A CASE STUDY ON IKEA

Presented by:
Ayesha Rehman
ABOUT IKEA

TYPE : Private
INDUSTRY : Retail
FOUNDED : Almhult, Sweden (1943)
FOUNDER(S) : Ingvar Kampard
AREA SERVED : Worldwide
HEADQUATERS : Delft, Netherlands
KEY PEOPLE : Mike Ohlsson
PRODUCTS : Self-assembly Furniture
REVENUE : 23.5 billion(2010)
NET INCOME : 2.7 billion(2010)
OWNER : INGKA Foundation
EMPLOYEES : 127000(2010)
STORES : 316 Stores(2010)


STRATEGIC INTENT

Business Idea:
To offer a wide range of well designed, functional products at low prices.


Vision:
To create a better everyday life for many people.


Mission Statement:
Ikea's mission is to offer a wide range of home furnishing items of good
design and function, excellent quality and durability, at prices so low
that majority of people can afford to buy them

BUSINESS DEFINATION
CUSTOMER
GROUP
(What is being
satisfied?)
ALTERNATE
TECHNOLOGY
(How are customers need
being satisfied?)
CUSTOMER
FUNCTION
(Who is being
satisfied?)
Contd.

? Who are IKeas customers
Individuals and families for whom price is more important than cultural
values
Starting a new home and have no or very little furniture

? What needs are being satisfied
Need to buy a whole array of furniture at an affordable price

? How are customers need satisfied
A bundle of skills and technologies that enables a company to provide
a particular benefit to customers. Low cost of the products satisfy
customers need.

PORTERS FIVE FORCES
ANALYSIS
Rivalry among existing firms is intense in the global market of
discount furniture and the major players in the industry include Euromarket
Designs Inc, Galiform plc, Wal-Mart Stores Inc, Argos and others.
However, currently IKEA is the undisputed market leader in the industry of
discounted furniture at a global scale.
The threat of new entrants into the industry is low, and the
chances of emergence of new competition for IKEA is insubstantial as the
current market is saturated and significant amount of financial investments
and expertise are required to become a discounted furniture retailer at a
global scale.
However, the threat of substitute products and services is low as there
are not too many products and services available that can substitute the
demand for furniture, home appliances and a range of other products
offered by IKEA.

Contd.
IKEA suppliers do not possess substantial bargaining power as there
are numerous factories around the globe with the capabilities and
resources to form partnership with IKEA. At the same time, IKEA pursues
the strategy of forming strategic long-term relationships with its suppliers.

The bargaining power of IKEAs customer is strong, as the
competition is intense and the customers have a wide choice of alternative
options offered by global furniture retailers, as well as, local furniture
producers.
PESTEL ANALYSIS
PESTEL
Political factors
There are no data about the political influence over the industry
Though it is anticipated that the organizations are heavily supervised by
the government

Economical factors
Better purchasing power of emerging countries
Pricing different , according to the country

Social factors
Decent work condition to its suppliers
Partnerships with many social organizations as well

Contd..
Technological factors
Creation and innovation of new products
Better stock management
Lowers barrier to entry
Influence outsourcing decision

Environmental factors
Create products with a minimum impact on the environment
Partnerships with many environmental organizations

Legal factors
Strengthening of International Importation Regulation Norms.

SWOT
STRENGTHS
IKEAs cost leadership concept keeps it ahead of its competitors.

IKEA has successfully combined low cost with good quality.

IKEAs research and development team finds ways to alter designs to save
on manufacturing cost.

A key feature of IKEAs furniture is self-assembly.

IKEA uses cheap labor which keeps its cost down and gives them a
competitive advantage.
STRENGTHS

Its strong long-term relationship with its suppliers gives it a
competitive edge.

IKEA has the ability to adapt its tactics according to the market.

Flat packing reduces shipping costs, minimizes transport damage,
increases store inventory capacity, and makes it easier for customers
to take the furniture home themselves, rather than needing delivery.

Customer Service Restaurant and Child Care Supervised Playroom are
also its major strengths.

WEAKNESESS
Its organizational culture can become a demotivating factor for many of its
employees.

It lacks thorough market research on customers preference before
entering into a new market.

IKEA never took economic issues into consideration before being faced
with the problem.

Kamprad does not take into consideration the change of times.

Not enough distribution channel.



