THE IKEA APPROACH

– KEVAN SCHOLES

A presentation by Group A3
Anup Kumar Sharma (20PGPM009)
Debangee Roy (20PGPM015)
Sakshi Suri (20PGPM045)
Saptarshi Dutta (20PGPM046)
Shikhar Prasad (20PGPM048)
Vineet Chandra (20PGPM064)
Vishal Das (20PGPM065)
 INTRODUCTION – CASE SUMMARY
• In 2012 when every company was going in loss and
economy was tight IKEA increased it’s sales by 6.9%.
• IKEA came out as one of the largest home furniture
company with 287 stores in 26 countries and employing
131000 people.
• The retail sales of home furnishing market was $600 bn.
• IKEA’s competition was usually local stores or
multinational furniture retailer but they were smaller
than IKEA.
• Ikea’s approach changed and they started using the
legendary IKEA’s business model. (up-side down model)
• IKEA got it’s success due to stability and consistency
 IKEA –FIVE SUCCESS CRITERIA
1. Design, function & quality at low price
2. Unique design
3. Inspiration ideas and complete solution.
4. Everything in one place
5. A day out ( shopping experience)

• The competitive spirit in IKEA is too high if competitor is selling in 5-10 % cheaper than IKEA sells at 20-
50 % cheaper.
• Global expansion :-IKEA changed the strategy from being in many market to being concrete in existing
market.
1. Broadening their product range
2. Moving away food or other products to home furniture
3. Growing sales with existing stores to be cost efficient.
 SUPPLIERS
It can be said that the bargaining power of
suppliers is low. IKEA has a well-established
relation with suppliers all over the world
IKEA also own manufacturing company like
Swedwood Manufacturer.
BUYERS
There are a lot of retailers who are directly involved in
price war against each other. . So, the consumers
have many alternatives. They can choose which
manufacturers they will buy from. So, the bargaining
power of buyers is high

RIVARLY

5
In Sweden there is handful of
companies involved in the
furniture industry. Moreover,
there are a lot of retailers in
the market. The condition is
pretty much same in USA.
FORCE
There are Home Depot, Wal-
Mart, Costco and many other
small retailers.
S
NEW ENTRANTS SUBSTITUTES
There are no entry barriers in the industry. But As the market is becoming more environment
the intensity of competition may scare off concerned many firms are giving slogan to go green.
potential entrants. The required initial But the basic functional demand has remained the
investment is not too . Threat of new entrant is same. So, it is safe to say that there are no threats
high for long term players of substitutes
Q.1 Where in its value network IKEA has achieved cost leadership ?
Ikea is able to achieve cost leadership by achieving a lean supply chain and by
achieving manufacturing excellence
Ikea follows a upward down model for its manufacturing process that is design and product are
manufactured according to the price point wanted
UPWARD DOWN
Since Ikea is a global brand the team of product engineers and designers allow collaboration
MODEL with the suppliers itself allowing them to acquire supplies according to the product design
allowing them to keep a low cost.

IKEA to achieve cost leadership maintains a uniqueness via standardization in its entire
product portfolio.
STANDARDIZATIO Efficient use of raw materials allowing zero defects allows for a lean manufacturing process.
N As seen from the case the total of all 11 manufacturing plants in Europe allowing IKEA to
not use cheap labor but to use less labor due to high automated production technology.

Ready to assemble standard design and using standard transportation hence keeping the cost of
shipping to global locations low
LOW
Since most of the shipping is done by rail and since unassembled furniture obviously cost less
LOGISTICS than to compared to assembled piece and unassembled pieces has less risk of damage
COST
What does differentiation mean in an
industry?
As per Porter,
“In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued
by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely
positions itself to meet those needs. It is rewarded for its uniqueness with a premium price. The means for
differentiation is peculiar to each industry. Differentiation is based on the product itself, the delivery system by
which it is sold, the marketing approach, and a broad range of other factors.
Differentiation may generate superior profitability for the reason that it provides insulation against competitive
rivalry because of brand loyalty by customers and resulting lower sensitivity to price. It also increases margins, which
avoids the need for a low-cost position. The resulting customer loyalty and the need for a competitor to overcome
uniqueness provide entry barriers. Differentiation yields higher margins with which to deal with supplier power, and
it clearly mitigates buyer power, since buyers lack comparable alternatives and are thereby less price sensitive.
Finally, the firm that has differentiated itself to achieve customer loyalty should be better positioned vis-à-vis
substitutes than its competitors. Besides it reduces the five threats of entry, rivalry, substitutes, suppliers and
buyers.”
IKEA’s Differentiation Strategy
Status Quo of IKEA
 An international player
 Already growing
With the development of IKEA and its existing pre-dominance in the international market, the competitor of IKEA now
became the local people. The local manufacturers copy the designs or forge their goods. Due to large-scale procurement
and seamless operations, IKEA offers low price, good quality, and best of service that helps it occupy the market quickly.
Few furniture retailers have achieved economies of scale since European furniture retailers are smaller than IKEA. Even
when firms have joined forces as buying groups, their operations have made it difficult for them to achieve the same
degree of coordination as IKEA. IKEA offers limited customer support, but creates opportunities for customers to choose
transport and assemble units of furniture which differentiates them from its competitors.
 IKEA has faced competition from small local furniture retailers, large DIY chains and supermarkets.
 IKEA has been placed as the fourth on the most popular furniture list in the UK, behind MFI, Argos and DFS.
 Argos, has come broadened its appeal to a variety of customers through high quality furniture and enjoys a 5.1%
market share compared to IKEA’s 4.6 % (Business Scotsman 2004).
 IKEA is also faced with indirect competition with home make-over shows and magazines which indicates unsatisfied
customers. Their new Kitchens campaign is another attempt to diversify and satisfy customer needs.
Q2. Explain how IKEA has achieved differentiation from its competitors.

