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Saturday, September 15, 2012

The Story of IKEA, Home Furnishing

Almost everyone has heard of the discount furniture store IKEA. It`s been incredibly successful: the Swedish company has been rolling out its stores all over the world for the last forty years, and has global revenues in excess of 25 billion euros. The company`s owner, Ingvar Kamprad, is one of the world`s richest people. Not bad for a chain that sells inexpensive furniture you have to assemble yourself.

It`s fascinating than in forty years, nobody has copied IKEA. Think about that for a second. Here is a business that has been immensely profitable for decades. IKEA doesn`t have any big business secrets-any would-be competitor can walk through its stores, reverse-engineer its products, or copy ots catalog...and yet nobody has done it.
Why is that?

IKEA`s entire business model-the shopping experience, the layout of the store, the design of the products and the way they are packaged--is very different from standard furniture store. Most retailers are organized around a customer segment, or a type of product. The customer base can then be divided up into target demographics, such as age, gender, education, or income level. In furniture retailing over the years, there have been stores such as Levitz Furniture, known for selling low-cost furniture to lower-income people. Or Ethan Allen, which made its name selling colonial-style furniture to wealthy people. And there are a host of other examples: stores organized around modern furniture for urban dwellers, stores that specialize in furniture for businesses, and so on.

IKEA has taken a totally different approach. Rather than organizing themselves around the characterization of particular customers or products, IKEA is structured around a job that customers periodically need to get done.
A job?

Through my research on innovation for the past two decades my colleagues and I have developed a theory about this approach to marketing and product development, which we call "the job to be done". The insight behind this way of thinking is what causes us to buy a product or service is that we actually hire products to do jobs for us.

What do I mean by that? We don`t go through life confirming to particular demographic segments: nobody buys a product because he is an eighteen - to thirty-five-year -old white male getting a college degree. That may be correlated with a decision to buy this product instead of that one, but it does not cause us to buy anything. Instead, periodically we find that some job has arisen in our lives that we need to do, and we then find some way to get it done. If a company has developed a product or service to do the job well, we buy, or "hire" it, to do the job. If there is not an existing product that does the job well, however, then we typically  make something we already have, get it done as best we can, or develop a work around. The mechanism that caused us to buy a product is "I have a job I need to get done, and this is going to help me do it".

My son Micheal recently hired IKEA to do a job that had arisen in his life--which helped me understand why the company has been so successful. He was starting with a new employer in a new city after having lived in a student`s budget for several years, and called me with a problem: "Dad. I`m moving into my apartment tomorrow, and I need to get it furnished."

At this point, a name just jumped into our minds simultaneously: IKEA.

IKEA does not focus on selling a particular type of furniture to any particular demographically defines group of consumers. Rather, it focuses on a job that many consumers confront quite often as they establish themselves and their families in new surroundings: "I have got to get this place furnished tomorrow, because the next day I have to show up at work.Competitors can copy IKEA`s products. Competitors can even copy IKEA`s layout. But what nobody has done is copy the way IKEA has integrated its products and its layout.

This thoughtful combination allows shoppers to quickly get everything done at once. It would seem counterintuitive to have the stores half an hour away, but this decision actually makes it much easier for people to get everything they need in one trip. It lets IKEA build a bigger store to ensure its furniture is always in stock .It has the space to build a supervised play area to keep the kids occupied - which is important because having a child tugging at your sleeve might cause you forget something or rush through a decision. In case you get hungry, IKEA has a restaurant in the building so you do not have to leave. Its products are all flat-packed so that you can get them home quickly and easily in your own car, IKEA has same-day delivery. And so on.

In fact, because IKEA does the job so well, many of its customer have developed an intense loyalty to its products. My son Micheal, for example, is one of IKEA`s most enthusiastic customers because whenever he needs to furnish a new apartment or a room, he has learnt that IKEA does job perfectly. Whenever friends or family have the same job to do, Micheal will cite chapter and verse on why IKEA does job better than anyone else.

When a company understands the jobs that arise in people`s live, and then develops products and the accompanying experiences required in purchasing and using the product to do job perfectly, it causes customer to instinctively "pull" the product into their lives whenever the job arises. But when a company simple makes a product that other companies also can make -- and is a product that can do lots of jobs but none of them well -- it will find the customers are rarely loyal to one product versus another. They will switch in a heartbeat when an alternative goes on sale. (Reproduced with permission of Harpers Business.

(Cited from Personal Money, September 2012)

#Penemuruai`s comment: If others can do it, why not you?

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