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Situation
• IKEA was established by Ingvar Kamprad in Sweden in 1943.
• The company originally sold a variety of products including fish, magazines, seeds, matches and ball point pens.
• In 1948, Kamprad added furniture to his product line.
• From that point on, IKEA’s goal was to provide furnishings with stylish designs and minimalist lines that could be cost-efficiently manufactured under contract by suppliers. Prices were low enough to allow people to afford them.
Company Overview
Situation
Company Overview
• In 1957, IKEA started to exhibit and sell its products at home furnishing fairs in Sweden.
• In 1965, IKEA opened its first store in Stockholm.
• By 1973, IKEA was the largest furniture retailer in Scandinavia.
• IKEA pursued a strategy of aggressive global expansion into regions such as Europe, UK, USA, and China.
• Today, IKEA operates 285 stores across 35 countries, with sales amounting to approximately €21.2 billion.
Strategic layers
Corporate Level Strategy
Raw Materials Manufacturing Ikea Stores Customers
• Ikea’s corporate level strategy focuses primarily on their horizontal production line.
• By using backwards (vertical) integration they have developed superior relationships with suppliers and manufacturers which allowed Ikea to gain access to cheap, quality and trendy goods unlike their competitors.
• They then pass savings onto their customers which creates superior value.
Strategic layers
Business Level Strategy•IKEA’s business level strategy focuses on providing low cost, quality products to customers. They are able to achieve this because of their corporate level strategy and other business functions such as creating an enjoyable experience for shoppers so they do not mind travelling to the suburbs of towns and cities to shop.
• This allows IKEA to purchase large retail outlets for a fraction of what they would be worth near major shopping districts.
• IKEA also invest in product development to ensure customers will value product offerings. As this has proved successful it has allowed IKEA to focus on market expansion and market penetration.
Strategic layers
Functional Level Strategy•Ikeas functional level strategy involves the day to day running of each store. •Each store minimises the amount of staff they have without deteriorating the efficiency of each consumers shopping process. •Although there is few employees in comparison to the size of each store, all employees are well trained to deal with different circumstances and provide efficient customer service.
Internal
• They were the Industry leader in 2008 with €21.2b sales. They have a global reach with a footfall of 583 million shoppers one year.
• IKEA have a strong brand equity, they have been consistent with their communications and marketing. They target young, upwardly mobile global middle class – ‘somewhat wacky, offbeat advertising’.
• IKEA offer a wide range of products and styles, accommodating different tastes of consumers. They offer consumers affordable, high quality goods.
• Kamprad is an innovative leader, - flat packing of goods, this lowered costs in storage and distribution – he lowered manufacturing costs . Poland - 50% cheaper to manufacture. Store design - this increased the probability of impulse purchasing.
SWOT strengths
Internal
• IKEA managers were able to cater to consumers needs and wants. • Tool section - regain their attention and interest. • Rrestaurant in the middle of the store to ensure that customers stay as long as
possible. • Child care facilities so that parents can shop without distractions.• Ceo – frugal – integrated into IKEA bus plan . • Kamprad integrated his frugal habits throughout the IKEA business plan, they
benefit from this financially and the employees benefit from the culture created in the business.
SWOT- strengths
(continued)
Internal
• IKEA failed to anticipate differences in cultures such as America.
• Aulino’s team did not always pay attention to detail and clashed with Kamprad on several occasions.
• Managing stakeholders expectations can be difficult, it can put strain on the company.
SWOT Weaknesses
external
• There is an opportunity for IKEA to grow in to new markets such as Asia.
• IKEA could open more stores in countries they already operate in, near other big cities.
• There is an opportunity to introduce an eco-friendly line - existing customers and may also attract new customers.
• There is an opportunity to incorporate a CSR campaign.
• There is the opportunity to further improve relations with suppliers.
SWOT Opportunities
external
• The recession effects the customers spending power. This effects every aspect of the business.
• There are social trends emerging in the property market-less first time buyers
• When Kamprad is no longer an active member of IKEA, there is the threat that employing a new manager might change the structure of the business.
• They are operating in a competitive market - monitor any changes and maintain their competitive advantage in order to remain the leader.
