What did IKEA do to become $40 billion company today?

Hello friends! Gaurav here this side. In 2018 There was massive traffic jam in the city of Hyderabad.  Now traffic jam is not new to the city like Hyderabad. It is very common in here Mumbai too. But the reason why the traffic jam took place is really something to think of. It was not of an accident, truck getting broken down or some celebrity passing near by. It was merely because of the opening of a furniture store. Yes you read it right! A furniture store had opened up in the city of hyderabad which resulted into such huge massive traffic jam that if you take 

 

 

Twenty mins to reach a place, the same here would take up to four hours. It almost appeared that entire city is on a break just to visit this furniture store. The hyderabad police officers was putting out traffic advisors. The full city was in a frenzy. In fact the furniture store itself put out the billboard saying that  Hyderabad we are here to stay! 

The question now arises that what kind of furniture store is this and what is so special about this store that people were going mad behind it?  The brand is none other than the world largest furniture seller know by the name IKEA. Those who have not hear about IKEA, It is a company which manufacture furniture. It is a swedish company and it is so huge that is has nearly 435 stores and 4.17 lakh workers across the globe. No matter which city or country the IKEA stores open into, the entire population rush just to visit the stores. If you ever had glance over Top 10 furniture stores in the globe, Ikea stand on first with more than $40 billion revenue annually. The competitor of Ikea, Ashely is not even close to $10billion revenue. The question remain the same is that what is so special about Ikea that people are crazy about? And how does it able to withstand $40 billion empire merely by selling furniture which in conventional world is not even considered as a scalable business. 

 

The answer to this question lies in a beautiful case study done by Harvard business studies dated back 1950s. In early 1950s the mothers living in US used to bake cakes showing their love towards their family. Now making the cake is definitely wasn't an easy task back then. It used to require more efforts and more time. Sometimes to make a cake, it even used to take more than a day. There was a company called General Mills which came with the idea called instant  cake mix which contained all the  ingredients of cake and The mothers just need to add water and put in the oven and the cake would be ready in less than half a day. This product minimised the efforts of the mother to a large extent.

 

Now theoretically if you see on paper This looks like one of the best product the mother could ask for, why?

1) It minimised the efforts 

2) It minimised the time by a large extent 

3) Most Importantly, The cake always came out delicious.

But this product failed miserably in market. But the question is what could be a better product than this which could save efforts, time and always gave out delicious cake.Well this is the exact same question the general mill also asked, to get these problems solved, they hired some psychologists to find out the exact problem. It turns out that there was nothing wrong with the product but it was that the mothers considered the cake mix Insult to theirs efforts and somehow they came to believe that by using the cake mix, they are not being truthful to their love towards their family. Now if you see this principle is not very far from our home. If you mother has worked really hard all day  and made the chole batturre all by herself  and she is an expert in that and then you go in and tell her that you have instant  chole batturre mix in  which she just need to add water and she will be able to make delicious chole batturre. Will she accept that? You will kindly receive flying chappal from her. 

The only reason that she wouldn't accept that because it is taking away her efforts that is associated in the entire process of making a signature dish that is chole batturre. Just like this The mothers of United states took it as a insult to their efforts and sanctity that was associated in the process of making cake. So you know what General mill guys did? They came up with another product and in this product instead of making the task of making cakes much more easier, they added certain hurdles such as adding egg to it and few more ingredients to get the cake ready. This gave mothers inception that they are putting certain level of efforts to make the cake. This product definitely became a massive hit. That is when the psychologist of General Mills understood a very important lesson from here that no matter how inefficient the system is? No matter how bad the product is? No matter how tedicious the work is? If a person has actually put in certain kind of efforts to bring out some kind of output, then  that person would have an extra ordinary sense of value towards that product.  For rest of us it might look like a stupid product but for that person the product would be extra ordinary value because he has given some kind of efforts towards that product. 

 

 

 

This is exact same phenomenon that Ikea applied to theirs furnitures because of which Ikea today is a $40 billion company.

 

Now conventionally you look at supply chain of any furniture company,  what they do is that the  furniture first get manufactured then stored in warehouse  then it gets shipped to the retailer, over there retailer puts them in his showroom and when we go to those showrooms, if we like something, we purchase it and the product get delivered to our house. In the whole process the product is already assembled at manufacturer level and come assemble to retailer showroom and then to our houses. As a result of which, it comes in a large truck. But you know what guys IKEA furnitures are packed in such a way that they could literally filled in your car. The question is how even that is possible? 

 

While a conventional sofa comes like this 

 

Ikea furnitures don't come assembled.They come in pieces and you yourself have to assemble it in your house. and here is the concept of DIY- Do it yourself comes into the picture. As it turns out just like mother develop extra ordinary sense of value for cake, customers started to develop a very beautiful relations with their furniture as they have putten certain levels of efforts to get it in ready to use conditions. Now this is just the tip of the ice bergs, what it did to supply chain of Ikea was something that is absolutely revolutionary. Because when it comes to logistics , the Important factor that lead to cost cutting and efficiency is the volume occupancy as in if you fit something in a truck you have to ensure that entire truck should be filled in order to do optimum utilisation of resources. Where conventional furnitures like sofa could only fit one in the truck because you cant put one above another, otherwise it will get destroyed. But Ikea sofa was fit in a box as they weren't assembled and hence they could be 3-4 boxes in a trucks which saved the cost and gave them unfair advantages over their competitors. If you look at warehouse of  retailers, if furniture came assembled you can't put one top of another where as Ikea furniture could be stocked one above on other as they were in boxes. 

 

 

Ikea storage 

These boxes could also fit in car as a result of which customer can take furniture home in their car too. This made the supply chain super efficient and this how Ikea was successful in selling good qualities furniture at low price. So it sold a furniture at low price and also created a sense of value for their products. This is why Ikea today is $40 billion company.

 

What can we learn from this case study? How can one generate a sense of value for their products in the market?

Three  major things to consider and keep In mind

1) The task you give to your customer shouldn't be too easy to complete.

2) You customer should have to put certain amount of efforts to complete it.

3) Most importantly you need to make sure that the tasm is designed and saturated in such a way that it can successfully completed by your customers.

 

 

I hope you could take something out from today's article. Do let us know what was your biggest learning from today's case study in the comment section. For any feedback related to content or further upcoming topics you can contact me in the comment section. Thank you for reading thoroughly.