To understand how IKEA gained competitive differentiation over its competitors, let us analyze it using Porter’s Generic Strategies Model.

According to Porter's Generic Strategies model, there are three basic strategic options available to organizations for gaining competitive advantage.
These are: Cost Leadership, Differentiation and Focus.

 Low Cost Leadership

 emphasis on efficiency at all levels.
 Monitoring costs at all levels to ensure that they gain benefit form economies if scale. A low cost leadership strategy will only work if the products produced are
cheaper compared to its competitors.
 Product differentiation
 Added customers in the value chain
 For instance, customers have the responsibility of picking up the items from the warehouse.
 The suppliers are seen as customers gaining knowledge form IKEA specialists.
 This value added process makes sure that IKEA selects suppliers who provide high quality materials at low costs
 Focus
The typical IKEA customer is young, low to middle income family and generally for first time home buyers. They also focus on the mature and
children’s market through some of its products. The company targets the customer is willing to do a little bit of work themselves by transporting the
items home and assembling the furniture.
Q.3 Explain how IKEA tries to ensure that its “ HYBRID” Strategy remains sustainable and
does not become ‘stuck in the middle ?

 Ikea has chosen the strategy of being cheaper by not just 5-10 percent
but going up to 50 percent destroying the nearby competition and
offering customers great value that they would not consider other
competitors.

 Except China, Ikea generally keeps its stores away from cities. This
results in low fixed costs and eliminating the need of warehouse or
transportations costs to bring inventory translating into passing the cost
to customers resulting into value for customers.

 Ikea keeps expanding into developing countries generating new avenues

for business and revenue growth. This results into management expertise
considering China model helped Ikea to implement its strategy in India.

 The unique designs keep the customers refreshed and motivated to come
back to stores more often.
What are the lessons from China
about IKEA’s approach?

IKEA is known globally for its low prices and innovatively

designed furniture. However in China its low-price strategy
created confusion among aspirational Chinese consumers while
local competitors copied its designs. IKEA did well to adapt in
China, although it took numerous changes to its strategies and
more than 12 years for the company to become profitable in the
Asian nation.
 IKEA identified the strategic challenges and made attempts to overcome them-
 To meet local laws, IKEA formed a joint venture. The venture served as a good platform to test the market, understand local needs,
and adapt its strategies accordingly.
 IKEA built a number of factories in China and increased local sourcing of materials. The company also started performing local
quality inspections closer to manufacturing to save on repair costs.
 Since 2000, IKEA has cut its prices by more than 60 per cent. The company plans to reduce prices further, helped by mass production
and trimming supply chain costs.
 The company realized the high price factor and started targeting the young middle-class population comprising of customers having
relatively higher incomes, better educated and more aware of western styles.
 In a country with a huge population like China, IKEA does not target as many people as it does in other countries. The main target
group is female, as they are believed to be the ones that take decisions about the home.
 IKEA also had to tweak its marketing strategy. In most markets, the company uses its product catalogue as a major marketing tool. In
China, however, the catalogue provided opportunities for competitors to imitate the company's products so the company used Chinese
social media and micro-blogging website Weibo to target the urban youth.
 IKEA also adjusted its store location strategy. The company set up its outlets on the outskirts of cities which are connected by rail and
metro networks since most of the Chinese customers use public transportation.
 The company also learnt that emerging economies are not ready for environment-friendly practices, especially if they result in higher
prices therefore IKEA decided to stick with low prices to remain in business.
 IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, realized that understanding the local culture
is important - Chinese people hate the do-it-yourself concept.
THANK -YOU