Читать книгу Simplify - Richard Koch - Страница 12
ОглавлениеThe Billionaire Who Travels by Bus
Reach good results with small means.
Ingvar Kamprad
Ingvar Kamprad has furnished more rooms than anyone else, living or dead. He built up a company from nothing to being worth more than $40 billion. And he has done it all by simplifying.
Ingvar Kamprad was only seventeen when he founded IKEA as a mail-order company. Five years later he started selling furniture. The story goes that one day he couldn’t fit a table into his car, and a friend suggested removing the legs. Kamprad immediately had the idea of flat-packed furniture.1 He realized that half the sale price of a table was in the cost of transporting it. So if he could persuade the customer to do the final assembly — by engineering parts that fitted together easily and providing unambiguous instructions — he could cut his costs in half. It was a true epiphany.
The firm’s purpose is to sell stylish furniture at low prices. In 1976 Kamprad wrote The Testament of a Furniture Dealer, his firm’s Bible.2 The book stresses simplicity as the means to provide furniture at prices that are not just unbeatable but astounding. Yes, IKEA products should look good; yes, they should be as stylish as possible; yes, the firm builds extensively on the Swedish heritage of informal quality. But make no mistake, IKEA is founded on the idea that its goods should cost no more than half — and preferably a third — the price of equivalent furniture and furnishings. For example, in 1996, the company wanted to sell a mug for five kronor (about 40 pence or 55 U.S. cents). A large part of the cost was transportation, so IKEA found a way to fit 864 mugs on a single pallet. Even then, the cost was deemed too high, so the mug was redesigned in order to fit 1280 on each pallet. Eventually, through further redesigns, 2024 mugs could be loaded on to a pallet, reducing shipping costs by 60 percent.3
The obsession with target prices and economy comes directly from IKEA’s founder. Employees still talk about the time Kamprad attended a glittering event to collect a Businessman of the Year award. The security guards saw him arrive by bus and refused to let him in.4
How Can IKEA Be So Much Cheaper?
Much of the answer lies in those transportation costs. Consider that a table or a bookcase sold through a shop has to be transported at least twice and often three times — from the factory to a warehouse; from there to the store; then from the store to the customer’s home. IKEA eliminates most of this cost. Typically, its goods travel only once at IKEA’s expense — from the manufacturer to the store. And because the goods are in flat packs, they are much easier and cheaper to transport and to store than pre-assembled furniture. Of course, somebody then has to take the product to the customer’s home and assemble it there. But that person is the customer! We’ll come shortly to why customers are happy to do this.
First, though, we need to look at what else IKEA does to make its prices so attractive? If all there was to IKEA was flat-pack furniture, it would be easy to imitate. Indeed, many other stores now sell flat-pack furniture. But none has come close to emulating IKEA’s scale, success or rock-bottom prices. Why is that?
Part of the answer lies in the giant stores that IKEA has built on the edges of cities. These are far larger than its rivals’ equivalents in all of the countries where it operates. Another part of the answer is the way it organizes its stores. Right from the beginning, the stores were massive and featured a novel way of enticing customers past their wares — what IKEA cheekily calls “the long natural way.” This involves a steady progression, as though in a theme park, anticlockwise through the store. There are a lot of product categories, but relatively few products within each category. Instead of asking a salesperson for advice, customers must choose for themselves, helped by clear instructions, placards and a very well-designed, mass-produced catalog. They then take their purchases on a cart or in a bag to the checkout, and from there they take them home.
IKEA therefore obtains for itself and its customers five further cost benefits, over and above the transport cost savings:
One-stop shopping. IKEA covers just about every category of goods you need to furnish a home, from bedding and cushions to artworks. This is convenient for customers and also increases sales.
High sales per store, even relative to space, combined with lower premises costs as a result of being located outside the city center.
Low cost of sales staff as there are very few of them.
High sales per product stocked, by stocking a relatively limited range within each product category. The mugs may be cheap and cheerful, but don’t expect a huge choice of them.
