The Strategy Adopted by Ikea

Topics: IKEA, Product differentiation, Strategic management Pages: 5 (1445 words) Published: July 18, 2011
1 Explain, in details, the strategy adopted by IKEA, and how it successfully did the positioning.

***At business level strategy
Focus Strategies
By implementing a cost leadership or differentiation strategy, IKEA choose to compete by exploiting their core competencies on an industry-wide basis and adopt a broad competitive scope. Alternatively, IKEA can choose to follow a focus strategy by seeking to use their core competencies to serve the needs of a particular customer group in an industry. In other words, IKEA focus on specific, smaller segments (or niches) of customers rather than across the entire market. Focused Business Level Strategies involve the same basic approaches as Broad Market Strategies. Focus strategies can be based either on cost leadership or differentiation. Focused Cost Leadership Strategy

IKEA that compete by following cost leadership strategies to serve narrow market niches generally target the smallest buyers in an industry (those who purchase in such small quantities those industry-wide competitors cannot serve them at the same low cost). Global furniture retailer IKEA provide customers with “affordable solutions for better living” through use of the focused cost leadership strategy. The company offers home furnishings that combine good design, function, and quality with low prices. IKEA does this by offering low-cost, modular furniture (assembled by customers), using self-service as an alternative to having sales associates follow and pressure customers to buy. IKEA displays its products in room-like settings so that customer can view different combinations of furniture, eliminating the need for assistance from sales associates or decorators to visualize the setting and reducing employee costs. Customers also pick up their own purchases to reduce the company’s costs. Finally, stores address the needs of shoppers (e.g., extended hours and in-store childcare) while they shop. Focused Differentiation Strategy

IKEA following focused differentiation strategies produce customized products for small market segments. They can be successful when either the quantities involved are too small for industry-wide competitors to handle economically, or when the extent of customization (or differentiation) requested is beyond the capabilities of the industry-wide differentiator. For example, Manufacturers such as Ferrari, Aston Martin, and Lamborghini compete in the tiny super car category with prices starting at $150,000 and running as high as $600,000. These cars are more than just transportation. Just as was noted for industry-wide differentiators and low-cost producers, IKEA choosing to focus must be particularly adept at completing primary and secondary value chain activities in a superior way. Issues related to the five competitive forces are similar to those discussed for the differentiation and cost leadership strategies, except that the competitive scope of the focus is on a narrow segment rather than the industry.

***At corporate level strategy

The IKEA international strategy uses a franchise corporate level strategy spreading risks and sharing resources. And as IKEA has moved into an ever expansionist mode, pursuing both multi-point competition and vertical integration to achieve market power, it found markets ready and willing to adopt the IKEA mindset of low cost, European designed furniture – “supplying Scandinavian design at Asian prices”. Britain, for example, was wallowing with a complacent Habitat (nicknamed “Shabitat”) which IKEA came to own. This was another key to the IKEA success story – timing. IKEA set up international distribution depots, automated warehousing full of flat pack products and licensed massive franchise stores globally that all paid three per cent straight off the top of sales back to IKEA. And profits had consistently, and still do, yield unprecedented industry margins of 17 – 18 per cent on all IKEA products

2 Why is this strategy...
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