Deconstructing The Global Furniture Giant – Absolute Business Model of Ikea Explained

Updated on: Oct 23, 2023
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Ikea is an international company that sells ready-to-assemble housewares, furniture, and kitchen sets. Solid online growth in 2020, IKEA Canada announces consistent revenues of $2,32B. IKEA is known all over the world for its retailing of Home Furnishing Products. Ikea retails for consumer e-mail, mobilizers, retail, shopping, and smart homes as well.

In this blog, we will uncover the key features of the business model of Ikea and learn how it manages all its activities and earns revenue. See also our other blog that outlines Ikea’s marketing strategy.

Therefore, let us instantly learn more about the organization.

About IKEA

IKEA Logo | business model of Ikea | IIDE

In 1943, IKEA started with Ingvar Kamprad, a 17-year-old lad. Born in southern Sweden in Smaland. He was working as a carpenter when he started IKEA. The company sold just joys, plums, and wallets in the initial years. The main motto of IKEA was to serve customers and products at an economical price. In 1948, IKEA also started retailing furniture. It has been its main business since then. The firm is renowned for its modernist design for many sorts of equipment and furnishings and often combines its interior design work with ecological simplicity. Further, the corporation is known for its focus on cost management, operational detailed information, and ongoing product development, such that IKEA has averaged between two and three per cent cheaper pricing. It is the largest furniture in the World but didn’t enter India until 2013, even though it has been sourcing from India since the 1980s. Now, IKEA is a multinational brand. IKEA’s headquarters is in the European Union(EU). IKEA saw rapid growth when it landed in other developed countries like the US, Italy.

What’s new with IKEA?

Here’s what was buzzing around IKEA recently:

  • New sustainable materials: IKEA is introducing new sustainable materials into its products, such as recycled plastic, bamboo, and cork.
  • More affordable options: IKEA is committed to making its products more affordable for everyone, and is introducing new affordable product lines in 2023.
  • More online and omnichannel shopping options: IKEA is expanding its online and omnichannel shopping options, making it easier for customers to shop for IKEA products however they want.
  • New product collaborations: IKEA is partnering with new designers and brands to create new and innovative products.
  • New focus on home improvement: IKEA is expanding its focus on home improvement, and is introducing new products and services to help customers make their homes more stylish and functional.
  • New focus on sustainability: IKEA is committed to sustainability, and is working to reduce its environmental impact and operate more sustainably.
  • New stores: IKEA is opening new stores in new markets around the world.
  • New digital services: IKEA is developing new digital services to make it easier for customers to shop for and use IKEA products.
  • New focus on customer experience: IKEA is focused on improving the customer experience, both in stores and online.
  • New focus on inclusion and diversity: IKEA is committed to creating a more inclusive and diverse environment for its customers and employees.
  • New focus on social responsibility: IKEA is committed to making a positive social impact, and is working to support its communities and employees.

Let’s now understand the target audience of IKEA better with the help of a buyer persona.

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Buyer Persona of IKEA

A buyer persona generally refers to the detailed information of an ideal customer of a company. When it comes to IKEA, people from India use it the most. This buyer persona will help you understand the attributes of a regular IKEA user.

 

Buyer’s Persona

Name:

Anderson

Place:

Minneapolis, Minnesota

Age:

30 years

Profession:

Interior Designer

Motivation

  • Affordable Home Furnishings
  • DIY and Creativity
  • Sustainability
  • Functional Design

Interest & Hobbies

  • Interior Design
  • Gardening
  • Reading
  • Cooking

Pain Points

  • Assembly Challenges
  • Limited Customization
  • Store Crowds
  • Product Availability

Social Media Presence

  • Instagram
  • Pinterest
  • Facebook
  • LinkedIn

 

From the table above we can conclude that an ideal IKEA User  iis motivated by affordable home furnishings, DIY creativity, sustainability, and functional design, with interests in interior design, gardening, reading, and cooking.

Want to know about the current challenges of IKEA? Read a detailed SWOT Analysis of the brand before moving on with marketing strategies.

 

Business Model of IKEA

The business model of a company is a core strategy it implies to gain commercial and economic value. It involves all those components that are required to make a business successful. IKEA’s motto of promoting a “better life for everyone” focuses highly on making it good quality as well as affordable, making it a point that every customer can benefit from it. IKEA’s demand is not only for the two benefits mentioned but also for its exclusive design that reflects modernism as well as being friendly at such a low cost. IKEA is a non-profit organization whose goal is to make every day a better person. IKEA’s business approach is noted for its innovative designs for various types of appliances and mobilization. IKEA’s interior design service values a lot because of its eco-friendly simplicity. IKEA’s business model success is based upon its attention to cost control, regular product development, and operational details that empower the business model to lower its product prices by 2% to 3%.

 

1. Business Model of IKEA – Customer Segments

Clients must capture the mass market and ship the products to customers which are sensitive to costs.

 

2. Business Model of IKEA – Customer Relationship

IKEA offers a family card to the customers through which they can avail good Discounts. It also maintains good relationships with customers by providing them with assembly and delivery services.

 

3. Business Model of IKEA – Cost Structure

IKEA’s cost goes into the manufacturing of designs and marketing of products. It also spends on distribution.

 

4. Business Model of IKEA – Channels

It sells its products through its websites. To enhance its market presence it also gives advertisements in a catalogue. Also adding to the company’s revenue is the subscription model of IKEA.

