IKEA Retailer
IKEA Retailer
IKEA Retailer
1. By the early 1970s IKEA had established itself as the largest furniture retailer in
Sweden. What was the source of its competitive advantage at that time?
IKEA’s competitive advantage came from the fact that it provided stylish, quality
functional designs at low prices so most people could afford them. IKEA’s furniture
had minimalist lines, which it got manufactured in a cost efficient way by establishing
contracts with suppliers. IKEA’s ‘democratic design’ was based on reducing
assembling costs through machine production. Sales started to take off when a widely
read Swedish magazine called Allt i Hemmet promoted IKEA’s products (to
middle-class households) saying that they were 65% cheaper when compared to its
competitor’s products.
2. Why do you think IKEA’s expansion into Europe went so well? Why did the
company subsequently stumble in North America? What lessons did IKEA learn
from this experience? How is the company now applying these lessons?
European countries generally have similar culture to each other and the nations are
not very far apart, making a standardized product and a single supplier relatively
feasible for an expansion while still maintaining a low cost structure. When
expanding to North America, IKEA noticed that there were significant differences in
North American consumers which made their European standard products not very
popular among Americans. This is due to an incompatibility in the products sold with
the American culture, namely using different measurements, and mostly products not
being the right size for the American standards. At the time, the goods were also
sourced from overseas and priced with Swedish kroner which was appreciating
against the US dollar which made products sold in IKEA relatively expensive. This
experience led IKEA to noticing that an overall standardized products may not work
in the international scale due to differences between the consumers in each nation, but
also that a lower cost strategy is needed. To overcome this problem, IKEA then
started responding more into the local needs, hence localizing their products to the
needs of American consumers. IKEA also started marketing their products in ways so
that they are able to resonate with American culture. To lower their costs, IKEA
started searching for suppliers that will lower the cost instead of sticking to their
European suppliers only. Later, the same strategy (localized, low cost) would be
implemented in other countries as well.
3. How would you characterize IKEA’s strategy before its missteps in North
America? How would you characterize its strategy today?
IKEA first strategy in North America is not really suited for North America culture
yet, because it still adopt many practices that they used from their Europe operation.
Before the missteps in North America, IKEA had a standardized product and
maintains a low cost strategy, making it using a global standardization strategy as the
market responsiveness was low but the cost reduction was high. After the failure in
the North American market, IKEA adopted its strategy to be a transnational strategy,
maintaining a low cost by searching for new suppliers with lower cost while still
having customized product to each region. Also, by reemphasizing design, promoting
through advertisements, and encouraging consumers to do away with their old
furniture, IKEA revenues finally increased.
4. What is IKEA’s strategy towards its suppliers? How important is this strategy to
IKEA’s success?
IKEA employs a supply strategy that allows them to undercut the prices of their
product. The strategy involves IKEA's senior management prioritizing various aspects
of the product and the product line which allows them to set a particular price and find
suppliers that can allow them to produce at their desired price. This process is long
and arduous as it is trial-and-error based but it allows IKEA to have a very
competitive price that is lower than their competitors. To further cut costs, they also
transferred their production process to lower cost suppliers in other countries and
work with those suppliers to avoid high shipping costs. IKEA develops long term,
high volume relationships with their suppliers and also help them with regards to
knowledge, skills, and technology, in exchange for IKEA's own demands of low-cost,
high-quality materials and products. Moreover, IKEA purchased Swedwood, a
Swedish manufacturer that would become its main source of supply and has since
benefited from the knowledge that they gained by working with them. In short,
IKEA's supply strategy has provided them cost-related benefits, where they were able
to suppress the product cost all the while maintaining the quality of their products
through their strategy.
5. What is the source of IKEA’s success today? Can you see any weaknesses in the
company? What might it do to correct these?
IKEA’s success today can be derived from some of its business crucial aspects.
According to businessinsider.com, there are 4 crucial aspects in Ikea’s strategy for
becoming the world’s most successful retailer. The first thing is IKEA able to solve
the worst part of buying furniture, which is people tend to be more indecisive and
anxious because when they buy furniture, they will see it as an investment for the next
20 years. IKEA is able to create products that were nicely design, if not particularly
durable, that were intended to be used immediately and disposed of when they wore
out or, more likely, when the user had moved on to a different taste level or
purchasing strata. The second aspect is, hitting the right market demographic. IKEA’s
products resonate with young people, the products are clean, with a simple aesthetic
and “whimsical” names. IKEA is also known for paying workers a living wage and
being transparent about the production process. The third aspect is, the price, which is
not expensive but not too cheap. IKEA’s price point is perfect, while prices are
cheaper at other deep discounters retailer, shoppers feel they are getting a good value
at IKEA. And the fourth aspect is, IKEA creates image in which its retail stores are a
destination, not only just for shopping furniture. As e-commerce becomes more
popular, shoppers need incentive to come into stores. With its elaborate showroom
and cafetaria, IKEA has become a unique destination for shoppers. While many
retailers enter shopping centers hoping for traffic, IKEA is a standalone store that
shoppers seek out with a specific goal in mine. There is no mistaking why you are
there, because IKEA provides all the visitors with a lot of choices on what to do.
However, IKEA still have excessive unplanned growth, lack of adequate exposure to
non-Western markets, and inadequate understanding and know-how to fulfill the
varied cultural specifications associated with those markets. Therefore, IKEA should
take action to correct their weaknesses. First, IKEA can do extensive market research
to know how the market flow. Second, strategic alliances and partnerships with local
companies so that they can expand and control the market. Third, taking
well-calculated risks. Last but not least, IKEA can emphasis on thinking globally but
acting locally.