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Saturday, April 19, 2014

The amazing thing about IKEA 04-20


The amazing thing about IKEA

IKEA should have failed. I recently went shopping at IKEA over the Easter weekend. It felt overcrowded and it seemed that the customers outnumbered the floor staff by 100 to 1. There was absolutely no customer service if I had a problem or question to ask.

While shopping in the huge bedroom section of IKEA, I was reminded of a queen size bed that I tried to assemble on my own. With no prior carpentry experience and IKEA's sometimes cryptic instructions, I spent half a day of blood, sweat and tears (Ok, maybe no blood but definitely a backache from lifting the heavy bed frame) assembling that piece of furniture. It's hard to imagine that I actually paid for this once in a lifetime experience. 

I'm pretty sure that this experience is repeated throughout the world over a thousand or maybe a million times over.
By conventional business thinking, a retail organisation that has minimum in-store customer service, products that require you to figure out and assemble yourself, could hardly be a recipe for success.
So IKEA should have failed.

But we can see, this is not true. In fact, IKEA is growing from strength to strength. She is opening more stores globally and it's brand equity is getting stronger. Looking at IKEA's annual report, her sales has grown steadily from EUR 23.8 billion in 2010 to EUR 29.2 billion in 2013 (a 22% increase).

So why is IKEA so amazing?

My opinion is that IKEA has a clear marketing message and is religiously consistent about it. IKEA has a simple and clear message.
We offer affordable furniture through customer self service.
No matter where you are and no matter when, the message is consistently applied in all actions and marketing. The expectation has been set and it remains steadfast and consistent.

The other secret is to never assume that you truly understand your customer. Give customers and the market, the luxury of choice. Through conventional wisdom of customer service, you wouldn't give your customers a choice to do something as difficult as assembling your own product for you. But IKEA did.
Surprisingly there were quite a number of customers like me who choose to assemble their own furniture.
Perhaps, it was difficult for some of us to assemble it. Perhaps, it was a piece of cake for others. But regardless how you felt making it, you almost always ended up feeling a sense of accomplishment on completing your own handiwork. It might be flawed, scratched or crooked but it was a labour of your love.


Now let's turn back the clock to 1943 before the existence of IKEA. The founder of IKEA Ingvar Kamprad approaches you as an investor. He meets you for the first time as a 17 year old and draws out his vision.
IKEA will offer the world's most affordable furniture. (Even though Sweden has one of the world's most expensive labour). He is going to deliver this revolutionary new cost model by eliminating most of the labour intensive activities such as in-store customer service staff. IKEA will have the customers assemble the furniture themselves without any training and experience. And to top it up, it will a 30 billion dollar business applicable to 42 countries globally.

Would you invest?

Really?

That is the amazing thing about IKEA.