Strategy Ikea

Strategies of company: IKEA

Submitted by: Niharika Deo (11) Laxmi Deshpande (12) Manisha Tripathy (55)

Introduction 

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Is a Swedish furniture company, company, well known for it‟s brightly colored furniture Requiring customers to assemble their furniture for themselves Has 349 stores in 43 countries Products are offered in a very competitive price

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Was founded in Almhud Sweden, 1943 by Ingvar Kamprad Elmtaryd Agunnaryd When it started IKEA sold pens, wallets, picture frames, watches etc. In the late 1940s furniture was added to its products To create a competitive advantage, IKEA decided to reconfigure the furniture value chain

Ikea‟s Vision & Business Idea 

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The IKEA vision, business idea and market positioning statement provide a framework for all IKEA marketing communication worldwide The IKEA vision is “To create a better everyday life for the many people”

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The IKEA business idea is “To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them”

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The IKEA market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money”

Corporate structure of IKEA 

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IKEA is owned and operated by a complicated array of not-for-profit and for-profit corporations The corporate structure is divided into two main parts: operations and franchising Most of IKEA's operations, including the management of the majority of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company Of the IKEA stores in 36 countries, 301 are run by the INGKA Holding. The remaining 47 stores are run by franchisees outside of the INGKA Holding, with the exception of IKEA Delft which is not franchised

Corporate structure of IKEA

Ikea‟s Value Chain 

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IKEA's role in the value chain is to mobilize suppliers and customer to help them further add value to the system. Customers are clearly informed in the catalogs of the firm's business systems provides, and what they are expected to add to the final process. In order to furnish the customer with good quality products at a low cost, the firm must be able to find suppliers that can deliver high quality items at low cost per unit. They must follow the IWAY. The headquarters provides carefully selected suppliers with technical assistance, leased equipment and the necessary skills needed to produce high quality items. The reconfiguration value chain gives IKEA several advantages:  less cost of maintaining manufacturing facilities  Cost savings from the outsources and delivery service  Creates wide market segments

Ikea‟s Product Range 

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It produces wood-based furniture and wooden components, manufacturing units in 11 countries mostly in Europe IKEA stores display the product range in room settings, offering customers inspiring home furnishing solutions To help keep prices low, IKEA stores buy and transport products in bulk, are located in less expensive areas and take advantage of the selfservice and assembly concept

IKEA‟s core competency 

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IKEA has focused its strategy on core competencies that have been leveraged as part of a strategy to sustain profitability The company develops its capabilities as a global retailer by adding value to the supply chain (thoughtful product design, local sourcing and low-cost distribution hubs) Constructing a low-cost business model that enables consumers to reap the benefits of high quality design furniture at some of the lowest prices available Building strong brand equity through unique

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Developing a unique business culture designed around a good lifestyle for employees and customers Corporate social responsibility that is dedicated to environmental, labor, and ethical business practices IKEA‟ core competencies have helped its efforts to attain a sustainable business model in the United States (US) as it continues opening new stores throughout the region

Porter‟s Generic Strategy Its mission statement indicates a cost leadership strategy. However, the company is also applying an indirect differentiation strategy due to its unique way of incorporating the customer in the value chain. This combination

The pioneer in low-cost model 

In looking at its low-cost model, this seems to be a key

strategy within today‟s global business environment and IKEA

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was one of the companies to pioneer this type of model well before airlines and other industries began to evolve their business models Everything that IKEA does involves carefully examining the true cost involved in that particular product or process, including the design, sourcing, and operational expenses involved

IKEA doesn„t have its own manufacturing facilities. Instead, it

is using subcontracted manufacturers all over the world for supplies  Also, IKEA customers have to assemble the bought products themselves. That creates innovation upstream, which help suppliers to save costs, and downstream, as self-assembly became a large cost saver for customers Most furniture are also designed to fit into an efficient

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Whilst low-cost is important, IKEA believes that it has the capability to be a low-cost leader without sacrificing quality or compromise its corporate social responsibility One way in which IKEA has been able to do this is by creating a “global organization that provides infrastructure, service and support to its various business units and suppliers and helps them to identify and implement the most cost-effective technology available.” This has led to a valueadded supply chain that IKEA has capitalized on to maintain low costs whilst further growing its operations

Ikea's strategy 

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IKEA successfully handles all aspects of marketing, sales, employee relations, product development, and supply chain management, creating a vivid picture of how management theory can work successfully when approached with a consistent and clear strategy Its winning strategy includes global sourcing of components, accessible suburban stores, quality products with sophisticated European design at a low cost, and in-store amenities, such as coffee shops, restaurants, and day-care facilities IKEA‟s low-cost business model allows it to offer quality furniture and home accessories at 25 per

Competitive Advantage of IKEA Economies of scope: Furniture and Restaurant Share facilities

Economies of Scale: Standardisati on Diversity in  Assortment

Competitiv e Advantage

Distinctivenes s in Design Strength of brand name

Large Warehouse Showroom in Sub-Urban centres

Economic Design Logistics Customers included in the value chain, minimum staff Network of Supply: 1300 suppliers in 53 Countries

