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IKEA is a Swedish furniture company known for its low-cost, self-assemble furniture. It was founded in 1943 and has since expanded to 349 stores across 43 countries. IKEA pursues a strategy of cost leadership through global sourcing, standardized furniture designs that are efficient to transport and assemble, and large stores located in suburban areas with amenities like restaurants. This strategy, along with a focus on quality, environmental sustainability, and engaging customers in the assembly process, allows IKEA to offer affordable furniture and maintain strong brand recognition worldwide.
IKEA is a Swedish furniture company known for its low-cost, self-assemble furniture. It was founded in 1943 and has since expanded to 349 stores across 43 countries. IKEA pursues a strategy of cost leadership through global sourcing, standardized furniture designs that are efficient to transport and assemble, and large stores located in suburban areas with amenities like restaurants. This strategy, along with a focus on quality, environmental sustainability, and engaging customers in the assembly process, allows IKEA to offer affordable furniture and maintain strong brand recognition worldwide.
IKEA is a Swedish furniture company known for its low-cost, self-assemble furniture. It was founded in 1943 and has since expanded to 349 stores across 43 countries. IKEA pursues a strategy of cost leadership through global sourcing, standardized furniture designs that are efficient to transport and assemble, and large stores located in suburban areas with amenities like restaurants. This strategy, along with a focus on quality, environmental sustainability, and engaging customers in the assembly process, allows IKEA to offer affordable furniture and maintain strong brand recognition worldwide.
Laxmi Deshpande (12) Manisha Tripathy (55) Strategies of company: IKEA Introduction Is a Swedish furniture company, well known for its brightly colored furniture Requiring customers to assemble their furniture for themselves Has 349 stores in 43 countries Products are offered in a very competitive price
Contd.. Was founded in Almhud Sweden, 1943 by Ingvar Kamprad Elmtaryd Agunnaryd When it started IKEA sold pens, wallets, picture frames, watches etc. In the late 1940s furniture was added to its products To create a competitive advantage, IKEA decided to reconfigure the furniture value chain
Ikeas Vision & Business Idea The IKEA vision, business idea and market positioning statement provide a framework for all IKEA marketing communication worldwide The IKEA vision is To create a better everyday life for the many people The IKEA business idea is To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them The IKEA market positioning statement is "Your partner in better living. We do our part, you do yours. Together we save money
Corporate structure of IKEA IKEA is owned and operated by a complicated array of not-for-profit and for-profit corporations The corporate structure is divided into two main parts: operations and franchising Most of IKEA's operations, including the management of the majority of its stores, the design and manufacture of its furniture, and purchasing and supply functions are overseen by INGKA Holding, a private, for-profit Dutch company Of the IKEA stores in 36 countries, 301 are run by the INGKA Holding. The remaining 47 stores are run by franchisees outside of the INGKA Holding, with the exception of IKEA Delft which is not franchised Corporate structure of IKEA Ikeas Value Chain IKEA's role in the value chain is to mobilize suppliers and customer to help them further add value to the system. Customers are clearly informed in the catalogs of the firm's business systems provides, and what they are expected to add to the final process. In order to furnish the customer with good quality products at a low cost, the firm must be able to find suppliers that can deliver high quality items at low cost per unit. They must follow the IWAY. The headquarters provides carefully selected suppliers with technical assistance, leased equipment and the necessary skills needed to produce high quality items. The reconfiguration value chain gives IKEA several advantages: less cost of maintaining manufacturing facilities Cost savings from the outsources and delivery service Creates wide market segments Unique features stores Ikeas Product Range It produces wood-based furniture and wooden components, manufacturing units in 11 countries mostly in Europe IKEA stores display the product range in room settings, offering customers inspiring home furnishing solutions To help keep prices low, IKEA stores buy and transport products in bulk, are located in less expensive areas and take advantage of the self- service and assembly concept IKEAs core competency IKEA has focused its strategy on core competencies that have been leveraged as part of a strategy to sustain profitability The company develops its capabilities as a global retailer by adding value to the supply chain (thoughtful product design, local sourcing and low-cost distribution hubs) Constructing a low-cost business model that enables consumers to reap the benefits of high quality design furniture at some of the lowest prices available Building strong brand equity through unique promotions and pioneering advertising campaigns that recognize diversity
Core competency contd.. Developing a unique business culture designed around a good lifestyle for employees and customers Corporate social responsibility that is dedicated to environmental, labor, and ethical business practices IKEA core competencies have helped its efforts to attain a sustainable business model in the United States (US) as it continues opening new stores throughout the region
Porters Generic Strategy Its mission statement indicates a cost leadership strategy. However, the company is also applying an indirect differentiation strategy due to its unique way of incorporating the customer in the value chain. This combination indicates a focus strategy.
