SWOT Analysis of IKEA - Case Study Example

SWOT - Analysis of IKEA Context: - IKEA is the most trusted brand in the home furnishings and mass retailer industry. Having stores in thirty three countries and hosting 410million shoppers in a year are the most famous name for selling of Scandinavian style home furnishing. (IKEA All Products, n.d, p.1) IKEA has the biggest sales in European countries like Germany, Sweden etc due to their strong brand identity. Maintaining a low price range with great quality of furnishing is the main reasons behind the success of IKEA. (IKEA Business Idea, n.d, p.1) IKEA maintains Star position in furnishing retailer industry. BCG (Boston Consulting Group) suggests that, IKEA has maintained a high market share with relatively high market growth in furnishing retailer industry. It indicates that, they are holding relatively a strong position in the market with compared to other companies. They frequently need a huge investment to maintain their growth. In perceptual mapping IKEA holds a position in first quadrant in the furnishing retailer industry with more effective and more affordable price with Ashley Furniture Industries and star furniture etc. Sales volume of IKEA has reached €21.2billion. It indicates that they are now in growth stage in product life cycle. As a consequent quality of products are maintained with additional product features and supporting services. IKEA has maintained low prices with increasing demand of product and promotional activity in cross border countries. IKEA divides their marketing strategy in three parts as market segmentation, market targeting and market positioning. In market targeting, IKEA chooses one or more target segments based on evaluating of each segments attractiveness and in the market positioning, they formulates marketing mix for each target segments. IKEA has built a brand image is now a well-known brand name in furnishing and assembling furniture industry. IKEA has a relatively good position in the market compare to other furnishing companies like BoConcept. IKEA has maintained low cost for their products, so switching cost must be higher for the buyers. Due to long and steady good relationship with suppliers switching cost is also higher for the suppliers also. IKEA has the brand image, so establish a new business in different demographic is not a problem for them. But this is a main problem for the competitors of IKEA. So there are little threats for new entrants. So, IKEA also holds a good position in Porter’s five forces (IKEA History, n.d, p.1) Critical Analysis Strengths of IKEA IKEA has their own industrial group, which manufactures wood furniture equipments and wooden workings. Source of raw materials are very near to supply chain and production house, which reduces the transportation and inventory carrying cost. IKEA holds 41st rank among the best global brands. This strong brand image increases customer loyalty and will lead to repeat in purchases. This brand identity also attracts different segments of consumers. IKEA adopts penetration-pricing strategy, where a company can provides wide range of designed and functional products at low prices. They have the long-term commitment towards the suppliers. In the long tem business relationship they can negotiate on prices and can buy large volume of inventories. IKEA also provides greater security for their suppliers. Their strong specialist marketing professionals are also the key for success. IKEA buys bulk amount of inventories at cheaper price rate, which suggests economics of scale. Due to strong distribution channels, strong brand image, cost advantage over the competitors and good reputation among the consumers IKEA holds a good position in the market. Weakness of IKEA IEKA is now a global brand and working on different countries. Because of their size and large scale of global business sometimes it is difficult to maintain the same standard of quality. In some countries IKEA has poor supply chain link, which increases inventory-carrying cost. As an international brand, IKEA mainly works in European markets with 90% stores are based in Europe. Technological advancement and e-commerce solution are needed to develop more business. Opportunities of IKEA Outsourcing from China is one opportunity for IKEA. This outsourcing can be done from low cost countries like China, because it not only reduces cost but also it increases the market share of IKEA. Online sales are another big opportunities for IKEA. From online retail sales more revenues can be generated. In Asian countries where IKEA does not have more shops as compared to Europe, e-commerce and online product selling are the possible opportunities for them. Now, demands of greener products are growing. Consumers also have the demand for lower carbon foot print goods with low price where IKEA can matches with consumers demand. Asian and east European markets are big opportunity for IKEA to generate more business. Threats of IKEA Many companies are now coming with good business ideas with cost-effective price structure. Retail products are not like consumer goods, so after first purchasing different tips and ideas should be given to consumers though online or customer care helpline, so that repeat purchase can be done. (IKEA SWOT Analysis, n.d, P-1) Conclusion To improve their performance, IKEA must analyze their external and internal environment. Their visions are to maintain low and affordable price range with economical use of resources. They have compromised the price and the quality of the product. In the furnishing retail industry companies like BoConcept is the competitor of IKEA. They are famous for having a long global retail furniture chain. They have more than 240 Bo stores in fifty countries. They are the biggest seller of home furnishing and accessories available through distribution channel system. They operate mainly in European countries. (BoConcept, n.d., P-1) IKEA maintains better cost effectiveness than BoConcept. Distribution and supply chain management work more effectively for IKEA. IKEA has better brand image than BoConcept. Entire production unit of IKEA and SBU (Strategic Business Unit) work more efficiently than any other companies. PESTLE factors also work positively for IKEA. For instance, for low price range of the product IKEA enjoys positive economical and social advantage. On the contrary, lack of brand image and high price value, BoConcept faces legal barriers for entry in other countries. (BoConcept, n.d, p.1) IKEA always highlighted their existing strengths like brand image, price penetration strategy and coming with opportunities like providing service to the potential consumers. IKEA also tries to minimize their existing weakness and coming threats. References 1. SWOT ANALYSIS (n.d.), NetMBA, Retrieved from http://www.netmba.com/strategy/swot/ (accessed on March 23, 2010) 2. IKEA All Products (n.d.), IKEA United Kingdom, Retrieved from http://www.ikea.com/gb/en/catalog/allproducts (accessed on March 23, 2010) 3. IKEA Business Idea (n.d.), IKEA US, Retrieved from http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/our_business_idea/index.html (accessed on March 23, 2010) 4. IKEA History (n.d.) ,IKEA US, Retrieved from http://www.ikea.com/ms/en_US/about_ikea/the_ikea_way/history/index.html (accessed on March 23, 2010) 5. IKEA SWOT Analysis (n.d.), Business Teacher, Retrieved from http://www.businessteacher.org.uk/business-resources/swot-analysis-database/ikea-swot-analysis/ (accessed on March 23, 2010) 6. BoConcept (n.d.), About BoConcept, Retrieved From http://www.boconcept.us/About_BoConcept.aspx?ID=77920 (accessed on March 23, 2010) 7. BoConcept (n.d.), Retrieved From Investor Relation, http://www.boconcept.us/Investor_relations.aspx?ID=97139 (accessed on March 23, 2010) Read More