IKEA's Value Chain: A Market-Based Approach

IKEA's success is attributed to its effective management of various external factors such as consumers, suppliers, place, promotion, people, process, and physical evidence. The company has a distinct marketing mix that includes offering a wide range of products at low prices, which sets it apart from the competition. IKEA has also adopted strategies such as modifying its marketing strategy to suit different regions worldwide and adopting new strategies to achieve success. The report analyzes how IKEA was able to maintain its strong position despite the economic downturn.

RUNNING HEAD: OPERATING ENVIRONMENT OF IKEA
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OPERATING ENVIRONMENT OF IKEA
Student Name
Institute Name

OPERATING ENVIRONMENT OF IKEA 2
Contents
Introduction.................................................................................................................................................2
Issue 1..........................................................................................................................................................2
Brief description of IKEA and furniture industry......................................................................................2
Issue 2..........................................................................................................................................................2
Five Cs of the IKEA...................................................................................................................................2
Issue 3..........................................................................................................................................................2
How does the firm collect information about the five Cs?......................................................................2
Issue 4..........................................................................................................................................................3
Marketing strategy..................................................................................................................................3
Issue 5..........................................................................................................................................................3
Marketing mix..........................................................................................................................................3
Conclusion...................................................................................................................................................3
Bibliography.................................................................................................................................................4

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Introduction
Every kind of industry makes an effort to use an efficient and effective strategy for the business
that will permit them to stay at a position which is progressive by nature. This strategy holds true
especially in the international market. In connection to this, the objective of the report is based
on presenting a position analysis for the furniture giant like IKEA (Larsson, 2016). The report
will discuss in detail about different aspect of IKEA and how the company is functioning in the
present time.
Issue 1
Brief description of IKEA and furniture industry
The company IKEA was founded in 1943. The company started with the idea of selling furniture
based products and when it started getting recognition, the company opened its first store in
1958. In the present time, the company owned more than three hundred stores in more than forty
countries.1 The complete sales revenue is estimated to be more than twenty one billion euro with
the assistance of more than one lakhs coworkers. The economic downturn on global platform has
affected many businesses. IKEA also suffered the brunt of the global downturn and the outcome
was the losses of jobs at the organization (Ngai & Falkheimer, 2017).
The vision of the company is always aimed at inspiring the consumers and encourages the
workforce to accomplish goals. The mission statement of the company is based on
communicating the objectives of the company clearly with consumers including all stakeholders.
1 Grant, R. M. (2016). Contemporary Strategy Analysis Text Only. John Wiley & Sons.

OPERATING ENVIRONMENT OF IKEA 4
The company has worked hard to present a wide range of product for customers and the
company only wants the company to have a good time. The overall brand image of the company
is the workforce with the help of hard work and sustaining the brand image for over fifty years
worldwide. 2The products they manufacture and tagged the price with huge range of collection
based on home furniture and the data provided to the customers (Prange, 2016).
Issue 2
Five Cs of the IKEA
Company
The main idea of the company to meet the demand and needs of the consumers with huge range
of home furnishing products and for that the consumer must not have any kind of second opinion
while buying it from some other firm. The customer visits the IKEA store with an expectation of
wide range of products. They also expect good and effective services. The initial stage is when
raw material is bought in the company along with all the procedure until the final stage
(McNamara et al, 2016).
Customers
The company main target of the company is middle class consumer all across the world. The
company has taken extra effort in a stress free shopping experience for the consumers. The
complete stores are actually assembled in the form of one circle that allows consumers to have an
outlook about every unit of the store. 3The board market of the company was based on middle
class who has a mutual kind procurement attitude (Grant, 2016). With the help of all kind of
2 Grant, R. M. (2016). Contemporary Strategy Analysis Text Only. John Wiley & Sons.

OPERATING ENVIRONMENT OF IKEA 5
correspondences, the company has identified to gain strength over the presence of the market all
across the world.
Collaborators
The company has over one thousand suppliers in over fifty five nations and most of supplier’s
functions in the group of IKEA and directly competes with number of different suppliers and
which give them a position to be in a modest level of bargaining power. Low pricing strategy of
the company has affected the profit margin of the company in raw material and then there is
labor cost as well. To maintain healthy association with the suppliers, IKEA has maintained a
cordial association with the suppliers (Grant, 2016). The company always ensures that they
discuss the prices with the suppliers and the overall quality of the raw material that they are
using in the finished products.4 They also keep a close eye on the supplier and must not incur any
kind of loss in raw material.
Competitors
The competitions for the company are of varied styles and functionality. Like for example,
Conrin target a new kind of low cost model in furniture market. 5Then there is Cratel & Barrel
3 Jin-Yuan, Y. U. A. N., Miao, W. A. N. G., & Xiao-Ming, Y. U. A. N. (2016). Analysis
for Cost Leadership Strategy and Core Competitiveness Points of IKEA CO. DEStech
Transactions on Economics, Business and Management, (iceme-ebm).
4 Larsson, J., & Gadde, J. (2016). Modularity and its Effects on Operations and Logistics-
A Case Study at IKEA Industry.
5 Larsson, J., & Gadde, J. (2016). Modularity and its Effects on Operations and Logistics-
A Case Study at IKEA Industry.

