Ikea strategy. Международная стратегия компаниии икея

LoMONOSOV MoSCOW STATE UNIVERSITY

BUSINESS SCHOOL

 

 

ESSAY: ANALYSIS OF IKEA

 

 

 

 

 

 

 

 

Students:

Akhmetshina Albina

Granovskiy Andrew

Ketevan Tienishvili

Kryukova Ksenia

Petrovskiy Vasily

Timokhina Kate

Teacher:

                                                                                                                            Lascaux A.

 

Moscow, 201

 

Ikea Group, founded in 1943 is the world's largest furniture retailer which specializes in stylish but inexpensive Scandinavian designed furniture. As of August 31, 2012, the IKEA group had operations in 44 countries, including 30 service trading offices in 25 countries. It also had 33 distribution centres and 11 customer distribution centres. The IKEA Group had a total of 298 stores in 26 countries with total revenue of EUR27,6 billion. Ikea's success in the retail industry can be attributed to its vast experience in the retail market, product differentiation, and cost leadership. The company is, perhaps, one of the World's most successful multinational retailing firms operating as a global organization based on its unique concept that the furniture is sold in kits that are assembled by the customer at home. Ikea's mission is to offer a wide range of home furnishing items of good design and function, excellent quality and durability, at prices so low that the majority of people can afford to buy them. The company targets the customer who is looking for value and is willing to do a little bit of work serving themselves, transporting the items home and assembling the furniture for a better price. The typical Ikea customer is young low to middle income family. Ikea does not have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies. It has suppliers in 50 countries, roughly ⅔ of purchasing is from Europe, with about ⅓ from Asia; a small amount of products are produced in North America. All research and development activities are, however, centralized in Sweden. In order to maintain low cost, Ikea shoppers are Pro-sumers - half producers, and half consumers. In other words, they have to assemble the products themselves. To facilitate shopping, Ikea provides catalogs, tape measures, shopping lists and pencils for writing notes and measurements. Car roof racks are available for purchase at cost and Ikea pick-up vans/mini trucks are available for rental. Ikea's success is based on the relatively simple idea of keeping the cost between manufacturers and customers down. According to Ingvar Kamprad, the founder of Ikea; "To design a desk which may cost $1,000 is easy for a furniture designer, but to design a functional and good desk which shall cost $50 can only be done by the very best. Expensive solutions to all kinds of problems are often signs of mediocrity." Costs are kept under control starting at the design level of the value-added chain. Ikea also keeps costs down by packing items compactly in flat standardized boxes and stacking as much as possible to reduce storage space during and after distribution in the logistics process.

 

Above all else, one factor accounts for Ikea's success on international market: good quality at a low price. Ikea sells furniture that's cheap but not cheapo, at prices that typically run 30 to 50 percent below the competition's. Ikea's corporate mantra is "Low price with meaning." The goal is to make things less expensive without ever making customers feel cheap. Striking that balance demands a special kind of design, manufacturing, and distribution expertise. But Ikea pulls it off in its own distinctive way: tastefully, methodically, even cheerfully, and yet somehow differently than any other company anywhere. How Ikea designs, builds, and distributes the furniture that the entire world wants to buy contains of 5 core competencies:

 