SWOT Threats
external
• IKEA must take into account the different laws and regulations in each country they are dealing with. They must monitor any changes in regulations that could effect their business.
• The stability of governments must be considered in different nations. This can be done by conducting continuous political risk assessments or outsourcing political risk consultants.
• The political situation of countries can effect operations, it can have negative effects such as new regulations or laws. It can also have positive effects – Berlin wall – manufacturing.
• IKEA must consider the different corporation taxes of each country they are operating in as it can effect overall profits.
• Trade barriers can effect trade in certain countries, IKEA must be aware of the taxes involved when importing/exporting goods in different countries.
PESTPolitical
external
• Currency conversion rates change throughout the world. Global companies must be aware of the rate at which markets convert one currency into another. This is important when converting profits and when paying suppliers/manufacturers in other countries.
• The costs of labour is different in each country-China
• The economic health of individual countries must be assessed. The costs of supplies, raw materials and labour can increase with inflation.
PESTEconomic
external
• Consumer behaviour and shopping trends change all the time. Decrease of disposable income can result in expensive furniture taking less of a priority.
• IKEA created an experience with their stores, this allows consumers to connect with the brand.
• There was a change in social trends by 1956. Consumers were willing to take the task of assembling in return for a lower price.
• Marketing in magazines proved to be good publicity for IKEA, leading to the acceptance among the middle class.
• The requirements in regions differ, for example in America, the size of goods had to be changed to suit the culture.
PESTSocial
external
PESTTechnology
• Technology is constantly changing, IKEA can benefit from this and potentially find ways to produce goods at a lower cost.
• IKEA introduced new technology for treating the surface of wood, this allowed them to lower costs.
external
Competitive rivalry
Threat of new
entrants
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Porter’s 5 forcesThreat of new entrants:
• The capital requirements to enter the market are high. New entrants would have to invest a large amount of money in bricks and mortar stores, design, manufacturing and branding.
• It is a very competitive market with many players (small and large home ware and furniture stores)
• Skilled labour is needed to produce high quality products. IKEA have gained experience and have improved their skills over the years, a new entrant would have to acquire the same level of expertise in order to compete.
• A new entrant would also need a access to supply. – access to raw materials and low manufacturing costs.
• IKEA offer a very differentiated product which make them difficult to compete with – differentiated design, brand image and customer experience.
• The threat of new entrants is low.
external
Competitive rivalry
Threat of new
entrants
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Bargaining power of Buyers:
• There is a large number of buyers in the market - 583 million shoppers one year
• IKEA has an excellent growth strategy that decreases the power of buyers – as they grow, the number of buyers will increase – which lowers the buyer power.
• Customers are likely to incur extra costs when switching to a competitor. IKEA offers low cost and differentiation.
• The bargaining power of buyers is low.
Porter’s 5 forces
external
Competitive rivalry
Threat of new
entrants
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Threat of Substitutes:
• Furniture and home ware are necessary item for consumers.
• Threat of substitutes is low
Porter’s 5 forces
external
Competitive rivalry
Threat of new
entrants
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Bargaining power of suppliers:
• IKEA have a strategic relationship with their suppliers/manufacturers – IKEA manufacture 10% in house.
• The skills and expertise of the suppliers and manufacturers would mean that switching suppliers would be disruptive to IKEA.
• IKEA is such a large, well known and successful company, suppliers would seek to form affiliation with IKEA- smaller home ware and furniture stores would not require such large orders as IKEA.
• The bargaining power of suppliers is low.
Porter’s 5 forces
external
Competitive rivalry
Threat of new
entrants
Bargaining power of buyers
Threat of substitutes
Bargaining power of suppliers
Competitive Rivalry:• IKEA has been hugely successful in creating low cost
high quality products. They have a very successful business model and expertise manufacturing skills.
• They are very much differentiated –design, brand image and customer experience.
• They are in a competitive market , however, most competitors offer low cost OR differentiated products, IKEA offers both.
• the competitive rivalry is low.
Porter’s 5 forces
Value chain
Firm Infrastructure
• IKEA possess a very unusual and complex
corporate structure. It consists of a hierarchical organisational structure operating through large scale stores.
