IKEA “To create a better everyday life for the many people. ”

IKEA Case Study ‘The Democratization of Style’

IKEA Executive Summary

Business model based on:
  • Affordability due to buying power, global design and resulting economies of scale
  • Stylish and diverse products, not localized
  • Past success: Costumers ‘buy in’ to the IKEA philosophy
New challenges: Increased presence in traditional markets is continuing to shift IKEA’s image from ‘affordable’ to ‘cheap’Simultaneously: Fight for share in emerging marketsA way forward:   
  • Invest more in quality, less in expansion
  • Relax business structure for entry in new markets ‘Affordable and Pleasurable Living’
  • Strategic Purpose & Core Features Identification
Identity: Furniture not for the Rich but for the Smart CorporateGovernance: Family business    Ingvard Kampard, founder    Series of foundation & trustsValues: The home is very important    Good design    Fanatical devotion to cost cutting Between ‘Affordable’ and ‘Cheap’ IKEA’s Past Key Success Factors Design    Contemporary aesthetics    One size fits all    Inexpensive materialsFlat packed Network    Worldwide distribution    Experiential showroom    Stores in high traffic areas Scale    Large worldwide production    Profitable while offering Value Customers ‘Buy-In’ to Cost Cutting Measures The Business Model in Terms of a Value Chain Analysis INBOUND: OPERATIONS: Strong bargaining position vis-a-vis suppliers. Production cost targets in R&D, one-size-fits-all for economies of scale. OUTBOUND: ‘Flat Packs’ and warehouse style shops minimize logistical and personnel cost.

SERVICE: Reduced to a minimum, DIY for better prices.The IKEA Business Model in a Midlife Crisis External analysis General environment: PEST analysisPolitical: globally distinctive political regulatory

  1. Economics: changes in market conditions
  2. Social: demand for low-cost and ecofriendly products
  3. Technology: leading-edge, cost-saving Industry attractiveness
  4. Slow down in UK and US
  5. Emerging market: Asia, Eastern Europe Competitors
  6. Crate & Barrel - offers a furniture in a box which is subject in higher prices
  7. Ethan Allen - aimed at a more upscale market
  8. Wal-Mart – discount store, less design
No competitors in the same price range Internal analysis Competitive position IKEA has stores in more than 38 countries, with 287 Resources & capabilities.
  • Has a network of 1,300 suppliers in 53 countries, Core competencies
  • Design team - Leading-edge technology and creative
  • Young, enthusiastic, passionate store managers Core competences
  • Offers wide range of home furnishing items with good design and function at low and affordable prices
  • IKEA has maintained long-term partnerships with its suppliers IKEA’s Weaknesses present Opportunities
SWOT Analysis
  1. Cost efficient: low price for stylish Strengths design
  2. Strong long-term relationship with suppliers
  3. One-stop shopping
  4. With affluence comes demand for Opportunities quality
  5. Spread of eco-awareness
  6. Emerging markets in Asia and Eastern Europe.
  7. Prospect of on-line business model.
Internal External Weaknesses
  • Difficulty to maintain the standards and quality of products
  • Sometimes cheapness outweighs cost saving for the consumer
  • Bottlenecks of supply Threats
  • Some consumers seek to avoid IKEA
  • Economic recession: Rising living costs and decreasing disposable income in some countries
  • IKEA’s rigid business model is a disadvantage in some emerging markets relative to competition.

    Challenges are diversifying Emerging Issues for IKEA

New markets: Emerging fight for market share with a need for expansion in developing countries: Asia, South America    IKEA’s business model presents barriers for entry into some new markets, i. e. IndiaEstablished markets: Continuing threat of deterioration of customer’s esteem for brand and perception of qualityGrowing awareness of social and environmental responsibly among customers “If you know yourself but not the enemy, for every victory gained you will also suffer a defeat” – Sun Tzu RecommendationsEmerging markets:
  • Allow for more flexible methods of entry as a way to overcome regulatory and knowledge barriers; e. g.

    Joint Ventures Established markets:

  • Invest more in quality rather than expansion
  • Increase transparency: sourcing of raw materials and working conditions in production; improve if necessary.