IKEA is a world-renowned company that deals in selling ready-to-assemble furniture, houseware and kitchen sets. It is now known all over the world for its retailing of home furnishing products. Along with that, IKEA also retails for Consumer Electronics, Furniture, Retail, Shopping, Smart Home. IKEA had a global revenue of 38.8 billion Euros in 2018.
A Brief History of IKEA
IKEA was started by a 17-year-old teenager, Ingvar Kamprad. He was born in Småland in southern Sweden. He started IKEA in 1943 when Ingvar Kamprad was working as a carpenter. At first, the company sold only pens, wallets and jewellery. The main motto was to serve customers products at an economical price. In 1948, IKEA also started retailing in furniture. Since then, it has been its chief business. Now IKEA is a multinational brand. IKEA has its headquarters located in the European Union (EU)
The flow chart describes the growth trajectory that IKEA adopted since its inception.
IKEA saw rapid growth when it landed into markets of other developed countries such as the U.S, Italy, etc. Currently, IKEA has a presence in 500stores and has 15 million members.
Business Model of IKEA
A business model of a company is the core strategy it applies to gain commercial and economic value. It involves all key components that are required to make a business successful.
Let us discuss the business model of IKEA in detail.
Value proposition refers to innovative solution a company uses to make its product gain a larger market space.
- Flatpack DIY system- This system can be assembled anywhere to suit the current apartment size needs.
- Usage of renewable sources- It helps maintain a balance between environment and business.
IKEA uses the services of around 1400 suppliers from over 60 countries. These suppliers form a big chain and also help IKEA in venturing into fresh markets. Additionally, it uses semi-skilled and skilled labour that becomes an integral component in its supply system.
It includes designing, manufacturing of furniture. Apart from that, it also invests in marketing and sales.
Following are key partners of IKEA:
- For-Profit– For-profit partnership of IKEA is with manufacturing and distribution companies
- Not-for-profit – IKEA also has a partnership with WWF, UNICEF, UNDP
It sells its products through its website. Additionally, it also gives advertisements in a catalogue to enhance its market presence. The subscription model of IKEA has also added to the revenue of the company.
It involves catching the mass market and shipping products to customers who are cost-sensitive.
It maintains good relation with customers by providing assembly and delivery services. IKEA also offers a family card through which customers can avail a good discount.
The cost of IKEA goes into the manufacturing of designs and the marketing of products. It also spends on distribution.
Competitive strategy of IKEA
- Diversity in products– It has 12000 products under its ambit. This gives the customers a variety of choices with 12,000 products in its product range, there are literally thousands of options to choose from.
- Becoming a non- profit organisation– IKEA is now owned by a charitable company of Netherlands. Because of this, IKEA has to pay fewer taxes. Moreover, its intellectual property is held by a different company, which takes care of intellectual property rights. This model has given IKEA a major competitive edge, as now it earns more without giving major taxes.
Revenue Model of IKEA
IKEA earns money by selling furniture to its clients. it also sells food at various restaurants under the banner name of IKEA. Along with that, IKEA also gives services like assembling of furniture, etc.
IKEA has gained a lot of market space in ready-to-assemble-furniture business because of its unique strategy and value proposition. The model of “Flat Packaging” has been internalised by IKEA very well. From here, IKEA is all set to grow further.