA showrooms provide customers with an enjoyable shopping experience, all while allowing the company to save on real estate, warehousing, and staffing expenses. 

Key takeaway #3: valuable doesn't mean expensive 

When we think of something valuable, we tend to think of something expensive: gold watches, luxury cars, rare jewelry. But not all value can be measured in dollar bills: to a parent, their child’s drawing could be more valuable than the Mona Lisa. 

IKEA was able to leverage this phenomenon by offering what is essentially “low-cost value” — the type of value that money can’t buy. Thanks to the IKEA effect, customers often find IKEA products to be more valuable to them than other, higher-priced products. Add on a unique experience, filled with memories of eating Swedish meatballs with your family, and you have a value that money can’t touch. 

After all, it’s a part of their vision “To create a better everyday life for the many people.”

Business leaders should follow in IKEA’s footsteps and look for new ways to increase their products’ or services’ worth without raising costs. Sometimes, small changes can lead to big results. 

Understanding IKEA's positioning 

From its humble beginnings in small-town Sweden to its current seat as a major player in the global retail market, IKEA has been nothing short of a Cinderella story. But no business can rest on its laurels — the market is constantly changing, and a single bad move could throw away 80 years of success in a flash. 

That said, the future does look bright for IKEA — even during the pandemic, the company was able to generate almost the same amount of revenue as the previous year ( €39.6 billion in FY2020 and €41.3 billion in FY2019). But a few figures don’t tell the full story. To get a better view, let’s dive into a SWOT analysis. 

Market understanding

If there is one thing that IKEA does well, it’s understanding its market and leveraging that understanding to better position itself. From the start, IKEA has had the goal of becoming a company that sold low-priced products that would appeal to mass-market consumers. Today, IKEA has become practically the world leader in budget furniture — it is the first place that the average Joe will go when searching for new furnishings. It is particularly popular amongst young people furnishing their first apartments and houses. 

Throughout its development, IKEA had ample opportunity to stray from this initial vision, but it never has. As a result, it’s carved out an important part of the market that it can expect to hold onto for years to come. 

Affordability 

IKEA doesn’t merely understand what its target market is, it’s able to corner that market. Through the various cost leadership strategies we discussed in Chapter #3, IKEA is able to consistently price its products cheaper than its competitors. In turn, this has made IKEA the go-to brand for budget-friendly furniture. 

Quality and value

Although IKEA surely isn’t top-of-the-line, its products retain a respectable level of quality despite being priced so low. This is largely thanks to IKEA’s strong relationships with its suppliers and the culture of collaboration it fosters with them. 

Any quality deficits that IKEA products may have been made up for by the IKEA Effect, which causes self-assembled products to take on a higher apparent value in the eyes of the builder. 

Unique brand experience

From the unique furniture designs to the use of Swedish names to the beloved in-store restaurants and beyond, IKEA has crafted a brand experience that is unlike any other. In fact, what IKEA has created is so special that in some countries, it’s known as a fun place to go and get a bite to eat than as a place to buy furniture. When you’re able to turn a boring old furniture store into a cool place to hang out with your friends, you know you’ve done something right. 

Brand recognition

Across the world, people instantly recognize the IKEA name and its bold yellow-and-blue logo. Without a doubt, IKEA is a household name, and that level of recognition is rare. To put things into more quantifiable terms, in 2020, the IKEA brand was worth almost $18 billion . This level of brand recognition means that IKEA is ingrained in the global culture as the first stop for affordable furniture. 

Optimized and efficient supply chain 

Unlike many companies vying for cost leadership, IKEA refuses to force its suppliers to compete with each other. Instead, it opts for a more collaborative approach, which leads to strong relationships and consistently low pricing in the long term. Additionally, having control of some of the raw material supply chain helps keep IKEA in a strong position.

Weaknesses 

Lower quality than competitors .

IKEA’s products could accurately be described as “good but not great.” Although the company makes products that are at an acceptable and functional standard, they can’t compete with high-end furniture manufacturers and dealers.

