E-commerce strategy of IKEA

MANM 381- E-Business Strategy

Paired Assignment

Kathy Lee 6683069

Zhipeng Fan 6672471

 Contents

1. Introduction

1.1 Background of IKEA

1.2 E-commerce strategies and Relevant business of IKEA’s digital business

2. Drivers of digital activities

2.1 Internal drivers

2.1.1 Reduce production cost

2.1.2 Strengthen of Value preposition in Ikea’s E-commerce

2.1.3 Benefits in marketing advertisement (Diversification of Channels)

2.2 External drivers

2.2.1 Developed by PESTLE analysis

2.2.2 Findings and implications

3. SWOT analysis of digital activities in IKEA

(Platform and E-business, Blockchain, Decision making, Marketing and Retailing,
Strategy for innovation)

3.1 Strengths

3.2 Weaknesses

3.3 Opportunities

3.4 Threats

4. Recommendations and Conclusion

5. References
 Introduction

1.1 Background of IKEA

In recent years, in the development of this digital commerce world, the e-commence of
many companies expand rapidly. Gradually, digital commerce has become an integral
part of people's lives. In fact, such as Amazon and Samsung, it has changed the world's
market landscape and people's consumption habits. Ikea is one of the well-known
furnished retailers with continuous annual growth in more than 250 countries
(Staista,2021). At the same time, transaction costs have been reduced and its
performance has been improved in the development of Ikea’s digital activities. In
addition to that, the
trend of online
shopping helps to
enhance the net sales
of Ikea in its E-
commerce (Ikea,
2022). Kylliainen
(2019) stated that
furniture manufacturing
is an essential industry
for the human beings, notably, Ikea, a global furniture enterprise. However, with the
improvement of people's living standards and the various choice of manufacturers, the
competitive threats of E-commerce in Ikea are increased.

1.2 E-commerce strategies and Relevant business of IKEA

Over the years, IKEA has focused on the offline store experience for its customers. In
fact, Ikea implemented exploring digitalisation (Patton,1980), which stated a
“Multichannel Transformation Programme” to transact its physical store to the internet
platform (Silverman, 2006). Under the reasonable price strategy and digital platform for
purchase, IKEA can keep its loyal customers and increase its revenue on its digital
platform. In fact, a new IKEA app is produced by the company (Ikea, 2022), it lets the
customers shop directly from the app which can also use the virtual system to see if the
product fits their desires or not. Therefore, Ikea is liable for digitalisation and e-
commerce to engage the profits and satisfied the customers (Hagberg and
Jonson,2022). To launch its E-commerce, a compelling diversification strategy should be
stated to IKEA to adapt its performance of physical stores to digital.
 Drivers of digital activities

The concept of internal and external drivers is clear, that controllable by organisation is
the internal driver and uncontrollable factors related to the external drivers (Times,
2010).

2.1 Internal drivers

Business Canvas of Ikea’s E-commerce operation

Key partners Key activities Value Customer Customer
propositions relationship segments
construction To design and
firms in wood produce the To produce the Aim to become a Limited budget
modular furniture reasonable price part of daily consumers
Manufacture home furniture routine to
partner Manufacture the customers Teenagers/
products Create the Ikea students who
Transportation experiences to Assessable store lived in school
and tracking To provide the customers associates accommodatio
organisations room design and ns
the floor plan The Ikea effect Delivery and
Delivery design participated storage platform SME
organisations to customers
Develop the Families
marketing and In-house
advertisement restaurant for Ikea
experience
Customer
services Childcare
services to family
Key resources Channels

Labour (skilled Physical stores

person)
Online platform
Raw materials
Tracking channels

Ikea catalogues

Ikea family email

Invention of App
 Cost structure Revenue streams
Profits from furniture and food
Raw material cost
market
Manufacture cost
Service fees (Delivery fees)
Advertising cost
Accessories sales
Labour cost
Transportation cost

Obviously, we can see that Ikea’s internal drivers can be divided into many different parts, but
for digital business, the most representative is the reduction of cost, strengthening of value
preposition, and diversification of channels.

