IKEA’s key competitive advantages Essay
IKEA’s key competitive advantages
1.Read the case study.
2.In a Word document, respond to the following:
a.Given the SWOT analysis presented in the case, what are IKEA’s key competitive advantages? What strategic focus should the company take as it looks to further expand into the U.S. market? From its low cost structure to its corporate culture (“The IKEA Way”) to the do-it-yourself approach (replete with measuring tapes, paper, and pencils available in-store) plus its strong brand image (representative of high quality, low-cost ,trendy, modern and fashionable furniture), the added amenities it provides (carracks, childcare, restaurants, design consultants), and its strong focus on sustainability (from product design to disposal) IKEA is well able to avail itself of current market opportunities (the weak state of the U.S. economy, demand for convenience, sustainability issues) to leverage its competitive advantages. To this end IKEA employs a strategy of operational excellence (OE) to focus on efficiency of operations and processes.
OE is a competitive advantage: it translates to increased production flexibility, improved customer responsiveness, and cost minimization involving all aspects of business operations. OE streamlines functions and optimizes performance (www.deloitte.com). OE isn’t achieved overnight. It is the systematic management of safety, health, environment, reliability and efficiency which takes constant, deliberate efforts to build and sustain a culture over time (www.chevron.com). IKEA has developed relational advantages (long-term relationship with supply chain partners/ability to offer them financial assistance, local trading offices); legal advantages (tax advantages, NPO corporate ownership); organizational advantage (culture); human resource advantages (committed employees – “100 Best Companies to Work For” rating, Antibureaucracy Weeks); product advantages (brand equity- product designs. For example, because cabinetry is not affixed you can move it around easily or take it with you when you move; simple, crisp lines make the furniture easy to clean and maintain.
Reputation for innovation); pricing advantages (lower production costs, economies of scale, bulk buying, low-cost distribution, debt collection management – non-acceptance of personal checks); promotion advantages (iPhone/Android apps, local store events, company image- sustainability issues ); and distribution advantages (efficient distribution system, supply chain operations, exclusive distribution outlets) (Ferrell and Hartline, 2014, pp.99, 493-8). When we refer to competitive advantages, we usually speak in terms of real differences between competing firms: real strengths possessed by the firm or weaknesses possessed by rival firms (Ferrell and Hartline, 2014, p.98). Though competitive, IKEA’s practice of offering its own in-house credit card and its use of social media are not competitive advantages but merely requirements of “doing business in America”.
As IKEA possesses many internal strengths, but limited external opportunities, given its current business model and inability/unwillingness to fund new stores, it might enter a strategy of diversification by expanding into new markets consistent with its central mission, The IKEA Concept. Specifically, IKEA should increase its market share of the online catalog business. Currently, it is akin to “a hardcopy girl livin’ in a digital world” – a dinosaur slogging along with its (primarily) brick and mortar offerings while its competitors flit from customer to customer in cyberspace. b.What factor is the biggest reason for IKEA’s growth and popularity: product value, service value, or branded image? Discuss the reasons for your answers. With a strong global brand delivering a consistent quality and range of products, IKEA offers a wide range of well designed, functional products at low prices with the cost being considered even before the design is implemented. Also known for product innovation, use of renewable materials (75%) and “smart” use of raw materials (90% recycled/reclaimed waste products in energy production)
IKEA has promoted its growth and popularity primarily related to branded image. (http://businesscasestudies.co.uk) c.What strategies would optimize IKEA’s sustained growth after it loses some caché? Increase multimedia advertising suited to the American market. Tone down risqué TV ads and play up sustainability/charitable works. Sample ad campaign: “Go from Glum (display shabby rooms) to Green (display modern, clean, well -appointed IKEA furnished rooms done in reds, blues, yellows) or “The ‘color’ of Green (display modern IKEA set in bright colors- see p. 195 of 2014 catalog for sample color palette picturing eco-friendly LED lamps)”. Promote exclusivity of ecofriendly options. Augment peripherals – style/accent/color options. Design/institute “virtual” shopping/design consultant for smart device app already in place (iOS/Android/Smart TV).
Expand online catalog with concommittant support services – shopping/design consultants for telephone/internet chat. Expand children’s world products and target generations X/Y to net millenials to prepare customer base for future growth (“Train up a child in the way he should go, And even when he is old he will not depart from it.” Proverbs 22:6, ASV). Excite effective branding “…for making quiet childhood memories”. Develop and market a Global Village Concept, highlighting target countries (see “American line of products” discussion below).
Aggressively infiltrate the custom home market with its green home building materials. d.What strategic alternatives would you suggest IKEA employ to further penetrate the U.S. market? Manipulate further social media to encourage word-of-mouth promotion. Develop American line of products online only (Note: this is different than, ‘develop line of American products’. This product line will be characterized by distinctively American traits/tastes/preferences/etc. marked by American ingenuity/innovation/culture but be manufactured/marketed worldwide. Besides appealing to the American public it would warm the companies somewhat alienating image of being primarily European/foreign). Initiate cobranding with companies known for their positive sustainability issues.
The “Color” of Green
e.Speculate on what will happen at IKEA stores as they adapt to fit local tastes. Is the company’s trade-off of service for low cost sustainable in the long term given the portfolio of products and services IKEA offers? IKEA will differentiate itself and its products from competitors all the while maintaining “The IKEA Concept”; that is, to “provide functional, well-designed furniture at prices so low that as many people as possible will be able to afford them. Creating a better everyday life for the many people” (Ferrell and Hartline, 2014, p.494).
It will become more technologically fluent while bolstering its DIY image, exemplifying the cowboy image of Americans – a self-made people of achievers and innovators. It will be the complete Destination Shopping Experience with the addition of in-store computers/internet access. It will be seen as 75 years young as the current generation grows into its parents’ pocketbooks. It will surmount the decrease in first time home buyers (related to population issues and the economy), where it obtains a majority of its sales, by harvesting a greater share of this generational crop, in part by communicating with stakeholders about environmental activities.
Ferrell, O.C. and Michael D. Hartline. Marketing Strategy: Text and Cases, 6th Edition, 2014, South-Western, Cengage Learning. www.deloitte.com. Retrieved 09/29/13.
www.chevron.com. Retrieved 09/29/13.
http://businesscasestudies.co.uk. Retrieved 09/29/13.
www.biblestudytools.com/asv. Retrieved 09.29.13.
IKEA 2014 product catalog published Sept 2013, accessed 09/29/13.