However, this weakness is mitigated by the fact that IKEA isn’t trying to compete with luxury furniture providers. Instead, they have focused on cornering the budget market. 

Reliance on third-party manufacturers

Although IKEA has developed strong relationships with its suppliers, the fact that more than 50% of its products are manufactured by third-parties leaves IKEA in a position of serious reliance on other companies. Its long-term and collaborative arrangements help reduce this risk, but it is still a less favorable position to be in than producing everything in house. 

Bad press and dangerous products

Since 2011, five children have been killed by an IKEA product, the Malm dresser, toppling over onto them. The company has agreed to pay settlements of around $50 million to several families of the victims.  

Unsurprisingly, this has led to a public relations nightmare, which could seriously damage IKEA’s reputation. The company has also received bad press for treating its workers poorly .

Few assembled furniture offerings

IKEA is a company that focuses on providing its customer base with cheap, unassembled furniture. While this works well to corner its core market, it does leave other potential markets, like budget pre-assembled furniture, almost completely untapped. 

Managing timberland could distract from the core mission

By leasing its own forest land, IKEA is able to further ensconce itself in its supply chain, which leads to more control, lower prices, and better sustainability initiatives. However, managing and operating timberland is a costly and time-consuming effort, which could ultimately leave IKEA scattered and less focused on its core purpose. 

Opportunities

Gain a greater hold over the developing market.

Currently, IKEA is overwhelmingly focused on the developed world. In fact, 90% of its sales are from OECD countries , and 70% are in Europe alone. This leaves large swaths of the developing world practically untouched and represents a sizeable growth opportunity. 

IKEA is cognizant of this and has made moves into the Indian and Chinese markets. If the company continues to direct energy and resources in this direction, it could see a strong ROI.

Make use of e-commerce

Historically, IKEA’s strategy has focused on the in-store experience, which has been a key component of its success. However, as e-commerce becomes a greater part of everyday life, IKEA will need to find a way to effectively digitize and create a similarly enticing brand experience in the digital world. 

IKEA has begun making changes to better position itself in the developing e-commerce landscape. For example, many of its stores now double as fulfillment centers, and the company has made many behind-the-scenes changes to ensure online orders are fulfilled faster. 

Increase particleboard usage

Particleboard is a material that is made by gluing together wood particles. Essentially, particleboard is made from wood, but it is not wood. 

Surprisingly, a single log of wood yields more particleboard than wood, and it’s also lighter. Combined, this means that particleboard makes more efficient use of raw materials and transportation, given that its lower weight allows more particleboard items to be shipped per load. Overall, particleboard is 20% cheaper than wood. 

Currently, IKEA produces 45% of its products with particleboard and 55% with wood. If it raised the percentage of particleboard products, it could save significantly.

Earlier, we mentioned that IKEA has been at the butt of several lawsuits relating to the death of children that its products purportedly caused. Although the settlement amounts are drops in a bucket for a company of IKEA’s size, they do represent a threat if they increase in number or if the bad PR severely damages the company’s reputation. 

Possible recessions

Analysts have been predicting a recession in the American and European markets for years now. Unfortunately, this is also where the bulk of IKEA’s sales and customers come from. Although IKEA is diversifying into other markets, a severe recession in its core markets could theoretically represent an existential threat to the company. 

Following standards in developing markets

IKEA has made it clear that it places an emphasis on sustainability and market expansion. However, in some developing nations, local laws are antithetical to the standards IKEA holds for itself. This leaves the company in a dilemma: it must either adapt to the lower sustainability standards of these countries or delay its market expansion. Slowing down on either one of these could threaten IKEA’s current branding and positioning. 

Key takeaway #4: Ecommerce and the developing world present the largest opportunities 

It should come as no surprise that two areas that are growing rapidly, the developing world and e-commerce, represent some of the biggest growth opportunities for IKEA. Indeed, despite IKEA’s position as a global leader in the furniture space, failure to invest in these areas could spell trouble for the brand. 

