Some businesses can be everything to everyone because of their size or structure. For those businesses that are large enough, however, their size can be used to achieve two distinct advantages.
1. The purchasing power of that size can be used to leverage lower prices that can then be passed along to consumers to create value.
2. It provides a business with the opportunity to become a one-stop shop for consumers who have needs within a specific industry.
For the Ikea business model, the goal is to create value within the industry of home furnishings so that design, function, and affordability can all be combined together. In the past, the best quality furniture for the home was beyond the budget of the average family. Since furniture needs are a global need, Ikea can leverage its size to create variety that appeals to different cultures, ethnicities, and even price points.
The Ikea Business Model Focuses On the Customer
One of the easiest ways to create lower costs for a customer is to shorten the distance that is between the initial creation of the product to its sale. This goes beyond the idea of moving higher volume at lowers costs. It means coming to a place where the possibilities that are provided by a supplier can directly meet the needs of a customer.
To do this, the Ikea business model looks at each customer’s needs. This naturally builds a relationship and brand loyalty, but it accomplishes one very important task: it gives Ikea information about the real needs that a specific customer segment has at home. Instead of creating furniture that looks beautiful and allowing the customer to decide if it is functional or not, Ikea takes the extra step to discover what the real space requirements of each customer segment happen to be.
Each low price offer takes into account the real life situation that each customer segment faces. It learns about the taste preferences that each customer segment has so that designs can be matched to those preferences. In doing so, better materials can be used, more effective techniques incorporated, and everyone within the purchasing chain wins because money is earned when customers save money.
Value Is Also Achieved When Customers Get Involved
The Ikea business model also believes in the personal touch. This is even reflected in the business name, as the initials of the founder Ingvar Kamprad have been combined with the abbreviations of the village and farm where he grew up. The branding has been consistent since its founding as a business in 1951 and so has the emphasis that people are willing to put in a little work to get a pretty good deal. By being able to be part of the actual assembly chain, customers feel like they have some skin in the game for the value they are able to receive.
That’s why part of the value proposition for Ikea furniture is to have customers assemble the furniture at home. Each item is flat packed so that it is easier to transport to a home from the store. Once there, customers get everything they need, including the step-by-step instructions, to accurately put together their new furniture.
Franchising Is Also Part of the Business Structure
Except in the Netherlands, all of the worldwide Ikea stores are licensed under franchise agreements. This allows the brand to have consistency throughout the world so that its business model is protected, yet also gives local entrepreneurs the chance to make money as well. It also puts Ikea products front and center so that people can experience the furniture instead of looking at it online.
The Ikea business model also requires updates from time to time. The furniture of the 1950s is the not the furniture of the 21st century. Ikea takes the information that it receives from its customers, identifies the needs of each segment, and then changes designs when necessary. These changes might seem subtle at times, but with over 7 decades of changes happening, the evolution of furniture has been very profound.
Most importantly, however, the Ikea business model is about thinking with one’s heart just as much as one thinks with their mind. Things like hard work and common sense are emphasized within the organization, born from a need to innovate when resources were extremely limited. For many families today, their resources are still pretty limited. That’s why the Ikea business model continues to pay dividends to everyone.
It gives everyone the chance to turn a house or apartment into a real home.
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