IKEA Ayesha

8/10/2019 IKEA Ayesha

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A CASE STUDY ON IKEAPresented by:

Ayesha Rehman


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ABOUT IKEA

TYPE : Private

INDUSTRY : Retail

FOUNDED : Almhult, Sweden (1943)

FOUNDER(S) : Ingvar Kampard AREA SERVED : Worldwide

HEADQUATERS : Delft, Netherlands

KEY PEOPLE : Mike Ohlsson

PRODUCTS : Self-assembly Furniture

REVENUE :23.5 billion(2010) NET INCOME :2.7 billion(2010)

OWNER : INGKA Foundation

EMPLOYEES : 127000(2010)

STORES : 316 Stores(2010)
http://en.wikipedia.org/wiki/File:Ikea_logo.svg


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STRATEGIC INTENT

Business Idea:

To offer a wide range of well designed, functional products at low prices.

Vision:

To create a better everyday life for many people.

Mission Statement:

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 majority of people can afford to buy them


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BUSINESS DEFINATION

CUSTOMER

GROUP(What is being

satisfied?)

ALTERNATETECHNOLOGY

(How are customers needbeing satisfied?)

CUSTOMER

FUNCTION(Who is being

satisfied?)


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Contd.

? Who are IKeas customers Individuals and families for whom price is more important than cultural

values

Starting a new home and have no or very little furniture

?What needs are being satisfied Need to buy a whole array of furniture at an affordable price

? How are customers need satisfied A bundle of skills and technologies that enables a company to provide

a particular benefit to customers. Low cost of the products satisfy

customers need.


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PORTERS FIVE FORCES

ANALYSIS

Rivalry among existing firms is intense in the global market ofdiscount furniture and the major players in the industry include Euromarket

Designs Inc, Galiform plc, Wal-Mart Stores Inc, Argos and others.

However, currently IKEA is the undisputed market leader in the industry of

discounted furniture at a global scale.

The threat of new entrants into the industryis low, and thechances of emergence of new competition for IKEA is insubstantial as the

current market is saturated and significant amount of financial investments

and expertise are required to become a discounted furniture retailer at a

global scale.

However, the threat of substitute products and servicesis low as there

are not too many products and services available that can substitute the

demand for furniture, home appliances and a range of other products

offered by IKEA.


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Contd.

IKEA suppliers do not possess substantial bargaining poweras there

are numerous factories around the globe with the capabilities and

resources to form partnership with IKEA. At the same time, IKEA pursues

the strategy of forming strategic long-term relationships with its suppliers.

The bargaining power of IKEAs customeris strong, as thecompetition is intense and the customers have a wide choice of alternative

options offered by global furniture retailers, as well as, local furnitureproducers.


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PESTEL ANALYSIS


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PESTEL

Political factors There are no data about the political influence over the industry

Though it is anticipated that the organizations are heavily supervised by

the government

Economical factors Better purchasing power of emerging countries

Pricing different , according to the country

Social factors Decent work condition to its suppliers

Partnerships with many social organizations as well


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Contd..

Technological factors Creation and innovation of new products

Better stock management

Lowers barrier to entry

Influence outsourcing decision

Environmental factors

Create products with a minimum impact on the environment Partnerships with many environmental organizations

Legal factors Strengthening of International Importation Regulation Norms.


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SWOT
http://en.wikipedia.org/wiki/File:IKEA_Singapore.jpg


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STRENGTHS

IKEAs cost leadership concept keeps it ahead of its competitors.

IKEA has successfully combined low cost with good quality.

IKEAs research and development team finds ways to alter designs to save

on manufacturing cost.

A key feature of IKEAs furniture is self-assembly.

IKEA uses cheap labor which keeps its cost down and gives them a

competitive advantage.


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STRENGTHS

Its strong long-term relationship with its suppliers gives it a

competitive edge.

IKEA has the ability to adapt its tactics according to the market.

Flat packing reduces shipping costs, minimizes transport damage,

increases store inventory capacity, and makes it easier for customers

to take the furniture home themselves, rather than needing delivery.

Customer Service Restaurant and Child Care Supervised Playroom arealso its major strengths.


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WEAKNESESS

Its organizational culture can become a demotivating factor for many of its

employees.

It lacks thorough market research on customers preference before

entering into a new market.

IKEA never took economic issues into consideration before being faced

with the problem.

Kamprad does not take into consideration the change of times.

Not enough distribution channel.


