IKEA Case Study

IKEA Case Study

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IKEA Case Study

IKEA’s Competitive Advantage

Despite stiff and unhealthy competition in the furniture retail market, IKEA had an upper advantage over its competitors. Firstly, their furniture designers were very talented. The company saved on manufacturing costs due to its unique designs. Secondly, it introduced the concept of self-assembly. This strategy enabled the company to ship or mail furniture in separate parts. Hence, the company reduced the risk of freight damages and cost incurred on transportation and warehousing. Thirdly, IKEA reduced the cost of their products by eliminating intermediaries. It was dealing directly with its customers. Fourthly, the partnerships between IKEA and furniture manufacturers in Poland present so many benefits to the company. IKEA received cheaper supplies and accessed better technologies, such as furniture treatment. Finally, the company opened huge stores where it established restaurants for customer’s refreshments and relaxation while shopping.

Successes, Failures and Lessons Learnt

The uniqueness, quality and lows prices enabled the company to penetrate and establish itself in Europe. Coupled by recommendations and publicity from the most influential magazines in Europe, the company attracted middle-class households, who formed the hugest segment of the market. The company failed in America because it used European ideologies to penetrate the new market. European styles and designs were not well accepted by Americans. For example, Americans were attracted to big sofas and deep closets, which was not the case for IKEA designs.

In addition, prices of IKEA’s furniture rose due to the strengthening of the Swedish kroner against the American dollar. IKEA later recognized the differences between American and European styles, especially among older generations. It redesigned advertisements to target younger and youthful customers, who were willing to take risks. The strategy proved effective because the company recorded annual increase in sales.

IKEA’s Strategy in North America

            IKEA’s initial market penetration strategy was a flop because it failed to recognize the difference in customer preference between Europeans and Americans. However, its modern strategy has proved to be a success. Youths aim at reducing their expenditure by living in smaller rooms or houses. The company identified this opportunity and encouraged young customers to purchase their uniquely designed and smaller furniture.

IKEA’ Strategy towards Suppliers

IKEA opted for acquisition and strengthening business relationships with its suppliers. In Sweden, the company purchased Swedwood, which conducted its procurement and warehousing of IKEA inputs within Europe. These acquisitions also helped in strengthening the company’s relationship with other suppliers in Europe, US and Asia. Through these relationships, the company is able to advice its suppliers of better technologies that would reduce production costs and improve quality. In return, IKEA has been able to acquire cheaper and better quality inputs from suppliers.

Strengths, Weaknesses and opportunities

The main source of IKEA’s current success is effective management. It is committed towards realizing IKEA’s intended vision of producing cheap and quality products. So far, it has made tremendous progress towards attaining that vision through technological research and strengthened relationships with suppliers. Furthermore, the company has expanded to newer markets by opening additional stores. The rapid increase in the company’s scale and size of global business operations might create weaknesses to IKEA. Difference in quality controls standards and labor laws among countries create challenges for IKEA’s top management. It might result to disparities in the quality of products and affect the company’s supply chain. To reduce the impact of this weakness, the company should improve on their relationship with quality assessment agencies and encourage IKEA employees to adhere to quality standards set by respective countries.