Professional Documents
Culture Documents
Strategic Management Final Project Report: Industry: Home Furnishings & Fixtures
Strategic Management Final Project Report: Industry: Home Furnishings & Fixtures
Detailed Analysis:
Ashley Furniture:
The major difference in the strategy of both the companies was the target
segment that they were addressing. Ashley furniture was never a ready to
assemble furniture seller. Rather they were more into good quality but
higher prices model, where the customer was willing to pay more price for
a model but did not want to compromise on the quality of items. Ashley
furniture also had a more detailed section and variety rather than just RTA
furniture. As a result of the state of the art designs in the in house
production centre. It distinguished it from IKEA.
Business Model of Ashley Furniture
Godrej Furniture
Godrej Interio is India’s largest furniture brand. From manufacturing the
humble Storwel cupboard 80 years back to being a vibrant, innovative
brand with a diverse portfolio.
They love bringing alive your dream space. They emphasize comfort and
aesthetics while delivering well designed, fun and functional furniture
solutions to you. True to the Godrej mission to conserve the environment,
they design products, set up processes and use raw materials that are
eco-friendly to do our bit to preserve natural resources. They offer our
customers home and office furniture, along with solutions for laboratories,
hospitals and healthcare establishments, education and training institutes,
shipyards and navy, auditoriums and stadiums. They are present across
India through our 50 exclusive showrooms in 18 cities and through 800
dealer outlets.
Godrej Interio is a business unit of Godrej & Boyce Mfg. Co. Ltd. - part of
the Godrej Group, one of India’s largest engineering and consumer
product groups. Godrej Interio is more of a luxury brand that caters to the
interior requirements of upper middle class and upper class households in
the country. Unlike IKEA and Ashley Furniture it is not a giant fish in the
market because the furniture market is primarily unregulated and
unstructured in India. It is still dominated by traditional methods of
furniture making.
Godrej saw an opportunity and launched it’s furniture section. It met good
response and quickly dominated the market. They also provide
dedicated interior solutions to the customers which the other two
don’t.
IKEA has an original approach to deal with customers: it employs the self-serving
method. Customers chose their products, take them out of the shelves and
assemble them at home on their own. Although this approach is quite unusual in
the furniture business the customers are willing to do that because of the low
prices, the easy to handle and storable flat packages and simple constructible
furniture. With this limited customer service IKEA safes sales staff and customers
don‘t have to wait long to be served.
Activity system map gives a clear picture of the activities of the company. In this
clusters of activities and processes which support the core competences are
linked. Such a map makes it clear how a company’s activities are interlinked. In
the activity diagram the core competencies are shown in dark boxes.
A failure of any of these activities may have an effect on the core competence,
and therefore on the company’s overall success and competitive position.
Transportation
Provided
Variety brings
customers Year round
stock.
Non Quality at
Wide Variety modular affordable
and easy
manufacturing and Modular prices
design
Wide Variety
and easy
Wide range of
Manufacturing manufacturing
designs
process
optimization
Q. 3 Low Cost Providers as well as the leading
Organizations with Diversified Product/ Service
Providers for India and for the 5 Continents.
India:
Low Cost Provider:
Diversified Service provider: Godrej & Boyce Mfg. Co. Ltd. (Godrej
Furniture)
Mission: To satisfy all those users who have chosen Amat to furnish
their spaces. To look after the requests and needs of interior design
professionals. To create new products with an original design,
functional and ergonomic.
Vision: constantly improve our team, the organisation and the
production facilities.
North America:
Diversified: Ashley Furniture
Mission: Why do more people buy Ashley than any other single
furniture brand? Because at Ashley Furniture Industries, we know it
takes more than just the ability to make good furniture to become
the #1 selling brand of home furniture in North America
Vision: To satisfy the customers’ needs without compromising on the
quality of the products and make it affordable for everyone.