Steps towards sustainability

As we stand face to face with an unprecedented climate crisis, businesses are seeking new avenues for sustainable growth. IKEA has fully embraced this new business paradigm and is making great strides in its effort to reduce its carbon footprint and become an all-around eco-friendly company. 

However, IKEA thinks that being sustainable means more than caring for the environment. It’s for this reason that it refers to its sustainability strategy as “People and Planet Positive.” In this strategy, IKEA notes three broad areas that it wants to improve on: 

Healthy and sustainable living

• Circular and climate positive
• Fair & equal

Let’s take a look at some of the changes IKEA is implementing to meet this goal. 

The first prong of IKEA’s sustainability plan is quite simple: to inspire others to live more happy and fulfilling lives. Overall, this is the vaguest part of its plan, and IKEA itself doesn’t seem to be entirely clear about what its own goals are. For example, IKEA states that  “We will, together with others, define what sustainable consumption means for IKEA.”

On a more concrete note, IKEA has been a leader in removing toxic materials from its supply chain. It has been ahead of the curve, removing problematic substances from its products even before they were officially banned.

Circular and climate positive 

IKEA is hoping to go one step beyond becoming a carbon-negative business and actually become a climate-positive business — that means that it’s attempting to not only stop hurting the environment but to benefit it as well. 

To this end, IKEA has made a shift towards more sustainable sources of its raw materials. For example, all its cotton, fish, and seafood currently come from sustainable sources. The company is also trying to source 100% of its wood from sustainable sources. Additionally, it will also promote the reuse of its products to extend their lifetime. 

By 2030, IKEA aims to be a completely circular business. 

Fair and equal

IKEA has received bad press over the years for the way that it treats its workers. Although it is vague about how it hopes to improve, IKEA notes several areas that it is attempting to make changes to. Some of these include gender equality, children’s rights, diversity encouragement, and providing stable and secure employment. 

Key takeaway #5: make the world better

IKEA, like all businesses, is up against an unprecedented climate crisis. Beyond that, there are serious social issues that IKEA can sometimes indirectly contribute to. As the world changes, it’s important to remember to change with it — don’t stubbornly take new paradigms as a chance to prove your original view was correct but as an opportunity to find new solutions that ultimately make the world a better place. 

IKEA in the Digital Age

From the start, IKEA has placed a significant focus on showrooms and the in-person experience — in some places, IKEA has become more known for its food than its furniture. But as more and more people move away from brick-and-mortar stores in favor of the e-commerce giants like Amazon, IKEA is put in a tough position. 

Its solution? Find ways to move into the modern age without sacrificing the original IKEA vision. Here are a few ways that the company is doing that. 

Stores double as fulfillment centers

Earlier, we discussed how IKEA is able to maintain cost leadership thanks to its dual-purpose showroom warehouses. Now, these facilities are taking on a third purpose as a fulfillment center. 

Although IKEA has had some degree of e-commerce for quite some time now, the increased popularity of e-commerce along with COVID, which forced IKEA to temporarily close 75% of its stores, has made the company fast track its online experience. These new moonlighting fulfillment centers have played a crucial role in handling the onslaught of online orders.

Teaching an old dog new tricks: integration

IKEA has been making an effort to not only improve its e-commerce presence but to better integrate technology into the shopping experience as a whole. One of the latest additions is “Shop & Go,” a feature in the IKEA mobile app. This lets you scan and pay for items while you shop so that you don’t have to wait in line for checkout.

Ethical data sourcing

Like all modern companies, IKEA’s digital strategy will rely in part on customer data. However, after gaining the market’s trust over approximately 80 years, it doesn’t want to throw that away. For this reason, it introduced the “Customer Data Promise,” which says that people need to come first in all data analytics and data-driven processes.

Although IKEA hasn’t gone too far down the rabbit hole, the company has started implementing XR to help customers visualize objects in their own homes.

Placing furniture in your home with the help of XR!

Key takeaway #6: keep up with the times

IKEA is a company steeped in tradition — 80 years worth. Perhaps more importantly, during that time, the business has focused almost exclusively on brick-and-mortar selling. Unfortunately, relying entirely on the old way of doing things simply isn’t tenable in this market. Business leaders need to learn to pivot as new technology emerges and integrate it into their strategy.

