Describe the key element of IKEA’s globally successful business model.

What are the

sources of IKEA’s competitive advantage?

IKEA's globally successful business model is based on eliminating the worst aspect of furniture

shopping. Furniture was viewed as an investment for the following 20 years before Ikea ever

existed. This led to a great deal of worry and uncertainty. They produced items that were well-

designed but not especially long-lasting, meant to be used briefly before being discarded when

they wore out or, more likely, when the consumer had moved up to a higher strata of taste or

purchase. Traditional furniture stores are still adjusting to this fundamental shift in the home

furnishings industry. IKEA is also appealing to the right crowd. Ikea is popular with young

people. The products have a "whimsical" name, a straightforward style, and are tidy. In addition,

Ikea is renowned for providing employees a living salary and being open about the

manufacturing process. They scream Generation Y, plain and simple. The items for sale at

IKEA are reasonably priced without being overly so. Ikea's price range is ideal. Although deep

discounters like Aldi offer lower costs, consumers believe they are getting a good deal at Ikea.

Nevertheless, Ikea is significantly less expensive than rivals like West Elm and Bed, Bath &

Beyond. The IKEA stores are probably a destination. Customers need a reason to visit stores as

e-commerce grows in popularity. Ikea has established itself as a distinctive shopping location

thanks to its sophisticated showroom and cafeteria. Ikea is a stand-alone store that attracts

customers whereas many retailers enter shopping malls looking for traffic.. Customers travel to

Ikea, a stand-alone store, with a specific purpose in mind. IKEA's low prices and tenacity were

the keys to its successful entry into the furniture retail industry. IKEA's creator, Ingvar Kamprad,

first started selling furniture by mail order. He then encountered a social issue and used it as a

commercial opportunity. Furniture costs have increased by 41% more than any other retail

commodity since 1935. In response, Kamprad developed a range of furniture that was

affordable for everyone. The current furniture cartel made an effort to stunt Kamprad's

development and prosperity. The cartel forbade Kamprad from doing direct consumer sales at
trade exhibitions and subsequently convinced the manufacturing cartel to stop providing

Kamprad with products.furniture. In response, Kamprad switched suppliers, enabling it to

decrease its pricing even further. IKEA's success was partly attributed to low costs and

Kamprad's aptitude for profiting from unfortunate circumstances.

IKEA's long-term competitive advantage stems from a variety of factors, including but

not limited to operational effectiveness, brand recognition, a strong network of suppliers,

a wide range of products, and cost leadership. IKEA has become the most well-known

company in the world for home furnishings thanks to its honest commitment to provide

an exceptional customer experience through a distinctive franchise-based business

model, which is built around the needs and preferences of the consumers.

The millennial generation is the brand's primary target market, thus the business

designs and develops home furnishings products to suit modern consumers'

preferences. However, the company has managed to stand out from the competitors

thanks to both its price approach and the way it markets itself. The cornerstone of

IKEA's pricing approach is its separate from product design, business strategy. We are

talking about the main sources of IKEA's competitive advantage here.

IKEA’s Main Sources of Competitive Advantage :

Lower Prices:

IKEA's primary competitive advantage comes from offering lower pricing. IKEA uses a

superb pricing strategy, just like Walmart. Through its price approach, the corporation

has been able to maintain its dominant position. Customers adore IKEA for a variety of

reasons, though. However, cheaper pricing do not necessarily imply that the company's

items are of lower quality.

IKEA, on the other hand, produces high-quality goods. IKEA's pricing strategy is aimed

at the middle-class consumer group, which makes up the majority of their clientele

globally. The brand stands out from its rivals due to its price strategy. The business

provides a wide variety of home furnishing options at quite low costs.

Brand image:

IKEA has continued to project a brand image that is friendly to customers, which is a

significant source of competitive advantage for the company. The business has

established a distinctive position for itself in the international home furnishings market

by concentrating on providing superior customer experience and greater customer

happiness. IKEA is renowned for being a creative company in addition to being a

customer-friendly and moral brand.

The organization has placed a strong emphasis on innovation to increase efficiency

across all facets of its operations, including supply chain, production, marketing, and

sales. IKEA is focused on providing top-notch service and elevating customer

happiness regardless of the sales channels it uses, including its network of company

stores and online platforms. This is a significant aspect that sets IKEA apart from other

companies and has contributed to It becomes recognized as a leader.