Europe
Diversified: Calligaris
Latin America
Diversified: Rotta Furniture
Q. 4
Political
• The level of corporate tax and consumer taxation regulated by political
authorities of any country affects corporation’s after-tax income. The rate of
corporate tax impacts profits, hence lowering after-tax income. Hence, IKEA
regional profits are subject to regional tax laws. However the specific
characteristic such as subsidiary model of the furniture retailer also plays a
major role in the actual tax rate. It is also learnt that corporate tax rate
impacts the structure of the business. IKEA business structure, a subsidiary
model propels its subsidiaries to abide by regional tax laws.
• Tariff and trade barriers also impact businesses. Some of the major reasons
for imposing tariffs and trade barriers such as protecting local employment,
new industries, consumers, retaliation and national security, tariffs increase
the prices of imported products into the country. This benefit the local
producers who are not forced to reduce their prices, however local consumer
pay higher prices. Considering the case of IKEA and its reliance on local
manufacturers for its products rather than importing products into the local
market, tariffs and trade barriers seemingly have little influence on its
business profits.
Economical
• Economic growth of individual markets has its influence on businesses. For
example, rapidly growing economies provide higher standard of living and
higher employment rate. As a result, consumers’ disposable income
increases and so does their purchase power, ultimately benefiting business
profits. In particular with the emerging economies showing high potential of
economic growth, provides a promising future for corporation such as IKEA.
• Other factors such as cost of labour also impact business success. In regions
such as India and China popular for their low-cost yet skilled labour, provides
IKEA with a wide profit margin.
• Inflation rate is another important factor affecting business and consumer
experience. For instance, high inflation rate such as in the UK deforms
consumer behaviour, destabilising markets and generates avoidable
shortages of resources. Similarly, in countries with high inflation rate, trade
unions demand higher wages, distorting the entire value chain.
• Market trends should be closely observed to make strategic decisions
benefiting the business.
Social
• Social factors such as modifications in demographic variables like income,
age, family size etc. of different countries significantly influence the strategic
decisions made by the business. As an example, ageing population is less
likely to buy furniture whereas younger generation would demand trendy
furniture that should also add value to their purchase.
• Demand of certain products is controlled by changes in demographics. As an
example, a major shift of rural population to urban areas due to job creation
indicates higher demand of less costly products for new families to get
settled.
• Cultural factors, fashion trends and consumer behaviour also regulate
demand trendier, less bulky, and easy-to-assemble furniture.
• Reduced income levels place furniture purchase at less priority.
Technological
• Emergence of technology particularly popular with in the retail sector such as
RFID and online and mobile shopping, has immensely benefited corporations.
RFID helps businesses to reduce their cost of operations through inventory
shrinkage, smart labelling, self-stocking, efficient checkout process etc.
• Further on easy access to retailer’s online stores provides enormous selling
opportunities for the seller. In addition, technological innovations in the retail
sector like consumer mobile payment, and mobile gift cards promises
consumer to experience easier, and reliable means of payment.
• The increasing popularity and reliance of businesses on social media as an
unconventional marketing channel, benefits firms by increasing awareness
and reach amongst target market, marketability factor, increased website
traffic, ability to develop community and relationship with customers and so
forth.
Environmental
• Factors such as ethical business operations demonstrating sensitivity and
accountability towards carbon-emission, forestry, community development,
and supplier conduct issues are significantly important for business success
and sustainability.
• Industrial giants such as IKEA are constantly scrutinised for their contribution
towards carbon emission, disposal of hazardous manufacturing waste in the
environment, recycling, and supplier behaviour. Therefore local governments
ensure that environment can be protected, compelling businesses to meet
specific standards to reduce the adverse effect of business activities.
Compliance with these regulations is one of the most essential success
factors.
Legal
• Consumer protection legislations restrict the business in terms of what they
are permitted to do along with adding cost to business operations. This
means that products that are manufactured must comply with the consumer
protection legislations of respective country of operations. So the additional
costs come from changing business practices, compliance with the law,
damaged reputation and image within the consumer market etc. that is
ultimately borne by the corporation.
• Other legislative requirements such as employee protection, health and
safety at work etc. demand proximity of business objectives with the local
legislations. For instance, IKEA is lately accused to be contradicting with its
Group values, when the Saudi version of retailer’s catalogue airbrushes
women model out. Even though the company was complying with local laws
against advertising women in Saudi Arabia, nevertheless accusation of
contradicting with its Group value is likely to alter consumer perception
towards the corporation.
