An entrepreneur called Ingvar Kamprad at 17 years’ age founded IKEA. The name is derived from the initial founder’s name Ingvar Kamprad, farm Elmtaryd and the home country Agunnardy where the entrepreneur grew up. The firm is the largest manufacturer of furniture covering around 6.700 in Scandinavia. The company’s vision is to provide better and affordable furniture solutions to improve the living standards of its customers. The mission statement is to offer furniture products at low prices incorporated with functional style designs to meet the needs of each customer. The company developed over many years and it has become the prominent firm leading with manufacture and sell of home furniture. It has thrived both global and international markets as the largest distributor of furnishing materials (Aula, 2010).
It encompasses a corporate structure with operation and franchising. Operation involves the procedures of the management such as manufacture, supply chains, stores, purchasing and design of furniture. INGKA Holding, a Dutch company, manages these processes. Kamprad then founded the Stitching Ingka Foundation in 1982 with the entrepreneur as the sole owner and a group of five officers in the executive department. The firm has outsourced some of its processes such as trademark, to the Dutch firm, which is located in Luxembourg (Bérard & Delerue, 2010).
The franchise fees paid to the Dutch firm is 3% of sales made. It also has a flagship store, which covers 45,800 sq. meters located in Stockholm. Its outlets have playrooms and caretakers who look after children while their parents shop. Besides, it has a cafeteria for its customers. The firms’ major consumers come from countries such as America, Europe, Asia and Middle East. The company made its first showcase in Sweden in 1953 where customers assessed and experienced the quality of the products. The company’s philosophy is ‘Quality at a low price’ which helped shape the business notion while venturing into global markets (Alsudiri, Al-Karaghouli & Eldabi, 2013).
This paper discusses the business, corporate, acquisition, international and cooperative strategies of the IKEA Company with the aim of evaluating its competitive strategies, approaches and the key challenges of strategy formulation.
This refers to the strategies an organization adopts to achieve its desired goals and objectives. Basing on this strategy, a firm can decide on what products to offer. The IKEA business strategies are discussed below;
Marketing Approach of IKEA in Sydney
IKEA has labeled Australia as a standout amongst the costliest places to work together and is multiplying its store arrange while slicing costs to stay competitive. The Swedish furniture has acquired two grounds, one in North part of the country and second in northwest Sydney to assist its desire of dramatically increasing its number of Australian store to eleven. Another circulation focus is on the planning phase and Ikea is near securing another fix of improvement stores.
Australia represent a characteristic market for the retailer with its young populace profile and the strong home strong home development division, as the cost of working together is at mountain statures in Australia their strategy to enhance competitive edge and spread costs, Ikea is multiplying its Australian stores construct from five in light of the east drift to no less than a four in Sydney, and more stores in other parts of the country. Moreover, Ikea is cutting costs on 800 items by 49%, and a year ago lessened costs on 3000 things from its 900 item go. Ikea at first committed a few errors when it came to Australia around 30 years prior. Since Australia market is extreme, IKEA corrected its marketing methodologies to fit the market.
Salaried-based individuals are the major customers as they spend more on the products and accept new products easily. Psychographic segment lies on the customers’ well-being, behavior, culture and beliefs. The company product is likely to be substituted when they wear according to the customers’ choice, lifestyle and preference; this is experienced in certain parts of the city. However, in regions such as Asia, customers incorporate their purchasing decisions with the luxury and comfort of the furniture before purchasing (Ghezzi, 2013).
Consistent with Gupta (2012), this involves product awareness and creation of positive reviews in the social media where the product or service is shared to others for review. IKEA ensures that its products are advertised in different counties and slogans were created according to the goods and products. The slogans used incorporated the culture and beliefs of consumers. In addition, the firm offers its products for free trial to customers in exchange for a positive review as part of advertising. Additionally, it conducts campaigns and rallies to create awareness of their products.
This is a marketing mix strategy. For instance, the price range of the IKEA products is affordable to consumers of all income levels. The prices are reasonably low because assembly and storage costs in the IKEA outlets are efficient. Moreover, the packing of items is made in cardboards, which is easily recycled, thus reducing spending. It also offers product promotions, which ensures easy penetration into new markets thus creating a competitive advantage in the market. IKEA has adopted strategies concerning its pricing approach: pricing is maintained at rational and affordable rates to prevent opponents competing against the firm and maximizing market sales by establishing broad sales centers (Hoejmose, Brammer & Millington, 2013).
This strategy involves contemplation of business ideas and opportunities outside the firms’ industry to create value chain. Corporate strategy approaches are discussed below;
According to Marx (2016), a firm allocates its resources depending on people and capital. Management of a firm should be able to determine efficient allocation of resources to maximize the value chain. This is usually done by ensuring strong management to ensure increased value chain, capital allocation to business to earn returns as well as venturing into other opportunities such as acquisitions and mergers. IKEA ensures efficient allocation of its resources and capital to minimize production associated costs.
