Business Strategy: Retail Sector

This document provides insights into the business strategy in the retail sector, with a focus on IKEA. It includes company overview, PESTLE analysis, SWOT analysis, VRIO framework, Porter's five forces model, and Ansoff's matrix. The document explores growth strategies and strategic directions for IKEA.

BUSINESS STRATEGY: RETAIL SECTOR

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Company overview.....................................................................................................................3
Pestle analysis ............................................................................................................................4
Stakeholder analysis of IKEA ....................................................................................................5
TASK 2............................................................................................................................................6
SWOT analysis of IKEA ............................................................................................................6
VRIO framework of IKEA .........................................................................................................7
TASK 3............................................................................................................................................7
Porter's five forces model............................................................................................................7
Ansoff's matrix to produce valid strategic directions..................................................................8
TASK 3..........................................................................................................................................10
Porter's generic strategies to create strategic plan for organization..........................................10
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business strategy referred as the action course or the decisions set which helps the
company in attaining particular goals and objectives of the business. In other words, it is
considered as the long term action plan that is designed for achieving specific goals or the
objectives. The present study is based on IKEA, an international home furnishing retailing
company which is well-known for its Scandinavian style. Furthermore, the study provides deeper
insights towards the macro and micro environmental analysis of the company by applying
models like PESTLE, SWOT and VRIO. Moreover, the report highlights growth strategies by
applying ANSOFF model based on Porters five forces.
TASK 1
Company overview
Basis IKEA
Introduction It is the largest international furnishing
company that has grown since 1943. The
majority of the IKEA's furniture are seen as
flat-pack and ready to be assembled which
helps the consumers in using it with ease.
Vision To create a better routine life for large number
of the people.
Mission The mission of the firm is to support the vision
through offering the wider range of unique and
well-designed furnishing products at the low
price so that many of the people could afford to
buy it.
Business Objectives To offer wide choice of the home furnishing
products with good design, excellent quality,
durability and function so that people could
afford to purchase it.

Pestle analysis
It is the strategic tool that helps in assessing an effect of the external environment on the
business industries and activities of IKEA. These factors hold special importance as they could
impact the profitability of the brand and its market position.
Political- This factor relates to changes in government policies, framework and political
instability in the country (Alänge, Clancy and Marmgren, 2016). These forces exist in all the
nations and highly affects the functioning of the business. Stability of the government results to a
positive impact as it results to economic stability which in turn increases profits and the revenue
of the company. On other side, instability of government leads to disruption in the business
environment or supply chain and increases complexities for the organization. For example- As
IKEA is operating its business in more than 41 countries so it faces a disruption in its supply
chain government instability in Europe which causes a negative effect on the company's
operations. However, government has provided ease to the international brand in term of duty
which helped IKEA in increasing its profits and sales which seems as the positive effect.
Economical- It is the factor that includes measures like disposable income, currency
exchange rate, tax and interest rates. This factor plays a critical role within the business
environment as increase in disposable income of the people leads to increase their purchasing
power that in turn increases the demand for the product which found as positive impact of this
factor. Contrary to it, in case the income of people decrease, their buying power also declines
which imposes a negative effect on demand of the company products or the service within the
retail industry (Pestle analysis of IKEA, 2020). For example- IKEA has managed the prices of its
products so well that it assist in managing the pressure which might arises from the economic
fluctuations. Still, such fluctuation in the currency rates affected the financial health of the
company as Stronger dollar results to decline in profits of the US based brands.
Social- This factor indicates the beliefs, attitudes and lifestyle of the people within the
country. As different country follows different culture so it creates complexities for the
corporation to work in accordance to all the cultures and without facing any problems relating to
criticisms. On other state, with evolving lifestyle, people tend to buy product that contains
unique design and excellent quality which reflects a positive effect on the company as it sales
will increase. For example- While printing its catalogues for distributing its product globally,
IKEA needs to ensure that wrong doings does not show up a right culture. Moreover, social

