Over time, Kike’s “democratic design” principles made it one Of the world’s most prominent furniture retailers, but in 1985, when KEA opened its first store in the United States, replicating the model that had successfully captured consumers’ attentions in Europe, KEA was met with mixed reviews: Customers found the products unappealing and out-of-touch with the interests of the typical American consumer, and consumers did not immediately grasp the do-it-yourself mentality-2 Despite these initial challenges, KEA has become a staple in many American households.
With roughly 535. 1 billion in revenues, KEA offers over 50,000 SKU to over 40 countries and manages a global supply chain to rival Wall-Mart. 3 KEA came to dominate the US mass-market furniture industry by successful execution and by understanding and changing the broader ecosystem, By examining the successes and failures of Kike’s global expansion, focusing primarily on the US market as a lens through which to view the company, this paper aims to understand how KEA changed and came to dominate the mass-market furniture industry.
We first look at an overview of the furniture market in the United States to examine trends and how Kike’s value proposition addressed those consumer trends. We then outline the key players in the KEA ecosystem to assess the co-innovation and adoption chain risks that KEA overcame to expand successfully. Based on this ecosystem analysis, We expand on this discussion to examine how KEA transformed the furniture alee chain to suit its strategy and better serve its customers, specifically looking at the structure of the value chains as well as the levers of ecosystem configuration.
Finally, we look at Kike’s future and assess how its recent innovations in sustainability and expansion plans into hotel chains affect the ecosystem and fit into its overall portfolio strategy 2- TARGET MARKET ANALYSIS With Kike’s strategy of offering quality furniture at cheap prices, they really focus on a couple of different factors when segmenting their market. The basic market segmentation bases that KEA uses are income level, age, family fife cycle, lifestyles, and benefit seeking. Even though KEA doesn’t have the best quality furniture, it has a great value because of its incredibly cheap prices.
KEA furniture at times is referred to as “start up furniture” meaning furniture one buys for their first home. Viii This is why KEA focuses on the demographics of age, income level, and family life cycle when they are segmenting their market. KEA is basing their stores strategy around attracting young, lower income individuals. College students and young adults, who tend to be in the low-income category, are a big target market for KEA because these are the individuals who are looking to buy furniture for the first time. They are not looking to spend a lot of money because they are still unsure about their futures.
College students and young adults are just looking for good, cheap furniture that will work for the time being. KEA is able to take advantage of this target market in College Park, MD because there are many low income, college students and young adult in the area. The other big demographic that KEA focuses on IS family life cycle. KEA knows that new families need furniture to fill their new homes, but don’t have a lot f money to do so. With that being said, KEA really caters to these types of young families far beyond their product selection and cheap prices.
Kike’s stores are completely kid friendly. They have supervised play areas where parents can check their kids into so the parents can shop in peace while the kids play. Also, KEA offers a cafeteria where parents can bring the kids for a bite to eat after the shopping. KEA makes sure that when a family comes to shop, everyone leaves happy. The other bases for which KEA segments their market in the lifestyles cryptographic and benefit segmentation. KEA targets people with a “do it yourself and save money doing it” kind of lifestyle.
KEA focuses on people with this lifestyle because they are the ones that are not going to mind traveling a little bit and assembling the furniture on their own in order to save some money. KEA further segments the market through benefit segmentation. KEA targets consumers who are looking to benefit from the value of the furniture. Customers greatly benefit from the value of the furniture because it is decent quality furniture for a very low price. 3- Products KEA products are identified by one-word (rarely two-word) names. Most Of he names are Scandinavian in origin.