A stronger reputation in the industry has been cultivated by the company's emphasis on

customer service, in addition to its pricing policy and gorgeously designed home

furnishing solutions. Due to the intense rivalry in the business, it is vital for home

furnishings brands to retain a solid reputation and brand image. IKEA's marketing
strategy has also assisted it in creating a unique identity and gaining an advantage over

competing businesses.

Cost efficiency:

Cost effectiveness is another important element of IKEA's competitive advantage. The business
model of the company is extremely profitable despite its low-cost pricing strategy. In addition to
IKEA's operational model, its supply chain is essential to maintaining the profitability of its
business strategy. It does not imply, however, that the business uses inferior raw materials. The
things still have good quality.

The business has successfully managed a strong supply chain network and implemented cost-
cutting strategies in its supply chain, manufacturing network, and sales network. Its extremely
effective, sustainable, profitable, and cost-efficient business model gives it an advantage over
other brands. All of these qualities, combined with inventive design, have made this possible.
cost effectiveness is one of the main sources of long-term competitive advantage for IKEA,
which reaps the rewards of a strong global market for its reasonably priced home furnishings. In
addition to production and supply chain, the organization also makes financial savings in the
field of logistics.

Marketing:

The home furnishings company has created a reputation for being a consumer-friendly

brand that offers goods at reasonable rates, and IKEA's marketing strategy gives it a

competitive edge. The corporation has implemented creative marketing strategies,

much as it does in the supply chain, production, and design areas of its business. To

get the best results, the organization combines digital marketing with in-store branding

and advertising. IKEA uses a variety of marketing strategies, including social media

marketing, digital marketing, and promotional catalogs.

The business has been able to increase client interaction rates by using social media.

Additionally, the business engages clients and provides them with a distinctive in-store

experience by utilizing AI and virtual reality.

IKEA stores serve as a brand's marketing platform via which it advertises its newest

products. The business has had significant success by combining its offline and internet

sales channels with other marketing platforms. A wide variety of products are available

on its website, and clients have the ability to customize their purchases in addition to

placing orders online.

Supply chain:

IKEA's effective supply chain management is also largely responsible for its success.

The backbone of a brand is a solid supply chain and distribution network, and IKEA

excels in each of these areas. An effective supply chain is crucial to maintaining your

leading position in the industry as well as gaining and maintaining a competitive edge.

IKEA's supply chain is crucial in guaranteeing the brand's cost-effectiveness and that

the business can consistently offer its customers high-quality goods at competitive

costs. The business has placed a priority on maintaining solid, long-term partnerships

with its suppliers. It has created relationships with about 1800 suppliers and sources

and 42 Trade Service Offices to manage supplier connections.

International Presence:

IKEA has effectively managed its global presence thanks to a well-organized distribution
network that combines online and physical sales channels. As a result of the inauguration of 12
new stores in 2019, there are now 433 IKEA locations worldwide. In addition, the business is
doing e-commerce in 50 markets to reach clients.
IKEA wants to contact with and reach 3 billion people by the year 2025. IKEA's 422 locations
saw more than 957 million customers in 2018. IKEA is consistently extending its reach via both
physical and online channels. Because of its global reach, the brand's customer base continues
to expand. The profitable expansion of IKEA is still being driven by a stronger global presence.

Design, quality, and range of products:

The IKEA brand stands out from the competition in the market thanks to its wide

selection of high-quality goods, contemporary designs, and capacity to wow clients by

regularly stocking their homes with the furniture that today's buyers want. IKEA is

almost without peer when it comes to design, and it has a fantastic team that is

dedicated to creating new furnishings and goods.

IKEA refers to its approach to design as democratic design, which combines

affordability with form, function, quality, design, value, and sustainability. It has

introduced a wide selection of furnishing options for every space in your house. The

IKEA product line currently includes about 9500 items, and it is always expanding.

Nevertheless, IKEA always keeps the client in mind when making decisions about

product design, product quality, price, and in-store customer service.

IKEA is a recognized brand around the world with operations in over 44 nations. The global

middle class is the target market, which makes India the best country to have a presence in.

India has one of the world's fastest expanding middle classes. In India, IKEA has a long history.

Since the 1980s, India has primarily been used as a low-cost sourcing location. The Indian

government did not, however, approve IKEA's investment proposal until 2013.
Let's take a quick look at the Indian market to have a better understanding of why a company

like IKEA would want to have a retail presence there.

India's potential market for furniture is $20 billion, but only 15% of it is organized. India's

expanding middle class and rising disposable income

One of the world's greatest untapped retail markets is in India. When measured in terms of PPP

(Purchasing Power Parity), India ranks third in the world.