By testing new designs in a few stores first, IKEA works out which lines will work and which will not, so it doesn’t order large quantities of goods that won’t sell and will have to be discounted (a common bugbear in the furniture trade).
Yet that is not all. At the heart of IKEA’s simple system is a different way of organizing its industry. IKEA is a retailer, but it also designs most of its furniture and selects its manufacturing partners carefully, giving them very large orders for only a few products. This lowers the furniture-makers’ costs dramatically; it also raises IKEA’s bargaining power. The manufacturers become part of the IKEA system.
The all-encompassing IKEA system is a lot simpler and more efficient than the traditional way of producing and selling furniture, which comprises a patchwork of mainly small furniture-makers, selling to small chains of retailers, with the difficult job of moving products to retail outlets sometimes handled by the manufacturers’ own small transport systems, but mainly contracted out to third-party logistics firms that are not specialists in furniture. Before IKEA came along, the furniture industry was a mess — highly complex and sub-scale in all three stages (production, retail, and distribution), with poor coordination across these stages.
Ingvar Kamprad gradually reconstructed the whole industry, just as Henry Ford did with the car industry. Both men developed new business systems that offered customers a much better deal — much lower prices and better value for money — by making their industries hugely more efficient. Cars and furniture are obviously very different products, yet there are common elements in what Ford and Kamprad did, elements that you can emulate if there is a chance to reconstruct your own industry:
Simple product design to eliminate unnecessary costs.
Limited product variety within each category, so more of each product line can be made and sold; as a result, stock-keeping costs are decimated.
Much greater scale.
Great reduction in cost at every stage of production and distribution. In Ford’s case, this was achieved through the assembly line, whereas Kamprad organized the functional equivalent of an assembly line within his stores, with the customer doing most of the “assembly,” both in the store and at home.
The beauty of Ford and Kamprad’s systems was that they became proprietary — peculiar to their own organization, excluding rivals. Once Ford had built the biggest factory in the world, there wasn’t space in the market for anyone else to follow suit. Once Kamprad had built his stores, nobody else could copy his system — the market in each location and overall was just not big enough. If he had moved too slowly, and an imitator had managed to out-IKEA IKEA by building a similar but larger system, Kamprad’s company would have foundered. But nobody did. The charm of his new business system was the way it all fitted together. Once rivals really understood how it worked, it was too late for them to imitate it.
How IKEA Seduces Its Customers
IKEA would not make so much money without getting its customers to lend a hand. So how does it manage to convince those customers to do so much hard work? And why do they put up with it?
A very low price — less than half the price under the traditional system — is the obvious answer. This is also the correct answer. But it is not the whole answer.
If price were IKEA’s only appeal, it would have far fewer customers. If you walk through an IKEA store, you will see not only hard-up students and young married couples, but also plenty of well-heeled people. You don’t even need to go into the store — just wander around the parking lot and you’ll see plenty of Volvos and 4×4s and BMWs, not to mention a small number of Bentleys and Jags. But you may need to go into the store to understand why. If you look at the shoppers’ experience, you’ll soon realize that, although IKEA asks a lot of its customers, it gives back a lot too — advantages you won’t find in a typical furniture store.
IKEA increases the usefulness of its products and its shopping experience by offering a one-stop solution. A visit to the store can be a day out for the whole family — there are play areas for children, and inexpensive restaurants.
Then there is the art embodied in the products. We define art as anything that is emotionally appealing or attractive that cannot be reduced to hard economic usefulness. IKEA’s products meet this definition by being well designed and stylish.
IKEA also increases ease of use for its customers. The stores are easy to find — with their colossal yellow-and-blue signs — and have ample, free parking. There is a more extensive range of stock sitting within the store than elsewhere. And the vast majority of items can be taken away immediately — no waiting for delivery.