OPERATING ENVIRONMENT OF IKEA 6
which provide furniture in a box that is mostly subjected in high level of prices. Company like
Ethan Allen aims at having an upscale market and there is Wal-Mart which is well equipped in
selling a big box furniture market which can be divided under many models like general stores
(Grant, 2016). However, IKEA is still considered as one of the most successful company in
providing a whole and finished package to the customer.
Context
1. Political: as a part of national or international trends and modifications, the company is
just one kind of instance that is successful in local as well as global market.
2. Economic: the company has suffered because of the recent economic downturn and has
adopted range of strategies that will help in taking an appeal for the consumers and aims
to have a strong base for customer loyalty.
3. Social: the company has made a big contribution in the society since they provide range
of options for the people as well as the workforce. In addition, the company also
promises to give good quality furniture that always sticks to the original concept. 6
4. Technological: the company utilizes a high quality technology along with a system that
motivates short term waiting time with scheduling & tracking patterns. The overall
system made the company in a state to make sure that there is right number of workforce
in right place and in right time which matches the unique type of patterns at every stores
of the company (Larsson & Gadde, 2016).
6 Larsson, R. G. (2016). Ikea's Almost Fabless Global Supply Chain—A Rightsourcing
Strategy for Profit, Planet, and People. In Lean Management of Global Supply Chain (pp. 65-82).

OPERATING ENVIRONMENT OF IKEA 7
Issue 3
How does the firm collect information about the five Cs?
The company has used quantitative as well as demographic data like many other nations.
Qualitative along with psychographic data permits the company to gain clarity on consumers in
greater depth and it further designs a customer experience which is superior for the competitors
of IKEA.
Qualitative data normally impacts the design of the showroom and the showrooms of the
company have completely furnished walk in rooms or apartment, with wide room dimensions
written all over the walls. The setup has been integral part of showroom design of the company;
qualitative data permits the company to make sure those rooms as well as apartment’s shows the
way customer can actually live7
The complete setup can be defined above permit the consumer to experience the way furniture
and accessories would be perceived as and also allows them to take effective decisions while
buying furniture. The company is creating a qualitative data based on in store experience that
removes many kinds of inconveniences for the furniture shopping. For example, the qualitative
data of IKEA has presented that when a consumer make a single change in the room, other kind
of modification automatically follows. Qualitative data also present that consumers can feel
hungry after hours of shopping which will want them to leave the store. In order to remove this
hindrance, the company has started offering a high quality along with low price restaurants
inside the showroom only. In the end, qualitative data also represent that the consumer often
7 Lu, C. (2014). IKEA, S inventory management strategy: how does IKEA do it. Retrieved
from.

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shop with the family and this can usually complicate the experience of buying furniture. The
company unlike other furniture stores provides supervised children play area.8
Issue 4
Marketing strategy
IKEA has always aimed on product ad price components of the marketing mix. Especially, the
company has taken a lot of efforts to provide great variety of ranges in products at low cost. In
addition to this, the range of product with effective price along with additional components of
marketing mix includes proper place, promotion, people, process and physical evidence. With
the use of mono segment kind of positioning for range of products, is based on targeting all the
price sensitive consumers who mostly prefer to get some kind of value for the money. 9The
company has also adapted the low cost for the products along with huge range since it offers a
unique selling point for the brand.
Particularly the furniture leader many derive the maximum amount of advantages from media
and print based advertising with direct marketing.
8 Lu, C. (2014). IKEA, S inventory management strategy: how does IKEA do it. Retrieved
from.
9 Lu, C. (2014). IKEA, S inventory management strategy: how does IKEA do it. Retrieved
from.

OPERATING ENVIRONMENT OF IKEA 9
Issue 5
Marketing mix
1. Price: the policy of the company is based on leading the market with cost. Prices are
usually thirty to fifty percent less than competing with products. There are crucial
differences in prices that are personal as an outcome of changes in varied exchange rates.
The overall penetration of pricing permits IKEA to raise the market share further. Low
costs are a result of huge capacity based on buying along with logistics, location of the
store and many more. The company also gain profit from varied economies and its
measure with strong supplier based relations.10 The company is into long term agreement
and provides rented tools along with technical provision which is in exchange for
exclusive and low cost trade based suppliers for the new marketplace.
2. Product: the value chain of the company is an exception for the consumers as well as for
the suppliers since suppliers are also consumers. The overall dealing among the suppliers
and the company along with the buyer has an important added stage in each issue. There
are ranges of product based variations that have occurred in so many values added
features. The company’s customers are saved as presumes with largest of its range of
products which demand assembling a later stage. 11
10 Mariani, G. (2016). Influence of consumer behaviour on the circular economy
application. The case study of a revival strategy for home textiles at IKEA. IIIEE Masters
Theses.
11 Prange, C. (Ed.). (2016). Market Entry in China: Case Studies on Strategy, Marketing,
and Branding. Springer.

