Growth Strategy Lessons From IKEA: The Purpose-Driven Organization

We believe that a firm’s strategy needs to be powered by purpose to be a force for good. Among all multinational corporations, IKEA stands out, and CEOs and other business leaders can learn a great deal from the Swedish giant founded in 1943.

From its humble beginning, its founder (Ingvar Kamprad) believed that IKEA needed to develop an extensive product variety that was beautiful, functional, and valuable for consumers to widely consume. Since 1951, its marketing strategy has revolved around stylized designs, co-creation, and opening innovation across the value chain. Moreover, through strategy renewal—internal agility, and external adaptations through decades of experience, IKEA became dynamically efficient regarding its reconfiguration of internal resources to exploit and explore external opportunities over the years.

Solving the Customer-Experience Equation

To improve the customer experience for those unable to access its stores, the Swedish giant offered mail-order services through 2,900 products. Over 43 million catalogs produced per year reinforce the services in more than 25 languages, including English, French, and Japanese. Regarding its sourcing at the dawn of the digital age, the statistics look like 52% from its native Scandinavia, 21% from Western Europe, 20% from Eastern Europe, and 7% from other countries.

Solving the customer experience equation has been a delicate balancing act. On the one hand, charging high prices will hinder the firm’s cost leadership strategy. On the other hand, charging low fees can put a dent in its resources.

As its stores were opened worldwide, launching its first store in Philadelphia during the U.S. expansion was a great success. Customers did more than a seven-mile queue along the Pennsylvania Turnpike, waiting for their turn to access the latest collection of their beloved retailer’s furniture and houseware. Within the first five days of the opening, the furniture giant made over $980,000 from more than 149,600 customers.

Regarding its marketing strategy, the firm has continued to strive to provide flat-pack Swedish-designed furniture at competitive prices. This strategy strengthened the bundling-push strategy, where complementary home-furnishing products and traditional houseware are bundled with other goods to enhance customer experience. By taking these steps, the company ensures that, unlike competitors’ business models, where customers need to make several trips for their shopping needs, the shopping experience is just a once-a-day process.

Likewise, the firm provides baby-changing rooms, bathrooms for children seven and younger, and other areas specifically dedicated to children between 8-12 for their favorite activities. In addition to these customer-experience-enhancing services, the furniture giant provides an information center within its retail area.

Furthermore, regarding customer experience differentiation, it offers a generous refund policy to its customers, 14 days ‘no ask and hassle-free’ product return window. For this reason, when the firm opened its store (more than 100,000 ft sq) in the South of Paris in the 1980s, customer visits jumped from 20,000 in 1983 to over 31,800 in 1985, thanks to its hard-earned reputation for making and selling great Swedish-style products at bargain prices worldwide.

Responding to Disruption by Adapting its Business Model to the Imperatives of the Digital age

Like many multinational corporations, IKEA has been disrupted, too. In the 1970s, its Canadian franchise got into trouble. It responded quickly by transforming the franchise into a wholly owned subsidiary to remain steadfast in its commitment to customer experience, particularly to those living on the other side of the border in the United States.

Similarly, its growth stalled in the 2010s, given the domino effects of the 2008 financial crisis. As a result, no international expansion happened. Instead, IKEA began to explore the untapped potential of digital transformation because of rising omnichannel competition in its key markets, including the United States. For this reason, the firm tested the waters. First, it doubled down on eCommerce. After learning from its mistakes regarding its business’s digital terminologies and implications, it earnestly embarked on its digital journey.

The Swedish giant realized that to win, it just needed to carefully adapt its digital customer experience by closely mimicking the expected in-store experiences. As a result, this “demo-like” experience improved overall consumer satisfaction and word of mouth (the most trusted marketing channel), and customer loyalty was significantly enhanced because of IKEA’s newly enabled digital experience for consumers during trials.

With a brand value of $21 billion, the Swedish giant understood from its data and experience that it was crucial to reduce buying risks. Many used to purchase furniture and other products without knowing how they would look in their homes. To solve this problem through digital transformation in this age of metaverse, IKEA launched in 2017 an app called IKEA Place app or Place app. The augmented reality (AR)—powered app is based on Apple’s AR kit and is available in over 25 languages, including English, Japanese, Spanish, Turkish, and Chinese.

From this app, consumers try, feel, and immerse themselves in the experience of buying furniture. As a result, IKEA achieved two goals. First, the company reduced the purchase risk associated with online purchases. Yet the Swedish retail giant cut exposure to notorious retail sales returns (between 8%-37%) from shoppers, estimated to be over $2 trillion with the rise of online shopping in recent years.

Corporate Performance

In 2021, IKEA delivered great results by winning with meaning. It positively impacted all stakeholders through top financial performance, with nearly €42 billion in sales and over 770 million visitors. On top of that, more than 70% of its stores have electric vehicle chargers. A significant commitment to sustainability has been at the core of IKEA’s purpose. In other words, strategy Plus purpose equals Winning with Meaning. That is, to become a profitable force for good.