For many customers, these advantages of shopping at IKEA — quite apart from the low prices — balance or even outweigh the disadvantages (mainly the time and effort that the IKEA system demands). But this is where Ingvar Kamprad was particularly cunning. If you scrutinize the non-price advantages, you notice one thing in common: they are all either relatively cheap to provide or even generate extra profits for IKEA. A few jugglers or magicians across a large crowd don’t cost very much per head, and if they draw in a few more families they more than pay for themselves. The restaurants make a profit. If the play area for children encourages a young couple to stay longer in the store, they will likely end up spending more. Good design costs no more than bad design. Signage serves as cheap advertising, usually seen from a nearby motorway or main road. The land on which each store is built is usually cheap, often bought in an area where there are no neighboring shops, so the parking lots don’t cost much. There’s plenty of stock in the stores, yet because they attract a huge flow of customers, inventory is actually higher than in traditional stores.
While it offers these low-cost (or profit-making) benefits to its customers, IKEA has deliberately chosen not to provide certain typical — high-cost — industry services. For instance, if IKEA had lots of well-paid salespeople swanning around its stores, the cost would bite badly into profits. If the furniture was not self-assembly, its cost would almost double. One of Ingvar Kamprad’s key principles is “Reach good results with small means . . . We have no interest in a solution until we know what it costs.”5
Like Ford, Kamprad was a price-simplifier. A common tactic in price-simplifying is to cut back certain expensive services and to compensate for this by lavishly providing low-cost (or, ideally, profit-making) services. As we’ve seen, that is exactly what IKEA does.
The overriding objective is to cut prices yet offer “cheap” or “free” benefits to draw in more customers. These benefits can be categorized as ease of use, greater usefulness, and art. These provide a template for any simplifier to dream up cheap or free advantages for their customers. The other principal weapons in the simplifier’s armory are ingenuity, scale, seeing the business from the customers’ perspective (IKEA is very good at this), customer segmentation (selecting the target market carefully and knowing who is within it and who is outside it), and being extremely hard-nosed about cutting any non-essential features that cost extra or complicate the business system.
Yet the big test of any new system for a simplifying firm over the long term is whether it can be imitated or improved by a rival. If the new business system is bold enough, if it eliminates traditional benefits that the customer is willing to forgo in exchange for large price cuts, and if it provides other benefits that are both cheap and unique, then the risk of imitation or supersession falls dramatically. Market share provides the final bulwark against this risk. If, like IKEA, you can win more than half of the relevant market (self-assembly furniture, in IKEA’s case), and be ten times larger than any rival, you are likely to be secure unless a rival spots a different way to discount prices again. In IKEA’s case, this seems highly unlikely.
IKEA invented the flat-pack furniture market and has provided elegant, inexpensive furniture to tens of millions of customers.
IKEA is the world’s largest furniture retailer, with annual sales in the region of 29 billion euros. In its core European markets, IKEA is nearly ten times larger than its nearest rival.
While the industry has grown by 2 percent per year, IKEA’s growth has been 14 percent.
IKEA is highly profitable, with operating margins over 15 percent — more than double the rest of the industry. We estimate that the company is worth $47 billion.
1 IKEA proves that, with imagination and the right template, prices can be more than halved — in its case by between 50 and 80 percent.
2 Ingvar Kamprad constructed a new business system based on self-assembly of furniture, stylish product design, giant stores, massive volume of sales per product line, and control of third-party manufacturers, who were integrated into the IKEA system. Can you think of a new business system for your industry that could enable you to cut prices by more than 50 percent?
3 IKEA integrated its customers into the production and retailing system, persuading them to do much of the work. Again, is there a parallel with your own industry, or could there be?
4 Customers play ball not just because of extremely low prices but also because IKEA offers them advantages and an experience that other retailers do not. Are there ways in which your firm — or a new venture — could offer customers advantages that would not cost you very much, or would even increase profits?
5 IKEA’s system now appears to be impregnable because the firm’s market share and very high sales levels protect it from imitators. This was not inevitable, however: if a quick-thinking rival had been fast enough to imitate IKEA’s system and implemented it outside Sweden. So, if you invent a way of price-simplifying that works, be sure to roll it out internationally before local rivals have a chance to copy it.
