THE IKEA APPROACH

IKEA, a global leader in furniture and home accessories retail, strategically evaluates
supplier power, buyer power, threat of new entrants, threat of substitutes, and
competitive rivalry to maintain its competitive edge. The threat of new entrants is
moderate due to barriers like economies of scale and brand recognition, but evolving
customer preferences and online trends present opportunities. IKEA's bargaining
power with suppliers is moderate, leveraging its global scale and purchasing power,
though factors like raw material availability can impact this. Buyer power is relatively
high, driven by access to alternatives and price sensitivity, prompting IKEA to focus
on differentiation and competitive pricing. The threat of substitutes is moderate to
high, addressed by IKEA through product innovation, affordability, and brand
strength. Industry rivalry is high, countered by IKEA's strengths in economies of scale,
innovation, efficiency, and customer-centric approaches.

IKEA employs cost leadership in the furniture retail industry through economies of
scale, efficient supply chain management, flat-packaging, self-assembly, vertical
integration, and a focus on affordable design. Operating on a massive scale reduces
per-unit costs, while streamlined processes and strategic material sourcing minimize
production and distribution expenses. Flat-packaging and self-assembly reduce
transportation and labour costs. Vertical integration controls costs across the value
chain. Emphasizing affordable design with cost-effective materials maintains quality
and style. These strategies allow IKEA to offer a wide range of stylish, functional
products at competitive prices, appealing to price-conscious customers and
maintaining its global leadership.

Differentiation serves as a crucial element enhancing IKEA's competitive edge in

global markets. It's observed that IKEA consistently upholds distinctive designs and
high-quality standards for its furniture, setting its products apart in competitive
arenas. Moreover, IKEA maintains a pricing strategy that typically undercuts market
rivals by 5-10%. Furthermore, I noted that IKEA's primary aim revolves around
enhancing the everyday lifestyle for a broad spectrum of individuals.

Game Theory:
IKEA uses the application of game theory to analyse and interacts with its
competitors such as Amazon, Walmart, and Home Depot. It highlights IKEA's
strategic approaches, including unique product design, lower pricing costs, and cost-
saving measures in its supply chain management. IKEA's use of flat-pack shipping in
pricing strategies is also noted, contributing to increased retail sales volume across
European, Asian, and North American markets. Additionally, the passage mentions
IKEA's expansion into various countries, such as Germany, where it competes with
companies like "The Danish Company Jysk." Overall, the use of game theory helps
understand IKEA's competitive strategies and market positioning.
Business Model:
The business model strategy of IKEA highlights the two main pillars of business
structure which are Franchising and operations. It is observed there is a hike in IKEA's
franchising, with 422 new stores added in 2018, resulting in a total of 11 franchises
and a sales volume increase of 24.9 billion. Additionally, 3% of IKEA's sales come from
the franchising system. IKEA's focus on innovative business models aimed at
enhancing consumers' daily lifestyles. This includes maintaining a competitive edge
through a 20% reduction in prices compared to competitors, achieved through cost-
saving approaches. Key aspects of IKEA's business model include unique furniture
design, affordability, comprehensive solutions, and inspirational ideas. Vertical
integration and backward integration are the key strategy that IKEA uses in its
business structure.