OPPORTUNITIES
IKEA can expand its product line by producing high end products

IKEA can expand its business into interior designing and cookery products

IKEA should listen to the customer demand to make more sustainable
solution

Product customization can boost up IKEAs sales

Bright prospect of online sales

Target all levels of the market, upper, middle and lower classes
THREATS

With economic concerns over rising living costs and depleting disposable
income there is an overall threat to the performance of the business in UK
and American markets specifically


Accelerated market competition in USA


The risk of global financial crisis
IKEA,s VALUE CHAIN ANALYSIS

PRIMARY ACTIVITIES
ACTIVITY IMPLEMENTATION BY IKEA
INBOUND LOGISTICS Distribution of products to the stores from 27 distribution centres
10,000 IKEA products are manufactured by 2000 suppliers and
transported to the IKEA stores
Jobs in logistics account for about 20 -25% of each stores co-workers
OPERATIONS Operations in more than 38 countries; 208 companiesoperated stores in
26 countries, remaining stores operated by franchisees.
IKEA does not manufacture its own products

OUTBOUND LOGISTICS Transportation of products is done by customers

MARKETING AND SALES Targeting mainly families with lower income, students and singles
Family-friendly environment within stores

SERVICES Very limited level of customer services according to the chosen business
strategy
Information to customers mainly provided through explanatory catalogues
and displays
Low number of sales assistants in stores
SECONDARY ACTIVITIES

ACTIVITY

IMPLEMENTATION BY IKEA
FIRM INFRASTRUCTURE Hierarchical tall organisational structure
The IKEA Group is controlled by INGKA Holding B.V. that belongs to
Stitching INGKA Foundation
Stores are large in size
HUMAN RESOURCE MANAGEMENT
High level of commitment to HR practices
Effective staff training and development programs
TECHNOLOGY DEVELOPMENT Research and development activities are initiated in Sweden
Extensive use of information technology in various business
processes
PROCUREMENT No need for raw materials as IKEA does not produce own brand
products
Long-term strategic relationships with suppliers
STRATEGIES

OPERATIONAL STRATEGY

Low Costs
Packing Compactly
Flat-Standardized Products
Design-level of Value-Added Chain

Attract with Catalogues

Retained by Superior Service

GRAND STRATEGIES

Concentrated Growth
Single Market -Furniture

Product Development
Self developed Designs

Vertical Integration
Forward (Assembly)
Backward (Supply)


CORPORATE LEVEL STRATEGIES
a.) Vertical Integration

IKEA has been using VERTICAL INTEGRATION to the Global furniture
industry.

Managers use corporate level strategy in VERTICAL INTEGRATION to
identify which industries their company should compete to maximize its
long run profitability. There are two types of vertical integration:

1. Forward vertical integration
2. Backward vertical integration.

IKEA is using backward vertical integration to expand their business and
to make profit.
BENEFITS OF VERTICAL INTEGRATION

Facilitating investment in specialized assets
Here IKEAs specialized asset is employee skills that are acquired
through training and experience.
IKEA invested in specialized assets because it allowed it to lower its cost
structure and differentiate their products.

Enhancing product quality
By entering industries at other stage of the value added chain, IKEA
enhanced the quality of the product in its core business and thus
strengthened its differentiation advantage.


Contd...

Improved scheduling
Strategic advantage has been obtained when vertical integration makes it
quicker, easier, and more cost effective to plan, coordinating, and transfer of
product like finished goods from manufacturing plant to retail or distributing
shop.

Increased bargaining power
IKEA uses VERTICAL Integration because it allows them to obtain bargaining
power over suppliers and increase their profitability. By consolidating the
industry through VERTICAL Integration IKEA has become a much larger buyer
of suppliers product and use this as leverage to bargain down the price. IKEA
pays for its input, there by lowering its cost structure.
b.) Outsourcing

Strategic outsourcing is the decision of IKEA to allow one or more company to
perform specifically or selected value chain activities or function by
independent specialist companies that focus all their skills and knowledge on
just one kind of activity.

According to available information IKEA now outsource 90% of their
product and rest 10% produce internally.
BENEFIT OF OUTSOURCING

Low cost structure

IKEA now outsources 90% of their product and rest 10% produce
internally which helps them reduce their overall average cost.

