Customer Relationship Management

t III
Case Study: IKEA

Solution Draft

Question 1
IKEA draws customers from far distances to its stores. Discuss whether the
loyalty scheme “Family Club” indeed creates further loyalty. Does this
loyalty card really enhance loyalty?

As the case study has shown, loyalty programs have been facing high
growth rates in the past decade. In fact, corporate expenditures on loyalty
schemes are booming: US companies spend more than $50 billion a year
(Forbes 2011). At IKEA, members of the family club get a number of valuable
benefits. For example, club members have access to promotional instore
events, in particular Swedish fests like Midsommar are celebrated. In
addition to free coffee, there are many more special offers at the IKEA
restaurant that members can enjoy. Through this exclusive treatment, IKEA
makes shopping a more fun experience and successfully establishes an
emotional bond between the members and the company. However, critical
voices are claiming that these marketing tools do not create loyalty in most
cases. According to a study conducted by Roland Berger (2003), many firms
do not feel any strategic impact of loyalty programs. More specifically, the
surveyed firms indicated that they were unable to achieve their main
objectives, such as increased customer retention.

First of all, research on loyalty schemes suggests that one of the most
important conditions for successful loyalty programs such as IKEA’s family
club is sufficient consumer adoption and continuous use of the card. This
can be achieved by having the right design, creating appropriate incentives
and rewards and a clear communication about the loyalty scheme.
Furthermore, the question whether these programs are successful in the long
run highly depends on the design of the respective program because it has a
direct effect on the program’s efficiency and effectiveness. For example,
benefits that consumers find highly alluring, such as high reward rates,
might not be very profitable for the firm (Reinartz 2010). Thus, the success of
the designed program is related to the objective that the firm pursues.
According to Reinartz (2010), long-term loyalty cannot be build by enticing
consumers with rewards and bonuses. “True loyalty is a function of the true
value provided to customers and often involves other factors like the
customer’s degree of involvement in the product category, the visibility of
the product, or the product’s value-expressive nature.”

As pointed out in the case study, the IKEA Family Club was first
implemented in 1985. Since then, the program has achieved great success. In
0
16 Customer Relationship Management

Switzerland, IKEA family club counted approximately 1.3 million members

at the end of the year 2012 (see Fig. 1). However, experience has shown that
such loyalty programs do not always lead to successful customer retention.
Until now it has been mainly the companies with great financial strength
and extensive marketing experience that have designed successful loyalty
programs. Moreover, loyalty cards can only be fruitful if the company is
characterized by a good performance when introducing the program.
Furthermore, it is important that these programs offer additional value and
stand out from the competition (Tomezak/Reinecke/Dittrich 2010, p. 406).
Thus, experts recommend to connect the programs with recognizable
benefits (NZZ 2013). For example, as shown in the case study, club members
at IKEA get free coffee at the IKEA restaurant and a free transport insurance
against accidental damage of furniture on the way home and during
assembly. Through these benefits, IKEA achieves to tie its members even
closer to the company and hence, increase loyalty. According to
Tomezak/Reinecke/Dittrich (2010, p. 406), the success of loyalty programs is
yet difficult to measure. Nevertheless, research shows that cards and clubs
can indeed make an important contribution to customer loyatly. In fact, they
are a valuable but not a necessary instrument for customer retention. What
is more, their use is highly dependent on the specific situation and the
customers’ perception.

Fig. 1 Members IKEA Family Club in Switzerland (GfK; NZZ 2013)

Lastly, loyalty programs have to be monitored closely and loyalty cards

alone are not enough to establish loyalty, but have to be employed as part of
the overall retail marketing approach. While some researchers state that it is
difficult to judge the ultimate profitability of a loyalty program, this is true
for marketing in general. Nevertheless, the success of of loyalty marketing
campaigns can usually be measured more accurately than can those of
traditional marketing campaigns (Cuthbertson/Laine 2004, p. 299).

1
 Customer Relationship Management

t III
Question 2
IKEA is now focussing more and more the business customer. Discuss
why this may be the case and whether this is a promising strategy for
IKEA.

