Ikea
Introduction
IKEA states in their business idea: "We shall offer a wide range of home furnishing items of good design and function, at prices so low, that the majority of people can afford to buy them"(IKEA 2005). IKEA manage to keep costs low by their superior relationship with their suppliers were they buy low-cost components in huge quantities. Together with efficient warehousing and customer selling service it passes on to customers resulting in lower prices, anywhere from 25 - 50 % lower than its competitors. However, at the same time they manage to operate with 8 - 10 % profit margins, much higher than the industry average (Norman and Ramirez.1993).
We have made a short and simple SWOT analysis to get an overview their capabilities. Strengths Weaknesses
High variety offering right range of products
Higher margins than competitors
Economies of Scale
Logistics - inventory management
Long term relations with suppliers
The business culture
Organisational capabilities adapting change
Market leader - Category killer
High service level - few stock outs
Low lead time
Good product information Too big may increase bureaucracy
Franchising higher control cost
Mass marketing expensive
Charismatic leader hard to replace
Search cost for cheaper components
Market surveillance keep up with trends Opportunities Threats
Expanding Asian market
New technology may lower marketing cost
More focus on environmental issues New trends individualism
Time is money people do not have the time to put products together
Too dominate defence position man hamper innovation
The key elements to IKEA 's winning formula are well known: simple, affordable, functional, high quality, Scandinavian design, an extensive product line, knock-down furniture kits that customers transport and assemble themselves, low cost, unique logistics, huge stores located in suburban areas with plenty of parking space, day-care facilities and
IKEA states in their business idea: "We shall offer a wide range of home furnishing items of good design and function, at prices so low, that the majority of people can afford to buy them"(IKEA 2005). IKEA manage to keep costs low by their superior relationship with their suppliers were they buy low-cost components in huge quantities. Together with efficient warehousing and customer selling service it passes on to customers resulting in lower prices, anywhere from 25 - 50 % lower than its competitors. However, at the same time they manage to operate with 8 - 10 % profit margins, much higher than the industry average (Norman and Ramirez.1993).
We have made a short and simple SWOT analysis to get an overview their capabilities. Strengths Weaknesses
High variety offering right range of products
Higher margins than competitors
Economies of Scale
Logistics - inventory management
Long term relations with suppliers
The business culture
Organisational capabilities adapting change
Market leader - Category killer
High service level - few stock outs
Low lead time
Good product information Too big may increase bureaucracy
Franchising higher control cost
Mass marketing expensive
Charismatic leader hard to replace
Search cost for cheaper components
Market surveillance keep up with trends Opportunities Threats
Expanding Asian market
New technology may lower marketing cost
More focus on environmental issues New trends individualism
Time is money people do not have the time to put products together
Too dominate defence position man hamper innovation
The key elements to IKEA 's winning formula are well known: simple, affordable, functional, high quality, Scandinavian design, an extensive product line, knock-down furniture kits that customers transport and assemble themselves, low cost, unique logistics, huge stores located in suburban areas with plenty of parking space, day-care facilities and
References: Dickson, Peter. 1992. "Toward a General Theory of Competitive Rationality". Journal of Marketing. Vol.56 (January 1992), 69-83. Johnson, Michael D. and Fred Selnes. 2004. "Customer Portfolio Management: Toward a Dynamic Theory of Exchange Relationship". Journal of Marketing. Vol.68 (April 2004), 1-17. Kahn, Barbara E. 1998. "Dynamic Relationships with Customers: High –Variety Strategies". Journal of Academy of Marketing Science. Vol 26, No 1, 45 –53. Levy, Michael and Barton A. Weitz. 2001."Retailing Management". McGraw-Hill: U.S. Levitt, Theodore. 1960. "Marketing Myopia". Harvard Business Review. July/August 1960. Normann, Richard and Rafael Ramirez. 1993. "From Value Chain to Value Constellation: Designing Interactive Strategy". Harvard Business Review. July/August, Vol.71, issue 4. Zeithaml, Valerie A. and Mary Jo Bitner. 2003. "Services Marketing – Integrating Customer Focus Across the Firm – 3rd edition ". McGraw-Hill: U.S.