The pioneer in low-cost model In looking at its low-cost model, this seems to be a key strategy within todays global business environment and IKEA was one of the companies to pioneer this type of model well before airlines and other industries began to evolve their business models Everything that IKEA does involves carefully examining the true cost involved in that particular product or process, including the design, sourcing, and operational expenses involved IKEA doesnt have its own manufacturing facilities. Instead, it is using subcontracted manufacturers all over the world for supplies Also, IKEA customers have to assemble the bought products themselves. That creates innovation upstream, which help suppliers to save costs, and downstream, as self-assembly became a large cost saver for customers Most furniture are also designed to fit into an efficient packaging cube for low-cost transport, which benefits both the customer and IKEA. Because the company is a very high volume retailer, it gets good prices on what it procures. Contd.. Whilst low-cost is important, IKEA believes that it has the capability to be a low-cost leader without sacrificing quality or compromise its corporate social responsibility One way in which IKEA has been able to do this is by creating a global organization that provides infrastructure, service and support to its various business units and suppliers and helps them to identify and implement the most cost-effective technology available. This has led to a value- added supply chain that IKEA has capitalized on to maintain low costs whilst further growing its operations
Ikea's strategy IKEA successfully handles all aspects of marketing, sales, employee relations, product development, and supply chain management, creating a vivid picture of how management theory can work successfully when approached with a consistent and clear strategy Its winning strategy includes global sourcing of components, accessible suburban stores, quality products with sophisticated European design at a low cost, and in-store amenities, such as coffee shops, restaurants, and day-care facilities IKEAs low-cost business model allows it to offer quality furniture and home accessories at 25 per cent to 50 per cent below its competitors Competitive Advantage of IKEA
Competitiv e Advantage Economies of Scale: Standardisati on Economies of scope: Furniture and Restaurant Share facilities Economic Design Logistics Network of Supply: 1300 suppliers in 53 Countries Large Warehouse Showroom in Sub-Urban centres Customers included in the value chain, minimum staff Strength of brand name Distinctivenes s in Design Diversity in Assortment Resource Based View (IKEA ) PHYSICAL ASSETS OWN STORES WOLDWIDE AND ARE USUALLY LOCATED OUTSIDE THE TOWN 37 STORES THAT ARE FRANCHISED 38 COUNTRIES WORLDs LARGEST FURNITURE RETAILER FINANCIAL ASSETS PROMOTION AND ADVERTISING SOURCE FROM FRANCHISE EXPERIENCED A 15% SALES INCREASE BETWEEN 1990-2005 2005 THEY MADE 14.8 BILLION EURO 2010 THEY EXTIMATED $23 BILLION INTELLECTUAL RESOURCE
GOOD RELATIONSHIP WITH GOVERNMENT UNIQUE FURNITURE STYLING OPERATE 24 HOURS DAILY GOOD RELATIONSHIP WITH SUPPLIERS Resource Based View REPUTION RESOURCE BRAND NAME FRANCHISING $128 MILLION FOR UNICEF IN 2015 WELL KNOWN IN EUROPE ASIA AND AMERICA HUMAN RESOURCE 127,000 STAFFS SKILLED EMPLOYEES IN STORES AND WOODS GOOD TRANSPORT SYSTEM EXPERT DESIGNERS GOOD CUSTOMER SERVICE MOTIVATION OF EMPLOYEES (REWARD SYSTEM) RELATIONAL RESOURCE
28 DISTRIBUTION CENTER 2300 SUPPLIERS GOOD INTERNET ACCESS NETWORKING SYSYTEM 550 MILLION PEOPLE USING THEIR WEBSITE EVERY YEAR GOOD TRANSPORT SYSTEM INTERNATIONAL BUSINESS STRATEGY (SMM 206) PRESENTATION Porters Diamond Model: IKEA DEMAND CONDITIONS FACTOR CONDITIONS FIRM STRATEGY, STRUCTURE & RIVALRY SUPPORTING INDUSTRIES Low cost low price strategy Low bureaucracy Rivalries: British B&Q WalMart
Population: 7 billion The raising of Middle class Cheap furniture demand
Labour force: low cost Infrastructure: poor => good Government policy
Suppliers Technology
Porters 5 Forces Analysis Threat of Buyers growing bargaining power
There is a little power because of the existing low-price options IKEA ensure that their customers in all aspects will be satisfied for quality service they provide Focused their marketing approach on demands and needs of the buyer IKEA uses their corporate responsibility as a good public image to their customers IKEA Family -card as a membership
Threat of Suppliers growing bargaining power