2.1.1 Reduce production costs

Cost reduction can be described as a cost leadership strategy (Kotler P, Gary A.,2010), Reduce
shipping and storage costs are an integral method for IKEA's digital commerce.

In order to save the shipping and storage costs, IKEA has abandoned the traditional way of
assembling furniture for the customer (Ikea, 2022). IKEA has also created the concept of "flat
packaging" for delivery benefits. The furniture products of it are designed to be disassembled,
which reduces the warehouse space, transport, and storage costs. Therefore, it helps to drive
the E-commerce of Ikea, as the reduction of production costs may bring more revenue to the
company.

2.1.2 Strengthen of Value preposition in Ikea’s E-commerce

The sales model is implemented and is considered the customer’s behaviour habit as known as
the "IKEA effect”. In fact, an American behavioural economist, Ariely(2012) has found that
assembling furniture with your own hands 'adds value' to it, it means that customers of Ikea are
satisfied with the products when they assembled the furniture by themselves rather than it was
fully furnished.

Apart from that, customers enjoyed the Ikea experience, it helps to transfer the value
preposition if the E-platform of Ikea included this characteristic. This phenomenon not only
allows companies to save costs but also gives customers a sense of self-satisfaction
(Mintzberd,1994).

2.1.3 Benefits in marketing advertisement (Diversification of Channels)

E-commerce has significantly reduced marketing costs for businesses, IKEA can publish
information about its business by setting up its professional business website. In addition, the
website of Ikea can be used to enhance communication with their customers (Ikea, 2022).

Lee, H.S (2021) explained that the largest operation of the service is online tracking, this is the
reason that many companies have an online customer support service system to improve
productivity and to standardise the delivery process.

E-commerce can eliminate the large costs of renting a shop, it can save various money on
advertising and expenses. Advertisement on the Internet can increase the number of sales by
10 times, while it costs one-tenth of the cost of traditional advertising (Wang, 2016).
 2.2 External drivers
2.2.1 Developed by PESTLE analysis
Apart from the internal drivers of Ikea, the external channels also affect the development of its
E-commerce. In fact, PESTLE analysis will be implemented to analyse the results.

Political Economic Social Technological Environmental Legal

1. Influence of 1. Influence 1. Social 1.Innovation of 1.Environmental- 1.Labour
political stability of pandemic, ideologies affect IoT Products friendly issues (poor
(conflict between change of E- the digital and smart home manufacturing working
Russia and commerce marketing of design. process. conditions
Ukraine, strategy Ikea (Burt et existed)
controversy in under the al.,2020) 2.Different 2. Effort in (Shamsul,
Taiwan and China) global payment developing 2021).
(Akman, 2020), the recession. 2.Cultural platforms for countries
position of Ikea influences: experience improvement. 2.Different
create backfire in 2. Different sexuality shopping of labour
digital expansion. economic advertisement, consumers 3.Launch E- regulations are
scales of e.g: female (Ikea, 2022). commerce helps implemented
2. Political contrast target image in Saudi to protect energy. in different
of the global effect countries Arabia regions, for
the consensus- (Halloran, (Shamsul, 2021) example,
based decision- J.M. & Australia
making of IKEA Archer, D.W., implements
(Morrison, 2019). 2008). the Fair a
Work
Ombudsman
(Dragicevis,
2018).

2.2.2 Findings and implications

According to the above table, four main aspects are likely to be concluded in the external drivers
of Ikea’s E-commerce development.
Technological innovation
According to the theory of 4P innovation, Product, Process, Paradigm, and Position are the four
main perspectives of technological innovations. During the pandemic period, different countries
were locked down for several years (Kejriwal, 2020), leading to the recession on a global
economic scale (OECD,2020). According to OECD (2020), technology innovation is essential in
this tough period, as the restriction by governments, and re-orientation of people’s daily routine.
Therefore, it becomes one of the main external drivers in the expansion of the E-commerce of
IKEA.

Development of supply chain

In the part of Environmental and Legal drivers of the PESTEL framework, it stated the
development of IKEA's supply chain of IKEA affects the customer value proposition. According
to Best Fit Strategy, it strengthens the competitive advantage and sustainability of the enterprise
(Harvard Business Review, 1996). In addition, the development of the supply chain can remain
the eco-friendly mission of Ikea, also the regulations of the labour force in different countries.
Hence, Ikea spent 3 billion euros to expand its E-commerce distribution to reform its supply
chain on a digital platform (Bateman, 2022).

