Essays on IKEA Competitive Strategy Case Study

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The paper "IKEA Competitive Strategy" is a perfect example of a management case study.   IKEA is a furniture Multi-national cooperation selling Scandinavian-style home furnishings and other household goods for its customers at affordable prices (Rosenhauer 2008). This company operates in more than 33 countries with 231 stores (most of them in Europe and the rest in Canada, United States, Australia, and Asia) and hosts 410 million shoppers per year. IKEA started out its operations in 1943 by entrepreneur Ingvar Kamprad who still runs the company through a foundation by the holding company (INGKA Holding B. V) (Inter IKEA Systems 2011).

The company offers a product range of about 18000 items. Based on its original ethos of fusing cost obsession with design culture, the company utilizes its signature feature of flat-packed furniture which consumers can assemble for themselves at their homes, thus reducing the transportation costs. No matter how inspired, there is no design that can enter into the IKEA catalogue if it cannot be made affordable. The company has therefore held sustainability at heart and through their internal tune of ‘ low price but not at any price, ’ it designs its own furniture which is manufactured by about 1,500 suppliers in more than 50 countries (Inter IKEA Systems 2011).

Key components of the company’ s success lie in finding the right manufacturer for the right products, as well as their experience in retail marketing through the use of integrated marketing communication. This paper examines the competitive positioning of IKEA in the furniture retailing industry and analyses the strategic directions that the company has utilized to remain competitive in the global market. To determine the IKEA’ s competitive position, it is necessary to first understand the nature of the industry in which it operates by applying Michael Porter’ s five forces to the company. Porter’ s Five Forces Analysis IKEA can be evaluated using Porter's Five-Forces Model of Industry Competition: bargaining power of suppliers, bargaining power of buyers, the intensity of existing rivalry, the threat of substitutes, and the threat of new entrants (Porter 2008).

The analysis of these competitive forces helps to understand the strategy that IKEA utilizes in maintaining its market edge as well as competitive standing in the industry. Bargaining power of suppliers According to Porter (2008), “ powerful suppliers capture more of the values for themselves by charging higher prices, limiting quality or services, or shifting costs to industry participants” (p.

6). In the situation with IKEA, the company has thousands of suppliers who set the standards in delivering materials. Usually, the company sets out base prices for their products and then seek to balance between cost-effective labor and their product’ s quality standards (Finntrack 2005). Therefore most of the company’ s suppliers have to compete with one another for the production package implying that they have little bargaining power. Bargaining power of buyers Porter (2008) considers buyer power as the flip side of supplier power; powerful customers demand better quality driving up costs, capture more value by forcing down prices, and thus playing the industry participants against one another at the expense of the industry’ s profitability.

Buyers have low bargaining power due to the exiting low-price option that IKEA offers them. Although there are alternatives for furniture and other household items, the company’ s low price strategy has limited the consumers from choosing such an option (Inter IKEA Systems B. V.

2011). IKEA has found itself unique among other competitors for effectively responding to consumers who are price-conscious.

References

List of references

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Finntrack, E. 2005. IKEA Discussion Notes on Strategy: Analysis and Practice. McGraw-Hill Education, Europe.

Grant, R.M. 2010. Contemporary Strategy Analysis. 7th ed. Chichester: John Wiley and Sons

Inter IKEA Systems B.V. 2011. The Owner and Worldwide Franchisor of the IKEA Concept [online]. Available at http://franchisor.ikea.com/ [Accessed 05 March 2012].

Johnson, G., Scholes, K., & Whittington, R. 2010. Exploring Strategy - Text and Cases. 9th ed. Harlow: FT Prentice Hall.

Kim E, Nam D, Stimpert JL. 2004. “The applicability of Porter’s generic strategies in the digital age: Assumptions, conjectures, and suggestions,” Journal of Management 30(5), 569-589.

Norrmann,et al. 1993. Things That Make Us Smart. Reading, MA: Addison-Wesley Publishing Company.

Porter, M 2008. “The five competitive forces that shape strategy”, Harvard Business Review Journal, pp.79-93.

Rosenhauer, S 2008. “Profit is a Wonderful Word: IKEA’s Strategy behind the Profit.” Norderstedt: GRIN Verlag

Sand, C. 2010. The Packaging Value Chain. Lancaster Pennsylvania. DEStech Publications, Inc.

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