In 2005, IKEA opened a large store in the United Arab Emirates.
UAE residents and citizens visited the store in droves, enjoying the unique IKEA shopping experience.
I still remember when I came to the UAE in 2007 and everyone was recommending IKEA for buying relatively cheap, simple, and easily assembled furniture.
Indeed, IKEA offers a case study that highlights the need to re-think Customer Experience concepts: it is no more about the product, but rather the experience; it is no more about the ideal Customer Experience, but rather the emotional experience and the added value; it is no more about perfection in each and every touchpoint, but rather the customer needs and preferences that define a successful business model.
The play area where customers can leave their kids and enjoy the shopping, the dining area where the food is offered with a Swedish flavor, the easy-to-install products that can fit anywhere in your home – all seemed to be attractive services for customers. Nevertheless, this great experience was not reflected in IKEA’s gross profit worldwide.
IKEA analyzed the market and found out there were three reasons behind the weak profit:
Competition with added value
Online shopping invaded every home, making it easier for companies to offer products online and ship them from China or India with relatively lower prices.
Customers prefer shopping behind screens rather driving to IKEA and walking around the large stores.
Changing customer needs
Customers requested re-assembly services in case of moving from one house to another. Moreover, the need for spare parts was also driving customers to think differently and find more reliable products, since IKEA did not offer spare parts.
Accordingly, IKEA made a complete shift in strategy. By 2019, it started to focus on implementing the below initiatives:
1. Data Usage
In 2018, IKEA appointed Barbara Martin Coppola the brand’s new Chief Digital Officer. She was hired to manage fast-paced technology changes, and to make best use of data and accordingly drive change inside the organization based on customer needs.
She was keen to foster a culture of innovation, enhance time management, introduce a marketing strategy, market IKEA products in China, and more.
2. Mobile application
To enable the online shopping experience, IKEA launched its mobile application that allows customers to choose, select, and even imagine how IKEA products will look like inside their homes using virtual reality.
This state-of-the-art technology allows users to visualize how their homes could be furnished with IKEA products by entering room dimensions and choosing their preferable products from a range of different styles.
They can then order those products by using IKEA’s mobile app. IKEA first launched an augmented reality app in 2017, which allowed customers to see how more than 2,000 items would fit into their homes, but they could not shop from it.
3. Outsourcing services
IKEA was catering to customer needs, including product maintenance, painting, and providing spare parts. IKEA US bought TaskRabbit – a service that sends people out to do the most basic things customers request, like wiping the sink, painting walls, assembling and re-assembling products, and the like.
With this, IKEA started shaping a radically new horizon for itself. Instead of just selling (relatively) cheap, (sort of) simple (to put together) furniture, it saw strong potential in the services business, such as furniture repair.
4. IKEA heads to city centers
IKEA’s traditional strategy used to include opening large outlets outside a city. With the current challenges, IKEA shifted their strategy towards opening smaller shops inside city zones, where customers can have quicker services, while the main services would still be offered at the large outlets.
Quick services include fixing and assembling products and providing spare parts. IKEA also launched several trials for renting out furniture, as research suggested it was particularly attractive to students as well as some short-term expatriate workers.
IKEA is a great example of how big players on the market tend to change their strategies to adapt to the new market constraint or to fulfil their customer needs.