Finding the right employees and customers

Whether it’s employees or customers, all companies are run by and revolve around people. Finding the right people, however, is what makes or breaks a company. 

Between hiring strong candidates and reaching its target buyer persona, IKEA has succeeded in getting its products in front of the right people. 

IKEA's target buyer personas

Part of IKEA’s success lies in its ability to understand its target market. By getting fully acquainted with its ideal buyer persona, it can make better strategic decisions on all levels. 

So, who is IKEA’s core target market? Well, there are a few. 

To start, IKEA tries to corner young urbanites between the ages of 25 and 35, primarily those that have graduated high school, and are either single and living with a significant other or are married. 

There’s a good reason for this too: nearly 60% of American city dwellers plan to move in the next year. And that means they’ll likely need to buy furniture. 

Additionally, IKEA tends to target renters, not homeowners, as this demographic is more likely trying their best to budget and save up for their future goals, like buying a house, getting married, etc. 

Beyond that, IKEA also tries to get the attention of married couples with children, which is evidenced by the fact that they include playpens for children in the stores. Plus, situating the stores outside cities can make them more appealing to suburbanites. 

IKEA's hiring process

Worldwide, IKEA has over 220,000 employees . To get to that level, IKEA has developed a unique hiring process.

Primarily, IKEA seeks to hire people who are interested in home furnishings, are friendly, and care about providing good customer experiences. It hires primarily during the months between April and August and provides relocation assistance for successful applicants. 

Most of its candidates come from online sources, such as Indeed. However, IKEA has also branched out and partnered with some social media sites and universities to find new candidates. Plus, it has a strong internal referral program. 

In interviews, IKEA hopes to find candidates with some connection to the store, such as having visited one of their outlets or their website. 

IKEA has a strong internship program in logistics, marketing, communications, and interior design. Interns are not only paid but receive college credit as well. 

However, unlike many employers, IKEA doesn’t require that employees hold a formal degree except for specialist positions. That said, experience is still largely required — IKEA does expect some of its employees, such as interior design managers, to be well-versed in home design and retail trends. For other positions, just an interest is enough. 

Key takeaway #7: surround yourself with the right company 

Wise people have said that you’re only as good as the people you surround yourself with. IKEA has taken that to heart. 

For any business to succeed, it’s important to have a robust hiring process that attracts the right candidates and places them in suitable positions. On the consumer side, businesses need to be clear on what type of customers they hope to attract so that they can target their marketing efforts towards them. 

Final thoughts and key takeaways

Over the past 80 years, IKEA has grown from a small mail-order catalog in rural Sweden into one of the world’s largest furniture retailers. In the process, it has become nothing short of a global staple and a cultural icon. 

Recap: growth by the numbers

The ultimate list of strategic takeaways

Strategy must be built on market insights.

While Kamprad did have a strong vision of where the company is heading, his strategic steps were based on market evaluation and identified market needs. 

He built the product strategy around the wishes and behaviors of IKEA customers. For example, disassembled furniture was created from observing customers how they struggled with getting furniture into their cars. 

Place customer experience at the heart of your strategy

Unique, home-like layout, delicious meatballs, and play area are only the start of the IKEA experience. 

Customers continue to value IKEA products due to building them at home, associating higher value to them. With this approach, IKEA continues its cost-leadership strategy while ensuring loyalty and high quality of its products. 

Innovation as a part of the strategy

IKEA’s been around for more than 80 years. Sticking to the traditional business model would only take them so far and it’s safe to say that they’d definitely not emerge as market leaders without any innovation and adaptation. 

With their vision in mind, they’ve managed to transform from brick and mortar stores to e-commerce and pick-up points. To support the transformation, they leaned into the latest technology and managed to strategically expand into the digital world.

Sustainable practices for a better world

With great power comes great responsibility… And big brands like IKEA understand the environmental and societal power they have. They have already banned toxic materials from their production, they are striving to become a climate-positive business and to positively impact the whole value chain.  

