A November 2002 Business 2.0 article took a behind the scenes look at Ikea’s process for creating new products. The company name comes from founder Ingvar Kamprad’s initials, plus the first letters of the names of the family farm and the village where he grew up. Not surprisingly for such a cost-conscious company, Ikea begins with the price. Their three price ranges (high, medium, and low) and four styles (Scandinavian, modern, country, and “young Swede”) are used to plot their product line on grids to discover holes that can be filled with new items. Kamprad had such early success with his cheap price points that his Swedish furniture-selling rivals prevented manufacturers from selling to him. So he turned to Polish furniture makers, a fortuitous tactic that led to multiple low-cost manufacturing locations who compete for Ikea business, thereby further reducing costs.

Once a price and manufacturer for a product is defined, internal designers compete to create the new item. Designs may then be further refined to optimize how much product can fit on a pallet, flat pack being the name of the game. Then the store decor is worked into the mix, pushing a frugal but fun lifestyle for its customers. Ikea has been an astounding success, and continues to dominate in each country it enters. The store we patronize has been doing twice the amount of business originally forecast, and two more nearby locations are in the works. Ikea has already conquered what is often the most difficult biggest business boundary to continuing expansion: internationalization.