While retailers by definition mainly sell their products to the final consumer,
some retail companies in addition target business customers. This market
development strategy is the so called R2B (“retail-to-business”)
(Zentes/Ney/Whitaker 2015; Wilson 2013). The main focus usually is micro
and small businesses that use the retail channel for their purchasing. As a
survey by Zentes/Ney/Whitaker (2015) has shown, the main retail segments
in which this is releveant are office supplies, electronics (including ICT),
food, furniture, and home improvement (see Fig. 2). Companies like Staples
and Office Depot have long been following this approach but electronics and
IT retailers (e.g. Best Buy for Business, Conrad Business), furniture retailers
(IKEA Office), food online shops (e.g. Asda business) are rather new examples.
Amazon has launched AmazonSupply in 2012 and integrated it into the newly
established AmazonBusiness in Spring 2015 with the clear target to tap the
business customers segment with a specific assortment, pricing and even
business-specific procurement processes (like multi-user accounts, order
approval workflows, etc.).

Fig. 2 Relevance of R2B in different retail sectors (Zentes/Ney/Whitaker 2015)

Ney/Whitaker have shown that the R2B-segment has been gaining in

relevance, especially with regard to small and medium-sized enterprises. In
order to be able to make a statement about the significance of the R2B-
market, Zentes/Ney/Whitaker (2015) have conducted a study on the use of
the retail sector as procurement channel for commercial purposes (see
Fig. 3). The participants of the study were mainly companies with up to six
employees. About 87% of all participants indicated that they use the retail

2
16 Customer Relationship Management

sector channels for at least a part of their procurement. But also for
companies in the building and construction sector, the retail sector has
become an important procurement channel among business customers.

Fig. 3 Procurement of commercial customers from different sector in retail

(Zentes/Ney/Whitaker 2015)

According to Zentes/Ney/Whitaker (2015, p. 14), particulatly the service

companies show a high sales potential with respect to furniture trade.
Consulting companies, advertising agencies, doctor’s practices and lawyer’s
offices are just a few examples of companies that are in need of office
furniture at attractive prices. The above-mentioned example of the United
States-based office supply chain Staples that distributes a variety of office
furniture to commercial customers verifies the prevailing potential.
Additionally, the recent R2B-activities of IKEA show that the strategy of
addressing the business customer has found its way into the German
furniture retailing sector. The increasing commercial demand and the high
but stagnating market volume in the private customer sector has led IKEA to
develop a concept through which business customers can be served even
faster and more efficiently.

With the R2B-concept “IKEA Business” the company is using the success
factors of the brand IKEA, naimly the strong communication impact, the
extensive branch presence and the distinctive orientation on quality, price
and performance. The company thereby relies on the positive transfer from
procurement experiences in the private sector on the commercial
procurement behavior. For example, why should the writing desk in the
study not find its way into commercial office areas? However, in order for
this transfer to be successful, the transactional and administrative
circumstances need to be tailored to the business customer’s needs, so that
convenient shopping is possible (Zentes/Ney/Whitaker 2015, p. 14).

3
 Customer Relationship Management

t III
The above-mentioned examples show that focusing on the business
customer is a very promising strategy for IKEA. For IKEA, the business
customer seems to become the second big target segment, besides its
established target group families with children. In its R2B strategy, IKEA
launched the IKEA Business Club in a number of countries (e.g. Germany
and Japan), in which membership is free. A number of benefits are given to
club members:

n Collection of bonus points on each purchase,

n Selected products are sold for lower IKEA Business prices,
n An online copy of the detailed invoice is sent to the customer with detailed
business address and all formal requirements,

n Personal and specific sales advice at IKEA Business point,

n Specific promotions and information and
n IKEA finance solutions so furniture for a business can be bought and paid
later.

As mentioned above, recent research shows that the business customer is a

lucrative target group with high growth potential. As illustrated above,
retailers from various sectors have recently launched R2B-strategies.
According to Whitaker/Ney, the structures and strategies in this segment are
not yet fully developed and further changes in the market situation are
expected.

Question 3
IKEA is successful across Europe. Discuss whether the sharp brand image
and positioning with clear target groups is an advantage or an obstacle for
further growth.

IKEA has from the beginning differentiated itself from the competition and,
with this, created a very strong retail brand which gave customers a reason
to become loyal. In fact, retail brand rankings currently rank IKEA as the
second most valuable retail brand in Europe (see Fig. 4). On the one hand,
the goal is to exploit its global brand by implementing the core retailing
concept and core values that have allowed it to become the world’s largest
furniture retailer. Nevertheless, in order for this strategy to be successful,
IKEA also needs to be sensitive to the specific customer needs in each
country market (Riley 2013).

