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IKEA Essay

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1. Explain, in detail, the aspects of IKEA strategy that make it a Hybrid strategy. IKEA is clearly a follower of a “strategy clock” approach, which is characterised by two distinctive features: it is more focused on low prices to customers, not only low costs to organisation, and its strategic decisions are made to create the balance between price/cost leadership and differentiation, creating unique benefits and features that provide competitive advantage. Home furnishings market is highly segmented with mostly local competition of the several kinds: multinational furniture retailers, companies specialising in just a part of furniture product range, non-specialized retailers where furniture as part of their product range and small companies/producers.

IKEA strategy is characterised by cost saving, where managers fly economy and share rooms in the hotels, salaries are hardly generous, advertising is done in-house, their offices do not look like typical offices of a multinational companies due to fanatical devotion to cost cutting. With this cost cutting urge, the company is capable of offering prices much lower than the competition.

Such pricing strategy makes IKEA deliberately focusing on younger people and middle class buyers, those who do not wish or cannot afford buying expensive furniture. IKEA is well aware of who are their key-customers, which is 25-50 years old people, majorly families with kids.

Thus, there is a certain focus on a segment, which is another part of hybrid strategy, although IKEA is claiming they are for everyone. Although IKEA designer will always sacrifice the design to lower cost (if a requested chair came up at a price of 12 pounds instead of 10, it will be re-designed), IKEA’s concept is to offer designed products. They have in-house designers who give a lot of attention to personalisation of interiors, due to traditional importance of home decorations for the Swedish people, who spend most of the time at their homes. Among other unique benefits to customers are the flat pack of the furniture, which can be immediately taken home and self assembly of almost any item. This is a great benefit for people who choose IKEA among others.

2. Why is this strategy difficult for competitors to imitate? IKEA has been in the market since 1950s and has developed from a local shop to a multinational company with presence in 24 countries and accounting to about 2.5 percent of the world sales of home furnishings, which is a lot given the high segmentation of the market. Since one of the competitive advantages of IKEA is low pricing to customers, it will be very difficult for a competitor to offer even lower prices in order to win market share, especially given the fact that low price is not the only characteristic that makes IKEA a shopping destination for consumers over the world. The optimized balance between the price and the design is what makes IKEA unique.

Especially in the post-recession environment, when IKEA itself cannot boast high growth, the main benefit for this company comes from its worldwide presence and new shops opening, when the winning combination of low price and fancy design immediately attracts people and wins market share. It is not an easy task to achieve by a competitor. Moreover, recognized international brand, specific layouts of shops, patented flat packs and self assembly are also one the features differentiating IKEA from all other furniture retailers. Their specific HR policies are also unique, when they hire young people and utilize their enthusiasm to the full with not so generous pay offs. If any competitor wished to adopt a similar strategy, it would require large investment and costly reorganization of all the processes. Such reorganization would increase costs and will not make it possible to offer low prices.

3. What are the dangers of a hybrid strategy and how can managers guard against them? The main danger of a hybrid strategy is that a combination of low price and differentiation normally cannot be supported in the long run. It is mostly used to win the market share in a new market or to win market share from the competition. Supporting such strategy for a long time involves a danger for requirement to increase differentiation which involves increased cost and can lead to the “stuck-in the middle” position, where a company will stop having a clear strategy. The only way managers can guard against this danger is either to clearly stick to the once chosen strategy, or reconsider it when cost is uncontrollably increasing due to the growing differentiation demanded by the customers. In such cases a company can adopt one of the generic strategies to continue being competitive.

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