• Ultimately, the IKEA group is controlled by INGKA Holding, which is owned by a Dutch-based charitable foundation, Stichting Ingka. This is a tax-exempt, non-profit legal entity.
Human Resource Management
• IKEA possess a highly skilled work force who are constantly innovating to meet customer needs and requirements.
• Equality and democracy is deeply rooted in IKEA’s corporate culture:– Managers are forbidden to fly first class and are
expected to share hotel rooms.– Offices are open plan with private offices a rare
occurrence.– “Ant bureaucracy” weeks
The Value Chain
Value chain
The Value Chain
Technology
• IKEA invest regularly in research and development activities.
• IKEA makes the most of technology innovations in order to provide low priced, quality products in an attempt to boost overall customer experience and value.
Procurement
• IKEA establish long term and positive relations with suppliers, and constantly invest in their education, training and overall development.
Value chain
The Value Chain
Inbound Logistics
• IKEA work side by side 2,000 suppliers who provide over 10,000 products.
• All products are distributed and transported to the various IKEA stores from 27 distribution hubs located throughout the globe.
Operations
• IKEA has operations across 35 countries with 285 bricks and mortar stores.
• Manufacturing is 90% outsourced with 10% in house production.
• This enables IKEA to focus on other core competencies and activities.
Value chain
The Value Chain
Outbound Logistics
• Transportation of final products is carried out by the customers.
• As a result, this enables IKEA to further add value by keeping their final sales costs down.
Marketing & Sales
• IKEA do not rely heavily on advertising and marketing campaigns. Instead, in-store promotion and product displays provide advertising in themselves.
• IKEA give away free catalogues filled with product information. They provide them to customers free of charge, in keeping with the company’s original business model.
Value chain
The Value Chain
Marketing & Sales
• IKEA have a well defined target market, appealing to a variety of customer segments:– Low income earners– Students– Young couples– Young families– Middle class families
• When advertising, IKEA run fun, trendy and hip campaigns aimed at a variety of customer segments
• http://www.youtube.com/watch?v=Ce5jhpsAe-4
Services
• The relatively low number of sales staff in IKEA stores means a substantial cost saving in IKEA’s operations
• IKEA’s business strategy of having limited customer service means a reduction of costs, resulting in further low cost products.
Competitive
advantage
Competitive Advantage
Competitive
advantage
Competitive advantage – building blocks
• Financial: large working capital• Physical: 285 stores, variety of manufacturing/distribution plants• Intangible: brand equity, customer loyalty, store experience• Structural organizational ‘family culture’
Organizational resources
• Superior Innovation• Superior Quality• Superior Efficiency• Superior customer responsiveness
Organizational capabilities
• Economies of scale• High Quality and low price
Core competencies
Competitive
advantage
Competitive advantage – building blocks
• Organizational resources • Organizational capabilities • Core competencies
Competitive advantage is gained
from there
• 285 stores• 1380 Suppliers• 2008 sales of 21.2 billion• 583 million shoppers• 9500 shoppers• Employ 127800 employees in 39 countries
Performance results
Building blocks
Building Blocks of IKEA’s Competitive Advantage.
Superior Innovation
• Ikea have the ability to design “trendy” and fashionable products which are easy to
manufacture and distribute to stores unlike traditional products within the industry.
• Ikea design their products in such a functional way which allows customers to transport their
purchases and set them up with ease. (Customers are happy to do this due to Ikea’s low
pricing structure.)
• Ikea stores are more than just stores, they are an experience. Ikeas interior designers and
visual merchandisers ensure that customers must view every product before reaching the
checkout. This results in many impulse purchases. Ikea also identify opportunities to extract
even more profits from customers in relation to their store layout and have added restaurants
to their stores.
Building blocks
Building Blocks of IKEA’s Competitive Advantage.
Superior Efficiency
• Unlike competitors, Ikea develop long term relationships with suppliers who deliver quality
materials at low prices. This allows Ikea to receive a substantial economies of scale.
• Ikea also source low cost manufacturer's to assemble materials into quality products. As
these manufactures only have to develop the product up to a certain stage its saves time
and costs.
• As production is done so fast and efficiently it allows Ikea to keep up with changing trends
and minimise the length of time it takes them to get new designs into their stores.
