The Strategy Adopted by Ikea free essay sample

Explain, in details, the strategy adopted by IKEA, and how it successfully did the positioning. ***At business level strategy Focus Strategies By implementing a cost leadership or differentiation strategy, IKEA choose to compete by exploiting their core competencies on an industry-wide basis and adopt a broad competitive scope. Alternatively, IKEA can choose to follow a focus strategy by seeking to use their core competencies to serve the needs of a particular customer group in an industry. In other words, IKEA focus on specific, smaller segments (or niches) of customers rather than across the entire market. Focused Business Level Strategies involve the same basic approaches as Broad Market Strategies. Focus strategies can be based either on cost leadership or differentiation. Focused Cost Leadership Strategy IKEA that compete by following cost leadership strategies to serve narrow market niches generally target the smallest buyers in an industry (those who purchase in such small quantities those industry-wide competitors cannot serve them at the same low cost). We will write a custom essay sample on The Strategy Adopted by Ikea or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Global furniture retailer IKEA provide customers with â€Å"affordable solutions for better living† through use of the focused cost leadership strategy.The company offers home furnishings that combine good design, function, and quality with low prices. IKEA does this by offering low-cost, modular furniture (assembled by customers), using self-service as an alternative to having sales associates follow and pressure customers to buy. IKEA displays its products in room-like settings so that customer can view different combinations of furniture, eliminating the need for assistance from sales associates or decorators to visualize the setting and reducing employee costs. Customers also pick up their own purchases to reduce the company’s costs. Finally, stores address the needs of shoppers (e. . , extended hours and in-store childcare) while they shop. Focused Differentiation Strategy IKEA following focused differentiation strategies produce customized products for small market segments. They can be successful when either the quantities involved are too small for industry-wide competitors to handle economically, or when the extent of customization (or differentiation) requested is beyond the capabilities of the industry-wide differentiator. For example, Manufacturers such as Ferrari, Aston Martin, and Lamborghini compete in the tiny super car category with prices starting at $150,000 and running as high as $600,000. These cars are more than just transportation. Just as was noted for industry-wide differentiators and low-cost producers, IKEA choosing to focus must be particularly adept at completing primary and secondary value chain activities in a superior way. Issues related to the five competitive forces are similar to those discussed for the differentiation and cost leadership strategies, except that the competitive scope of the focus is on a narrow segment rather than the industry. ***At corporate level strategyThe IKEA international strategy uses a franchise corporate level strategy spreading risks and sharing resources. And as IKEA has moved into an ever expansionist mode, pursuing both multi-point competition and vertical integration to achieve market power, it found markets ready and willing to adopt the IKEA mindset of low cost, European designed furniture – â€Å"supplying Scandinavian design at Asian prices†. Britain, for example, was wallowing with a complacent Habitat (nicknamed â€Å"Shabitat†) which IKEA came to own. This was another key to the IKEA success story – timing. An industry-wide competitor may recognize the attractiveness of the segment served by the focuser and mobilize its superior resources to better serve the segments needs. Preferences and needs of the narrow segment may become more similar to the broader market, reducing or eliminating the advantages of focusing. There are a focusing IKEA may be â€Å"out focused† by its competitors. A large competitor may set its sights on an IKEA’s niche market. Customer preferences in niche market may change to more closely resemble those of the broader market.It often involves compromises becoming neither the lowest cost nor the most differentiated IKEA. It becomes to â€Å"stuck in the middle†. The strong commitment are lacked and expertise that accompanies IKEAs following either a cost leadership or a differentiated strategy. 4 Based on your answer to the above, how can managers guard against such risks? A mixed strategy is not advisable because cost leadership and differentiation may call for inconsistent policies and conflicting demands on operations, budget allocations, choice of suppliers and distributors, etc.Pursuing them simultaneously may reduce the effectiveness of the policies resulting in weak or no advantages. It may also make it more difficult to create a clear image in the minds of customers. Priorities may also be unclear in the minds of staff. On the other hand, IKEAs in reality rarely competes purely on cost or differentiation. This shows that combining the two is possible. As long as the strategy does not require mutually conflicting practices, it is fine to mix the two. IKEA makes very few products internally and relies almost totally on its network of hundreds of suppliers.These collaborative long-term partnerships with suppliers are rooted deeply in IKEA’s corporate history, and the character of these ties has become part of the culture. It is through the suppliers that IKEA has been able to make innovative designs featuring environmentally responsible materials and an efficient use of resources and translate them into bottom-line results. The key suppliers, in turn, use links with IKEA as vehicles to stay innovative, because innovation is the only choice if the supplier wants to retain this powerful buyer; IKEA is powerful enough to be coercive, and â€Å"the giant† is not to be dismissed easily.Another aspect to consider in this case is a process that starts with regulation, which has prompted IKEA to work with key suppliers to meet the new requirements (pushing them to do so at equivalent or minimally increased costs). They develop a higher-quality product, which motivates IKEA’s competitors to match the design and materials innovations as well as the economic efficiencies. Meanwhile, the suppliers improved skills and capacities make it more competitive, enabling it to expand its business with old and new buyers.Consequently, the industry is stimulated to match and exceed the IKEA example, the natural environment wins because waste or pollution is reduced or eliminated, and the customer benefits by being able to purchase a better-quality product. Students should emerge from the discussion with a sense of how IKEA illustrates the ripple effects through markets, industries, and societies of innovation around environmental concerns (and IKEA is not an isolated example, merely an illuminating one).IKEA save to create by successfully transferring capabilities and competencies from one SBU to another SBU. The value is created from economies of scope through: Operational relatedness in sharing activities say purchase and sales ; corporate relatedness in transferring skills or corporate core competencies among units. The difference between sharing activities a nd transferring competencies is based on how the resources are jointly used to create economies of scope.