trends and the other factor could have a positive effect on the sales of IKEA with its unique style
of producing the furniture.
Technological- It relates with the technological advancements or implementing the latest
technology in the business which has a great impact on the operations of the company. On one
side, Execution of the modern technologies involves high training cost and skilful workforce
which shows a negative impact on the profits of the company as large funds are invested in
providing training to the employees. On other state, up-gradation in the technology assist in large
productivity as it leads to automation in the business. For example- IKEA is focusing on
facilitating a unique experience through their digital channels which feels like real life
experience of shopping. The company is also making use of augmented reality for the purpose of
improving level of the customer service.
Environmental- This external factor shows the sustainability aspect of the organization
which considered as most important for the international brands. This helps the company in
reducing the costs but helps in creating a better brand reputation. However, adverse
environmental conditions indicates a negative impact on the working of the organization. For
instance- IKEA has shown some serious emphasize on the sustainability as it has invested around
$1 billion in the renewable energy projects for helping poor nations to cope up with the threat of
the climate change. By the year 2020, it desires that all energy used inside the IKEA stores
comes up from renewable energy sources.
Legal- It relates with the legislations and the legal rule that reflects a great impact on firm
as a small hassle with law could be proven as costly. Labour laws are found as an important
concern but there are some other laws which needs compliance and could raise an operational
cost. On other note, working in compliance with the legal laws, company can achieve a growing
success without facing any charges or penalties. For instance- IKEA faced some serious death
cases caused because of its furniture. Furthermore, laws varies from country to country which
created difficulty for IKEA to penetrate in the market.
Stakeholder analysis of IKEA
The corporation gains knowledge by way of communicating with their stakeholders and
the partners. By coordinating and cooperating with the trade unions, organizations and
companies, IKEA learn to share the experiences and achieving greater value in overall industry.
The two major stakeholder of IKEA are BWI and BSR with which the company has created a

long term relation and agreement in purchasing of the home furnishing items on the basis of
IKEA'S code of conduct. s
TASK 2
SWOT analysis of IKEA
Strengths- IKEA is having a strong brand value and is presently positioned at 46th
position across the world in Forbes list. The revenue and profits of the company has also been
increased over the years along with its large market share in Europe staggering at 69%. The
products of IKEA are found as cost effective and are counted as value for the money which helps
the customers in getting high ROI on amount they spend on buying of furniture (Martucci, de
Felice and Schirone, 2015). The firm consistently research and innovate to lower down the
prices for customers and also adds different furniture within its portfolio. The corporation is
known as the smart marketer and has antic product placement in the film and on television. At
same time, it focuses on above and below the line methods of marketing for making the brand
more and more strong in the market.
Weaknesses- As IKEA operates its business in many of the countries, so it keeps on
indulging into the local troubles. For example- company got into the corruption case because of
the expansion problems faced by it in Russia (Rothaermel, 2016). Moreover, the main concern of
IKEA is to keep cost at minimal but at same time providing quality service and the high product
performance could not always be possible. An entity needs to keep a track in checking on its
stakeholders and has always been in news regarding the environmental issues many times which
creates a bad brand image. The fundamental rule of the firm is to keep cost low but with increase
in the cost of raw material is hard for keeping or matching up with company's standards.
Opportunities- There is seen a growing demand for the eco-friendly products in
consumers now-a -days. This may helps in growth strategy of IKEA and adding to it the
consumers are becoming as very cost conscious, so they would be choosing such products which
they could be able to change their furnishings on periodic basis (SWOT analysis of IKEA, 2019).
China and India would have proven to be an opportunistic market for IKEA as the per capita cost
in such countries is low as they could get labour at low cost and this inn turn could improve the
profitability of the company.
Threats- As many or the regional and local companies have imitated the products of
IKEA, this poses a threat for company in respect of updating & innovating their offerings

constantly for staying away of such imitation. With changing tax policies and government laws
might have a negative effect on prices of Ikea's products.
VRIO framework of IKEA
Valuable-This allows IKEA to differentiate its products from that of its competitors
because it deemed as an innovation of the business model and the value chain that allows the
firm in producing such democratic design.
Rare-In this industry, no any rivalry have managed in designing such easy procedure that
actually makes customer enjoys in working for the firm (VRIO framework of IKEA, 2020). It
found as rare in finding such a good combination of the price, quality and the design in any of
the other competitor's store and as entire shopping experience.
Inimitable- The competitors of IKEA would always fall into the experience curve ,
however, if the competitors is having right combination of the skills, time, money and the
corporate culture then they could eventually produce the same products and can imitate it in the
long run.
Organization Applicability- IKEA has remained in the market for a long period, they
have the strong presence & the brand recognition that had helped the firm in being successful in
many of the countries (Slack and Brandon-Jones, 2018). Therefore, they should manage for
being in the hyper dynamic environment and in managing different cultures across the globe that
could turn into the threats.
TASK 3
Porter's five forces model
Bargaining power of suppliers-
The extent of this force is low because number of suppliers available in market in which
IKEA operates who are seeking to work with well reputed firms like IKEA. Due to this reason
suppliers have less control over prices and it makes their power low (Porter, 2017). It can be
said that suppliers do not hold much power related to bargaining towards organization due to
there being several other alternatives accessible worldwide.
Bargaining power of buyers-
The degree of this force is high because consumers of IKEA firm has strong power to
decrease sales and productivity of organization (Ebata and et.al., 2019). Market competition is
intense and consumers have wide choice of alternative options provided by local furniture

