For Prof. Goodman only

Bargaining power of suppliers

        One of IKEA’s core competencies is their focus on establishing strong relationships with its suppliers. In 2000, IKEA introduced IWAY, a code of conduct provided to their suppliers that outlines their five codes of conduct, what to expect from IKEA, and the standards that IKEA has set forth for its suppliers. The document also covers the prevention of child labor and corruption, environmental conditions, and responsible forestry management. In 2013, IKEA had 1380 suppliers in 54 countries, giving IKEA strong bargaining power when determining where to source materials from, and what companies to establish relationships with. IKEA’s parent company, INGKA Holdings, also owns the manufacturing company for their furniture – Swedwood. Therefore, due to the leverage that IKEA has over its suppliers, and control of manufacturing operations, the bargaining power of suppliers is low.

       

Bargaining power of buyers

        IKEA’s target market consists of individuals that are price-conscious, willing to trade convenience for price, and actively search for the lowest deals. In the furniture store industry, there is intense competition, and wide choices of substitute products are available. However, IKEA’s brand reputation has established itself as a low-cost, good quality product provider. In addition to this, IKEA is very competitive in pricing by eliminating the pre-assembly fees, instead giving consumers the option of either assembling the furniture themselves (and therefore saving potential costs), or low-cost outsourced assembly options. Thus, buyers have a moderate strength of bargaining power due to the alternative options available.

Rivalry among existing firms

        Although IKEA holds a significant percentage of market-share (6.7%) in the furniture store industry, there are several other companies that hold a similar amount, including Ashley Furniture (4.9%), Rooms To Go Inc. (3.0%), and Ethan Allen Interiors Inc. (1.1%). The remaining 84.3% is divided between thousands of smaller furniture stores located throughout the United States. It is estimated that by the end of 2013, the industry had over 3,000 operators, with nearly 50% of those companies being owned by families or single-owners.

        There are also alternate sources of furniture that do not directly fall into the “furniture store” category, such as department stores, supermarkets, non-specialized retailers, warehouses, and wholesalers. These larger stores benefit from their large supply chain networks as well as economies of scale, which in turn allows the stores to become price-competitive and attract the price-conscious consumers. However, since the main focus of these stores is not furniture but rather a wide array of products and services, it decreases the threat towards specialized-furniture stores.

        Furthermore, internal competition is based between furniture stores that carry similar product lines. They compete on basis of price since the majority of their consumers are price-conscious and willing to shop around. Focusing on the external environment, alternate retailers can offer lower prices on similar furniture products due to economies of scale. Therefore, the rivalry among existing firms is intense and has a very significant on the future profitability of IKEA.

        External threat of competition (mass merchandisers, warehouse clubs – furniture similar in quality and price) – Companies will switch their focus to providing customer service and benefits, customizable fabrics, expanded interior design services

Increase brand awa

COMPETITIVE ADVANTAGES OF IKEA

1. Please identify the firm’s resources, capabilities and competitive advantages.

2. Are they sustainable, given the firm’s internal and external (industrial) environments?

Manufacturing is one of the methods Ikea is able to reduce costs. As a global company, it is able to utilize manufactures around the world, always seeking for the balance between cost-efficient labor and product quality. They stimulated competition among the suppliers, creating a high buyer, low supplier power scenario. Simplicity of materials and overall product design allowed Ikea to maintain high buyer power. Flat transportation, reduction in shipping costs.

The ease of manufacturing in Ikea’s products represents one of its’ greatest strengths. Ikea offers customizeability to the consumer while maintaining uniformity with its production line. Through this method Ikea is able to promote cost-leadership, in a personal, “customizeable nature, making it marketable to a wide variety of price conscious consumers. Sleek and simple.

The high marketability of Ikea’s products in combination with its market strategy form to create the company’s brand image. That is, a cost-efficient product, meant to better the everyday life of its consumer, through form, function, and affordability.

This is done through its shopping experience. The experience is very interactive and almost “theme-park like”. Shopping at Ikea is not an errand, but an experience. Upon entry, a free day-care service is offered, allowing parents of young children to freely walk about the store. The consumer is guided through a specific route, allowing the store to showcase all of its’ items, in a brand cooperative way. At the end, food is offered, its meatballs are almost a fad. This experience and the company’s brand image work together to drive profit against its’ cost-driven manufacturing process.

Global sourcing presence and volume, “Scandinavian design”, difficult to copy.

High organization of its manufacturing process and inventory give it an edge over other low-cost competitors.  ORGANIZATION.

CURRENT STRATEGY

1. Please identify the firm’s current corporate and/or business-level strategy— for example, is it cost leadership, differentiation, broad, focused, or some combination of these generic strategies?

2. How does the current strategy fit with the firm’s external and internal environments?

Ikea’s current strategy focuses around the philosophy of “low-cost with meaning”. It maintains a const-leadership strategy in coherence with branding and an efficient manufacturing process.

Ikea’s current strategy is driven by the philosophy of “low-cost with meaning”. The company maintains a cost-leadership strategy, utilizing the company’s brand image in order to combat the negatives of being highly cost oriented. As such, the company has created a good internal “fit” with external forces, which is the basic principle of strategic advantage for a company.

Ikea’s product strategy is central to cost-leadership. Etc. etc. %30-50 lower in price than those of its rivals. Using a price matrix unique to each item manufactured. It also helped the company identify any poduct gaps, and allow for the company to fill such gaps using readily manufactured product lines. Ikea does a thorough analysis of external factors including consumer trends, analysis of competitors.

CURRENT PROBLEMS

IKEA’s North American market currently faces a few issues. When IKEA chose to expand its stores to North America, the company did not anticipate the number of cultural difference between the European and the US market  

One of the problems that IKEA currently faces is the lifetime commitment to the furniture that other rival stores offer. Since the prices of IKEA’s products are so low many customers fear that IKEA’s product may not last as long as other company’s. The material used in IKEA’s product are cheaper, to give the customer a better price on the product. This is appealing to some customers but not all which is why customers looking for sturdier and longer lasting furniture, spend more at rival furniture stores.  

        Another problem that the company faces is the no delivery service and the do-it-yourself installation process. IKEA’s company strategy is to have heavy customer involvement. The customer delivers their own purchases home the same day as they buy it and they also assemble the product themselves. This concept was unheard of the first time IKEA opened in the US. Customers liked the convenience of the company handling the delivery and installation. Some customers like the fact that they are able to put together their products themselves and have the product at home the same day they purchase it. However, taking home larger purchases can be an issue if the customer does not own a large vehicle and the instructions for installation can become complex for some products.

        IKEA also faces the issue of innovation with their products. The products that IKEA offers all stem from a very similar product base. IKEA has recent been hiring the same genre of people that which inhibits creativity and diversity needed in the company to develop new products. With IKEA’s new expansion into the US market, the company will need to innovate newer products that fit American needs. The North American market is drastically different than the European furniture market. American customers have different house dimensions and different style houses which the company will need to adapt to.  

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