Although there are some exceptions, most product names are based on a special naming system developed by KEA Upholstered furniture, coffee tables, rattan furniture, bookshelves, media storage, doorknobs Beds, wardrobes, hall furniture Dining tables and chairs Bookcase ranges Bathroom articles Kitchens Chairs, desks Fabrics, curtains Garden furniture Carpets Lighting: terms from music, chemistry, meteorology, measures, weights, seasons, months, days, boats, nautical terms Bedridden, bed covers, pillows/ cushions: flowers, plants, precious stones Children’s items: mammals, birds
Curtain accessories Kitchen utensils Boxes, wall decoration, pictures and frames, clocks: colloquial expressions 4- Services Home delivery service Picking with delivery service Assembly services Kitchen/Bath room Installation service Old Kitchen Removing Service Removal and return of mattresses service Sewing service Kitchen measuring service Payment Method Return policy KEA restaurant/cafe KEA exit bistro Children’s services 5- Market structure 1 . Perfect Competition – many firms, freedom of entry, homogeneous product, normal profit. 2.
Monopoly -? One firm dominates the market, arises to entry, possibly supernormal profit. 3. Oligopoly – An industry dominated by a few firms, e. G. 5 firm concentration ratio of > 50%4. Monopolistic Competition – Freedom of entry and exit, but firms have differentiated products. Likelihood of normal profits in the long term. 5. Perfect Competition – Though in concept, perfect competition exists, however in real life only near perfect competition can exist. And the staple food and vegetables we buy from the market is perfect competition.
However when they start branding they move toward oligopoly.. KEA is attributes in Monopolistic Competition of the market structures. Monopolistic competition is a type of imperfect competition. There are many producers sells the similar products but not perfectly substitutable such as from their branding, location and quality for example KEA is produce the DID ready-to-assemble furnishings but others firms are produce the complete furnishings. In this market structure, there are many producers and consumers.
Producers are total control over the market price. 6- Position KEA has been the market leader in the Swedish furniture industry, as a result of their implementation of competitive strategies for a global market place. All aspects of the company’s value chain are focused on the production of high quality ‘knock-down’ furniture at low and affordable prices. 7- Image According to Interbrain, KEA is the most valuable furniture retailer brand In the world, valued at nearly $ASS 12. 8 billion in 2012. – Generic strategies Each of the generic strategies involves different route and target to competitive advantage, “The cost leadership and differentiation strategies seek competitive advantage in a broad range of industry segments, while focus strategies aim at cost advantage (cost focus) or differentiation differentiation focus) in a narrow segment” (Porter, 1985) 9- Cost leadership The strategy of overall cost leadership is always the Kike’s biggest aim. We can find the history of KEA is also the history of looking for low price.
We can find KEA try to find the low price at every part of the process. For example, before they design a product, they already confirm the price. They use “flat- package” to reduce the cost of transport. They reduce the staff in store to reduce the cost of store. They also use the scale effect to purchase goods from all over the world. II- Differentiation Today’s KEA range consists of 9,500 home furnishing articles, designed to be functional and good looking but at a low price. You can find almost everything you need in KEA Both romantics and liberals can find the style they like.
Customers need the goods low price and good quality. Low price or good quality is easy to achieve, but it is not easy to get both of them. At start, KEA chose a different way which is stand on the side of everybody. KEA also take children to their customer, and the spirit of care for children really wins many customers’ heart. KEA also does a good job in environment protection. 1 Focus There are three main part of KEA: KEA office, home storage, Children’s KEA. The target customer is everybody. According to the “life system”, they segment the market to many parts.
That will be better meet the requirement of different customers. Especially the new design for child, it helps KEA win many hearts from the customers. 12- Growth Strategy Visits to kea. Com increased by about 20 percent in fiscal year 201 3 and visits to its famous superstores were slightly down. Even so, Kike’s officials expect its brick-and-mortar stores to remain the cornerstone of the company’s ambitious growth plan, which calls for reaching sales of $68. 4 billion by 2020. Fiscal year 2013 saw sales of $38. 6 billion, a 3. 2 percent increase over the previous year.
While any increase is a success -? given that other key markets like Europe have stagnated -? the company will need to keep its focus on building new stores in order to meet its 2020 goal. The company plans to do that, despite the increased customer interest in kea. Com. The company’s store count has almost doubled since 2004 as the company has expanded into North America and other emerging markets. It has plans to ad an additional 10 stores in fiscal 2014. Even despite its growth, the company has said it doesn’t feel a need to compete online with the same focus as companies such as Wall-Mart, which is looking to take on Amazon. For us, it IS not about maximizing growth in a short period of time, but about growing in a way that includes the entire value chain. ” Kike’s slower approach appears to be working. In the 2013 fiscal year the company increased market share in almost every market that it exists. 13- VERTICAL INTEGRATION argue companies are often involved in many different kinds of businesses and ell products in many different countries. So far we have identified that KEA has been using VERTICAL INTEGRATION to the Global furniture industry.
