CRM lessons from Ikea

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I have recently had to buy some furniture, and found the process interesting from a CRM perspective and so will share it with you.

We restricted ourselves to two potential furniture suppliers: a UK-based company,Habitat, with what appears to be a fairly conventional business model, which provides fairly stylish, relatively expensive furniture, and Ikea, a Swedish furniture retailer with a less conventional business model, with much less expensive furniture, perhaps less stylish. I thought that we would probably end up buying nearly all our furniture from Habitat, whereas actually Ikea was our main supplier.

Whilst buying this furniture, a number of interesting points about IKEA's business model became apparent:

o Most of IKEA's products are delivered as "flat-pack" self-assembly kits. Habitat also supply goods in that format, primarily it seems, to ease shipment (and reduce associated costs). However, IKEA's products had been designed not only to reduce shipment costs, but also to minimise production assembly costs. Clever design had been used to produce goods which can be assembled by the purchaser with minimal skill (use of a screwdriver and spanner only), from parts manufactured by machine with little human effort in the production plant. The design also ensured a robust, stylish piece of furniture despite the limited skills of the assembler. Much of the work involved in manufacturing the
piece of furniture had been moved from the factory, to the customer. The reduction in cost had also been passed onto the customer. For at least this customer, there was also a significant feeling of achievement in assembling the table or chair.

The result - a high quality piece of furniture at low-cost, but with a lot more work for the customer, but with a resulting sense of achievement.

o There are differences in the retail outlet model as well. Habitat provides a conventional Main Street retail outlet, with room to display the goods, and attentive sales staff to discuss the furniture.

Ikea's out-of-town, large-scale outlet had the space to attempt something different. The products were displayed in a number of room mock-ups so that pieces could be seen in relation to other products, with 'design stations' to help the customer to build their own design. Ikea staff were on hand, but not as sales assistants, more to advise on design, check whether stock was available, etc. This approach helps with the interior design aspects of selecting furniture, again for this customer at least, a difficult aspect of buying furniture.

o Distribution:
It is here that the most obvious differences with a conventional retail store occur:
- You have to pick the goods from the warehouse yourself
- You cannot order goods - if they're not in stock you can't have them.
- They don't deliver (though there is a 3rd-party delivery service at a cost).

All this may appear to be poor customer service, but again, it takes out a lot of cost from the distribution process, and this is passed on to the customer.

o Customer Direct Transactions:

If you think about it for a minute, because Ikea won't take orders, it is key that customers can find out if Ikea has a particular item in stock. (You don't want to go to an out-of-town store, to be told that what you've come for isn't in stock and the store doesn't take orders.)

Ikea have recognised this and so provide an automated phone service to allow you to check whether the item you want is in stock. That item is number 1 in the automated service menu - first plus mark. There are a large number of stores I use which I wish provided a similar service.

Next, I'd like you to think what data you'd ask a customer for if you were designing a 'check-in-stock' transaction. Well, it's obvious isn't it - you ask for the stock code. Well Ikea don't think it's obvious to a customer and when you use their service you recognise that they're right.

Instead, they ask you for a catalogue page number, and then the price of the item you're interested in. They then tell you the items on that page at that price and you confirm
which one you want. A pretty weird transaction by IT standards, but customer-friendly. If you're a customer interested in stock levels, you're very likely to have the catalogue open. The page number is meaningful to you, is short and easy to enter on a phone keypad (all digits). The price is also meaningful, again short and easy to enter (all numerics). No company I've ever worked for has simple
stock-codes. Someone has designed this transaction with the end-user (the customer) in mind.

What, if anything has this to do with CRM??

In my view, a lot:

o Ikea have chosen to change from a conventional business model to reduce prices significantly, by placing a lot of burden onto the customer. CRM is not necessarily about better customer service, but about giving the customer a better value proposition, or 'increased value for money'.

o Their change in business model leads to a need for a new transaction for the customer. That transaction is designed to be simple and fast for the customer to use. In Ken's words (nearly) in this week' newsletter - they've listened to their customers.

Those two concepts, along with some others I hope to cover soon, seem to me to be key to successful CRM.

Comments please, either on the Bulletin Board, if you're happy to put it in the public domain, or to me directly at [email protected] if you want your comment posted anonymously, or would rather it wasn't published at all. Either way, let me know.

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20th Jun 2002 07:10

Interestingly, Ikea owns Habitat - or strictly speaking acquired them many years ago; I'm assuming they haven't sold them off to someone else.

So if this marriage is still on, then Ikea obviously thinks there are two sufficiently different customer segments to warrant the Habitat strategy.

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avatar
20th Jun 2002 07:10

Interestingly, Ikea owns Habitat - or strictly speaking acquired them many years ago; I'm assuming they haven't sold them off to someone else.

So if this marriage is still on, then Ikea obviously thinks there are two sufficiently different customer segments to warrant the Habitat strategy.

Thanks (0)