In the end, it seems that IKEA’s success largely comes from its ability to balance maintaining its core vision with changing to adjust to new market landscapes. At the start, Kamprad envisioned a store that sold products at budget prices for the masses to enjoy. Now, Kamprad has achieved that, but it took several changes along the way, such as pivoting from small goods to furniture, from fully-assembled furniture to flat-pack furniture, and more recently, from brick-and-mortar to e-commerce. 

Following in IKEA’s footsteps, business leaders should fully understand the need to keep your vision intact while still staying flexible enough that you can adjust your strategy to the changing waters of the market.

IKEA U.S. takes equity, diversity and inclusion to the next level

Furniture retailer builds ambitious new strategies into its business plan.

5-MINUTE READ

Call for change

A responsibility to build a better society.

For many years, the world’s largest furniture retailer, IKEA, has prioritized efforts to promote equity, diversity and inclusion (ED&I). For example, the company has partnered with social entrepreneurs, creating thousands of jobs for under-represented groups around the world, including a project with Syrian refugees to develop textile products for sale in IKEA stores. Additionally, through employee development and human resources programs across the globe, IKEA has successfully increased the percentage of women in leadership positions,  reaching 50% in 2020 .

Even with its existing achievements in ED&I, IKEA wanted to do more.

IKEA U.S. asked Accenture to help assess its current state of ED&I, define an ED&I vision, and develop a comprehensive plan to accelerate gains in this area. The aim was to implement an effective approach that the company could replicate in other countries. IKEA U.S. was particularly interested in setting and pursuing race and ethnicity goals as well as increasing the diversity of its leadership.

With increasing inequality due to climate change and other global challenges, we recognized that we have a responsibility to help build a society that provides equal opportunities for all.

STEPHANI “STEVIE” LEWIS / Chief Diversity Officer, IKEA U.S.

When tech meets human ingenuity

Improving maturity in ed&i.

We used our maturity model to characterize the current state of ED&I at IKEA U.S. This model measures the extent to which ED&I is embedded in a company in specific areas and identifies opportunities for improvement.

The team inputted the results of several activities into the model:

• Interviews with IKEA U.S. departments:  For instance, interviews with communications staff focused on understanding how ED&I values are embedded into the communication strategy.
• A survey of executives at IKEA U.S.  gathering insights into the current state of ED&I and their aspirations for the company.
• Focus groups with IKEA U.S. co-workers  to explore their experiences working at IKEA and gather their perspectives on the company’s ED&I maturity.

Using the model’s results and additional research on ED&I at eight other retailers, Accenture compared the ED&I maturity of IKEA U.S. with that group. We also compared human resources data for IKEA U.S. employees with U.S. Census data in various geographic areas, revealing the diversity gap between IKEA and local Census populations.

A valuable difference

A roadmap for greater equality.

We presented the results from our maturity assessment in a facilitated workshop with the IKEA U.S. ED&I staff and leadership team. The participants translated the results into a vision to guide action and several ED&I strategies, such as increasing underrepresented groups at all levels of the organization. They also developed 30 recommendations to be integrated into the 2023 business plan for IKEA U.S., such as determining ED&I performance indicators.

Since Accenture completed the project, the ED&I team has asked leaders at each U.S. store to implement ED&I initiatives that support the new vision and strategies while serving specific store needs. These include an Equity Council, an accountability group led by CEO Javier Quiñones, and a pilot program to support diverse talent with leadership training and mentorship. IKEA U.S. has also built a dashboard that tracks ED&I indicators at stores, allowing for progress reports to be shared with executives.

“We now have the data and the tools to take ED&I to the next level,” said Lewis.

My PM Interview - Product Manager Interview Question Answers

Business Case Study: IKEA's Billion $ Pricing Strategy

Ikea : how to grow sales by 200% using pricing strategies.

IKEA has now become one of the most innovative companies of the 21st century in the furniture and furnishing industry. And, the most astounding thing about IKEA is that, in spite of furniture being a highly localized business, IKEA has been the pioneer in turning the furniture business into a global success and today, IKEA draws revenue of $45 billion from 445 stores spread across 30 countries .