1. Product and Price: Ikea's product managers use a price matrix to identify holes in the company's product lineup and how much to charge for a new product. Ikea has three basic price ranges: high, medium, and low and four basic styles: Scandinavian (sleek wood), modern (minimalist), country (neo-traditional), and young Swede (bare bones). To identify market opportunities, they take a product council directive, plot his existing product lineup on a grid, and look for empty spaces. Product range and development is primarily carried out by IKEA of Sweden. New product development and product improvement is organised by separate product groups within IKEA, such as living room furniture, kitchen and bathroom furniture, carpets and textiles, lighting and glassware and ceramics. Most manufacturers design a product, and then try to figure out how to make it for a target price. At Ikea, the price comes first. To find the price the search for competing product and target their prices 30-50% below it.
2. Finding Producers: Ikea now buys from about 1,084 suppliers in 53 countries (IKEA 2012) to offer the most attractive production package, including materials (cheap hardwood or Indonesian rubber, for example) and a factory where craftspeople have the necessary skills to produce unique items in sufficient volume. They are situated close to the raw materials to minimize transport cost. Yet even as Ikea fosters competition among suppliers, it also treats them as long-term business partners. As Ikea offers nearly the same products in its stores all over the world, they can order very high Volumes and therefore get cheap prices. The firm emphasizes centralized control and standardization of the product mix.
3. Design the Product: With a price point and a manufacturer in place, Ikea uses internal competition to find a designer and select a design for production. So the management writes a brief that explains the product's price, its function, the materials to be used, and the fabricator's capabilities and sends the brief to Ikea's pool staff designers and freelancers, and refines promising designs until he settles on the one he wants to produce.
4. Transport: Probably one of the most important inventions of IKEA are the flat boxes to transport the furniture easily. That make not only Transport from the factories to the stores cheaper, it also allows costumers to transport most of their shopping with their own cars. As Amount to ship became more and more, coordination became more difficult. The company has responded by creating a global network of distribution centres, most of which are near container ports and major truck and rail routes. There are 33 Ikea distribution centres worldwide which handle about 70 percent of Ikea's total product line. The other 30 percent of Ikea's products travel directly from supplier to store.
5. Selling: The selling takes place in often huge furniture stores with very few service, but a lot of information to read and furniture to see in their proposed use. Integrated places for children make the shopping for families easier, restaurants and grocery strores selling typical Swedish food convince the costumer to stay longer. Also an important feature of many IKEA stores is their long opening hours. Many IKEA stores are in operation 24 hours a day with restocking and maintenance being carried out throughout the night.

 

SWOT stands for strengths, weaknesses, opportunities, and threats associated with a business and it is one of the most effective strategic analytical tools in terms of business analysis… (Baker and Hart, 2007). Therefore we used a SWOT analysis to consider factors both external (opportunities and threats) and internal (strengths and weaknesses), affecting the company's largest business. Thus, we can evaluate the performance of the company and its future prospects.

 

S

 Strengths

Leadership position in the global market. Company has strong global brand which attracts target consumer groups

• A perfect balance between function, quality, design and price. IKEA offers its products for highly competitive prices with good quality

• Vision «to create a better everyday life for many people» . They take care of the environment and people.

• Few direct competitors. Business model is unique in its structure, so it has few direct competitors
• Long-term partnerships with its suppliers. IKEA always has access to high-quality materials at reasonable prices.
• Self-assembly furniture. IKEA makes their customers aware of their products, so the flat package can be assembled by customers.
• Save on manufacturing costs. IKEA has a team - they research, find and develop ways to alter designs. It helps to minimize costs.
• Cheap labor. It is a great competitive advantage. For instance, furniture manufactured in Poland was as much as 50% cheaper than furniture made in Sweden, they started to produce their products in Poland.
• Financial maturity.

 

 

W

 Weaknesses

Global size. It is difficult to implement IKEA business strategy to significantly differentiated local market conditions.

• No developed a system of loyalty with regular customers. IKEA is not at all customer focused. So, they attract one-time buyers and forget about maintaining long-term relationships with regular customers.

• Dependence on raw material prices. IKEA strongly dependent changes in raw material prices due to the company strategy of low income for each individual product.

• Organizational culture. IKEA has a very informal environment over there. But they do not have any hierarchy. Maybe it will become a demotivating factor for many of its employees.
• Lack of market research on customers’ preference. When they enter into a new market, they offer the same product like in other countries. If they know customer’s needs and wants, IKEA business will be a more profitable.
• Take into consideration the change of times. Company needs to compete in today's technological world, to develop and maintain e-commerce
• IKEA China does not have its own CSR profile

 

 

O

 Opportunities

Business development. All over the world, especially in Asia and Eastern Europe

• More variety of technology products. Increasing the company product ranges to include other sorts of popular products.

• To support a «green» trend. They must have less of an impact on the environment by reducing carbon footprint in production.

• Develop Strong Social Responsibility. For example, they can give wide range of different charities, help children and sick people.
• Individual approach to customers. It can produce stylish range of product for customers. Nowadays people wants customize furniture.
• Expand its product line by producing for upper class. People a ready to pay for really elegant designed goods.
• Be more open for dialogue with stakeholders. It creates trust and new profitable relationships.