Managers use corporate level strategy in VERTICAL INTEGRATION to identify which industries their company should compete in to maximize its long run profitability. There are two types of vertical integration: 1. Forward vertical integration 2. Backward vertical integration. So far we found that KEA using backward vertical integration to expand their business and to make profit. Here are some benefits of KEA to have vertical integration. 14- Market placement and expansion After making a large amount of profit and as well as the market share in Sweden, Kampala go for Poland.
After go to Poland, Kampala discover that, the manufacturing cost of Poland wasps% lower than the manufacturing cost of Sweden. So he started to develop his business to Poland. The people of Poland preferred Vodka as their business celebration and Kampala go on that way and make them happy with Vodka. Kampala establish a very good relationship with the suppliers over there. Moreover KEA started their business in Poland, Norway, I-J, Switzerland etc. In 1 965 they expand heir business to Norway, in 1973 they expand into the Scandinavian area, in 1976 to 1 982 they expand their business to LIKE and Canada. 5- Market penetration From the very beginning KEA stated to get the majority market share with providing the low price furniture with stylish furniture. As a part of that market penetration they expand their business to several countries. KEA started expansion their business in Poland, Norway, ELK,ASSAI, Switzerland etc. In 1 965 they expand their business to Norway, in 1973 they expand into the Scandinavian area, in 1976 to 1982 they expand their business to UK and Canada. And lastly they started their business to LISA to grab the LISA market as well. 6- Niche Strategy in USA After expansion in USA, they observed that, thing are not going well. The furniture they designed according to the preference of European style was not going to work with the American preference. After analyzing the total situation, Kampala started redesign their furniture. In this time they emphasis on the young generation as their target customers. KEA reemphasized designed and started promoting the brand with a series of nice advertisements with targeted to the young married couples, college students ND 20 – 30 ages singles. 17- Global sourcing decision KEA designs the price tag first, and then the product.
Once the price tag is set, designers work with a network of suppliers to drive down the cost of producing the unit. The goal is to identify the appropriate suppliers and the least-costly materials. KEA devotes considerable attention to finding the right supplier for each item. It makes sense to work with suppliers in each of the company’s big markets to avoid the costs associated with shipping the product all over the world. 18- Competitors Among Kike’s main competitors in the United States are the furniture stores: Ashley Furniture Ashley Furniture Industries, Inc. Is a furniture manufacturing company headquartered in Arcadia, Wisconsin.
The company is owned by father and son team Ron and Todd Wane. American Furniture Warehouse American Furniture Warehouse is a privately held furniture retailer headquartered at Englewood, Colorado. Walter Wall-Mart Stores, Inc. , d. B. A. Walter, is an American multinational retail corporation that operates chains of large discount department stores and warehouse stores. These competitors do not exclusively sell home furnishings. Target also sells stylish home furnishings that are similar in sensing and quality to Kea In the categories of appliances and wood items, Kea competes with Home Depot and Low’s for consumer dollars.
Some Kea competitors welcome the opening of Kea stores. Kea attracts many furniture buyers, but some people like to shop among several stores to compare furnishings and prices. The Swedish company bases its success on its core values, which include quality, customer loyalty and heritage. For example, Kike’s in-store restaurant serves customers authentic Swedish food such as Swedish meatballs and pancakes, which are Swedish favorites. Kea caters to coal tastes by adjusting some of its home furnishings to match local market preferences.
