Definition of a Cost Leadership Strategy
Cost Leadership
By definition, a cost leadership strategy involves placing great emphasis on efficiency in all organizational activities in order to reduce the overall costs of products delivered to customers. Low cost leadership strategy will work effectively when the organization can provide products/services at a lower cost than the competition. The followings are the realms that we identified as factors for IKEA’s pursuit for “Cost-Leadership”
1. Mail-Order Service, Distribution of Catalogue
Kamprad started the IKEA business through mail-order catalogue in 1947. The mail-order service enabled Kamprad to invest less cash on the storage and display of the furniture provided, thus lowering the cost structure. Further, the widely distributed catalogues are also effective tools of promotion.
2. Independent Supplier
Due to the pressure from the retail cartel members, IKEA was prohibited to manufacture through some furniture makers. However, Kamprad chose to outsource from Poland, which allowed him to access cheaper material and labor cost.
3. Warehouse-Showrooms, Utilizing Self Control Warehouse, Customizing Studios
In 1953, Kamprad transferred a disused factory into warehouse-showroom. Some refer to it as a revolutionary act in retail industry. The conversion allowed IKEA to further utilize the warehouse space. A single spot – large warehouse serves both as storage space and display area. Besides, in the showroom, there are specially decorated corners called ‘IKEA studios’ which demonstrate a real life furniture mix. These studios serve as platforms for customers to freely customize and visualize their own space without adding costs to IKEA.
Differentiation
On the other hand, differentiation strategy is aimed at delivering products/services that are different from the product mix of the competition. Although IKEA seems to be mainly focused on cost-leadership, we also have identified some aspects that customers would perceive more differently than
By definition, a cost leadership strategy involves placing great emphasis on efficiency in all organizational activities in order to reduce the overall costs of products delivered to customers. Low cost leadership strategy will work effectively when the organization can provide products/services at a lower cost than the competition. The followings are the realms that we identified as factors for IKEA’s pursuit for “Cost-Leadership”
1. Mail-Order Service, Distribution of Catalogue
Kamprad started the IKEA business through mail-order catalogue in 1947. The mail-order service enabled Kamprad to invest less cash on the storage and display of the furniture provided, thus lowering the cost structure. Further, the widely distributed catalogues are also effective tools of promotion.
2. Independent Supplier
Due to the pressure from the retail cartel members, IKEA was prohibited to manufacture through some furniture makers. However, Kamprad chose to outsource from Poland, which allowed him to access cheaper material and labor cost.
3. Warehouse-Showrooms, Utilizing Self Control Warehouse, Customizing Studios
In 1953, Kamprad transferred a disused factory into warehouse-showroom. Some refer to it as a revolutionary act in retail industry. The conversion allowed IKEA to further utilize the warehouse space. A single spot – large warehouse serves both as storage space and display area. Besides, in the showroom, there are specially decorated corners called ‘IKEA studios’ which demonstrate a real life furniture mix. These studios serve as platforms for customers to freely customize and visualize their own space without adding costs to IKEA.
Differentiation
On the other hand, differentiation strategy is aimed at delivering products/services that are different from the product mix of the competition. Although IKEA seems to be mainly focused on cost-leadership, we also have identified some aspects that customers would perceive more differently than