 

T

 Threats

Increasing competition. Other companies can copy the model of low value due a self-assemble type of furniture that can affect the company's strong position in the market in the future.

 

• Economic factors influence the sales of company. For example, the recession slows down consumer spending and disposable income reduces.
• Changes in social trends. Consumers may prefer buying pieces of furniture associated with high class in society.
• Brand image might suffer. It can be damaged due to poor working conditions in IKEA contractor companies in developing countries.
• Global financial crisis.

 

According to www.IKEA.com, IKEA has 298 stores in 26 countries. The major part of them in Europe(227 stores), the second region is North America with 49 stores. Also IKEA has 17 stores in Asia and 5 in Australia.

 

IKEA main approach is standardization with a small degree of adaptations. Company use a global strategy which is offer the same products with the same marketing strategy in national markets. It is the basis of standardization which is keeping everything the same in all markets. IKEA painted stores in the same colors and has the same merchandising. All the furniture has the same names and models numbers. There stores are basically self-service with customers looking and writing down the names of the merchandise, pulling it off the shelves and building it at home.

 

IKEA follows global strategy and take advantage of scale and location economies because company produce inventories of products or components in a few locations. The research and development is limited to a few areas which causes a problem because the company can overlook the important differences that the buyer is looking for in different market. There is a small degree of adaptation which in the ability to change the product to a specific area or region that so it will be useful to the market in which is it being sold.

 

Now IKEA is sustainable and profitable in all regions but in the past company faced with problems in some regions. Lets consider several examples.

 

IKEA opened first store in the US in 1985 in Philadelphia, Pennsylvania. In that time it has presents only in Europe. As the company followed the same products assortment in all of its stores globally, it decided to follow the same in the US. However, this did not work because of the difference in the lifestyles of American and Europeans. For example, the size of beds used in the US was larger than the size of beds used in Europe. IKEA realized that it had to modify its products to suit the local needs and made certain modifications to products like bedsand kitchenware.

 

In 1998, IKEA started its retail operations in China. To meet local laws, it formed a joint venture. The venture served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. IKEA understood early that Chinese apartments were small and customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs. The store layouts reflected the typical sizes of apartments and also included a balcony. IKEA had faced similar problems previously when it entered the United States.

 

As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly. In 2004, for instance, its China revenue jumped 40 per cent from the year before. But there was a problem - its local stores were not profitable.

 

One of the main problems for IKEA was that its prices, considered low in Europe and North America, were higher than the average in China. Prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil.

 

IKEA built a number of factories in China and increased local sourcing of materials. While globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume sales in the country come from local sourcing. These local factories resolved the problem of high import taxes in China. 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. For instance, the price of its "Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs.High prices were one of the biggest barriers in China for people to purchase IKEA products. IKEA's global branding that promises low prices did not work in China also because western products are seen as aspirational in Asian markets. In this regard, IKEA's low-price strategy seemed to create confusion among Chinese consumers.

 

The company realised this and started targeting the young middle-class population. This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world.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. Indeed, local competitors copied IKEA's designs and then offered similar products at lower prices. IKEA decided not to react, as it realised Chinese laws were not strong enough to deter such activities. Instead, the company is using Chinese social media and micro-blogging website Weibo to target the urban youth.IKEA also adjusted its store location strategy. In Europe and the US, where most customers use personal vehicles, IKEA stores are usually located in the suburbs. In China, however, most customers use public transportation. So the company set up its outlets on the outskirts of cities which are connected by rail and metro networks.The China expansion came at a cost. Since 1999, IKEA has been working on becoming more eco-friendly. It has been charging for plastic bags, asking suppliers for green products, and increasing the use of renewable energy in its stores. All this proved difficult to implement in China. Price-sensitive Chinese consumers seem to be annoyed when asked to pay extra for plastic bags and they did not want to bring their own shopping bags. Also, a majority of suppliers in China did not have the necessary technologies to provide green products that met IKEA's standards. Helping them adopt new technologies meant higher cost, which would hurt business. IKEA decided to stick with low prices to remain in business.

 

Ikea have got many competitors and they are almost different in different countries. But they also have worldwide competitors like WalMart, Ashley Furniture Industries and Howden Joinery Group.

WalMart exists for 48 years already. It serves 200 million customer each week, operating stores in 15 countries. They offer wide range of products, not just furniture, but also electronics, home appliances, toys, fitness products and a lot more.

