Shazeeye's Blog Thoughts on User Experience, Technology and Business

29Jan/120

Value Proposition and Positioning: IKEA Case Study

A key concept in marketing is identifying value of a company (value proposition) and communicating (positioning) it to target customers. To define these concepts we answer the 4 key questions below for IKEA.

What does IKEA do well? IKEA’s cost leadership and unique Swedish designs provide its target customers (young buyers) excellent value.

What are the trends in the industry? Americans love to keep furniture. Ikea tried to change these attitudes with an advertisement (lamp has no feelings). The trend is to update furniture based on lifestyle changes (single, married, student, starting a new family, etc). Providing interior design expertise is a critical part of this industry. Manufacturers and distributors are joining forces. Flexible furniture (example: bed plus sofa in one) and furniture that serves dual purposes add value (example: bed has storage too). Distinctions between rooms disappearing – kitchen and living room furniture (example: chairs) is interchangeable. Personalization of furniture is on the rise (color, upholstery, wood stains, etc) and so is experimentation with new materials (jute, etc).

What is the competition doing? The competition is using four (or a combination of these 4) strategies: cost leadership, design differentiation, catering to certain market segments (international, demographic segments-young and old, psychographic segments-improves self image, retail, office, etc) and enhancing the shopping experience (design consultants, in house restaurants, etc). Image on right shows cost leadership and design differentiation for a few competitors.

What does the customer want? Customers want great designs in unique styles to match their lifestyle for low prices.  They would like an expert to do the interiors of their home for free. They don’t want to burden themselves with transporting furniture from store to home or having to assemble it. People are willing to spend more on furniture items such as a bed (indicated by the wide range in prices) or items that serve dual purposes (futon serves as a sofa plus a bed). It should be easy to maintain (odors, scratches, etc).

What is Ikea’s positioning strategy relative to its competitors?

Cost Leadership (30-50% lower than competitors): This global furniture retailer based in Sweden targets young furniture buyers who want style at low cost. Buyers trade off service for cost. Ikea designs its own low-cost modular ready-to-assemble furniture (big part of their cost leadership).  Customers do their own pickup and delivery or get it delivered for a fee.  Employees are trained to save electricity and managers always travel coach and take buses instead of taxis. Cost is so important that first a price point is established, and then the manufacturer, materials and design are chosen. Expensive wood is used only on top visible layers of the furniture. Suppliers are chosen from a pool of 1800 to maintain cost leadership.

Shopping Experience: Ikea owns the furniture buying experience. It displays every product it sells in room-like settings so customers don’t need a decorator to help them imagine how to put the pieces together. Ikea's in house Swedish restaurant is as popular as its furniture and provides respite to customers who walk through 25,000 sq m (average space of Ikea store). Customers move along a predetermined path through a maze of rooms. Ikea offers services aligned to its customers who are young but not wealthy, likely to have children but no nanny and because they work for a living and need to shop at odd hours they are open late and on weekends. They also offer furniture delivery services for a fee.

Swedish Designs (functional and simple): Ikea creates functional cookie-cutter Swedish designs (designs are part of their ‘matrix’). That one table only comes in 4 Scandinavian styles at 3 price points. Design is usually the last step (after choosing, the price point and manufacturer) in the process. Other than its staff of 10 designers it also depends on freelancers highlighting that design was to focus on simple yet functional styles.

4Jan/120

Two Consumer Behavior Models: Hierarchy of Effects and Elaboration Likelihood

Understanding consumer behavior, decision making and buying are critical aspects of any business. Consumer behavior models is just one of the many ways (real time observation and analyzing past data are some others) experts simplify this complex process. Let's look at two consumer behavior models: Hierarchy of Effects and Elaboration Likelihood Model.

Hierarchy of Effects: This suggests consumer buying behavior can be explained in phases. We need to influence and monitor these phases which range from first influencing the lower  level objectives such as awareness and understanding of the product to higher level objectives such as associating feelings with the product to encouraging purchase and regular use. This can be represented by a pyramid with fewer consumers  at the top than the bottom and each step has definite methods such as advertising or a sales promotion to encourage consumers to embrace the phase and move to the next in order to ultimately purchase the product. There are variations to this model as seen in the image below. Some examples: A fridge is utilitarian for most but Sub-Zero is hedonic. Toothpaste is mundane for most, but Tom’s could be considered utilitarian or self expressive. For some wealthy individuals, a Mercedes Benz may be mundane. A person could be a utilitarian when she starts to use the product and later be hedonic.

Elaboration Likelihood Model: Assumes consumers choose two routes before they decide which product to buy - the central or the peripheral route. The central route assumes customers are highly motivated, read a lot, weigh alternatives and make rational decisions. The peripheral route assumes buying is an emotional decision. Consumers can be persuaded  through cognitive and emotional responses and not through rationale or heuristics. For example, using the cartoon character Snoopy in Metlife's advertisements. Consumers tend to choose one over the other based on the type of product (big purchases could be peripheral decisions such as a car) and type of personality.


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