Introduction
IKEA is one of the largest and most successful furniture retailers in the world. IKEA is a privately owned company that mainly deals with the designing and selling of ready-to-assemble furniture items like home accessories, appliances, desks, and beds (Owens, 2000). The report addresses IKEA’s marketing, value chain, intangible products, customers, and performance.
IKEA’s marketing
Based on the article by Edvardsson, Enquist, and Hay (2006), IKEA’s value proposition emphasizes on high-quality furniture products. These are normally provided to customers at rock-bottom prices. In other words, there is value for money in the products and services that IKEA offers.
In order to achieve the above goal, IKEA has developed a low cost supplier system which is coordinated via a network of warehouses and global logistics system. This way, the company can assemble various furniture components in a very short time. Moreover, IKEA has partnered with its customers in a bid to create value.
As the largest furniture retailer in the world, IKEA is strategically positioned to offer “a wide range of home furnishings of good design and functionality at a price low enough to be afforded by most people” (Edvardsson, Enquist, & Hay 2006, p.236).
What this means is that IKEA creates a competitive advantage that is best realized by providing well designed home furnishing items at low prices. IKEA also utilizes an efficient pricing strategy that helps to keep prices low while also providing unique styles. The company boasts of stylish and well designed products that are sold at low prices thereby creating product differentiation relative to competition.
Rather than targeting the rich, IKEA products have been designed in such a way that most people can afford them. Therefore, IKEA’s positioning and differentiation revolves around such democratic design dimensions as low price, functionality, and form. As indicated in the case study, “no other furniture manufacturer is producing designed home furnishings that featured all three of these elements” (Edvardsson et al., 2006, p. 236).
Other than this democratic approach, IKEA also uses innovative thinking which is realized through integration of the aforementioned three elements. Lastly, the company uses a “down-to-earth” approach whereby designers work from the factory floor instead of far flung prestigious offices.
Value Chain
IKEA’s value chain is made up of manufacturing components, final assembly, retail, and customers. These sources are based on the 3ps which are price (economic), planet (environment), and people (social perspective).
These values are related to the needs and wants of customers. For instance, IKEA’s economic values are derived from cost effectiveness during production and transportation, low prices of goods and products and high quality products that meet consumers’ expectations.
Environmental values are derived from the production of environmentally friendly products while social values are related to community and ethical benefits and responsibilities (Edvardsson et al. 2006). IKEA’s value chain is based on the three value sources which are incorporated in its supply chain. For example, customers are given the option of choosing their products, transporting them and assembling them at their homes.
This strategy saves on cost, time and space, thereby making it cost effective. Additionally, this strategy allows IKEA to ship in more products at any one given time. The incorporation of social values to IKE’s supply chain ensures that the products reach most people at relatively low prices.
With regard to environment values, IKEA uses 30 percent of energy and materials that are normally packed flat in a bid to save space during transportation. IKEA emphasizes on resource saving, simplicity during manufacturing, transportation, and distribution. Moreover, IKEA undertakes its operations in an environmentally responsible manner.
On the basis of the foregoing arguments, we can conclude that customer value in the supply chain is based on the “combination of economic values (low price in relation to quality) and environmental values (saving resources)” (Edvardsson et al. 2006, P. 237). Social values are reflected through community and ethical responsibilities.
Intangible Products
Intangible products according to Lamb, Hair, and McDaniel (2008) are made up of service qualities, social status associated with products produced, the company’s reputation, and the retailers’ image. IKEA’s intangible products include its strong brand name which is globally recognized. For example, the company has a value-based service brand and value-based service management (Edvardsson et al. 2006).
Moreover, IKEA has a good reputation as a designer of low price and quality products like beds and chairs. The company’s image has been promoted through television commercials and slogans like “chuck out the chintz”.
This has proven to be instrumental in the promotion of such intangible products thereby placing the company on the global map. On the other hand, IKEA’s intangible benefits include more effective relationships with customers, improved work processes, and greater business knowledge.
With respect to the case study, organizations use intangible assets as they plan on erecting barriers. Some of the intangible assets recommended by Wright (2000) include corporate reputation, trademarks and trade names, unpatented technical know-how, patent rights and market acceptance. When integrated well, these intangibles create competitive advantages that are vital in preventing new entrants in the market.
The concept of intangible benefits generated through intangible factors like credibility, corporate image, and reputation result in customer satisfaction which in return leads to consumer loyalty and brand loyalty. Loyal consumers are more likely to recommend the organization’s products and services and this increases sales and profitability. Moreover, intangible benefits such positive relationships create trust and value to consumers.
Customers
The approach that IKEA has adopted results in profit maximization as the pricing is efficient. Drawing from the case study, it is extremely unlikely to make profits without low and competitive prices (Edvardsson et al. 2006). Therefore, low competitive prices ensure that consumers’ needs and expectations are met.
Moreover, the approach has been successful because by targeting majority of the customers, IKEA through its “down-to-earth” approach and low prices based on “democratic design” has been able to increase its market share. In turn, increased market share and consumers increases sales thereby maximizing profits.
It should also be noted that IKEA first designs the price tags used before embarking on designing the products to ensure that they are affordable to most consumers (Edvardsson et al. 2006).
Demand and supply economics are based on the preposition that when the demand is high, prices increases and vice versa. This means that when the demand is high more suppliers emerge which increases prices. When prices increase, demand declines which result in minimized purchases.
However, system dynamics model of supply and demand, “the availability of a product, rather than its rate of production, affects the market price and demand” (Whelan & Msefer, 1998, p. 12).
With respect to IKEA, the company has no backlog of products and as such, the rate of production cannot determine demand and prices. Therefore, the approach used By IKEA is effective and operates under the confines of supply and demand economics.
Performance Measures
As the vice-president of IKEA in charge of the manufacturing department, I believe that the proposed performance measures are necessary in evaluating the use of use of key performance indicators (KPIs) by managers. The major performance measures worth of consideration are financial performance, customer satisfaction, rating, and teamwork skills and they align with IKEA’s values.
Under customer satisfaction IKEA’s values are integrated through affordable prices, better customer services, and going green. Under financial performance the values are incorporated through affordable prices, financing environmental and community work. Performing managers ensure that employees get along with each other, thereby encouraging productivity.
With respect to IKEA, teamwork s incorporated by ensuring that the team produces quality products at low costs, encouraging environmental sustainability and that child labor is not condoned. Lastly, overall basis of the performance assessment is to ensure cost effectiveness and ethical considerations from social and environmental perspectives.
To ensure that the values are realized, an effective team needs to be developed based on the principle of team work. It is recommended that a team with the capability to implement IKEA’s values be recruited.
Performance appraisals should also be undertaken in order to determine whether the set objectives have been realized. Poor performing employees should also be motivated so that they can improve while the better performing employees should be motivated further and based on their competences, training received should be based on IKEA’s values.
Reference List
Edvardsson, B, Enquist, B, &, Hay, M. (2006). Values-based service brands: Narratives from IKEA. Managing Service Quality, 16(3), 230-246.
Owens, H. (2000). IKEA: A natural step case study. Web.
Lamb, C. W., Hair, J. F., & McDaniel, C. D. (2008). Essentials of marketing. Mason, Ohio: South-Western.
Whelan, J., & Msefer, K. (1998). Economic supply & demand. Web.
Wright, D. R. (2000). Economics, intangibles, and section 482, The International Tax Journal, 10(3), 1-12.