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Company & Strategy Analysis

Rashid Al Suwaidi Angelina Li Divya Paramesh Michael Wong Jiawen Yang

Professor Lo Strategy & Competitive Advantage June 3, 2014

Michael Huang

IKEA’s Philosophy

“The objective must be to encompass the total home environment; that is, to offer furnishings and fittings for every part of the home whether indoors or outdoors. It must reflect our way of thinking by being as simple and straightforward as we are ourselves. It must be durable and easy to live with. It must reflect an easier, more natural and unconstrained way of life.”

Ingvar kamprad

TODAY’S AGENDA

1. introduction 2. External environment

3. competitive advantage

4. current strategy 5. Current problems

6. recommendations

Swedish furniture company Ingvar Kamprad founded IKEA in 1943 when he was only 17. At first, it was a mail-order sales business, then developing into a full retail furniture store in 1958. Key Statistics: •  Today, IKEA owns and operates 349

stores in 43 countries, employing 139,000 personnel

•  Company uses approximately 1% of wood supply

Their focus is on delivering an all-in-one shopping atmosphere for consumers, focusing on cost-leadership and differentiation.

Introduction

External environment General factors IKEA faces a number of external environmental factors: Political •  Protectionism might pose a threat to

IKEA – tariff on imported products Social •  Cultural difference between Europe

and other countries. •  Example: United States values

functionality and longevity Economic •  Recession makes consumers more

cost-conscious (quality & price) Technological •  Technology streamlines processes •  RFID could help eliminate shipping

and storage errors

political

social

economic

tech

Threat of new

entrants

Threat of substitute products

Bargaining power of suppliers

Bargaining power of

buyers

Rivalry among

existing firms

Porters five forces

Low Moderate Low moderate intense

•  Economies of scale •  Well-established

global icon •  Mature life cycle •  Strong brand name

and loyal customers

•  Specialized retailers commonly sell second-hand products

•  More luxurious, lasting brands with higher quality products

•  Strong relationships with suppliers

•  IWAY is IKEA’s code of conduct – buys massive volumes

•  Internal furniture manufacturing

•  Wide choice of available options

•  Target market actively searches for lowest deals

•  No switching costs, consumers can cross-shop

•  Many alternative furniture sellers

•  Stores carry similar product lines at competitive prices

•  Much competition is based on service

•  Plateaued growth

Competitive advantages

•  Resources of IKEA include their employees and brand name

•  Design team focuses on product aesthetics, product development focuses on functionality

•  Worldwide brand presence

Resources Capabilities •  Organization of its manufacturing and

distribution process, marketing strategy •  IKEA maintains a cost-driven approach •  Utilizes suppliers around the world •  Ease of putting together IKEA’s furniture

All-in-one destination •  Company offers an “all-in-one” experience,

with the ability of purchasing furniture, appliances, utensils, and more

•  Free-day care service, unique café offerings at low prices, large layout

Customer loyalty •  IKEA has strong customer loyalty due to

their pricing strategy and product offerings •  Very flexible return policy (within 90 days) •  Provides options of shipping, assembly,

and even collecting the pieces for your furniture at reasonable prices

SWOT ANALYSIS WEAKNESSES •  Tradeoff between quality and low price •  Some items require more than basic

assembly skills •  Very similar product lines that stem from the

same idea base

•  Extremely competitive pricing •  Large servicescape that allows for targeted

focus on families and other segments (play area, café, DIY)

•  Brand recognition with a worldwide store presence

STRENGTHS

Current strategy Cost leadership

differentiation

All-in-one experience functionality

Current strategy

differentiation Cost leadership IKEA’s strategy focuses around the philosophy of “low-cost with meaning”. •  IKEA used a matrix to set target retail

prices for all of their products •  For example, a table would have four

categories (sleek wood, minimalist, neo- traditional, bare bones) and three price points (high, medium low)

•  IKEA also eliminates pre-assembly fees, implementing the Do-It-Yourself concept

IKEA’s differentiation strategy is embedded within their culture and environment. •  In-store playrooms and daycare •  Customers are actively involved in the

shopping experience, from gathering the products to transportation and assembly

•  IKEA’s furniture lines are highly customizable – many enthusiasts have developed websites and guides

"You do your part. We do our part. Together we save money"

Lifetime commitment of furniture

Innovation of products