OPERATING ENVIRONMENT OF IKEA 10
3. Place: the term place is alarmed with different type of transferring and also slowing the
process for goods and at a specific time of constructing makes them more accessible for
the consumers. In order to receive the right product for the right kind of habitation at the
right time consists of the scheme for the supply. The stores at IKEA are well positioned
in diverse accommodation regions. 12This is actually a challenge in attaining the low
pricing for the company. Initially it can look like a weakness, this may further fits as a
company’s mark based market for the consumers that are willing to transport the
purchases and also demand few support for conventions.
4. Promotion: promotion can be defined as a system to make things right for the business in
communication with the consumers. This will help in contributing different evidenced
that supports them to take right kind of judgment in order to buy a product or service. The
promotion of IKEA was based on selecting marketing situations and awareness of culture
for every country that divides a lot from the market all across the world.13
5. People: in order to gain maximum economic advantage for the company, it needs to
select the correct workforce and also train them in correct manner. Consumers will
obviously based their judgment and make a perception of service entirely based on the
workforce they can communicate with. The workforce should also have the right set of
12 Mariani, G. (2016). Influence of consumer behaviour on the circular economy
application. The case study of a revival strategy for home textiles at IKEA. IIIEE Masters
Theses.
13 McNamara, T., McNamara, T., Descubes, I., & Descubes, I. (2016). Can IKEA adapt its
service experience to India?. Emerald Emerging Markets Case Studies, 6(1), 1-14.

OPERATING ENVIRONMENT OF IKEA 11
skills along with approach as well as service knowledge to provide the service that
consumers are paying for.
6. Process: the company has the sufficient of all kind of process like development of plan
and improvement of trade based method, customer service procedure etc. in a right
system. Everything come with right time to keep the attention on the customer service,
visions and the facilities of the manager which is why the company also look after the
internal as well as external task for the company.14
7. Physical evidence: this part is based on giving a base for marketing interim as an
important part in service sector organization. It further contracts with important
demonstration of substantiation in written form. This consists of current coordination as
well as standing based services of the organization.
Conclusion
Analysis of IKEA demonstrates how the company was able to make a strong position even after
the big economic downturn. Different analysis discussed in the report shows how IKEA shown
all kind of external factors to accomplish the success in the market. The company also has to
address all the external factors which are diverse and different worldwide. The company also
provides the consumers with huge range of product at low prices which make them different and
unique among the competition. 15 The company has also adopted a distinct marketing mix that
14 Mendibil, K., Rudberg, M., Baines, T., & Errasti, A. (2013). Operations Strategy and
Deployment. Global Production Networks: Operations Design and Management, 61.
15 Ngai, S. B. C., & Falkheimer, J. (2017). How IKEA turned a crisis into an
opportunity. Public Relations Review, 43(1), 246-248.

OPERATING ENVIRONMENT OF IKEA 12
resulted in huge development for the organization. In order to gain success worldwide, IKEA has
to modify the marketing strategy in different places of the world and also have to adopt new
strategies to gain success.

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Bibliography
Grant, R. M. (2016). Contemporary Strategy Analysis Text Only. John Wiley & Sons.
Jin-Yuan, Y. U. A. N., Miao, W. A. N. G., & Xiao-Ming, Y. U. A. N. (2016). Analysis for Cost
Leadership Strategy and Core Competitiveness Points of IKEA CO. DEStech
Transactions on Economics, Business and Management, (iceme-ebm).
Larsson, J., & Gadde, J. (2016). Modularity and its Effects on Operations and Logistics-A Case
Study at IKEA Industry.
Larsson, R. G. (2016). Ikea's Almost Fabless Global Supply Chain—A Rightsourcing Strategy
for Profit, Planet, and People. In Lean Management of Global Supply Chain (pp. 65-82).
Lu, C. (2014). IKEA, S inventory management strategy: how does IKEA do it. Retrieved from.
Mariani, G. (2016). Influence of consumer behaviour on the circular economy application. The
case study of a revival strategy for home textiles at IKEA. IIIEE Masters Theses.
McNamara, T., McNamara, T., Descubes, I., & Descubes, I. (2016). Can IKEA adapt its service
experience to India?. Emerald Emerging Markets Case Studies, 6(1), 1-14.
Mendibil, K., Rudberg, M., Baines, T., & Errasti, A. (2013). Operations Strategy and
Deployment. Global Production Networks: Operations Design and Management, 61.
Ngai, S. B. C., & Falkheimer, J. (2017). How IKEA turned a crisis into an opportunity. Public
Relations Review, 43(1), 246-248.

OPERATING ENVIRONMENT OF IKEA 14
Prange, C. (Ed.). (2016). Market Entry in China: Case Studies on Strategy, Marketing, and
Branding. Springer.