Low Pricing Strategy

Executive Summary

The IKEA Group, one of the world’s top furniture retailers, has emerged as the fastest-growing furniture retailer in the US. To become one of the leading furniture retailers in such huge and promising market, it has set an ambitious goal to have 50 stores around the US by 2013. IKEA has 4 branches in Los Angeles alone. From 1997 to 2001, the revenues of IKEA doubled from $66 million to $1.27 billion in five years. Looking at the growth rate over the past decade, it seems possible for IKEA to reach this goal. However, IKEA faced several challenges: American’s mind-set, competition from established furniture retailer and different customer’s preference. To address to these challenges, IKEA needs to apply market leader strategy expanding total market size, defending and developing its market share to achieve this goal.

IKEA Brand: lasting advantage

One of IKEA’s lasting advantages is its brand. To many consumers, IKEA means low-priced furniture, Scandinavian design and style, shopping convenience. IKEA’s cheap furniture does not make consumers feel cheap but rather beautiful, convenient and well-designed. IKEA has a unique shopping culture that makes consumers feel a “real Scandinavian design and style” when they shop. Thus, brand awareness gives IKEA a great power in the US market. However, IKEA’s motto is “low price with meaning”. “With meaning” for US market is different from the other markets. If IKEA can not capture what US customers want, its offerings will become “low price and no meaning”. IKEA already listens to US customers’ needs but it should focus more on local market point of view.

Challenges in America

- Reluctance to change furniture: mind set of Americans

Americans typically have the mind-set that furniture should last a life time, which is not in-line with IKEA’s value that does not include durability in its products. Thus to increase market share in America, IKEA must change the American’s attitude towards furniture as something fun and disposable, furniture is something that add value to lifestyle without incurring too much cost.

- Value added in high-end furniture retailer

As in IKEA motto: low price, there is no delivery and credit services offered. Whereas a typical American furniture retailer (Wal-Mart excluded) offered free delivery service, on top of personal consultation, interior design, credit (easy payment scheme) and huge selection of products. IKEA has to compete not only in price, but also the value added services that these furniture retailers offered as a package together with the furniture purchased.

- Consumer preferences

Another challenge that IKEA faces in America is different consumer preferences and needs. IKEA originated in the Scandinavia has to modify its products to suit America’s furniture market.

Managing sustainable growth for the future

To achieve the 2013 goal, IKEA should apply market leader strategy by expanding total market size, defending and developing its market share. To expand total market size, IKEA should use both new market segment and market penetration strategies. First, it should segment the market to middle-upper class. This particular segment includes young, educated, high mobility home makers that reside in sub-urban America. They are typically open minded and technology savvy which suits IKEA’s brand