1. What factors account for the success of IKEA?
IKEA’s success was attributed to a number of core competency factors such as its strong brand image, having a well-defined target market, its cost cutting corporate culture which led to flat-packaging of its products, developing good working relationships with its suppliers, creating a “partnership” relationship with consumers and proper understanding of its consumers’ behavior.
IKEA was able to deliver superior customer value based on the above factors which led to customer retention and hence loyalty, which is a long term goal for any business to survive effectively in a dynamic economic environment. IKEA’s brand image has created a value proposition in its market as a low cost furniture retailer with its own niche Scandinavian design which was its point-of-difference that separated it from its competitors. Its brand also created significant barriers to entry as it is very difficult to duplicate its business model.
In terms of income segmentation, IKEA had a well-defined target market, i.e. the price-conscious consumer or those with limited resources, which enabled it to plan its product line and pricing strategies successfully. Insofar as psychographic segmentation was concerned, its customers tended to be strivers who were trendy and fun loving people: they favored stylish products that emulated the purchases of those with greater material wealth (Kotler & Keller, 2012). With this well-defined target market, IKEA was able to execute its product and price strategy which enabled it to offer tasteful furniture at low prices.
Cost-effectiveness was a major contributing factor to IKEA’s success. By being cost-effective and efficient, IKEA was able to work in tandem with their manufacturers and produce a product that was functional, durable and affordable for their target market, i.e. the price sensitive consumer, low to middle income, who want value for money and whose demand for furniture goods was highly elastic. Therefore no one group, manufacturer or consumer was absorbing the full cost of the product.
IKEA’s relationship with its 1,800 suppliers in 50 developing countries was a unique core competency that enabled it to support its corporate slogan, “Low price with meaning.” Having such good working relationships allowed them to gain a competitive advantage in pricing by finding the cheapest suppliers.
Moreover, IKEA created a differentiated brand personality from any other furniture store. By understanding consumer behaviors, it designed its stores to have an intentional appeal that once consumers walked in, the inviting atmosphere generated stimuli within the consumer, thus inducing purchasing decisions. This created emotional value by allowing customers to experience shopping that was appealing, inviting, unique and bright. Also, included in its stores were children’s care area, cafés and restaurants to satisfy customers’ needs and wants while picking up their purchases. These additional amenities exceeded consumer expectations as it was not seen in other furniture stores and hence, led to IKEA’s exceptional global success.
Lastly, the product and pricing strategy led IKEA to develop the synergetic value chain in which the customers became its partner in transporting flat packages with their furniture and putting it together at home which saved the company on product assembly and shipping costs (Kotler & Keller, 2012, pp34). This combination was key for IKEA to keep prices low and be successful at the same time. Therefore, the “partnering” concept with the consumer, truly gave the company a competitive advantage as they would have an easier time in transporting the furniture home and assembling it by themselves thus empowering customers to take a “do-it-yourself” approach. The mix of IKEA’s core competencies makes it very difficult for any competitors to imitate IKEA’s brand image and...
Please join StudyMode to read the full document