IKEA - Modularizing Design and Value

IKEA: Modularizing Design and Value
IKEA’s vision is to “create a better every day life for the many people”, aiming to bring good design to as
many people as possible. As CEO Mikael Ohlsson once said, IKEA’s goal is to offer “people with limited
means the ability to furnish their houses like rich people”. By catering to this target demographic with low
prices, modular design aesthetics, and a focus on immediate functionality over durability – combined with
its personable brand and strong sustainability focus – IKEA has become one of the leading retailers in the
furniture industry.
Company Background
IKEA was founded in Sweden in 1943 by a 17-year-old entrepreneur named Ingvar Kamprad, using
money that his father gave him as a reward for doing well academically. The business began as a mail-
order service for everything from pens to picture frames to nylon stockings, with furniture being
introduced to the product offerings only in 1948 (five years later).
Today the company operates 315 stores in 27 countries, and logs over 700 million annual store visits. Its
geographic footprint includes the U.S., Italy, France, the U.K., Russia and Japan. Sales totaled €28.7
billion in FY14, increasing 3.0% from the prior year; store visits increased ~5%. Today, the company has
over 147,000 employees and relationships with over 1,000 suppliers.
Business Model
IKEA’s business model is to sell modular design furniture for low-end prices. IKEA targets the younger
demographic for whom a furniture purchase is yet not a 20-year commitment. Instead, IKEA met the
specific needs of this demographic, who care primarily about low pricing, product functionality over
durability, and a clean design aesthetic.
To this end, IKEA offers a diversity of products – in 2014, IKEA offered 9,500 products, and launches
about 2,000 a year with a team of 15 in-house designers and 75 externally-contracted designers. Its
products also reflect simple, modular design. Most importantly, its products compete against higher-end
stores like “Design Within Reach” or “West Elm” with similar design aesthetics, but price points 5-10x
higher.
Operating Model
Modularizing the steps of furniture purchase, transport and assembly is key to IKEA’s operating model,
and allows IKEA to offer this low-price/high-quality value proposition to consumers. By separating the
assembly and delivery from the furniture item, IKEA allows customers to buy the bare-bones of what
they need, with a choice to opt in to the more service-oriented value propositions. In other words,
customers are able to pay for exactly what they want, and not what they don’t.
Self-service is a defining part of the IKEA customer experience. Customers record their favorite items on
a card catalogue, and then retrieve their own furniture from the stocked warehouse.
By limiting customer service and allowing customers to serve themselves from the basic warehouse,
IKEA reduces the need for extra sales staff or warehouse labor. IKEA is able therefore to charge
customers only for the furniture item – and lower its own costs, passing these on to consumers through
low prices and employees through living wages.
Customers are also able to transport items (the majority of which are flat-packaged
through IKEA’s famous modular designflatpack) easily in their own vehicles. IKEA
products are famously designed for self-assembly as well, removing another cost that
the consumer might have to bear with a traditional furniture retailer. Furthermore, by
designing its own furniture, IKEA is able to vertically integrate. IKEA also collaborates
closely with suppliers who can help influence the design and quality of its product
offerings.
Modified extract courtesy of HBS Digital Initiative
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To this end, IKEA offers a diversity of products – in 2014, IKEA offered 9,500 products, and launches
about 2,000 a year with a team of 15 in-house designers and 75 externally-contracted designers[1]. Its
products also reflect simple, modular design. Most importantly, its products compete against higher-end
stores like “Design Within Reach” or “West Elm” with similar design aesthetics, but price points 5-10x
higher.
Operating Model
Modularizing the steps of furniture purchase, transport and assembly is key to IKEA’s operating model,
and allows IKEA to offer this low-price/high-quality value proposition to consumers. By separating the
assembly and delivery from the furniture item, IKEA allows customers to buy the bare-bones of what
they need, with a choice to opt in to the more service-oriented value propositions. In other words,
customers are able to pay for exactly what they want, and not what they don’t.
Self-service is a defining part of the IKEA customer experience. Customers record their favorite items on
a card catalogue, and then retrieve their own furniture from the stocked
warehouse.
By limiting customer service and allowing customers to serve themselves from the basic warehouse,
IKEA reduces the need for extra sales staff or warehouse labor. IKEA is able therefore to charge
customers only for the furniture item – and lower its own costs, passing these on to consumers through
low prices and employees through living wages[4].
Customers are also able to transport items (the majority of which are flat-packaged through IKEA’s
famous modular design ) easily in their own vehicles. IKEA products are
famously designed for self-assembly as well, removing another cost that the consumer might have to bear
with a traditional furniture retailer. Furthermore, by designing its own furniture, IKEA is able to
vertically integrate. IKEA also collaborates closely with suppliers who can help influence the design and
quality of its product offerings.

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