IKEA CASE STUDY (Current Position, Value Chain Approach, Goes Forth)
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IKEA is the world’s largest furniture retailer, specialising in selling stylish, inexpensive, self assembly Scandinavian design furniture, home accessories, kitchens and bathrooms in their retail stores around the world. Delivering good quality contemporary design furniture to the middle class consumer is not the only focus of the IKEA group; it also sells a lifestyle that customers around the world recognise and embrace. IKEA is a global company that has invested and is present in many countries; it promotes its products and services using the same brand in all markets coordinated from its one main corporate office in Sweden which is responsible for a global strategy that concentrates on cost management, efficiency and quality. Globalisation, political-economical and social-demographical (see Appendix 1) factors, like: economic growth, deregulation, more disposable income, rising housing market led to the demand and opportunity for growth, which IKEA exploited.
The furniture retail industry is under a lot of competition and pricing pressure; as well as ever growing customer demand and growing environmental awareness. Through the control of the main four elements that can generate profit: product, place, promotion and price; enabled IKEA to expand and strengthen its positions through targeting a specific marker segment, product differentiation, unique value-chain and cost leadership. Deregulation of foreign investment laws allowed IKEA to successfully enter the global market, i.e. Opening-Up policy in China 1978 invited the foreign investment which led to economic upturn, more disposable income, rise in the housing market and subsequently demand for home furnishings. “The IKEA business idea is to offer a wide range of home furnishings with good design and function at prices so low that as many people as possible will be able to afford them. And still have money left!” (IKEA, 2003)
Competitors focus on delivering good customer service, when IKEA targets customers who prefer cost over customer service and have no objection to assembling the product. Therefore, keeping the prices low makes IKEA’s profit dependant on high customer turnover and with most of its business focused in the European market, 80% and high competition within it † left no other choice but to enhance value chain and economies of scale through expansion into new markets. Product
Around the world people associate Sweden with a fresh, fine way of life and that is what is reflected in IKEA products. The Company targets global middle class customers with shared buying habits. IKEA promoted the concept that customer expectations can be matched worldwide, throughout all their stores by offering a variety of good quality and contemporary design products at a low cost. However, by relying only on the social factor of customer spending habits and "Scandinavian" style was not enough. Failure to deliver in Japan was followed by IKEA exiting the market all together. Entry into the American market, however, posed different challenges for IKEA. Fierce existing competition, from Kmart and Target; who already had a set infrastructure and solid customer base † could still shake IKEA’s position in that market, if they copy its ‘out-of-box’ product design and keep the prices low. Another main concern in the US was the huge differences of customer demands inside the American markets. The Core product idea “one fits all” † was no longer acceptable, IKEA reacted by researching its new customers and was able to sustain the core product approach through the same product range with few local adaptations. Although the original formula is now a little more flexible, the main concept is retained and appears to be working for IKEA internationally as many other countries’ IKEA stores introduced a similar product approach. As IKEA enters Eastern European and Asian markets,...
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