Competitive Strategy of IKEA in Sydney

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.

COMPETITIVE STRATEGY OF IKEA IN SYDNEY
May 26, 2018

Table of Contents
Introduction.................................................................................................................................................3
Business Strategy.....................................................................................................................................4
Marketing Approach of IKEA in Sydney...............................................................................................4
Advertising...........................................................................................................................................4
Pricing Approach.................................................................................................................................5
Corporate Strategy..................................................................................................................................5
Generic Competitive Strategies by Porter...........................................................................................6
Acquisition and Structure........................................................................................................................7
International Strategy..............................................................................................................................7
Cooperative Strategy...............................................................................................................................8
Conclusion...................................................................................................................................................8
Bibliography.............................................................................................................................................9
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Introduction
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.
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Business Strategy
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).
Advertising
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,
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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.
Pricing Approach
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).
Corporate Strategy
This strategy involves contemplation of business ideas and opportunities outside the firms’
industry to create value chain. Corporate strategy approaches are discussed below;
Resource Allocation
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.
Economies of Scale
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).
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Customer Value
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.
Cost Leadership Strategy
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
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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.
Product Differentiation Approach
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.
Focus
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)
Acquisition and Structure
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.
International Strategy
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).
Pestle Analysis of IKEA
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
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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.
Cooperative Strategy
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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