 

5. Business Model of IKEA – Key Resources

IKEA uses the service of around 1400 suppliers from over 60 countries. These suppliers form a big chain and also help IKEA in venturing into the fresh market. IKEA uses skilled and semi-skilled labour that become an integral component in its supply system.

 

6. Business Model of IKEA – Key Activities

Its activities include designing and manufacturing furniture. Besides that, it also invests in sales and marketing.

 

7. Business Model of IKEA – Key Partners

IKEA is at the service of distributors and manufacturers for-profit. IKEA has a collaboration with WWF, UNICEF, UNDP with non-profit organizations. The main key partners of IKEA are as follows:

  • Wood makers 
  • Transporting Firms
  • Trucking Firms 
  • Delivery companies 
  • Harvesters
  • Manufacturing firms
  • Outfitting firms

 

8. Business Model of IKEA – Key Components

IKEA offers raw materials, product development, product design, manufacturing and processing, sales flows, and customer services. Every three years, IKEA performs an extensive market survey on product input from the customer. They are aiming at reducing costs by employing environmentally friendly products such as reusing wood raw materials rather than forest reduction. With the development of new technologies, a way for gas injection of composite polymers has been successfully identified.

 

9. Business Model of IKEA – Revenue Model

Ikea's revenue model | business model of Ikea | IIDE

In Ikea’s case, its franchisees pay the firm a 3 per cent annual royalty on their net sales. Ikea makes money through the sale of goods & other revenue in addition to the franchise fees. Goods sold by IKEA franchises are related to the wholesale sale of IKEA products. Other revenue consists mostly of money from the IKEA catalog and other IKEA marketing materials. IKEA made revenues of franchise charges, merchandise sales, and other revenues of EUR 23.7 billion in FY 20. Here’s a sector-specific revenue breakdown. However, if the Ikea online division’s revenue, few Ikea self-operated shops, and restaurant sales should be included, FY20 sales total EUR 39.6 billion.

 

10. Business Model of IKEA – Value Proposition

It refers to a competitive solution a company uses to make its products to gain a larger market space.

  • DIY system Flatpack: This system is suitable for the present building size required anywhere.
  • Using renewable energy sources: It helps to maintain an environmental/commercial balance.

 

11. Business Model of IKEA – Global Presence

The commercial sales of IKEA for 2018 amounted to EUR 38.8 billion. In its capacity, IKEA has launched 12,000 goods which provide clients a range of choices without missing any chance. The large chains conduct their business successfully with great efficiency about 1350 suppliers from 50 countries across the world. IKEA performs a market study every 3 years to find out about the product’s comments. after all.

 

12. Business Model of IKEA – Target Market

IKEA Employees | Business model of Ikea | IIDE

In accordance with its demographic segmentation, IKEA segments its target market. People in various demographic sectors would have distinct preferences, desires, and requirements. IKEA’s effective segmentation meets its specific requirements on the market. IKEA employs target market age, employment, income level, and lifestyle to segment its market segment. IKEA targets young and cost-conscious clients, generally students or young professional adults. Their salaries range from $15 000 to $50,000, most likely budgetary households that make them furniture shopping for the first time in their lifestyle.

 

Top Competitors of IKEA 

Here’s the list of top competitors of IKEA:

  1. Wayfair
  2. Ashley Furniture
  3. Crate & Barrel
  4. West Elm
  5. Rooms To Go

 

Failed Campaigns of IKEA

IKEA more than often grabs attention with its unique marketing. But, there have been a few times when the campaign failed to connect with the audiences and gained backlash. 

Here are a few examples of failed campaigns of IKEA:

  • IKEA’s “Book of Love” catalog: In 2012, IKEA released a catalog for Saudi Arabia that featured photos of women without headscarves. This caused a lot of controversy in the conservative country, and IKEA was forced to apologize and withdraw the catalog.
  • IKEA’s “This is How the Many Live” campaign: In 2013, IKEA launched a campaign in the UK that featured photos of real people’s homes. The campaign was intended to be relatable, but many people found the photos to be depressing and unrealistic.
  • IKEA’s “The Wonderful Everyday” campaign: In 2016, IKEA launched a campaign that featured families from different backgrounds living together in harmony. The campaign was intended to be inclusive, but some people found it to be unrealistic and even offensive.
  • IKEA’s “How to Live Small” campaign: In 2019, IKEA launched a campaign that featured people living in small spaces. The campaign was intended to be aspirational, but some people found it to be insensitive to the challenges of living in poverty.
  • IKEA’s “Life is Not an Ikea Catalog” campaign: In 2020, IKEA launched a campaign that featured furniture being peed and vomited on. The campaign was intended to be humorous and relatable, but many people found it to be gross and distasteful.
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Conclusion

As we wrap up our analysis of IKEA’s impressive digital marketing strategy, it’s clear that staying up-to-date with the latest trends and techniques is key to success in the digital marketing world.

Whether you’re a marketing professional or just starting out, be sure to check out our free digital marketing masterclass to gain a solid foundation in the essentials of digital marketing.

Who knows, you might just develop the next big marketing strategy like IKEA’s! Don’t forget to share your thoughts and comments on IKEA’s strategy in the comments below.

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Aditya Shastri

Lead Trainer & Head of Learning & Development at IIDE

Leads the Learning & Development segment at IIDE. He is a Content Marketing Expert and has trained 6000+ students and working professionals on various topics of Digital Marketing. He has been a guest speaker at prominent colleges in India including IIMs......[Read full bio]

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