Consumer demand drivers

Mintzberd (1994) stated that the strategies of enterprises should be directly related to the
customers desired value. Ikea is a Business to Customers model, it announced its reality app to
fulfil the habits of customer’s globally (Ikea, 2022). Consequently, the digital marketing strategy
of Ikea should be considered under the different cultural and political backgrounds of the target
countries. For example, Ikea used the female as the advertisement icon in Saudi Arabia. In B2C
companies, the consumer demand drivers are an important part of the development of Ikea’s E-
commerce.

Political stability to Ikea’s E-commerce

Due to globalisation, countries had different views of themselves and other states (Kotler et al.,
2005). The desirability of politics will affect the resources objectives and social objectives of Ikea
in E-commerce, such as the delivery and shipping costs. In it, it stated that IKEA's strategy will
mainly be influenced by Swedish culture. In this stage, the stability of each country is important
to the development of IKEA.
 SWOT Analysis of digital activities in IKEA

During the pandemic period, several countries lock down such as China, the UK, US and
Australia, etc. (Sumption, 2020). More than $130 trillion of investment will decline under the
restriction of the government worldwide (McKinsey & Company, 2022). The sales volume of the
retail industry fell negatively by 21.5 % in 2020 compared to 2019 (Gov.uk, 2021) under the
pandemic. The following table is the SWOT analysis of the online presence of IKEA.

Strengths Weaknesses

● Big bricks and Clicks strategy for E- ● Hard to ensure the furniture will not be
commerce platform bring more profit damaged during the delivery.
to IKEA
● Poor sales from e-commerce,
● The Blockchain network of IKEA is because of the reliability in physical
strong, which includes more than stores.
1,800 suppliers in 50 countries
(TradeGeko, 2018). ● Price strategy of the delivery fee.

● Unique 7P strategy based on different ● The mobile app of Ikea is only

countries (Booms & Bitner, 1981). available in a few countries.

● Own tracking system in the IKEA

website (Ikea, 2022).

Opportunity Threat

● The popularity of e-commerce and ● High competition of the E-commerce

accessible delivery platform
● Entry barriers in some countries
● Corporate with other online platforms,
such as Alibaba and Amazon to ● Economic policies and regulations are
 enhance the profits. likely to cause barriers to the
expansion of IKEA.
● Enhance the innovation management
in digital content, such as Introduce
DIY lines and premium product lines
on the E-commerce

Strengths

Ø Adopted the Big bricks and clicks platform

The meaning of Big bricks and clicks means the enterprise owned various physical stores and
launched its e-commerce website for operation (Daniel, 2011). In fact, according to the data in
Ingka Group, the sales in the E-business of IKEA had increased from 18% to 30% and the retail
sales increased by 6.3% (Jansen, 2021).

Figure 1

Statista (2022)
Statista (2020) shows that the E-commerce net sales of Ikea increased rapidly. The structure of
Big bricks and clicks helps to boost the profit of Ikea online and offline. Certainly, thoughtful
digital management of IKEA through analytics-driven digital marketing is likely to enhance sales
and revenue of IKEA (McKinsey, 2021).

Ø Strong Blockchain network of IKEA: Well-developed in Mapping Activity systems

(Harvard Business Review, 1996)

Blockchain is a concept of the technology underpinning Bitcoin (Kiviat, 2015), it adapted smart
contracts, protecting data security and reduces human error (Rogerson and Parry, 2020). Ikea
participated in a strong mapping activity system to implement a low-cost strategy to virtually the
target customers. Four elements can be defined in its Mapping Activity system, (Harvard
Business Review, 1996), Trade shift is one of the leading platforms in supply chain payments
and the only authorised e-money for blockchains used by IKEA Iceland (Daily, 2019). According
to TradeGeko(2018), there are more than 1800 suppliers in 50 different countries of IKEA.
Therefore, IKEA owned its strong network in the e-platform and the physical supply chain.