4.1.2 Porter’s Five Force Analysis
Growing markets made IKEA diversify its business empire into food
and textile industry.
IKEA also went into the mobile industry by offering cheap and
flexible non-contract mobile services for its customers, which is very
unique and unheard of in this industry.
IKEA has a huge market presence over Europe, US, Asia and
Australia. It is virtually impossible for any new entrant to pose a
threat to an already well connected business empire with
geographic and product diversity. But it Still faces competition from
Target, Grate & Barrel, Wal-Mart retailer.
Threat of Substitutes
The threat of substitutes is medium. Though there are a number of
substitutes in home furnishing industry, the low-to-medium income
customers tend to stick with IKEA due to the cost effectiveness.
IKEA has been criticized for poor customer service, stock availability,
product guarantee and lesser variety.
Strength
The key strength of IKEA is application of strategic practices such as
optimising material to reduce manufacturing cost, development of
manufacturing plants to optimise use of recycled material.
Weakness
The size and scale of its global business. This could make it hard to
control standards and quality. Some countries where IKEA products
are made do not implement the legislation to control working
conditions. This could represent a weak link in IKEA's supply chain,
affecting consumer views of IKEA's products.
The need for low cost products. This needs to be balanced against
producing good quality. IKEA believes there is no compromise
between being able to offer good quality products and low prices.
Threats
The global recession and suppliers’ issues particularly threaten IKEA.
Furthermore, social trends showing lowered entrance of first-time
buyers into the housing market also affect furniture sale.
Increasing competition and lowered disposable income are factors
that motivate buyers to purchase low price furniture, even at the
cost of compromising quality. Threats such as these, demands the
furnishing giant to reform its value chain, and optimise innovative
technology in order to provide good quality at lowered prices.
Strategic development in this regard would also raise entrant
barriers into the industry, providing possibilities to maintain and
increase its market share.
Like many other furniture companies, Ashley Furniture Industries sells its
products, such as home furnishing, accessories through two main
distributions: one is independent channels; another is more than 400
Ashley Furniture Homestore retail furniture stores. All the stores are either
owned by the company or licensed to other businessmen in North America
countries, such as USA, Canada, Mexico, Central America and Japan.
The mission to become the BEST Furniture Company reflects its proud past
and shows the desire about future. And with over 60 years of innovation,
creation and experience in the furniture industry, the company already
became the leader in the industry which focuses on the quality of its
furniture products. At present, the company has manufacture plants
across the United States and Pacific Rim Countries, mainly in China
Low price/ low added value: providing lower price than it can be
found elsewhere.
Low price: based on a high volume with low margin product to bring
cost leadership as its competitive advantage.
Hybrid: Compete on price and seek to keep the margin by
controlling the cost of products.
Differentiation without price premium: Competition is principally on
perceived benefits but not on price.
Focused differentiation: Using unique qualities without substitution
to get premium.
The Strategic Business Unit chose for this research is the living room
division of Ashley Furniture. The business model of Ashley Furniture is
different from other competitors, by establishing for over 65 years, the
main business model of Ashley Furniture is the company design, build and
deliver its own furniture, and the company is in control of all aspects to
make sure the good quality.
The cornerstones of its business models are quality, style, selection,
service. They are all the foundations for Ashley Furniture making every
decision and the guidelines and principles to help the company achieve
the mission statement of being the best furniture company.
Therefore, the main business model of Ashley living room furniture used to
get competitive advantage is using Hybrid, which means by the methods
such as outsourcing a series of its products from Pacific Rim countries to
cut the cost of furniture and adding value to the products by quality, style,
selection and service.
Strengths:
Maintain the gross margin: Obviously, this technique assist the company
to maintain the gross margin by controlling the cost of furniture. By using
Hybrid strategy, the division still possesses the ability to control the cost
of products. On the other hand, by adding more value through design,
build and deliver the furniture to the customers, the products of Ashley
living room furniture are still attractive.
