Ikea Analysis - Case Study Example

Ikea Case Study

Case Summary:

Ikea is a successful global home-furnishing retailer. The company wbusas founded in 1943 in Sweden and has achieved rapid growth since its incorporation. Currently, Ikea is amongst the most successful international global retailers, mainly distinguished by its Scandinavian styles. By 2012, the company’s net profits were extremely attractive, rated at 10 percent higher than a retailer’s. The company focuses on producing high quality and low-priced products. The company has about 590 million visitors annually in its stores across the globe. The company’s founder, Ingvar Kamprad, is supposedly among the wealthiest individuals in the world. This case provides Ikea’s competitive advantage in 1970’s, its growth strategy and success in Europe.

Q1. Ikea’s Source of competitive advantage

Ikea’s competitive advantage in 1970’s can be attributed to its low-priced products. After its establishment, the company was listed in Stockholm, a Swedish annual trade fair for furniture. Only Ikea had the permission to sell to customers directly, making it to develop strong ties with customers than its competitors. The Company’s founder, Kamprad, recruited autonomous Swedish furniture manufactures and other sources in Poland, reducing its overall production cost, thus leading to low-cost products for customers. The company’s wide coverage and direct link with customers complimented with low priced and high quality products that appealed to various customers contributed to its competitive advantage over its market rivals in 1970s.

Q2.

Why IKEA’s expansion into Europe went so well:

The success of IKEA in Europe traces back to the fact that the fragmented furniture market in Europe was mainly served by high-cost retailers operating in luxurious downtown stores and selling costly furniture that were often unavailable for instant delivery to customers. IKEA entered the market with elegant, inexpensive designs, offering immediate availability of furniture for delivery to customers, which was a reprieve for consumers. Moreover, the company offered self-service for its customers.

Why IKEA stumbled in North America:

Between 1985 and 1990, IKEA opened about six stores in North America, but the initiative never yielded immediate profit. The reasons for initial staggering business in North America include: first, adverse exchange rates movement. In 1985, $1 was exchanged for 8.6 Swedish Kroner (SKr). By 1990, the exchange rate shifted to $1 = 5.8 SKr. As such, most imports from Sweden were not perceived as cheap in the American market. Second, IKEA’s Swedish products were at abrasion with American tastes. For examples, Swedish beds that IKEA sold never met American tastes as they were narrow and too drawers shallow for most American consumers.

Lessons IKEA learn from this experience and how it is applying the lessons today:

The company learnt that it needed to customize its products offered to North American consumers if it were to operate successfully in North American market. The management learnt that the company needed to redesign its product range to suit the North American consumer needs. The company redesigned its beds to fit American bedrooms and also adjusted drawers to suit customer tastes. Currently, the company is selling products customized to its markets, for example, it is selling American styled beds to its American customers. The company is currently designing kitchenware as well as furniture in a way that better appeals to American customers. The company also increased the quantity of product that it sources locally from 15 percent to 45 percent from 1990 to 1994 respectively.

Q3. IKEA’s strategy prior to its missteps in North America was a standardized product for all markets (one-style-for-all strategy). Even though the company focused on providing its customers with low-priced quality products, it failed to customize the products to specific market needs and customers’ tastes and preferences. This strategy led to a stumble in North American market making the company to learn valuable lessons. In the past, IKEA assumed a uniform taste and preferences for all its customers and ignored cultural variations among its customers. It only supplied Swedish styled products, which was associated with its unsuccessful launch in North American market. However, the company learnt from its past mistakes and embraced the needed flexibility required for success in its foreign markets. Currently, IKEA designs products tailored to specific needs of different markets to match customers’ tastes and preferences. Each of the company’s products is tailored to specific needs of customers, which has greatly improved customer experience across its global markets.

Q4. IKEA’s strategy toward its suppliers involves careful selection of the right suppliers for each of its products in various markets. The company sources some of its products from local suppliers to cut cost and ensure low-priced quality products are delivered by the chosen suppliers. The company fostered strong long-term relationship with all its suppliers. The company prefers to outsource the supply of some of its products in big markets so that it can maintain its low-cost dimension in all markets while supplying quality products that meet the needs of customers. The supplier strategy of the company remains a crucial element of its success because it is a sustainable source of competitive advantage for the company over its rivals.

Q5. The source of IKEA’s success today revolves around its ability to understand the varying needs of customers. This lesson made the company realize the need to design products that are attuned to specific needs of each market. Consequently, the company now supplies products that meet the needs of its customers, yielding high customer experience. Moreover, IKEA has been able to maintain its high quality and low-priced products, which give customer the value for their money and appeal to the market, hence attracting high sales volume and revenue in different markets. Some of the weaknesses of the company include the inability to shake off Swedish style and adapt to local market values, extremely large business size, which may render quality management difficult, the need to balance quality and low cost in producing its products and limited understanding of cultural variations, thus customer needs in various markets. The company can overcome these challenges through strategic alliances, heavy investment in research and development, thinking globally while it acts locally and forming partnership with relevant companies in foreign markets to easily overcome probable obstacles in foreign markets.