What’s more important to note is not the growth of the company but the fact that IKEA taught the world how to use the most powerful psychological tactics to exponentially increase sales and today, we are going to discuss one such strategy that makes IKEA stand apart from the competition. And, no matter which business you are in, no matter which field you are in, you can use these powerful psychological strategies to double your profits at 0 costs.

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IKEA’s Pricing Strategy

What is the strategy?

How does it make IKEA stand apart from the rest of the competition?

How can we use them to double our profits?

The answer to this lies within a fascinating experiment conducted by Dan Ariely with the students at MIT .

In the first iteration, Dan went to his class of 100 students and asked them to choose between subscription plans for the international magazine called The Economist . So, the three options were,

A digital version for $59 ,

The print version for $125 ,

The print and digital versions for the same $125 .

As it turns out the 16% of students wanted the digital version, 0% wanted the print version for $125, 84% chose the print plus digital version.

So, for the second iteration, he makes a small change, he thought since nobody is buying the second option, then why keep it there in the first place. So, he removed the $125 print option and presented the same question to another class of 100 students. Now technically, by eliminating the option that nobody chose, the results are not supposed to change. Well, in the second scenario the result changed drastically.

This time, only 32% of the students opted for print plus digital version and 68% of them just opted for the just digital version subscription .

And, that is when Dan realized that something is magical about this unnecessary option that made such a huge difference in the choice of the customers and that is what we call The Decoy Effect .

The decoy effect says that the consumers change their preferences between 2 options when presented with a third option which act as an unattractive option just to make the other option look extremely fascinating.

Now, when we talk about the Decoy Effect, people think about the popcorn example wherein in the movie houses, you get popcorn of small, medium, and large at a price of rupees 300, 650, and 700. Now, because of the Decoy Effect, people tend to choose the 700 rupees variant. Now, although it is technically correct, it is the worst possible example to use. Why? Because if we look at the underlying message that is being communicated to the customers, this is what the options indirectly tell the customers:

Option A: Overpay for the popcorn

Option B: Extremely overpay for the popcorn

Option C: Extreme overpay for the popcorn with a little extra popcorn

And, the basic flow over is that the prices over here can in no way justify the value for the popcorn. Therefore, by default, making the purchase of that popcorn becomes a painful experience. This is a reason, why, we often feel guilty for buying popcorn. And, even some people would not even think about buying popcorn at the theatre.

Now, when this is done in a close and compulsive environment like a theater, it will definitely work, but if the same strategy is used in the free market, this strategy will backfire in a terrible way. And, if you give your customer this kind of painful experience while paying for your product, the customers will never buy from you. And, it will eventually result in heavy losses.

IKEA’s Decoy Effect

That is where IKEA’s genius application comes in. IKEA places 3 cabinets for you. Let’s suppose they are named as cabinets A, B and C.

A costs $40, B costs $60 and C costs $65.

Option A is very small with a very small cabinet, with a very smooth movement but it’s got very small space plus the material used would be very ordinary.

Option C will be a very large cabinet with premium hands, premium material and most importantly, it will offer large storage space, along with that, you will also get a $10 worth of compartment as complimentary if you buy option C.

Now, then there is option B, as large as C, but it is made out of ordinary material, does not have premium handles, and will not get complimentary compartments.

And, here’s where the catch comes in, if you look at the underlying message, that IKEA is trying to communicate using its product, here’s what they say.

Option A says, here’s a budget product with a great value for money, Option C says, here’s a premium product with a large space plus delightful complimentary product, so, high value for money, and lastly, option B, which is almost the same price, but without premium built quality without complimentary compartments.

So, not so much of a value for money as compared to option C. so, this way option B act as a decoy, so that, when comparing option B with option C, option C looks like an amazing deal. Now, while most sellers only think about the people who directly buy option C, IKEA understands that a 22-year-old boy, who just moved into the city, will not be able to afford a $65 product, which is why he would buy a $40 product. But, when he does, IKEA wants to make sure that he does not regret the purchase. So, even though, it’s a low-margin product in the race of upselling, IKEA will never ever try to rip off its customers who’ve got low purchase power.

