Ikea

Individual Coursework | Taimoor Asif | MISIS # | M00338502 | Module Number | MBA 4641 | Module Professor | Mr. Okan Geray | Submission Date | 27th November 2011 | IKEA Case Study 1. Explain, in detail, the aspects of IKEA strategy that make it a Hybrid strategy. COST LEADERSHIP * IKEA’s strategy is based on selling high-quality, Swedish designed, self-assembly furniture products at low price. * The IKEA business idea is: ‘We shall offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’ IKEA targets price-conscious young couples and families who are willing and able to transport and assemble furniture kits. * The low-price strategy, seeks to achieve a lower price than competitors while maintaining similar perceived product or service benefits to those offered by competitors. Low price is not appealing unless, it represents good value for money. This is where IKEA is able to make a real difference. IKEA is committed to having a good relationship with their suppliers and so they are able to purchase good quality, economically produced designs that are bought in bulk to keep costs down. By making all their furniture’s flat packed they cut down on transportation and assembly costs as well. Besides, the packaging allowed shoppers to haul their own stuff home, another saving. *  The company has been able to sell its standardized products across Europe, and as a result was able to build considerable economies of scale into its operations and maintain a price advantage over its competitors. DIFFERENTIATION  * The next option is a broad differentiation strategy providing products that offer benefits different from those of competitors and that are widely valued by buyer. The aim is to achieve competitive advantage by offering better products or services at the same price or enhancing margins by pricing slightly higher. * The IKEA product range is developed to be extensive to have something that appeals to everyone and to cover all functions in the home. The products are modern not trendy so they are practical enough for everyday use.  IKEA design means products that are attractive, practical and easy to use. They don't have unnecessary features; they give genuine solutions for specific home furnishing needs and are made of the most suitable materials for their purpose. The most important points of differentiation for IKEA are the store features: IKEA stores are usually very large blue buildings with few windows and yellow accents. They are designed around a "one-way" layout. * This leads customers along “the long natural way." This layout is designed to encourage the customer to see the store in its entirety (as opposed to a traditional retail store, which allows consumer to go right to the section where the goods and services needed are displayed) although there are often shortcuts to other parts of the showroom. The sequence first involves going through furniture showrooms making note of selected items. Then the customer collects a shopping cart and proceeds to an open-shelf warehouse for smaller items (Market Hall). Then the customer visits the furniture warehouse (Self Serve) where they collect previously noted showroom products in flat pack form. Sometimes they are directed to collect products from an external warehouse on the same site or one nearby 2. Why is this strategy difficult for competitors to imitate' The IKEA concept is based on offering a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them. IKEA works in various ways not only to rationalize and simplify distribution, but also to minimize the impact on the environment. The secret is to calculate as exactly as possible how many products will be needed to satisfy demand. * By minimizing “wasted space”, it is possible to transport and store more packages at a time. To sum up, large volumes + flat packs = low costs. IKEA products are designed, manufactured, transported, sold and assembled. IKEA creates concept into reality, it sales a lifestyle. There is no one else who offers this concept. * The business strategy is built around some key words and deep concepts. IKEA is focused on segmentation of its target: the middle-class population of all age groups. IKEA exists in all advanced economies such as Europe, USA, Australia; and also in emerging markets like China * IKEA holds the entire supply chain, from the fabrication to the sales, which basically which means it’s harder for the competitors to design a product that has quality associated with low cost * IKEA uses differentiation for local responsiveness, it consists in an adaptation to suit individual countries, for examples: Americans prefer to store most of their clothes folded, and Italians like to hang, large Hispanic families need dining tables and sofas that fit more than two people, the Swedish norm. IKEA concentrates on building differentiation on the basis of its marketing, product range, logistics and store operations but low customer expectations on service levels allow cost reduction because customers are prepared to transport and build its products used as an entry strategy in a market with established competitors. 3. What are the dangers of a hybrid strategy and how can managers guard against them' * A hybrid strategy seeks simultaneously to achieve differentiation and low price relative to competitors. The success of this strategy depends on the ability to deliver enhanced benefits to customers together with low prices whilst achieving sufficient margins for reinvestment to maintain and develop bases of differentiation. * Its expansion into the US market. It adopted an ethnocentric strategy forgoing international where it had standardized products and standardized operations. This helped to keep costs low, but ignored the different tastes and preferences of the US market and the way they purchased furniture. IKEA had to change the model of operating; giving greater ownership to its US subsidiary, to become polycentric - stores in the US had the ability to adapt furniture and customize to suit the local market. Costs increased as a result, but this localization approach was necessary for sales. * IKEA has looked towards emerging markets e.g. China for growth. Further adaptation to products has been necessary - including pricing strategy. Income levels of consumers are lower and stores needed to be located within the citiesas car ownership are lower. IKEA has experienced greater competition from national brands. * IKEA’s management realized that a standardized product strategy should be flexible enough to respond to local markets. The company has recently adopted a more balanced strategic focus (giving weight to global and domestic concerns). The current approach puts greater emphasis on global market coordination to limit duplication of activities and capture synergies or economies of scale and scope. EA