Resource Based View (IKEA ) PHYSICAL ASSETS

OWN STORES WOLDWIDE AND ARE USUALLY LOCATED OUTSIDE THE TOWN 37 STORES THAT ARE FRANCHISED 38 COUNTRIES WORLD’s LARGEST FURNITURE RETAILER

FINANCIAL  ASSETS

PROMOTION AND ADVERTISING SOURCE FROM FRANCHISE EXPERIENCED A 15% SALES INCREASE BETWEEN 1990-2005 2005 THEY MADE 14.8 BILLION EURO 2010 THEY EXTIMATED $23 BILLION

INTELLECTUAL RESOURCE

GOOD RELATIONSHIP WITH GOVERNMENT UNIQUE FURNITURE STYLING OPERATE 24 HOURS DAILY GOOD RELATIONSHIP WITH SUPPLIERS

Resource Based View REPUTION RESOURCE

BRAND NAME FRANCHISING $128 MILLION FOR UNICEF IN 2015 WELL KNOWN IN EUROPE ASIA AND AMERICA

HUMAN RESOURCE

127,000 STAFFS

RELATIONAL RESOURCE

SKILLED EMPLOYEE‟S IN STORE‟S AND WOOD‟S

GOOD TRANSPORT SYSTEM EXPERT DESIGNERS GOOD CUSTOMER SERVICE MOTIVATION OF EMPLOYEES (REWARD 28 DISTRIBUTION CENTER SYSTEM) 2300 SUPPLIERS GOOD INTERNET ACCESS NETWORKING SYSYTEM 550 MILLION PEOPLE USING THEIR WEBSITE EVERY YEAR GOOD TRANSPORT SYSTEM

or er s

IKEA • Suppliers

• Technology

amon FIRM STRATEGY, STRUCTURE & RIVALRY

o e: • Low cost  low price

strategy • Low bureaucracy • Rivalries: 

British “B&Q”

WalMart DEMAND CONDITIONS

FACTOR CONDITIONS

•Labour force: low

cost •Infrastructure: poor => good •Government policy

• Population:

SUPPORTING INDUSTRIES

7 billion •The raising of Middle class • Cheap furniture demand

Porter‟s 5 Forces Analysis Threat of Buyers growing bargaining power 

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There is a little power because of the existing low-price options IKEA ensure that their customers in all aspects will be satisfied for quality service they provide Focused their marketing approach on demands and needs of the buyer IKEA uses their corporate responsibility as a good public image to their customers IKEA Family -card as a membership

Threat of Suppliers growing bargaining  power 

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IKEA has its thousands of suppliers that set standards in delivering the materials  Because of the low-pricing, IKEA‟s profit margin also affects the prices in raw materials than by prices in labour IKEA has a wide network of 1300 suppliers. They carefully select the manufacturer of its products. The company has own production factories and designers which makes it less dependent on others Bargaining power of supplier could be threat for the profit of the company

Threat of Substitute Products 

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There is no specific product that can be a substitute for the furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style Problems faced due to distribution channels

Threat of Intense Segment Rivalry 

The IKEA‟s furniture competitors‟ offers different

styles and functionality Conrin targets a new low cost in terms of furniture line; Crate & Barrel offers a furniture in a box which is subject in higher prices Ethan Allen aimed at a more upscale market Wal-Mart is equipped in a big box furniture that is categorized under the general store must-haveitems, but don‟t have much of a style IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries There will always be substitutes for furniture‟s but IKEA competes with price and there isn't competitors in same price range 

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Threat of New Entrants 

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IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chain and create a unique brand name The furniture market is already highly competitive - the risk of new entrants is not extremely high - huge capital needed to start the business

Ikea's strategy in US 

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The company faced several problems on entering the US markets. it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US IKEA‟s sustainability comes from taking a measured approach to its expansion into the US by opening a single store at a time in a particular area to more effectively focus on getting the operations established in a manner which makes the most sense in terms of cost, training, and overall financial controls IKEA is requiring the US consumer to do change how they shop. The company “directs customers to shop in the store instead of ordering online —noting

IKEA in China 

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The very core competency of low prices and innovatively designed furniture posed a problem in China The low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs  As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly But prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil Extra charges made for providing plastic bags as an

Changes in Strategy for China 

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The company started targeting the young middleclass population. This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. Chinese competitors copied IKEA's designs from its catalogue and then offered similar products at lower prices IKEA decided not to react, as it realized Chinese

Recommendations for expansion in India 

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In emerging markets, global brands may not be able to replicate their success using a low-price strategy as there always will be local manufacturers who will have a lower cost structure The company should also realize that emerging economies are not ready for environment-friendly practices, especially if they result in higher prices IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, should understand that the local culture is important - Chinese people hate the do-ityourself concept and Indians likely do so even more IKEA may face some India-specific challenges such as varying laws in different states ruled by different political parties