Chapter 9 clearly points out some of the advantages of a strong retail brand.
For example, a strong brand can be used as a platform for expansion. This
already occurs when retailers open new outlets, which, from the very start,

4
16 Customer Relationship Management

are loaded with a certain image. IKEA’s franchising concept clearly

illustrates this advantage. Moreover, IKEA offers the same product range on
an international scale, and adapts the store layouts, presentation of the
products, home services offered and prices only where necessary in
accordance with national economic and cultural conditions and
circumstances. This enables IKEA to transfer its profile appropriately
worldwide (Miller 2004, p. 37).

Fig. 4 Retail brands with the highest brand value in Europe in 2014 (Interbrand;
Statista 2015)

According to Miller (2004), the store layouts in China reflect the layout of
many Chinese apartments. Since it is common for Chinese apartments to
have a balcony, the stores even include a balcony section. According to Ulf
Smedberg, marketing manager of IKEA China, the Chinese tend to spend
most on their living rooms, which he calls the “heart of the home where
many people show off and entertain.” Many Chinese apartments have a
dining table as well, so dining room purchases are also usual. The kitchens,
however, are usually rather small which implies customers spending less on
them.

Moreover, the retailer alters its products in each market to suit the needs of
local consumers. China again serves as an appropriate example here. “When
IKEA first began operations in China, it sold Hong Kong-sized beds, which
are shorter than standard-sized beds. But we quickly realized the beds were
too short for mainland China and switched to selling standard beds,”
Smedberg says. Furthermore, in many country markets, products need to be
adapted slightly. For instance, consumers in the United States usually prefer
larger items. The retailer also had to customize its location and do-it-yourself

5
 Customer Relationship Management

t III
(DIY) assembly concept to China. The stores in China are located near public
transportation lines, and the company offers local home delivery and long-
distance delivery to major cities in China for a fee. Additionally, IKEA
maintains taxi lanes, and offers fee-based assembly services. “Usually IKEA
stores open relatively far out in the suburbs, but we knew China had to be
different since, for example, only 20 percent of visitors in Shanghai have
cars. But the stores also need ample parking so that people can visit with
their own cars in the future. The Shanghai store has almost 1,000 parking
places”, adds Smedberg (Miller 2004).

In order to get a better understanding of people’s lifestyles and their home

aspirations and frustrations, IKEA conducts home visits, surveys, and focus
groups. In addition, an annual “Market Capital” tracking study is carried
out in each continent. The study questions customers in and outside the
stores about IKEA’s product range and price and service levels. The survey
also gives information on the retailer’s target consumer groups. In order to
illustrate the IKEA concept to Chinese consumers, the company posts in-
store instructions and design advice, publishes brochures, and operates a
detailed website (Miller 2004).

Lastly, the global middle class that IKEA targets shares many buying habits
(Capell 2005, p. 48), allowing the retailer to transfer its successful business
model in an almost standardised manner to forgein markets. This
international expansion has worked almost flawlessly, the only exception
was the US market, where the retailer struggled at first
(Zentes/Morschett/Schramm-Klein 2011). Thus, IKEA’s sharp brand image
and positioning with clear target groups clearly is an advantage for further
expansion.

References
CAPELL, K. (2005): IKEA: How the Swedish Retailer Became a Global Cult
Brand, in: BusinessWeek, 14.11.2005, pp. 46-54.

CUTHBERTSON, R; LAINE, A. (2004): The Role of CRM within Retail

Loyalty Marketing, Journal of Targeting, Measurement and Analysis for
Marketing, 12(3), 290-304.

FORBES (2011): Loyalty: Is It Really Working For You?,

http://www.forbes.com/sites/mckinsey/2011/12/01/loyalty-is-it-really-
working-for-you/, accessed on September 15, 2015.

MILLER, P. (2004): IKEA with Chinese Characteristics, in: The China

Business Review, Vol. 31, No. 4, pp. 36-38.

6
16 Customer Relationship Management

NZZ (2013): Der Warenkorb als Datenquelle, http://www.nzz.ch/der-

warenkorb-als-datenquelle-1.18156772, accessed on September 15, 2015.

REINARTZ, W.J. (2010): Understanding Customer Loyalty Programs. In

Krafft, M. & Mantrala, M. (Eds.), Retailing in the 21st Century: Current and
Future Trends, 2nd edition (pp. 409-429). Berlin et al.: Springer.

RILEY, J. (2013): Strategy: IKEA’s Global Brand & Local Knowledge Drives
Expansion into Emerging Markets.