Generic business level strategy of IKEA

What generic business level strategy (-ies) is IKEA pursuing? What functional strategies is IKEA using to support their business level strategy (-ies)? Please list and briefly describe at least four functional strategies [15%]

The business level strategies which IKEA leveraged was to grow independently (instead of being a public company) with a vision to provide unique designed furniture’s for a certain section of the market. They had a well defined supplier relationship management, quality management along with global vision to enter new markets and offer a new variety of products with a cost differentiation strategy.

The other key strategies used were:

Low Pricing Strategy: IKEA always believed in launching their products with a low pricing strategy which would enable the mass middle income customers to enjoy their product and services. This enabled IKEA to capture larger customer share in their initial stage of the product life cycle along with the same strategy adopted in international markets

Focus on quality: IKEA’s product was always considered value for money and this was one of the main reasons that customers were attracted to the products and competitors were not able to provide the same quality at a competitive price.

Defined customer segments for particular market: With the entry into the global market it was necessary for IKEA to define targeted market segments and it can be seen in the case for US where they attacked the younger demographic with some good branding and promotions thus enabling to be a market leader in a very short span of time

Strategy office for innovation: IKEA has developed a strategy office comprising of experienced product managers who defines new products and designs along with priorities for the new product lineup

What drove the international expansion of IKEA’s stores? [10 %]

There were many factors which were responsible for the growth of IKEA in the global markets. Some of them are listed below:

Low Pricing Strategy: IKEA always believed in giving its customers value for money for the product they were buying. In the European market they were considered as a threat to major competitors as they provided the best quality furniture’s for the competitive rates

Quality & Unique design of the product: IKEA had some unique products and designs which attracted the customers and was a driving point in their sales volume.

Alliances & Partnership: IKEA had a very good alliance and partnership strategy with its suppliers thus enabling to have time to market and better products being delivered in the market. They also outsourced some of their work with other countries such as Poland which gave them a reduction in cost and better quality of product

Differentiated Promotional Strategies: In order to tackle global markets, IKEA defined new promotional and branding strategies and had a focus on who needs to be targeted and the way it needs to be done. This can be seen in the case of USA where they defined the market segment as the young generations and promoted the product saying that Americans need to experience this innovative design and products

What market segment(s) did IKEA target in the United States? Why? [10 %]

Based on the market research conducted by IKEA it was found that there were major low cost retailers like Walmart, Costco etc who could provide tough competition in the US market. IKEA decided to attack the coastal areas of US such as Philadelphia as the population residing there were considered high risk takers and used to travel abroad on frequent basis. Later IKEA felt the need to target a bigger market share and targeted the younger demographic with some good branding and promotions thus enabling to be a market leader in a very short span of time. The young generation was undergoing a shift in US and was considered as huge spenders looking for quality products and was ready to try new products in the market.

What global strategy (-ies) is IKEA pursuing? Please explain your answer [15 %]

IKEA’s focus is to enter global markets with the intention to expand its geographical presence and increase brand value to the products it is offering to its existing customers.

As can be seen that IKEA moved from Europe to US and later to Asia which shows the clear trend that they are interested in emerging economies and new markets. The objective of IKEA is to understand the demographics of each market and target the individual segments in each of this geography. In US they initially targeted the high premium segment who lived near the coastal areas and were considered high spenders and then later focused on the bigger pie of youth who were interested in high quality products.

IKEA also entry the China market and were able to provide products at 70% less than that of its competitors by having a well defined supplier relationship strategy in China.

The next focus for IKEA would be entering high growth markets where they could play on the cost differentiation strategy along with a volume game to attack competition in these markets

What corporate-level strategy (-ies) is IKEA pursuing? Please explain your answer [15 %]

Following are some of the strategy which IKEA is pursuing:

Focus on Pricing & Quality: IKEA differentiation strategy was on pricing the products affordable to the targeted customers and was of the high quality. The focus at IKEA should be to maintain that positions and make sure it does not lose market share due to competition or by comprising on its principles

Supplier/Vendor Relationship Management: As IKEA enters the global markets there is a need to have a well defined supplier relationship across geographies. This would ensure quality products, timely delivery etc

Focus on Alliances for global markets: There is a need to have alliances developed in new markets and that would play a key role in defining the price for the product, quality of the product etc

Focus on Innovation: IKEA believes in improving its product design and the other attributes such as product promotion, pricing, prioritizing lineup etc and have formed a team of product managers who is constantly working on the strategy and innovation part.

If you were advising IKEA on entering the UAE market, what kind of entry mode would you recommend? Please explain why [10 %].

Since UAE is considered as a high growth market with a large expatriate population who are in the age group of 25-40 and have high purchasing power. IKEA needs to focus on the quality of the product with a very good pricing strategy over its competitors. Following is the customer segmentation strategy for entering UAE.

Categories

Best Fit for IKEA’s entry strategy

Demographics

Target the local and expatriate population which would be in the age group of 15-35 years

Income Group

Middle Income group

Geographic Regions

Abu Dhabi as a initial launch and then regions in UAE

Purchasing Power

The economy is growing at a fast pace and this would increase the purchasing power of retail individuals

IKEA needs to have a good sourcing strategy and need to develop good relationships with the suppliers and relevant government bodies to ensure smooth functioning of the operations in the long run. Based on its global experience in countries such as USA and China, IKEA would be able to capture a good market share in the long run.

Why did Kampar decide not to take IKEA public? What are the advantages of remaining private, what are the disadvantages? Please list and briefly describe at least two advantages and two disadvantages [10 %]

Kampar decided not to take IKEA public because he felt that it would impose restriction on the free thinking and management would be always under pressure to meet the market demands such as constant demand in profits, revenue etc irrespective of the business cycle or change in global situation

Advantages of remaining private:

No reporting requirements: The senior management is not under pressure to report any financial or key decisions to any regulatory/public body as the organization is not listed

More control on the organization: As the shares of the company are held by the key members of the family and close associates there is better control as compared to a listed entity who has to be accountable to the regulatory team, public etc.This give more autonomy in taking higher business risk decision with less fear of questions being raised from the shareholders

Disadvantages of remaining private

Disclosure to public on a regular basis: The Company needs to inform the regulatory board and the public of any major changes/restructuring/impacts happening within the organization. This would reduce the competitive advantage the company would be holding and could hamper time to market strategies in a minor way

Brand Awareness: The brand awareness is more for companies which are listed in the public domain as they are always involved in branding and advertising right from the IPO to ensuring they are growing at a better rate with respect to competition.

Do you think IKEA will be able to sustain its competitive advantage in the future? Please answer this question in terms of the resources/capabilities/distinctive competencies of IKEA [15 %]

Yes, if they have evolving strategy to focus and improvise on their products, people and processes in a holistic manner suitable for the growth of the overall organization

Resources: As they are a global player, they should maintain a roadmap on how people are aligned to the organization goals and the way the strategy team should guide in entering new markets and tapping the best suited demographics etc.They should also have well defined operation structure in terms of sourcing to suppliers, vendors, retail outlets, inventory management etc.Leveraging the best technology in terms of producing the furniture would also give a key advantage to the organization

Competencies: IKEA needs to focus on its competency of defining better designs and good pricing strategy to remain in the minds of the customer more as a value for money product.

Capability: IKEA needs to focus on improving its capability such as the technology part, focus on hiring good quality resources from the market and to improve its supply chain in a better robust manner while working in a global environment