Focus on the core business

The final advantage of strategic outsourcing for IKEA is that it allows
managers to focus their energies and companys resources on
performing those core activities that have the most potential to create
value and competitive advantage.
Offers Products to
Only One Group
of Customers
Offers Products to
Many Kinds of
Customers
Offers Low-
Priced Products
to Customers
Offers Unique
or Distinctive
Products to
Customers
Focused Cost-
Leadership
Strategy
Focused
Differentiation
Strategy
Differentiation
Strategy
Cost-
Leadership
Strategy
Generic Business-Level Strategy

OVERALL COST LEADERSHIP

The strategy of overall cost leadership is IKEAs biggest aim.

IKEA offers low-priced products to many Customers

They use flat-package to reduce the cost of transport.

They reduce the staff in store to reduce the cost of store.
DIFFERENTIATION

Today, IKEAs product range consists of 9,500 home furnishing
articles, designed to be functional and good looking but at a low price.

You can find almost everything you need in IKEA.

Customers need goods of low price and better quality. Low price or
good quality is easy to achieve, but it is not easy to get both of them.

IKEA chose a different way which is to stand on the side of everybody
by taking care of every customers need.

FOCUS

There are three main part of IKEA: IKEA office, home storage,
Childrens IKEA.

The target customer is everybody.

IKEA also take children as their customer, and the spirit of care for
children really wins many customers heart.

According to the life system, they segment the market in many parts
to meet the requirement of different customers.
COMPETITIVE ADVANTAGE
COMPETETIVE
ADVANTAGE
ECONOMIES OF
SCALE:
STANDARDISATION
ECONOMIES OF
SCOPE:
FURNITURE AND
RESTAURANT
DIVERSITY IN
ASSORTMENT
STRENGTH OF
BRAND NAME
DISTINCTIVENESS
IN DESIGN
NETWORK OF
SUPPLY: 1300
SUPPLIERS IN 53
COUNTRIES
ECONOMIC
DESIGN
LOGISTICS
BCG MATRIX

Relative Market Share
Star Question Mark
Dog Cash Cow
High



Market
Growth




Low
Weak Strong

Question marks are IKEAS slow growing products, with low growing
shares in a growing market .

Rising Stars - these are often associated with IKEAS products with a
strong growth stage of the cycle. The sales of IKEAS products here are
good with the potential for market leadership. The market itself is
expanding .

Cash Cows- relate to IKEAS products that sell strongly with good
market share, but in a mature market i.e. low growth, these ranges of
IKEAS products are associated with the decline stage of the product
lifecycle, and may be discarded if profitability declines further.

Dogs: relate to IKEAS products that are no longer profitable.


PRICE-STYLE MATRIX

At IKEA, all articles are divided into sixteen different categories
considering their style and price.

Four styles are Style1, Style2, Style3 and Style4 whereas the four price
groups are referred to as A, B, C and D.

The products in the price group A are more aggressively
merchandised and positioned out in the stores than products
belonging to the other price groups.


Example of a price-style matrix

Price D
C
B
A
Style1 Style2 Style3 Style4



PRICING NEW PRODUCTS

When Management decides on developing a new product they
examine if there is a market demand for the product.

Thereafter the position in the price style matrix and the absolute price-
tags are established.

When placing a product into the matrix its target groups ability to pay
is taken into consideration.

An introduction of a new article often results in price adjustments for
related products, in order to retain the price balance within the matrix.
EXPANSION PLANS IN INDIA

Although Ikea stores are yet to arrive in India, its catalogs are sold by
street hawkers and bookstores in many major cities.

Locally made knockoffs of Ikea furniture are ubiquitous in the homes
of professionals in India's rapidly modernizing cities.

Government's single-window body to clear foreign investment
proposals, FIPB, cleared Swedish furniture major IKEA's Rs. 10,500-
crore project, the largest FDI in single-brand retail so far.

IKEA Group, which manufactures and sells home and office furnishing
products, proposes to invest in single--brand retail trading in India
through a 100 per cent subsidiary.


IKEA's proposal to set up 25 stores in India has already been
scrutinised by the Department of Industrial Policy and Promotion
(DIPP) in the Commerce and Industry Ministry.

The proposal will now have to be cleared by the Cabinet Committee on
Economic Affairs ( CCEA) as the FIPB can clear investment
applications worth up to Rs 1,200 crore only.

IKEA's would be the largest investment in the single- brand retailing
ever since the government has allowed foreign investment in this
sector in January.

With the government relaxing the mandatory 30 per cent sourcing
clause in September, IKEA which had earlier expressed concerns over
the issues had put in its final application earlier this month.

THANK YOU