Ø Implement different 7P strategies (Leeflang et al., 2014) in different countries

7P’s digital marketing strategy was introduced by Booms and Bitner (1981), the elements of it
included Product, Price, Place, Promotion, People, Processes, and Physical Evidence.
Certainly, IKEA launched its promotion on Instagram (IKEA, 2022) and its websites, to advertise
for target customers and to boost the attention of the potential customer segment. IKEA applied
the 7P strategy in different regions to fulfil the demand of the people. IKEA owned different
Instagram accounts in different regions, for example, the account in Hong Kong posted the
product promotion which is related to entertainment and public issues, and one of its Instagram
posts had more than 20,000 likes (Joyner, 2020).

Ø Well-developed tracking system

The website of IKEA included a tracking page for the customers who ordered the furniture (Ikea,
2022). The homepage is easy to participate in, as the customers only need to enter the tracking
number and their contact method, then they can track their parcels. Garn.W. et al. (2020)
indicated that a smooth process of the tracking system can enhance the e-commerce
development continuously and provide an effective service.

Weaknesses
Ø Hard to manage the safety of products during the delivery

After the covid-19, Ikea launched its e-commerce forces, and the delivery and shipping started
to increase. However, it is difficult to ensure the safety of the products during delivery.
According to Mailme (2020), Ikea has a myriad of complaints which were about the long waiting
time for delivery and the missing pieces of the furniture. Ikea may not respond to the complaint
immediately under the long process, and various requests. Certainly, the customer service
system cannot burden the complaints worldwide (Ikea, 2022).

Ø Reliable in the physical stores causes poor performance in E-commerce

Online and offline are two different channels for the customers, having a good performance
offline does not mean having a similar performance online (Jansen, 2021). One of the selling
points of Ikea is the demo of the home category in physical stores (Ikea, 2022), it enhances the
demand of customers. However, websites and online shopping are hard to fulfil the desire of
customers, previous customers in Ikea are concerned with the Ikea experience such as the
display rooms, flat-packed boxes, and the snacks from the cafe (Ikea, 2022). It is a challenge
as Ikea cannot shift this kind of experience to E-commerce. Barnes (2003) indicated that
customer satisfaction can create value for the company, as it leads to the loyalty and retention
of the customer segment.

Ø Unreasonable delivery price

The minimum price of shipping one piece of furniture is £ 47 to 53, as the shipment rates raised
during the pandemic, the shipping prices haven’t gone (Consumeradvisory, 2021). In fact, the
delivery service is implemented by standard ground services (Jacobs, 2021), the original cost is
not expensive, but it charges a lot to the consumers. In addition, many customers reported that
the customer service tracking system does not deserve to cost that much in the delivery price.
There were no responses for many customers due to the delivery problems, and the parcels
were always delayed from the time.
Ø Less popularity of the IKEA app

Milne (2019) stated that IKEA develops its application, online functions, and digital offer on the
internet. The effort of the online platform made the sales online increase by 50%, which is more
than the sales from the physical stores (Butler, 2019). Although Ikea has launched a mobile app
for consumers, some of the functions in the app are only available in a few countries (Stackpole,
2021).

Opportunity

Ø Convenient delivery platform

From the website of IKEA, it has its own tracking system for the customers who purchased the
products (Ikea, 2022). Reichheld and Schefter (2000) determined that the causal factors of
loyalty, which included the support of customers, time management of delivery, price strategy
for shipment, product presentation, and developed of privacy policies and data transfer of the
company. Analysis of customer satisfaction data was made by Coldwell (2001), the tracking
system on the Ikea website can give some opportunities to Ikea for attracting more customers.

Ø Corporate with other online platforms, such as Alibaba and Amazon to enhance the
profits.

In recent years, Ikea started to sell its product on third-party websites, such as Alibaba and
Amazon (Milne, 2020). In fact, according to Financial Times (2020), Ikea started to sell more
than 3,800 products on Tmall and Alibaba. By selling its product in the third-party website, it is
likely to help Ikea increase its sales globally, Oncu (2019) suggested that Ikea can expand its
business in China by the joint venture with Alibaba. Statista (2022) shows the E-commerce net
sales from 2015 to 2022, the data shows that after the corporate with third-party platform, the
net sales of E-commerce rose from 6,187 million USD in 2020 to 10, 432 million USD in 2022.

