What unique strengths does IKEA possess against other furniture/home furnishing retailers? What weaknesses does it have in contrast? Who are the primary target customers of IKEA?
IKEA was founded in 1943 by Ingvar Kamprad. As the company grew, Invar Kamprad found ways to explain his unique way of doing business, always using simple language and metaphors. He has persistently insisted that the company is committed to providing a variety of home furnishings that are well designed low priced such that the majority of people can afford them. After establishing itself in Sweden, the company has managed over the last couple of decades in doing what no furniture distributor has ever tried: becoming a global player in a field that was initially considered by nature to be local. This has been necessitated by the factor that IKEA possesses distinct strengths against other furniture or home furnishings companies.
As evident from its mission, one of the unique traits that make IKEA distinct from the rest of the companies in the industry is the pricing of its products. The prices are so low that the majority of people can buy them. Its products are targeted to young buyers yearning for style at a low cost. However, this does not imply that quality is compromised. The company balances customer’s requirements and producer’s needs, hence, ensuring that the products are sold at prices that are 30 to 50 percent below traditional distributors. This is the basis by which the ‘IKEA Way’ is grounded.
Another strength that makes IKEA unique is a balanced focus on product range, sourcing, vertical integration, mass marketing, cost leadership, and a distinctive image. Therefore, the company is not market-driven. Instead, it tends to react rather slowly to new consumer trends, studying them to see how they can be fitted into its operating systems and what value IKEA can add within its proven framework before adopting them into the company’s range. IKEA has also established a longstanding competitive advantage in the field of strategic outsourcing. It has developed durable partnerships with furniture producers and other suppliers based on the furniture producer’s capacity to provide long runs of parts and their willingness to comply with IKEA’s quality standards.
Through such partnerships, the company has integrated production into its value-added chain without the heavy investments of operating its own furniture plants. The management style of IKEA is also another strength that distinguishes it from other companies. It is described by the non-Swedish member as informal, open, and caring. There is no emphasis on hierarchy. In any ordinary store, IKEA has only three levels of responsibility between ranging from the store manager to the co-workers (as the employees are usually called).
In addition, IKEA does not rely on extensive training programs and detailed rules and procedures to propagate its unique culture; instead, it prefers a softer approach through discussion and explanation where mistakes are considered a common way of ‘learning by doing.’ Despite its strengths, IKEA has its weaknesses too. The company’s markets are greatly concentrated in Europe. As such, there is a need to diversify to other markets, especially in developing countries. Another weakness of IKEA is its reluctance to adopt e-commerce. The company has categorically stated that it will stick to its brick-and-mortar retailing, which implies that the company may be living on borrowed if the dynamic and hyper-competitive nature of the industry is anything to go by.
What is the decision facing IKEA? What pertinent information has IKEA collected? What additional information should IKEA collect in order to make a wise decision?
The decision facing IKEA is whether to focus solely on the in-store experience or to opt for online retailing. The company recently stated that it was planning to stick to its brick-and-mortar retailing. This decision is grounded on vital information that the company has collected, which makes it believe that the chain can give its customers only through in-stores. Nevertheless, before embarking on such a decision, the company should consider the dynamic nature of the market and the future of its products. This is because many as much as customers may still want to have the in-store experience; they are also concerned about the convenience. E-commerce is very convenient as it facilitates exchanges in the global marketplace. The strategy can be handy in expanding IKEA’s markets to other countries.
What alternative actions could IKEA consider in his situation?
The current markets are highly competitive and cannot be approached through a singular lens of mortar-and-brick philosophy. As such, IKEA can consider the option of adopting e-commerce in some countries, especially the developed nations, while still maintaining its in-store retaining in most of the developing nations. This is because customers in such countries can easily do online shopping as compared to those in the developing nations.
Which of the alternatives, including the one that has the case has focused on, do you think is the best for IKEA at this moment? Why?
The best option for IKEA is to stick to its initial mortar-and-brick retailing. This is because the strategy will continue supplying its customers with the much-needed in-store experience that is instrumental for its sales. In-store retailing will also ensure its pricing policy is maintained through price points, while the range of the store’s merchandise will continue to play a critical role in establishing the company’s image.