And, the best part is, the decoy effect over here does not just make option C look great, it also made option A look great.

Because the customers feel like, they would have overpaid by choosing option B, which is 50% costlier as compared to option A.

So, by default, the budget buyer buys the smaller drawer set, and the premium customers, buy the $65 product. Why? Because they compare it with the decoy. And, this clean execution of the decoy effect gives IKEA brand 3 wonderful superpowers:

Irrespective of their purchase, both types of their customers get valued for their money.

The premium customers have been tactfully influenced to buy the $65 product. And, because the $60 product was such a bad deal, the premium customers actually feel very good about the purchase.

And, most importantly, when the 22-year-old boy, is extremely satisfied with his $40 purchase. Tomorrow, when he grows up and makes a handsome income, he will again choose IKEA, but, this time as a premium customer. Because, he was given value for money that he was promised, even at the $40 price tag.

Therefore, the customer retention of the IKEA brand increases to a large extent.

This is actually how the decoy effect is applied. So, while most sellers use pricing strategy with the sole intent to upsell. The IKEA team constantly keeps learning and carefully deploys its strategies in such a way that it drives profit, but, at the same time, it retains its brand value. And, the wittiest thing over here is that IKEA does this literally for every single one of its 12,000 products, starting from affordable drawers all the way up to the premium beds and even wardrobes.

Now again, this might look easy to some people but here’s something that nobody will tell you if you take a step back guys, you would realize it is extremely difficult to maintain this fine balance between profit and brand value. Especially, when you are as big as IKEA, with 445 stores spread across 30 countries with 2.1 billion visitors who are coming from different cultures from all across the world.

And, the only reason, they’re able to execute this strategy is because of IKEA’s powerful philosophy of democratic design and lifelong learning culture .

Every time, IKEA enters a country, the IKEA team specifically studies every little aspect of that place, starting from the average balcony size, all the way up to the average spoon size. This is done just so that, IKEA could fit into the cultural framework of any country. Therefore, even when you apply this strategy, always make sure that you constantly keep learning about the customer’s reactions and keep a very close eye on the customer’s culture, purchase power and their spending habits. Because only then, one can understand, how to strike a balance between profit and brand value.

Steps to apply the Decoy Effect

Here are 5 very important steps that are needed to be followed when applying the Decoy Effect to products:

Do a research and find out, which is the most popular and profitable product in your store.

If it is a premium product, find a budget substitute for the same product such that people who cannot afford the premium one can still fulfill their needs with a budget one. Why? because budget customers will soon become your premium customers. Therefore, engaging with them should never ever be underestimated.

The next step is to create a decoy. The most important is that decoy must not be a degraded version of your premium product. However, the premium product should have a way better offering than your decoy, so, if you are selling drawers, it’s ok to have a non-premium material, but it shouldn’t be like the drawers are rigid and they’re really badly functional because even the decoy is going to reflect the brand value. So, always try to make the premium product more attractive with the complementary offering rather than, purposefully, degrading the decoy.

This step would be to price your product in such a way that the premium product looks way better than the decoy and the budget product. Option A looks like the obvious choice for the customers with a lower choice power. This way, your high-margin product would look extremely lucrative driving very high sales and at the same time, the budget customers will also be very happy to get the value for their money. In fact, those people will be even happier because they didn’t have to pay 50% extra just to get a bad deal on the decoy.

Lastly, do not add more than 5 products and make sure that the price of the decoy is very close or even equal to the premium product. This is how, one can apply the decoy effect to their products and when done right, it can increase both, your conversion rates and both your profit margins to a large extent.

Disclaimer: In the greed of more profits, please don’t use misuse the decoy effect. Because, always remember, in a free market, the customers are just one step away from leaving you forever.

To help you with your Product Manager interview preparations, we have compiled a complete list of the most asked  Product Management Interview Questions and Answers at companies like Facebook, Google, Amazon, Microsoft, Netflix, etc.