The challenges IKEA had when trying to enter the Indian market are well highlighted by a PEST

(Political, Economic, Social, and Technological) examination of that market. India has an

extremely complicated political system that highlights the disparities in people's ideologies,

cultural practices, and corporate practices. The problem is corruption. IKEA has a strong anti-

corruption stance, which is problematic when it tries to function inside the Indian political

system.

India's policy on foreign direct investment was another significant obstacle. India only permitted

IKEA 100 percent FDI in a single brand in 2012, with the stipulation that 30 percent of the

company's products come from micro, small, and medium-sized businesses in India. The

company has serious concerns about this. IKEA wanted to extend the window to 10 years, but

the company would have 5 years from the date of market launch to comply. IKEA was

additionally prohibited from running food and beverage shops within the store by India's Foreign

Investment Promotion Board. IKEA would have to alter its business strategy as a result, which

would impact the IKEA shopping experience. IKEA fought hard to have these restrictions lifted,

demonstrating to the Indian government the benefits of having an IKEA presence.

Despite having a successful global presence in 44 nations, IKEA has some difficulty breaking

into the Indian market. IKEA's 2009 store openings were halted by Indian foreign direct

investment. The company's owners persisted and tried again in 2012, but it did not succeed. By

2013, their application had been approved since the Indian government had updated some of

the rules at this time. Since IKEA met all the standards, nothing other than politics could prohibit
the company from being given the opportunity under normal conditions. While the reforms were

being made, politicians and activists blocked their implementation. Another crucial concern was

the circumstances around local sourcing.

Local sourcing requirements were a critical factor in the Indian market's delay as well. The

critics' arguments were based on the idea that IKEA's entry into the Indian market would have

an impact on small businesses, which would then have an impact on regional industries.

IKEA's market entry plan for the Indian market

IKEA found it difficult to break into the Indian market. However, it employed a number of tactics

to be successful. The business agreed to abide by the rule requiring it to get some of its items

from Indian micro, small, and medium-sized businesses. For instance, IBM promised to

purchase 30% of the items it uses from these micro, small, and medium-sized businesses in

India, but it had the option of choosing which businesses it traded with. Earlier than when the

Indian government

IKEA had previously begun working with several Indian suppliers prior to the Indian government

imposing this requirement on all businesses wishing to invest there. A total of 1,450 suppliers

and close to 70 suppliers were involved in the annual supply of items worth $600 million. IKEA's

president was so keen that an office was opened in India in 2007 to do market research on the

various dynamics. The suppliers from India were watched to make sure they weren't harassing

workers or involving minors in their operations, which would likely damage IKEA's reputation

and maybe prevent them from being given an opportunity to enter the market

IKEA promoted corporate social responsibility, which included initiatives like education, female

empowerment, health, and water, with the aid of other organizations like UNICEF.

Numerous citizens of the nation profited from the developmental projects. IKEA's decision to go

this path has benefits. First of all, the rules were so stringent that the only way to appease the
government was to bow low and assist its people. The IKEA beneficiaries' protests were enough

to persuade the government to enact the reforms that they did. Due to the relationship that had

previously been established with the suppliers, it was also a method of luring customers. One

drawback is that it was dangerous to provide all those subsidiaries because there was no

assurance that they would be allowed to function in India.

The business takes on a fair amount of risk.

The wildly successful business strategy of IKEA

Value proposition served as the foundation for the IKEA business model. This indicates that the

likes and preferences of the clients were carefully examined. This greatly increased consumer

demand for their products in the most of the markets they entered, albeit initially it was a little

challenging in India. A crucial component of the model was the management team. It was

extremely sustainable, and they worked for IKEA's overall welfare. The management team,

which was headed by the company's founder, Kamprad, developed a foundation to help IKEA.

The business concept also relied on a marketing plan.

14.0 Report Conclusion

Dynamism and a clearly defined strategic approach have consistently been the ways in which
IKEA has lived up to its objective, all the while remaining open-minded regarding its external
and competitive environment. The company entered the Indian market after performing market
research to ascertain regional demands. IKEA's success is based on its capacity to provide for
a big client base at reasonable prices while still utilizing aggressive business strategies that
benefit both people and the environment. The Swedish multinational furniture business initially
opened a store in India using a similar strategy. As the company enters the growth phase in the
Indian market, its successful collaborations with Indian suppliers are a factor in its success.