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

by | Case Studies | 0 comments

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.

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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.

 

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.

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Conclusion

In conclusion, the great success of IKEA predetermines its future strategy. IKEA is an example of internal efficiency, a predisposition to external competitiveness and agility. A combination of innovative product design, cost-effective approach, pricing structures, distinctive sales proposal, human resource management, and winning corporate philosophy is the successful performance of our organization. The company’s future is tough – the environmental challenges that call into question the social and environmental responsibility of firms with raw materials such as timber or plastics. This will probably boost raw material prices and influence IKEA’s pricing structure. It is because of this that IKEA’s ability to generate and adopt innovation is the most crucial future capacity. Innovation would be fundamental to IKEA’s success as it should maintain its cost efficiency and excellent design quality and materials to maintain its global performance.

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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]

Aditya Shastri

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