Their great benefit is their Return Policy. Most of the items can be returned within 90 days from the day of its purchase. There are exceptions for electronic and regulated items only, so furniture can be either returned or exchanged. Plus they offer No Receipt return policy. You are able to make up to three No Receipt returns during the 45-day term. You may either get cash refund, if the item price is under 25 dollars. If it is more than 25 dollars, you are able to receive a Gift card for the amount of your merchandise. Thus no worries if you suddenly lost the receipt. 

But the disadvantage of WALMART is that it sells not only furniture. Opinions differ, as they say, but my strong opinion is that the company, which is specialized in narrow range of products, can offer better quality and abilities to the customer than this one which offers multiple variety of products.

Ashley Furniture Industries.

Ashley Furniture Industries, doing business as The Ashley Companies, is the top-selling furniture store brand worldwide and the №  1 US furniture and bedding retailer. It makes and imports upholstered furniture, as well as leather and hardwood pieces. The company licenses its name to some 400 Ashley Furniture HomeStores located in the US, as well as in Canada, Mexico, Central America, and Japan. These stores are independently owned and sell only Ashley Furniture-branded products. Founded by Carlyle Weinberger in 1945, Ashley Furniture is owned by father-and-son duo Ron and Todd Wanek.

Howden Joinery Group.

Howden Joinery Group is the parent company of Howdens Joinery, a leading maker and seller of kitchen cabinets, doors, and other joinery to the small building trade. The firm operates some 510 outlets across the UK (and 10 in France under Houdan Menuiseries banner) that cater to about 250,000 small local home builders. The vertically-integrated company makes its kitchen cabinets, doors, and more than 35 complete kitchen units from tress grown in managed forests in Scotland at a pair of factories in Cheshire and Yorkshire. Howdens produced about 3.5 million kitchen cabinets and 860,000 worktops in 2011.

IKEA opened its first store in the year 1926, thus it has more experience in this area. Being always oriented to the customer, they aspired to offer the best selection of furniture and affiliated accessories. Their great benefit is price. Offering furniture without installation they make it cheaper. Their furniture is usually easy to install, but this can be a disadvantage too. Attractive price, but if you can’t install it yourself, this is not the way out. 

Their other benefit is that they have wide area of delivery of their products. So many destinations to make more customers satisfied. Plus they work on a world marketplace and have their stores all over the world.

Return policy at IKEA is also good. You are able to return it within 90 days after purchase. Of course those items can be returned, which are in the original package and are unused.

IKEA’s furniture is minimalist inspired, and manufactured in a cost efficient way through great contracts with suppliers. Their target market is young married couples, students in college, and young people in the 20 to 30 age group.

IKEA’s the core strategy has always been to provide functional and trendy designs at low prices to customers. With continued profitable supplier and manufacturing agreements, IKEA can enjoy a sustainable competitive cost advantage.

 

Large companies are often involved in many different activities and business processess to implement corporate level strategy in many different countries, where it operates.

 

Firstly, to have competitive edge over its rivals, company may use a vertical integration. What comes to IKEA, it uses backward vertical integration – so it means that ikea has very well established relationships with suppliers. IKEA gains some pluses from it.

 

1.Facilitating investment in specialized assets. A specialized asset is one that is design to perform a specific task and whose value is significantly reduces in its next best use. Here IKEA’s specializes asset is employees skills that employees acquired through training and experience. IKEA invested in specialized assetsbecause it allowed it to lower its cost structure and differentiate their product. 

 

2. Enhancing product quality. By entering industries at other stage of the value added chain, IKEA enhanced the quality of theproduct in its core business and so strengthen its differentiation advantage. 

 

3. Improved scheduling. Strategic advantage has been obtained when vertical integration makes it quicker, easier, andmore cost effective to plan, coordinating, and transfer of product like finished goods frommanufacturing plant to retail or distributing shop. 

 

4. Increased Bargaining Power. IKEA is using vertical integration because it allows them to obtain bargaining power oversuppliers and increased their profitability. By consolidating the industry through VERTICALIntegration IKEA has become a much larger buyer of suppliers’ product and use this as leverage to bargain down the price IKEA pays for its input, there by lowering its cost structure.