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Product Improvement

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Product Design

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IKEA Organizational Culture: simplicity, teamwork and diversity

IKEA organizational culture plays an important role in maintaining cost-effective business operations to sustain cost leadership business strategy for the furniture giant. In other words, due to its cost leadership business strategy, IKEA does not offer the most competitive financial compensation to its workforce. Instead, the home improvement and furnishing chain attracts employees with intangible benefits that are deeply integrated within IKEA corporate culture.

IKEA organizational culture is based on the following principles:

1. Simplicity and high level of informality . It has been noted that “humbleness in approaching tasks and simplicity in the way of doing things are cornerstones of the IKEA culture”. [1] For example, in IKEA US only a few executives have business cards and “everyone is on a first-name basis and sits side by side at IKEA desks and if you have an ego that needs stroking, IKEA is not the workplace for you.” [2]

2. The value for teamwork . Executives who prefer to manage as one-man show do not fit into IKEA organizational culture. The Swedish furniture chain wants to ensure that it employs only individuals who share its values and appreciate its culture. For this reason, individuals wishing to join IKEA are offered to take an online test which poses a series of 10 work-based scenarios with a choice of actions. The outcome of the test advises applicants if they are likely to ‘fit’ into IKEA organizational culture.

3. Embracing diversity among employees and different ways of doing things . Diversity among the workforce in terms of gender, race, age, ethnicity and sexual orientation is an important element of IKEA corporate culture. As illustrated in table below, there is an adequate level of women representation among across franchisees in floor level workers, as well as, management.

IKEA employee gender diversity in FY21 [3]

Furthermore, the furniture retailer supports the rights of its LGBT+ employees to be themselves. The company also aims to increase the representation of various minority groups among the workforce. The world’s largest furniture retailer believes that recognizing differences among its employees contributes to creativity and supports the growth of the business.

4. Frugality . Late IKEA founder and long-term leader Ingvar Kamprad was famous for his frugal money habits such as driving a 1993 Volvo 240 GL for two decades, purchasing clothes from the flea markets and getting haircuts when travelling in developing countries to save money. [4] High level of frugality of founder has reflected on IKEA corporate culture to a certain extent in a way that managers at all levels are encouraged to cut costs in all areas of the business.

5. Recruitment through values . During the hiring process The Swedish furniture chain invests a lot of time and energy to understand personality, values and attitudes of candidates to only recruit people who fit IKEA corporate culture. In other words, the personalities of candidates are as important as their skills and competencies. [5]

IKEA Group Report contains the above analysis of IKEA organizational culture. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Porter’s Five Forces, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on IKEA . Moreover, the report contains analyses of IKEA leadership, organizational structure and business strategy. The report also comprises discussions of IKEA marketing strategy, ecosystem and addresses issues of corporate social responsibility.

[1] Heritage (2017) Inter Ikea Group, Available at: http://www.inter.ikea.com/en/about-us/heritage/

[2] Kowitt, B. (2016) “At Ikea, Everybody Is Equal” Fortune, Available at: http://fortune.com/2016/03/10/ikea-corporate-culture-best-companies/

[3] Sustainability Report FY 2021, IKEA

[4] Martin M. (2018) “4 unusual ways self-made billionaire IKEA founder Ingvar Kamprad insisted on saving money” CNBC, Available at: https://www.cnbc.com/2018/01/29/money-habits-of-self-made-billionaire-ikea-founder-ingvar-kamprad.html

[5] Werber, C. (2022) “How IKEA maintains culture for 170,000 global employees” Quartz, Available at: https://qz.com/work/2113323/how-ikea-maintains-workplace-culture-for-170000-distributed-employees/

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triple bottom line case study IKEA

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• Harvard Business School →
• Faculty & Research →
• March 2016 (Revised January 2017)
• HBS Case Collection
• Format: Print
• | Language: English
• | Pages: 16

About The Author

Eric J. Van den Steen

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• Faculty Research
• IKEA  By: Eric Van den Steen and Alon Galor

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