• Due to the large amount of manufacturers Ikea have, they can also produce a large
selection of different products , unlike competitors.
Building blocks
Building Blocks of IKEA’s Competitive Advantage.
Superior Quality• Publications and other media about Ikea have
demonstrated that they have similar if not better quality products compared to customers at a much lower price. This has allowed Ikea access to the middle class market.
Building blocks
Building Blocks of IKEA’s Competitive Advantage.
Superior Customer Response• Ikea have created an experience for customers and
have made the daunting task of shopping for household good enjoyable.
• This has led to Ikea adding more services to enhance the customer experience such as restaurants and childcare service.
• Ikea have also successfully adapted their product lines whilst operating in locations with different cultures such as America.
Recommendations
If they did would their competitive
advantage be secure?
Should IKEA continue there expansion into
non-Western markets?
Should IKEA continue their plan to grow by
20 to 25 to new stores every year?
Recommendations
Recommendations
RecommendationsShould IKEA continue their plan to grow by 20 to 25 to new stores every year?• Continue with proposed growth strategy of 20 to 25 new stores per year. Sustainable target
for such a large and successful company. Such growth would lead to more global success.
• Take into consideration not to place new stores to close together. This will lose the uniqueness of IKEA that customers drive there for a day out. ‘IKEA experience’.
• Continue to place stores on the outskirts of cities in densely populated areas maintaining IKEA’s competitive advantage. Access to public transport and good road network.
• There will always be a demand for low price high quality goods. As noted in Porters the threat of competitors is low. Unlikely for a competitor to come in with the same core competencies as IKEA.
Recommendations
RecommendationsShould IKEA continue there expansion into non-Western markets?• Yes, Non-Western market to large of a market to ignore. Huge potential to become
market leader
• They currently produce 21% of their products in China. This allows for cheaper distribution and transport costs when they expand their stores in Asia.
• Their are certain advantages in Asia such as they have a cheaper labour force and cheaper resources.
• However they will have to increase spend in R&D to adhere to the cultural differences faced when entering the non-western market. IKEA’s success in the non-western markets will largely depend on their ability to comply with cultural differences.
Recommendations
Recommendations• There are cultural differences in how customers
shop, what they buy, their basket size and how they can be marketed to.
• The language barriers in different non western countries will need to be addressed.
• Using China as a beachhead was a good indication of how the market is different.
RecommendationsMarketing in Saudi Arabia. Highlighting
the difference in cultures across the
world that IKEA have to adapt too.
RecommendationsFollowing their expansion into China is their competitive advantage be secure?• There is a low cost living in the Chinese market. Many customers are working
class people. IKEA’s competitive advantage might not be as strong as they will be competing with other competing low cost brands.
• Other companies will have access to the cheap resources. They may try to compete with IKEA. May under estimate the scale of IKEA’s operations.
• May prove harder to differentiate on price in the type of market that China is. The Chinese market is know for producing cheap goods.
• The ‘IKEA experience’ may not be appreciated by customers straight away. They will have to adapt certain aspects to work with different cultures.
Recommendations
Recommendations
Introduction of an eco-friendly furniture range• Large corporations are sometimes perceived as not eco friendly.
• Eco friendly customers may think IKEA only produces low cost products at the expense of the environment.
• Introduction of an eco friendly range would capture more customer for IKEA that may not have considered shopping there before.
• These CSR practices would appeal to all their customers that not only are they offering low cost, good quality but also are looking after the environment.
Recommendations
Justifications
Introduction of an eco-friendly furniture range• The amount ‘Green customer’s’ are steadily increasing
• IKEA could attract these customers by offering a range especially designed with their eco-friendly customers in mind
• Potential offering of customers to recycle their goods with IKEA in order to earn rewards such as loyalty card points or money of their next purchase
Conclusion
Introduction of an Eco friendly
furniture/product range would capture
new customers
They would be able to maintain their
competitive advantage, once different cultural
aspects are considered
IKEA should continue with non-western expansion. Offers
huge potential after an investment in R&D of different markets
IKEA should continue with their proposed growth strategy in order to increase
profits and gain more customers
Conclusion