manufacturers as well as international furniture retailers. It can be said that buyers hold high
bargaining power that put negative impact on production operations of firm. Customer put high
pressure on company to improve their quality & reduce goods prices.
Threat of new entrance-
Threat of new companies in low because number of competition in sector in which firm
operates are very large. There are several existing players in home furnishing, most small
organizations. When new brand enters market, it can take a lot of time and attempts as well as
investment to grow into a wide brand and gain huge market share. Apart from human resources
and infrastructure, strategy and innovation all can be needs major investment and time-
consuming as well.
Threat of substitute products or services-
Threat of this force is low because there are several elements that lower this threat. One
of them is brand image and position. Through year firm has build a reliable brand position or
image where extent of trust between buyers and company is high. Affordable pricing strategy for
products and consumer services also moderate this treat for IKEA. It does not put any negative
effect on firm as they can sustain business and retain consumers for longer period of time.
Competitive rivalry between existing players-
The degree of this force in home furnishing industry is high because there are several
competitors are accessible market who are capable to give tough competition by offering quality
products or services to buyers. It put negative affect on sales of IKEA and force management to
change their business practices according to current market situation. Argos, Ebay and Ashley
furniture are the big competitor of company.
Ansoff's matrix to produce valid strategic directions
Market penetration strategy-
This tactic is focusing on selling IKEA existing services or products into current market
to gain maximum market share. Firm can use this strategy to increase their profitability and
productivity rather than before which is quite beneficial for company. Organization to create
market penetration strategy can raise or lower prices which makes them able to also gain
competitive advantages. This strategy needs strong execution in pricing, advertising and
distribution in order to increase revenue or market share more than competitors (Abdel-Aty,

Wang and Wu, 2018). Organization can make changes in their goods to gain attention of new
buyers.
Product development strategy-
It is another Ansoff's matrix tactic can be use by IKEA to gain all the benefits accessible
in market place. It is procedure of bringing a new creation or innovation to buyers from concept
to testing through distribution (Hosseini, Soltani and Mehdizadeh, 2018). When organization use
this strategy they had to focus on improving existing items to invigorate a target market or
creates the new items that consumer seeks. There are fours key elements available of product
development strategy that play vital role in success of company. Growth and long term success
of tactic is depended on company being capable to effectively conduct investigation and insight
into their buyers as well as market needs and their own internal strength & competencies for
driving innovation.
Illustration 1: Ansoff's Matrix Model
(Source:
Market development tactic-

It includes taking current items into new markets which is quite effective and beneficial
for IKEA when they use this strategy. It makes them able to drive new consumers towards
purchasing products which in return increase profit margin, sales, productivity and help to
generate revenue rather than before. This strategy is considered as riskier than other strategies as
it can be complex to comprehend the complexities of new markets. With this tactic IKEA had to
change their marketing as well as other operations strategies.
Diversification strategy-
The most important and last strategy of Ansoff's Matrix is diversification which drive
IKEA towards creating new items for new market in case when they adopt this tactic. It seen as
riskiest tactic of all above four as company is moving into an unfamiliar market. However, this
risk can be mitigated by considering related diversification and it can have strength to gain the
highest returns. In simple words, it is the best strategy that IKEA adopts for development of their
business more than rivals operating in same industry.
TASK 4
Porter's generic strategies to create strategic plan for organization
Executive summary-
IKEA is one of the best and leading home furnishing retailer in the world's and consider
as biggest seller of furniture in early 21st ear. Firm operating more than 300 outlets around UK
with clear vision and mission statement. The current strategic plan is based on organization, it
will discuss effective strategies will use by firm to achieve their business objectives and gain
better outcomes.
Vision-
To satisfy consumers by offering products or service according to their needs which
makes their life better.
Mission-
To become market or global leader in their sector with strong consumer base and
profitability.
Objective-
 To increase profit margin
 To gain competitive advantages
 To satisfy consumers by providing quality products to them

