Ikea Strategic Analysis

1902 Words Nov 24th, 2011 8 Pages
IKEA is the world’s largest furniture retailer of ‘knock down’ furniture with 300 stores in more than 35 countries. It was founded by Ingvar Kamprad of southern Sweden whose main innovative idea was ‘to offer home furnishing products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect quality of products so that as many people as possible will be able to afford them. ( www.ikea.com). He used every opportunity to reduce costs without compromising on ideas and quality.

IKEA used design, their main competency, to secure the lowest possible price by starting design with a functional need and price then using knowledge of innovation and low cost manufacturing
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A focused cost leadership strategy according to Ireland et al (2006) is ‘an action plan the firm develops to produce goods and services for a narrow market segment at the lowest cost’. IKEA focuses on applying the techniques needed to achieve this cost leadership such as bulk buying, economical sources of supplies, low-cost logistics and store location while at the same time concentrating on understanding and satisfying the needs.

Although it is a cost leader, IKEA also offers some differentiated features that appeal to its target customers, including its unique furniture designs, in-store playrooms for children, wheelchairs for customer use, free buggies, reasonably priced restaurants and cafes and extended hours making shopping at IKEA an experience. Thus, IKEA focused cost leadership strategy also includes some differentiated features with its low-cost products thereby making it a hybrid strategy. (Hitt et al, 2009: 121).

Part of keeping costs down IKEA strategically located its global distribution retailing network near container ports and major truck and rail routes. In most instances, they own the large stores but in order to be flexible and adaptable to penetrate new markets they also facilitate franchises where there are risks to entry due to unfamiliarity or hostility to the IKEA concept. Their stores have been described as ‘theme parks masquerading as a furniture outlet’ (Margonelli, 2002: 112)


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