IKEA’s Competitive Strategies
How IKEA’s Competitive Strategies Worked
The success of IKEA emanates from the concept based on providing customers with a wide variety of well-designed and functional home furnishing products. Further, the aspect of affordability enables a wider population of individuals to enjoy these products. Selling products at lower prices with a wider customer base enables the company to penetrate markets. The Swedish company has provided a unique style and brand image appealing to customers. IKEA endeavors to provide customers with beautiful, practical, and pyretic furniture to capture a wide customer base (Yohn, 2015). It has also established a competitive edge over its competitors based on the following strategies:
The company sells relatively inexpensive contemporary Scandinavian style furniture to a wide base of customers all over the world. The primary target consumer group has occurred as white-collared individuals fascinated by the unique designs employed by IKEA. It has also invested in kids’ products with an additional kids’ club.
II. Price differentiation has enabled the company to design stylish and functional furniture at an affordable price range that caters for a wide customer base. The pricing strategy of selling products to many people enables it to enjoy profits based on the application of economies of scale. Its price penetration strategy focuses on establishing the company as a low-cost provider.
III. IKEA wins hearts of customers based on its recommendable job at environmental protection. Its main raw materials include cotton, wood, metal, plastic, rattan, and glass. The company works to utilize as many recyclable and renewable materials as possible. In doing so, it captures a wider market of environmental protection enthusiasts.
IV. The three areas of focus for IKEA include home storage, office, and the children. Clearly, the company depicts a wider target group, a factor that explains its position as a major furniture retailer enabling it to place products in stores in every major nation.
V. The company has targeted world’s largest markets such as China, India, and Europe thereby a significant customer base.
VI. IKEA ships unfinished products in flat boxes, a method, referred to as ‘flat package’, leaving customers to perform final assembly. The strategy cuts shipping costs largely. Consequently, it reduces the number of staffs responsible for packaging based on the presence of less work. As a result, it can manufacture a wide array of products and ships them to various parts of the globe.
VII. The company utilizes economies of scale in making significant amounts of sales all over the world. The cost leadership applied by IKEA depicts low costs of production and high volumes of products on sale thereby resulting in profits.
VIII. IKEA sources raw materials and manufactures products in countries such as Malaysia and China thereby reducing operational costs and later shipping them to other markets.
IX. IKEA’s marketing concept envisages customer orientation and relationship marketing. Customers have the opportunity in contributing towards co-designing and co-construction of new concepts. As a result, customers enjoy the experience of customizing and applying the concepts to match their living spaces. In efforts to maintain and bring home new customers, the company has a mobile loyalty program that depicts a database where interested consumers have a chance to receive discounts from the retailers.
X. IKEA also utilizes three primary promotional methods that include TV advertising, catalogs, and direct marketing. Social media platforms also come in handy, for example, utilization of Weibo in the Chinese market. IKEA has also utilized online presence in nations such as the U.S.
Competitors have had a difficult time to match IKEA’s strategies. Producing well-designed products at affordable prices does not occur as an easy task to perform. Competitors have failed to cope up with IKEA’s design, manufacturing, and shipping strategies.
How Ikea benefited from the application of these ideas/strategies and how they were applied.
Secrets behind IKEA’s success points to its efficient supply chain processes, design, and marketing strategies. IKEA stands at the 45th position in world rankings of the most valuable companies across the globe (Forbes, 2015). Operating 360 stores in 37 countries in the world, IKEA has surpassed its competitors in providing well-designed products at low and affordable prices. IKEA has managed to impress both customers and competitors of the world based on its unique supply chain and inventory management skills that caters for the large volumes of products.
Currently, the company is valued at $11.8 billion as of May 2015 (Forbes, 2015). The company continues to record rise in sales volumes. Markets such as Russia, Hungary, and China have occurred as fast growing countries that purchase IKEA’s products. All these successes attribute to the strategies employed by the company. The company designs low cost and unique products, an aspect that lowers its manufacturing costs. Additionally, it manages to meet strict requirements leading to efficient product distribution. It is reported that more 50% of IKEA’s raw materials emanate from recyclable and reusable products. The use of recyclable materials cuts down on costs of raw materials. The use of fewer raw materials enables the company to cut down on the transportation costs giving enabling it to ship products at low costs.
The key to the success of IKEA points to the presence of reliable suppliers. Efficient communication and relationship management with the manufacturers and suppliers of the materials enables the company to fetch good prices on the products it procures. The company has gained a competitive advantage in negotiating prices with suppliers and checking on the quality of supplied materials as a high-volume retailer. The ‘flat package’ strategy enables the company in significantly reducing shipping costs. Shipping of unassembled products takes less room to maximize some products on shipment. Placing the products on convenient and efficient packages lowers the transportation costs depicting returns in revenues.
The presence of the company online enables the company to impact a competitive edge over competitors. In 2014, IKEA managed to realize $10 billion sales volume. Projections indicate that the company will realize more than $14.2 billion by 2019 (Tabuchi, 2015). The company’s venture into the online platform promises to increase its sales. Investment in its presence online has enabled it to increase its sales. The improved supply-chain efficiency has accounted for a 1.5% gross margin increase in net income. In 2014, the company recorded a net income increase of 3.1% to $4.5 billion. The improving economies are strong indicators of growth of IKEA (Gustafsson, 2015).
Currently, the company targets renewable energy, a critical driver in propelling its market presence. In 2014, the company pledged to invest 2.5 billion euros in factories, stores, shopping centers, and renewable energy. The retailer planned to spend 1.5 billion euros on renewable energy by the installation of solar panels and wind turbines (Gustafsson, 2015). These recent developments on renewable energy endeavor to suffice the company’s image as an environment conservation enthusiast.
The company sources raw materials from countries such as China and Malaysia, countries that offer cheaper raw materials. Based on the large amounts of orders on raw materials, IKEA attains great deals from its suppliers thereby cutting down on production costs.
IKEA does not compete in the high-end furniture business. It focuses on providing customers good designs at affordable prices. The low price factor and the quality of design suffice the company’s presence in the market, an aspect that supersedes competitor prospects. Undoubtedly, the business model adopted by IKEA depicts a company that combines economies of scale, good quality, and an affordable price tag in capturing a significant market share.
Gustafsson, K. (2014, January 28). Ikea Sees ‘Positive Signs’ as Economies Start to Recover. Bloomberg Business. http://www.bloomberg.com/news/articles/2014-01-28/ikea-group-profit-increases-as-household-consumption-strengthens
Tabuchi, H. (2015, January 28). As Profit Slows, Ikea Notes Need to Move Online. The New York Times. Retrieved from http://www.nytimes.com/2015/01/29/business/as-profit-slows-ikea-notes-need-to-move-online.html
Forbes (2015, May). IKEA on Forbes Lists. Forbes. Retrieved from http://www.forbes.com/companies/ikea/
Yohn, D. (2015, June 10). How IKEA Designs Its Brand Success. Forbes. Retrieved from http://www.forbes.com/sites/deniselyohn/2015/06/10/how-ikea-designs-its-brand-success/2/