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OPPORTUNITIES

IKEA can expand its product line by producing high end products

IKEA can expand its business into interior designing and cookery products

IKEA should listen to the customer demand to make more sustainablesolution

Product customization can boost up IKEAs sales

Bright prospect of online sales

Target all levels of the market, upper, middle and lower classes


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THREATS

With economic concerns over rising living costs and depleting disposable

income there is an overall threat to the performance of the business in UK

and American markets specifically

Accelerated market competition in USA

The risk of global financial crisis


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IKEA,s VALUE CHAIN ANALYSIS
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PRIMARY ACTIVITIES

ACTIVITY IMPLEMENTATION BY IKEA

INBOUND LOGISTICS Distribution of products to the stores from 27 distribution centres

10,000 IKEA products are manufactured by 2000 suppliers and

transported to the IKEA stores

Jobs in logistics account for about 20 -25% of each stores co-workers

OPERATIONS Operations in more than 38 countries; 208 companiesoperated stores in

26 countries, remaining stores operated by franchisees.

IKEA does not manufacture its own products

OUTBOUND LOGISTICS Transportation of products is done by customers

MARKETING AND SALES Targeting mainly families with lower income, students and singles

Family-friendly environment within stores

SERVICES Very limited level of customer services according to the chosen business

strategy

Information to customers mainly provided through explanatory catalogues

and displays

Low number of sales assistants in stores


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SECONDARY ACTIVITIES

ACTIVITY IMPLEMENTATION BY IKEA

FIRM INFRASTRUCTURE Hierarchical tall organisational structure

The IKEA Group is controlled by INGKA Holding B.V. that belongs to

Stitching INGKA Foundation

Stores are large in size

HUMAN RESOURCE MANAGEMENT High level of commitment to HR practices

Effective staff training and development programs

TECHNOLOGY DEVELOPMENT Research and development activities are initiated in Sweden

Extensive use of information technology in various businessprocesses

PROCUREMENT No need for raw materials as IKEA does not produce own brand

products

Long-term strategic relationships with suppliers


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STRATEGIES


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OPERATIONAL STRATEGY

Low Costs

Packing Compactly

Flat-Standardized Products

Design-level of Value-Added Chain

Attract with Catalogues

Retained by Superior Service


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GRAND STRATEGIES

Concentrated Growth

Single Market -Furniture

Product Development

Self developed Designs

Vertical Integration Forward (Assembly)

Backward (Supply)


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CORPORATE LEVEL STRATEGIES

a.) Vertical Integration

IKEA has been using VERTICAL INTEGRATION to the Global furniture

industry.

Managers use corporate level strategy in VERTICAL INTEGRATION to

identify which industries their company should compete to maximize its

long run profitability. There are two types of vertical integration:

1. Forward vertical integration

2. Backward vertical integration.

IKEA is using backward vertical integration to expand their business and

to make profit.


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BENEFITS OF VERTICAL INTEGRATION

Facilitating investment in specialized assets

Here IKEAs specialized asset is employee skills that are acquired

through training and experience.

IKEA invested in specialized assets because it allowed it to lower its coststructure and differentiate their products.

Enhancing product quality

By entering industries at other stage of the value added chain, IKEA

enhanced the quality of the product in its core business and thusstrengthened its differentiation advantage.


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Contd...

Improved schedulingStrategic advantage has been obtained when vertical integration makes it

quicker, easier, and more cost effective to plan, coordinating, and transfer of

product like finished goods from manufacturing plant to retail or distributingshop.

Increased bargaining powerIKEA uses VERTICAL Integration because it allows them to obtain bargaining

power over suppliers and increase their profitability. By consolidating theindustry through VERTICAL Integration 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.


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b.)Outsourcing

Strategic outsourcing is the decision of IKEA to allow one or more company to

perform specifically or selected value chain activities or function by

independent specialist companies that focus all their skills and knowledge on

just one kind of activity.

According to available information IKEA now outsource 90% of their

product and rest 10% produce internally.


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BENEFIT OF OUTSOURCING

Low cost structure

IKEA now outsources 90% of their product and rest 10% produce

internally which helps them reduce their overall average cost.

Focus on the core business

The final advantage of strategic outsourcing for IKEA is that it allowsmanagers to focus their energies and companys resources on

performing those core activities that have the most potential to create

value and competitive advantage.


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Offers Products to

Only One Group

of Customers

Offers Products to

Many Kinds of

Customers

Offers Low-

Priced Products

to Customers

Offers Unique

or Distinctive

Products to

Customers

Focused Cost-

Leadership

Strategy

Focused

Differentiation

Strategy

Differentiation

Strategy

Cost-

Leadership

Strategy

Generic Business-Level Strategy


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OVERALL COST LEADERSHIP

The strategy of overall cost leadership is IKEAs biggest aim.