The IKEA Company produces large volumes of products and its production processes and operations outsourced to companies such as Dutch. This helps increase the volume of sales enabling the firm to enter easily into the global market (Shavarini, Salimian, Nazemi & Alborz, 2013)
IKEA customer values include provision of best products, affordable prices as well as good and quality services to ensure customer satisfaction. Customers are able to identify products according to their standard of living, style and culture. According to Soltanizadeh et al (2016) they are quoted saying, “It’s not what you say about your IKEA furnishings that matters, it’s what IKEA furnishings says about you”. A firm should ensure high quality customer value and satisfaction for it to be successful. Customers are likely to purchase goods or services from products that they believe in compared to what competitors may be offering.
In accordance with Toor (2016), the firm designs its products based on market research depending on the culture of its customers. Moreover, it incorporates innovation aspect to produce products that are modernized and cost-efficient. This restricts competitors from competing against it thus making the firm dominate the global market.
IKEA customers would patronize their cafeteria for food, thus enhancing utility while shopping in the IKEA. It provides playrooms where children are take care of while parents do their shopping peacefully.
Generic Competitive Strategies by Porter
The non-specific or generic strategy of Porter identifies with the organization’s valuing and marketing procedures. The two important kinds of competitive advantage combined with the range of details a company looks into accomplishing them prompts three generic methodologies for realizing good implementation in an industry: differentiation, focus, and cost leadership. The focus strategy has two modifications, differentiation and cost focus.
This holds that a firm should always reduce cost associated with product processes and development (Veiga & Franco, 2015). At proportional or lower costs than its adversaries, a cost leader’ ease position converts into higher returns. A cost leader, nevertheless, cannot overlook the bases of differentiation. On the off chance that purchasers do not see its item when contrasted with satisfactory, a cost leader will be obligated to offer discounts below the competitors to realize sales. For instance, IKEA outsourced some of its processes to franchise companies with availability of raw materials and cheap labor and low cost in production.
This is the second generic strategy. The IKEA Company differentiates its products both in design and in functionality. It produces innovative products with advanced features than those of its competitors. The company continuously embraces innovation in development and marketing of its products to gain competitive advantage.
Through enhancing its strategy for the impartial percentages, a focuser tries to accomplish a competitive advantage in its market share even though it does not have a competitive advantage in general. IKEA focuses on time, capital and resource allocation in its production process thus creating a global competitive advantage (Wu, Gao & Gu, 2015)
IKEA furniture is affordable and easily acquired thus increasing IKEA sales volume. The company’s production processes and designs are standardized reducing product wastage. The firm has adopted a flat organization strategy to increase management efficiency and control staff to ensure operational goals and objectives are achieved. It also ensures that furniture reaches their customers with speed send efficiency.
This strategy incorporates globalization, which is a procedure for growing an economy through the use of global marketing aspects. A firm strategizing to be part of globalization has to maintain certain strategies to meet the expectations and needs of different people and cultures globally (Yuliansyah, Gurd & Mohamed, 2017).
The political aspect of IKEA is its dominance in both domestic and international markets. However, the firm faces opposition from few countries to enter their market. Economically, the firm ensures customer loyalty and satisfaction as well as ownership transfer strategy. The firm has offers many social opportunities to its employees and customers where they interact freely thus building good customer relationship.
In addition, it ensures corporate social responsibility by offering charitable services. The firm embraces latest technology and innovations in product development and an optimized supply chain process. Moreover, it ensures strict adherence to legal laws and policies as part of corporate governance and lastly, IKEA follows implementation policies and documentation pertaining environmental conservation and maintenance.
IKEA has created cooperation with over 38 franchisees located in over 11 countries. According to the objective of Inter IKEA systems B. V, its objective is to create the availability of the company’s products through worldwide franchising of the IKEA concept. Franchisees strategy not only provides the firm with high control of brand and strategy, but it is also a low financial investment risk thus enabling the company to benefit from local knowledge. Franchising has also enabled IKEA earn extra source of incomes in terms of loyalty and franchise fees because its retail stores are located over 38 countries (Yuliansyah, Rammal & Rose, 2016).
According to Ghezzi (2013), the franchisees allowed to use the trademarks and concept of the IKEA are required to pay 3% of revenue earned to the firm. This provides other cash inflows for the company. Franchising can relief the firm of costs and risks of opening a foreign market but it is difficult to control standards and quality where franchisees may not be concerned.
Conclusion
IKEA competitive strategies have enabled the firm venture into new markets as well as creating competitive advantage over other firms. It employs cooperative strategy by working with franchise companies to produce their products at a low cost. This in turn helps increase its production and volume of sales. It also produces a broad variety of innovative products enabling customers to choose from according to their tastes, preferences and demands. However, the firm should work on creating charitable programs as well as enhancing its brand image and customer values.
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