IKEA has its thousands of suppliers that set standards in delivering the materials Because of the low-pricing, IKEAs profit margin also affects the prices in raw materials than by prices in labour IKEA has a wide network of 1300 suppliers. They carefully select the manufacturer of its products. The company has own production factories and designers which makes it less dependent on others Bargaining power of supplier could be threat for the profit of the company
Threat of Substitute Products
There is no specific product that can be a substitute for the furniture but IKEA at least, have to keep up with the latest trends, to avoid becoming out of style Problems faced due to distribution channels
Threat of Intense Segment Rivalry
The IKEAs furniture competitors offers different styles and functionality Conrin targets a new low cost in terms of furniture line; Crate & Barrel offers a furniture in a box which is subject in higher prices Ethan Allen aimed at a more upscale market Wal-Mart is equipped in a big box furniture that is categorized under the general store must-have- items, but dont have much of a style IKEA is the most successful in delivering the complete package for the customers that reflects on weak rivalries There will always be substitutes for furnitures but IKEA competes with price and there isn't competitors in same price range Threat of New Entrants
IKEA stores do not reach many small towns and this is an opportunity for the new competitors to move into small and midsize cities with smaller stores and less selection. But not easier in city because new entrants have to establish a vast supply chain and create a unique brand name The furniture market is already highly competitive - the risk of new entrants is not extremely high - huge capital needed to start the business Ikea's strategy in US The company faced several problems on entering the US markets. it had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets. IKEA had to make a number of changes to its marketing strategy in the US IKEAs sustainability comes from taking a measured approach to its expansion into the US by opening a single store at a time in a particular area to more effectively focus on getting the operations established in a manner which makes the most sense in terms of cost, training, and overall financial controls IKEA is requiring the US consumer to do change how they shop. The company directs customers to shop in the store instead of ordering onlinenoting that customers willingness to pick up and assemble items is critical to IKEAs ability to give customers the lowest-cost items with an element of fashion and style.
IKEA in China The very core competency of low prices and innovatively designed furniture posed a problem in China The low-price strategy created confusion among aspirational Chinese consumers while local competitors copied its designs As the company opened more stores from Beijing to Shanghai, the company's revenue grew rapidly But prices of furniture made by local stores were lower as they had access to cheaper labour and raw materials, and because their design costs were usually nil Extra charges made for providing plastic bags as an eco friendly effort by the company seemed to annoy the price-sensitive Chinese customers Changes in Strategy for China The company started targeting the young middle- class population. This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. Chinese competitors copied IKEA's designs from its catalogue and then offered similar products at lower prices IKEA decided not to react, as it realized Chinese laws were not strong enough to deter such activities. Recommendations for expansion in India In emerging markets, global brands may not be able to replicate their success using a low-price strategy as there always will be local manufacturers who will have a lower cost structure The company should also realize that emerging economies are not ready for environment-friendly practices, especially if they result in higher prices IKEA, famous for its flat-pack furniture which consumers have to assemble themselves, should understand that the local culture is important - Chinese people hate the do-it- yourself concept and Indians likely do so even more IKEA may face some India-specific challenges such as varying laws in different states ruled by different political parties IKEA should target India's urban middle-class buyers who are keen on decorating their homes with stylish international brands