Weaknesses:
Bedding
o Pillow - Du Point, Sleepwell, Sleep innovations, Hudson Etc.
o Blanket and Quilt – KESS Inhouse, CC Home furnishing.
o Mattress Pads & Toppers – Simmons, Bergose Home Textile.
Décor
o Clocks – Horward Miller, Lexington Studio
o Candles & Candle Holders – CC Home Furnishings, Oddity Inc.
o Artificial Plants and Flowers – Allstate, Nearly Natural.
o Desk Lamps, Side Lamps Table Lamps.
Accessories
o Kitchen Accessories
o Bathroom Accessories
o Cookware and Bakeware tools
This list is not exhaustive and products can be added based on the usage
of the furniture. As the vast variety of the furniture offered by the stores
this will have many complementors.
Q. 5
5.1 Comment on the History, Evolution, Growth Rate,
Profitability Rate & Future of the Industry in which the
Organization is operating. How has it been for Organization as
well
History
Originally RTA furniture was known as KD for knock-down and
unfortunately the products came apart almost as easily as they were put
together. Substantial improvements in construction methods and
hardware have heightened product quality to its present consumer
friendly status of the 1980s. While RTA furniture has a long history in
Europe, the early introductions into the U.S. market were poorly
constructed compared to today's products. The original products were
vinyl-wrapped particleboard television stands and bookcases which sold
for under $40. The products were purchased as short-term, disposable
furniture, but the value was still good for the price paid. The industry
realized that long-term survival would entail increasing quality, design,
and function. Improvements have enabled composite board to be printed
with wood grains or coloured with coatings of paint or mela- mine. Since
assembly is not required and the machinery is automated, RTA furniture is
produced with less labour than conventional furniture. The initial
investment in equipment is recovered through reduced production and
labour costs. Packaging the product in boxes is the most labour intensive
step.
Profitability:
Imports from China reached $11.6 billion last year, an increase of 7.4%
over the country’s 2012 figures of $10.8 billion. China comprised 59% of
the total furniture imported into the United States in 2013, 5.2 times
greater than the No. 2 importer Vietnam.
Indonesia just edged out No. 6 Malaysia, who realized an 8.7% decrease in
shipments to $599 million.
U.S. furniture factory shipments were $23.2 billion in 2013, up 4.8% from
the previous year, per Smith Leonard’s latest survey of residential
furniture manufacturers and distributors. Data from industry analyst Jerry
Epperson shows that 65% of total upholstered furniture is made in the
U.S., while 36% of all case goods are made in America.
The report, the Global Furniture Market 2012-2016, has been prepared
based on an in-depth market analysis with inputs from industry experts.
The report covers the market in the Americas, Europe, and the APAC and
MEA regions; it also covers the Global Furniture market landscape and its
growth prospects in the coming years. The report also includes a
discussion of the key vendors operating in this market.
5.2 Size of the Industry across the world and the country
where the organization is operating
Market Outlook
The global market for home furniture and decoration was negatively
impacted by the housing crisis as homeowners cut down drastically on
non-essential spending, postponed home improvement and decorating
projects, and delayed buying new homes. Due to recovery in the housing
sector and in the wider global economy, demand for home furniture and
decoration has begun to turn around. With employment figures improving
and levels of disposable income rising, property owners are more readily
investing in their homes.
5.3 Key success factors for any organization operating within the
Industry and how is your organization performing on those criteria
The marketing mix starts with product strategy. Product covers more than
the physical goods the company wants to sell. It is the goods-and-service
combination the company offers to the target market. Thus, IKEA offers a
whole range of products, almost everything you need for your home. The
same category of products, for example, sofas, IKEA designs models with
different features. Some sofa models are even provided with different
covers to choose from. IKEA is positioned as selling at affordable price and
offering reasonable quality. In order to cut down the costs, IKEA does not
wrap its products fancily but with simple and environmental friendly
material. Here we see again the societal marketing concept takes into
effect. Concerning services, IKEA encourages its customers to do-it-
yourself (DIY) but it also provides technical help if needed.