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It is a Swedish multinational furniture retailer that has become synonymous with affordable furniture, functional designs, and minimalist aesthetics. It was founded in 1943 by Ingvar Kamprad from a town called Agunnaryd. In fact, the brand name IKEA is an initial of the founder’s names – Ingvar Kamprad, his family farm – Elmtaryd and his home town – Agunnaryd.

The company has a unique business model that has contributed significantly to its success over the years. In this blog post, we will explore the IKEA business model and how the model has made IKEA one of the most successful retailers in the world.

Key Components of IKEA Business Model

IKEA is a global furniture retailer that operates on a unique business model. As we look at how IKEA works, it is also important to understand the key components of IKEA business model:

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1. Product design and development

The first key component of IKEA business model is product design and development.

IKEA designs and develops its products in-house, using a team of designers and product developers. The company focuses on functionality, affordability, and sustainability in its designs.

2. Flat packaging and self-assembly

The second of the key components of the IKEA business model is flat packaging and self-assembly. IKEA’s furniture is designed to be shipped and sold in a flat-pack format, which reduces transportation costs and makes it easy for customers to transport the furniture home themselves. This approach allows IKEA to offer furniture at a lower price point than traditional furniture retailers, which is a significant competitive advantage.

Self-assembly is another essential aspect of the IKEA business model. By allowing customers to assemble the furniture themselves, IKEA reduces labor costs and passes those savings on to the customer. This approach also allows customers to feel a sense of pride and accomplishment when they complete the assembly, which strengthens their connection to the product.

3. The showroom experience

The showroom experience is another critical component of the IKEA business model. IKEA stores are designed to be a destination, with large, sprawling showrooms that allow customers to explore the full range of products. Customers are encouraged to touch, feel, and interact with the furniture and accessories on display, which helps them envision how the products might look in their own homes.

The showroom experience also includes a cafeteria-style restaurant, where customers can enjoy a meal or snack while they shop. This approach encourages customers to spend more time in the store and provides an additional revenue stream for the company.

4. Economies of scale

IKEA’s massive scale is another key driver of its success. The company has over 400 stores in 52 countries, and it uses its size to negotiate favorable terms with suppliers and manufacturers. IKEA is also able to spread its marketing and distribution costs over a large number of stores, which reduces its overhead costs.

The company’s size also allows it to invest heavily in research and development, which helps it stay ahead of competitors and introduce new products that resonate with customers.

5. Supplier network

Another key component of IKEA business model is the suppliers network. IKEA works with a network of over 1,500 suppliers around the world to manufacture its products. The company has strict quality and sustainability standards that its suppliers must meet.

IKEA Business Model – The Value Propositions

As a retailer you don’t make a profit of $13.7 billion by chance. For perceptive, Walmart, the world’s largest company by revenue and incidentally a retailer makes about $13.6 billion in profit. So to hit this level of success IKEA business model offers a very compelling value propositions that easily endears households and companies to them. And here are the key value propositions of IKEA:

Affordability

IKEA’s products are designed to be affordable and accessible to a wide range of customers. The company achieves this through its flat-pack furniture and self-assembly model, which reduces transportation and labor costs. IKEA also uses cost-saving measures in its production and supply chain to keep prices low.

Functionality

IKEA’s products are designed to be functional and practical, with a focus on solving common household problems. The company’s in-house design team creates products that are versatile and adaptable to different spaces and lifestyles. IKEA also offers a range of storage and organization solutions to help customers make the most of their living spaces.

Sustainability

IKEA has made sustainability a core part of its business model. The company uses sustainable materials in its products, sources 100% renewable energy, and has set ambitious goals to become a circular business by 2030. IKEA also encourages customers to live more sustainably by offering products and services that promote eco-friendly practices, such as LED light bulbs and recycling programs.

Low-Cost Design

IKEA focuses on creating stylish, functional, and affordable furniture that appeals to a wide range of customers. They achieve this by using a combination of cost-effective materials and production methods, as well as efficient supply chain and logistics systems.

Flat-Pack Design

IKEA’s furniture is designed to be shipped in flat-pack boxes and assembled by customers themselves. This reduces the cost of transportation and storage, and also allows customers to take their furniture home with them immediately, without the need for delivery.

Large Store Format

IKEA’s stores are large, warehouse-style buildings that are designed to offer customers an immersive shopping experience. They showcase a wide range of furniture, accessories, and household goods, as well as provide customers with inspiration for home decor.

IKEA business model provides a couple of ways through which the company makes money. Ranging from the sale of a wide range of furniture, home decor, and household goods through its brick-and-mortar stores, online channels, and catalog IKEA business model offers a variety of revenue options. Here are some of the key ways IKEA business model generates revenue:

1. Furniture sales

The primary source of revenue for IKEA is the sale of its furniture and home goods. The company offers a wide range of products, from sofas and beds to kitchenware and textiles. IKEA’s products are designed to be affordable and functional, which has helped the company attract a large customer base.

2. Food and beverage sales

IKEA operates restaurants and food markets in its stores. These stores offer Swedish specialties like meatballs and lingonberry jam. Such food and beverage sales provide an additional revenue stream for the company and equally help attract some customers to its stores.

3. Service offerings

IKEA offers a range of services to its customers, including delivery and assembly. Customers can choose to have their furniture delivered directly to their home, and IKEA also offers assembly services for an additional fee. These services generate revenue for the company and help make the purchasing process more convenient for customers.

4. Online sales

IKEA also generates revenue through its online sales platform. Customers can browse and purchase products online, and choose to have them delivered or pick them up at a local store. The company has invested heavily in its e-commerce platform, which has helped drive online sales.

5. Supplier network

While not a direct source of revenue, the suppliers’ network is an important part of IKEA business model. By working with a large network of suppliers, IKEA is able to negotiate favorable terms and ensure that its products are manufactured to its quality and sustainability standards. This helps the company offer affordable prices to customers while maintaining high quality standards.

6. Franchise Fees

IKEA operates as a franchise, which means that each store is owned and operated by a separate franchisee. As part of the franchise agreement, franchisees pay fees to IKEA for the right to use its brand, business model, and products.