 To generate revenue and market share by applying varied strategies
Porter's generic strategy-
Cost leadership-
It calls for being low cost manufacturers in home furnishing industry for a given degree
of quality (Hunjra, Faisal and Gulshion, 2017). IKEA can use this strategy in order to gain
market share by appealing to cost restricted consumers or cost conscious or buyers. Therefore, it
is the goal of company is to become the lowest cost offerer in sector.
Differentiation-
IKEA can use this strategy as they seek to be unique in their industry along some
dimensions that are highly valued by consumers. It chose one or more traits that many customers
in a sector perceive as essential and uniquely positions themselves to meet those requirements or
needs (Aaker, 2020).
Cost focus-
According to this strategy when IKEA use this tactic they have to focus on products costs
and offer the lowest possible price as compare to their competitors. With this strategy, company
can select to target a clear niche market and through comprehending dynamics of market and
desire of buyers, firm can assure that costs remain low.
Differentiation focus-
It includes strong brand loyalty among buyers, it is quite essential for company to assure
that their products or services remains different which makes them able to stay ahead of possible
competition.
Bowman's strategic clock-
Low price or low added value-
To gain competition benefits IKEA can use this strategy, it is cheap end of market. Firm
can set low prices for each product and add low value for consumers. At this position firm cannot
differentiate their goods and are not considered as having high value.
Low price-
With this strategy items offered by IKEA can mass produces and have good value.
Profitability is low but is made up for by wide production volume and usually profits are high.
To achieve objectives or aims of business firm can low down prices and add value according to
this strategy.

Hybrid-
This strategy on Bowman's clock is normally very effective and beneficial because items
in this stage are differentiated by firm and low priced are set. As a outcome when company use
this strategy their products have a high level perceived value by buyers and are therefore in high
need.
Differentiation-
With this strategy IKEA can offer high quality products at an average price which
outcomes in wide extent of perceived value. At this position, target market become more brand
loyal and can attempt of chose these items even willing to pay slightly more for them.
Focused differentiation-
IKEA accordant to this strategy can utilize targeted segmentation, advertisement and
distribution as marketing & sales tools which can lead to higher profit margins.
Risky high margins-
At this position, products are priced high and consumers perceived value is just mediocre.
It is very risky tactic and can most likely ultimately fail.
Monopoly pricing-
IKEA with this strategy can take benefits of being only manufacturers offering quality
furnitures to their target consumers. There is no threat of competition and firm can identify their
own pricing and buyers only have option of buying goods or not.
Loss of market share-
It is the last Bowman's strategy clock tactic that can be use by firm to make their business
more successful. When company do not offer valuable goods to buyer and when people do not
purchase it because of high price it put negative impact on profitability of company as they can
lose market share.
Tactics-
From above discussion it can be said that IKEA must use differentiation as well as
Hybrid strategies that are quite beneficial in term of increasing consumer base, market share,
productivity and profitability as well. Company should use differentiation from porter's generic
competitive strategies as it help firm to gain competitive advantages and become global leader
with quality products offered accordant to market needs.

Organization decide what they want to be known for, they do not want to draw more
attention to differences in their brand that makes company less valuable than its competitors.
Evaluation tools-
Benchmarking is one of the best evaluation tool IKEA can use to determine their key
success after implementing strategic plan. It is cost effective method firm can use to gather a lot
of information about their business progress.
CONCLUSION
From above analysis it has been concluded that IKEA cater the best services to its
consumers by manufacturing their furnitures according to current market needs. It has been
examined that political, social, economic, technological, legal and environmental factors impact
on firm. By taking effective action and using porter's generic strategies' organization achieve
greater success. It helps to overcome negative affect of different elements upon business sales,
functions and operations.
Furthermore, from above discussion it has been summarized that by creating strategic
plan company is able to achieve set aims and objectives in effective manner and gain competitive
advantages. Firm use differentiation and hybrid strategy that helps to increase operational
efficiency and in return cater many benefits.

REFERENCES
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Hunjra, A.I., Faisal, F. and Gulshion, F., 2017. The Impact of Cost Leadership Strategy and
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Rothaermel, F. T., 2016. Strategic management: concepts (Vol. 2). McGraw-Hill Education.
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