As of 2014, Kea is the world’s largest furniture retailer with locations in 41 countries. Germany has the most Kea stores, making it the largest market for Kea. The second largest market is the United States, which has slightly fewer Kea stores than Germany. The three largest Kea stores, however, are located in Sweden and China. The Stockholm location is the world’s largest, at 522,000 square feet. 19- Core Competence Kike’s capabilities have originated from the company’s unique resources and TTS core competencies that revolve around a successful retail strategy, making it the “world’s largest retailer of home furnishings. Whilst many companies tend to continually add product lines and expand their offering, KEA understands the importance Of keeping it simple and sticking to its “core concept” of “affordable and varied home furnishings. ” The core concept has focused on high-quality products that would appeal to a large range of demographic markets in terms of the look, feel, and cost. This simplistic, yet effective, strategy enables KEA to maintain a low-cost structure while sousing on value for its customers around the world in a way that also has sustained profitability.
Its winning strategy includes global sourcing of components, accessible suburban stores, quality products with sophisticated European design at a low cost, and in-store amenities, such as coffee shops, restaurants, and day-care facilities. Kike’s low-cost business model allows it to offer quality furniture and home accessories at 25 per cent to 50 per cent below its competitors. KEA ‘s other core competencies: Diverse functionality, good quality, user-friendliness and inspiration of the reduce. Vision to better a life of an everyday-person. “Waste is a deadly sin” concept. 0- Challenges & its effect on Kea Competition The Kike’s furniture competitors’ offers different styles and functionality. Iconic targets a new low cost in terms of furniture line; Crate’ & Barrel offers a furniture in a box which is subject in higher prices; Ethan Allen aimed ATA more upscale market; Wall-Mart is equipped in a big box furniture that is categorized under the general store must-have-items, but don’t have much of a style. KEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries. Natural Resources KEA is the biggest furnishing company worldwide, so it needs al lot of wood.
This implicates, that there are confrontations with nature protecting organizations. The KEA Concept The KEA concept is easy to take up. Companies like Bush Industries in the USA have taken over the concept of cheap furniture, but they adopted their products to the American habits. Reaching Limited Customers The fundamental problem which KEA is currently facing is that they are only reaching a limited amount of customers due to their few store locations. Event that founder retires or dies Major challenge to keep the core values alive especially when the company becomes larger and more diverse and the founder retires from the business.
Catalogue Distribution KEA want to increase the return on investment for the catalogue distribution, which is a substantial investment, and remain ahead of the competition in terms of business strategy. 21- Solutions Catalogue KEA needs to make sure than they distribute their catalogues who can be potential KEA customers in terms of where they are located and their demographic attributes. KEA can also sell its catalogue at a low price to help enervate some revenue as its catalogue is its biggest marketing mechanism. Low price The company must ensure that it is always known for having the lowest prices on the market in the future.
Communication plays an important role here. KEA must main its low cost leadership by using the low cost leadership strategy. Market forces KEA is large enough to enjoy economies of scale. This lowers average costs in the end through, for instance, better use of technology or outsourcing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower rises. This puts up high barriers to entry for smaller companies entering the market.
Communications KEA needs to maintain communication with its consumers and other stakeholders about its environmental actions. Store Locations KEA needs to strategically place its outlets where it has never been before. KEA usually has large outlets in large cities. However, a tactical approach will be to launch smaller outlets in smaller towns. This will attract a new sector of customers hence increasing Kike’s profitably in the furniture industry. 22- Recommendations A new organizational structure will be necessary because Of moving the organization from a global perspective towards a transnational perspective.
Where the global organization is designed as to increase production efficiencies using global economies of scale and scope concepts, the transnational organization combines efficiency, local responsiveness and organizational learning. In order to assist the transition process towards such an organization, the KEA group has to drastically transform its approach on the function of its subsidiaries. At present, Kike’s subsidiaries are barely no more than expansions of the business head office in Sweden.
The accessibility of the subsidiaries IS not to sway parent company strategies, but moderately follow instructions from home country Sweden. High localization pressures emerging due to demographic and cultural differences will compel subsidiaries to take strategic initiatives to act in response to local market requirements. The new organization would be easier to follow and pass on more accountability to subsidiaries. The centralized research and development department would have form strategic in-house networks with these subsidiaries and, in a mutual approach, develop products that are adopted to match country level requirements.