IKEA offers low-priced products to many Customers

They use flat-package to reduce the cost of transport.

They reduce the staff in store to reduce the cost of store.


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DIFFERENTIATION

Today, IKEAs product range consists of 9,500 home furnishing

articles, designed to be functional and good looking but at a low price.

You can find almost everything you need in IKEA.

Customers need goods of low price and better quality. Low price or

good quality is easy to achieve, but it is not easy to get both of them.

IKEA chose a different way which is to stand on the side of everybody

by taking care of every customers need.


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FOCUS

There are three main part of IKEA: IKEA office, home storage,

Childrens IKEA.

The target customer is everybody.

IKEA also take children as their customer, and the spirit of care for

children really wins many customers heart.

According to the life system, they segment the market in many parts

to meet the requirement of different customers.


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COMPETITIVE ADVANTAGE
http://en.wikipedia.org/wiki/File:Midtown_Excursion_061.jpg


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COMPETETIVEADVANTAGE

ECONOMIES OF

SCALE:

STANDARDISATION

ECONOMIES OFSCOPE:

FURNITURE AND

RESTAURANT

DIVERSITY IN

ASSORTMENT

STRENGTH OF

BRAND NAME

DISTINCTIVENESS

IN DESIGN

NETWORK OF

SUPPLY: 1300

SUPPLIERS IN 53

COUNTRIES

ECONOMIC

DESIGN

LOGISTICS


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BCG MATRIX

Relative Market Share

Star Quest ion Mark

DogCash Cow

High

Market

Growth

Low

WeakStrong


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Question marksare IKEAS slow growing products, with low growing

shares in a growing market .

Rising Stars - these are often associated with IKEAS products with a

strong growth stage of the cycle. The sales of IKEAS products here aregood with the potential for market leadership. The market itself is

expanding .

Cash Cows- relate to IKEAS products that sell strongly with good

market share, but in a mature market i.e. low growth, these ranges ofIKEAS products are associated with the decline stage of the product

lifecycle, and may be discarded if profitability declines further.

Dogs: relate to IKEAS products that are no longer profitable.


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PRICE-STYLE MATRIX

At IKEA, all articles are divided into sixteen different categories

considering their style and price.

Four styles are Sty le1, Sty le2, Sty le3and Style4 whereas the four price

groups are referred to as A, B, C and D.

The products in the price group A are more aggressively

merchandised and positioned out in the stores than products

belonging to the other price groups.


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Example of a price-style matrix

Price

D

C

B

A

Style1 Style2 Style3

Style4


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PRICING NEW PRODUCTS

When Management decides on developing a new product they

examine if there is a market demand for the product.

Thereafter the position in the price style matrix and the absolute price-

tags are established.

When placing a product into the matrix its target groups ability to pay

is taken into consideration.

An introduction of a new article often results in price adjustments forrelated products, in order to retain the price balance within the matrix.


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EXPANSION PLANS IN INDIA

Although Ikea stores are yet to arrive in India, its catalogs are sold bystreet hawkers and bookstores in many major cities.

Locally made knockoffs of Ikea furniture are ubiquitous in the homesof professionals in India's rapidly modernizing cities.

Government's single-window body to clear foreign investment

proposals, FIPB, cleared Swedish furniture major IKEA's Rs. 10,500-

crore project, the largest FDIin single-brand retailso far.

IKEA Group, which manufactures and sells home and office furnishingproducts, proposes to investin single--brand retail trading in India

through a 100 per cent subsidiary.
http://timesofindia.indiatimes.com/topic/Fdihttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/Investhttp://timesofindia.indiatimes.com/topic/Investhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/Fdi


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IKEA's proposal to set up 25 stores in India has already been

scrutinised by the Department of Industrial Policy and Promotion

(DIPP) in the Commerce and Industry Ministry.

The proposal will now have to be cleared by the Cabinet Committee onEconomic Affairs ( CCEA) as the FIPBcan clear investment

applications worth up to Rs 1,200 crore only.

IKEA's would be the largest investment in the single- brand retailing

ever since the government has allowed foreign investment in this

sector in January.

With the government relaxing the mandatory 30 per cent sourcing

clause in September, IKEA which had earlier expressed concerns over

the issues had put in its final application earlier this month.
http://timesofindia.indiatimes.com/topic/CCEAhttp://timesofindia.indiatimes.com/topic/FIPBhttp://timesofindia.indiatimes.com/topic/FIPBhttp://timesofindia.indiatimes.com/topic/CCEA


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THANK YOU

IKEA Ayesha

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