Sunday, January 22, 2012

Frugal solutions - IKEA are the masters

Currently, I’m researching on a concept we call ”frugal solutions”.

Danish companies are usually inclined to compete by developing ever more sophisticated new features, moving up the value chain in order to stay out of commoditization and low margins. The problem with that strategy is that you loose sight of another, potentially much larger market. In the coming years it’s very likely that a lot of consumers will demand products that are a lot cheaper. They will focus on need to have, rather than nice to have – out of necessity. High unemployment, aging society, polarization of incomes and a welfare state with budgets under severe pressure will translate into a much larger lower end of the market. And Danish companies are not used to operating in that space, so there is imminent danger that foreign, lower priced companies will move in with their offerings.

This is where ”frugal solutions” come into the picture. The idea is to create solutions that can meet a demand at a radically lower price, but with little or no compromise in utility to the end user. The infamous Tata Nano car from India is an example; The M-PESA mobile phone banking system from Kenya is another. Generally, a lot of frugal solutions seem to emerge from emerging markets.

But there are Western examples, too. Discount supermarkets, low price airlines, the Swatch watches are some of them.

My favorite Western example, though, is IKEA. Visiting one of the blue and yellow warehouses is like an exhibit of brilliantly executed frugal solutions.

I have no doubt that there are plenty of details and system that are invisible to the casual visitor, but let me run through some of the elements that are obvious and easy to observe.

Let the users do some of the work: This was the original IKEA revolution: knocking down furniture into flat packages that could be transported by customers and assembled at home. IKEA has made it as painless as possible. Their manuals use no words, and they are impressive examples of clear communication. Just try any another manual for assembly, to appreciate how well they work. Obviously, this is not by co-incidence, but because the company has invested in developing the entire experience – not just the furniture.

One could say that IKEA has created a whole language or logic around their products. If you have tried assembling a few different models, you will be familiar with their special screws and fasteners.

In the warehouses, IKEA has moved a few steps further. Consumers go to the storage racks and fetch the packages, and they check out themselves, scanning the barcodes and paying with their credit cards. In the cafeteria, the logistics are similar: You are clearly instructed to follow the line, picking utensils, glasses etc.

Modularization: Many of IKEAs lines - kitchens, closets, book shelves… - are modularized, allowing end-users to configure a highly individualized result from standardized parts. This is not unique to IKEA, of course, but never the less part of why you can offer a satisfying experience at a relatively low price.

Democratic design: Clearly, IKEA has been able to create designs that a lot of people like, and make it available to just about anyone. Having IKEA objects in your home is nothing to be ashamed of. Fancy home decoration magazine will show homes with things from IKEA alongside other designer objects many times mores expensive.

Sometimes, IKEA in fact comes up with their own, new classic designs – and of course, at least as often, they create their own low price version of competitors models that they can see are popular in the more expensive shops.

Massive scale. Good design and massive scale of production translates into sometimes amazingly low prices. It's one of those great factoids of the times that the IKEA catalogue was printed in 197 million copies in 2010 - 3 times more than the bible.

Simplified design and cheaper materials: Some IKEA furniture – shelves, tabletops, cabinet doors… - are really almost just cardboard and a hard coating. Clearly, there is a constant strive to simplify models and use only the materials and the amount of materials that really contribute to the user’s experience.

At the moment, IKEA is replacing their many, many wooden pallets for transportation and storage with a new, lighter and disposable pallets made of cardboard.

Understanding the end-user’s context. For several years it’s been a main theme of the annual catalogue to show solutions for maintaining order and comfort in very small spaces. IKEA has developed lots of furniture that makes it possible to cram more stuff and functions into a tiny flat.

The interiors in the catalogue are not all vast, spacious rooms, but small, cluttered, real. An example is the STORÅ bed, on pillars, so you can place a sofa and a table underneath (see the video above).

Decency. Even though IKEA boast of their focus on low price, they also make extensive efforts to operate as a sustainable company. Sourcing wood from decent producers, cutting down on waste and toxic ingredients etc. Again, proof that a low cost solutions need not be morally corrupt.

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