Ø Improvement of the digital innovation, such as Introduce DIY line and premium
product line on the E-commerce

The improvement of digital innovation is the concept of value-driven approach (Ng, Ding and
Yip, 2013). Creating a special service such as a premium line or DIY furniture can help to
replace the store experience, it can generate revenue for IKEA (Chesbrough, 2007). In fact, the
competitors, such as Walmart, do not have this kind of service. The unique digital innovation of
Ikea may help to enhance the competition. Linked with the above part of the drivers of Ikea,
improvement of digital innovation is one of the value drivers of IKEA (Ehret, 2010).

Threat
Ø High competition of the E-commerce

During the pandemic, many retail stores started to strengthen their online performance.
According to the data in Statista (2022), there is US $ 7.32bn revenue in the online segment of
plastic and furniture, the revenue growth of it in 2025 will be predicted as 11.36%. The data
shows that the competitiveness of E-commerce will increase in the following years. Dekimpe
(2008) stated that the target customer segment of Ikea overlaps with Walmart, purchase cycle
online, distribution and online marketing of Walmart increase its revenue (Hicks, 2012). In fact, it
leads to a highly competitive market in the online platform.

Ø Challenges in Entry mode of E-commerce

In fact, Ikea faced some challenges when they decided to expand its E-business model in Asia.
In the beginning period, Ikea implemented a joint-venture strategy in China (Barus, 2014), it
corporate with Alibaba, one of the well-known e-commerce in China, to sell products in it.
However, Joint-venture approach can boost the sales in Ikea, but it will have a negative impact
in the long-term. Cohen and Levinthal (1990) mentioned that there will be uncontrollable risks in
the collaboration, such as the sensitive information of each company.

Ø Regulations of each country may affect the implementation of E-commerce

Different countries may have their regulations for E-commerce, which will threaten the
expansion of Ikea. OECD (2022) explained that the government may apply their own regulations
based on the network environment challenges. Hence, international meetings have been placed
to deal with the economic scale and policy issues among the members states, such as the G7
Ministerial Conference on the Information Society, and the Ministerial Conference on Global
Information Networks. However, difference from the Europe, China adopted FTAs to reform and
manage its e-commerce started from 2006, which would like to reduce technical barriers
(Huang, 2017). Therefore, different restrictions of the countries may affect the decision-making
of Ikea in E-commerce.
 Recommendations and Conclusion

Under the analysis of external and internal drivers, also the evaluation in SWOT, there are some
challenges for Ikea in exploring its E-commerce. The following part will provide the
recommendations and conclusion.

l Enhance the collaboration of cross-platform

In the previous years, IKEA focused on the development of physical stores, instead of an online
presence. However, the digital marketing campaign should be awarded, and IKEA may develop
its logistic system or corporate with third-party logistic companies. According to Mckinsey
(2016), there are barriers to incorporating the data-driven aspects in the E-business process,
so, the collaboration cross-platform is necessary for IKEA.

l Intelligent Innovation Development

Under the threats of existing competitors, such as Agros, and Amazon, innovation development
is important to the expansion of Ikea’s E-commerce. Blank (2013) indicated that launching new
products that fulfil the customers is more profitable and effective than the traditional method. In
fact, a quicker and responsive development (Blank, 2013) is likely to innovate and transform the
e-business.

l Upgraded logistic system (Building AI power)

In the growth of intelligence, the popularity of AI brought changes to different industries. Ikea
should consider organising the AI, AI can analyse the data and units that are needed by the
company. Fountaine, T. et al. (2019) determined that there were enterprises grew from 30 to
200 profit after participating AI, as AI benefits from large databases, complex business models,
and decision-making.

In conclusion, the internal and external drivers may affect the development of E-commerce in
IKEA, and the SWOT analysis stated the relevant strategies that can participate to the e-
commerce of IKEA. In response to the previous issues and to improve the performance of
Ikea’s e-commerce, recommendations related to the analyse are given.

(Word counts :2997)

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