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IKEA case study in strategic management report - Essay Example

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[Subject] Question 1 Introduction IKEA’s business model thrives on a minimalistic design which promotes practical thinking in so much as combining the two allows for greater levels of efficiency in utilizing resources which translates to lower prices for the consumers…
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IKEA case study in strategic management report
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Download file to see previous pages IKEA primarily sells furniture along with other home products such as appliances and accessories for kitchens and bathrooms. It sells these in knock-down kits that are ready-to-assemble by the customers themselves who are also resorted to for transportation of the goods to their respective homes. This retail model has been very successful for the company in all its emerging markets, resulting in a sheer increase in size to the point of becoming the largest furniture retailer in the world (Reuters). Their business model wholly focuses on a cost leadership strategy which forms the core of their competitive advantage. As we shall see, IKEA resorts to offer a distinguished appeal by coupling this strategy with various other methods of creating a unique product which not only appeals to those with an urge to maintain a level of quality but also to those looking to cut their purchasing costs. The purpose of this report is to outline its internationalization model and to verify some of the key opportunity areas for growth as well as managing looming risks. Analysis Retail is a fast growing industry in today’s consumer based societies, managing to look out for the needs of consumers directly without the expense of innovation. In today’s business, it has managed to become an important pillar industry of the society, certifying economic and social development in the region it most thrives in. With prosperity comes an improvement in lifestyle and comfort, and with an edge towards affordability, IKEA has sought to cater to the household goods market by passing on its cost leadership strategies to the benefit of consumers in the form of cheaper yet quality-proven products up to a range of 25 to 50 percent. Ever since its inception, IKEA has gradually set up shop in several different countries reaching a grand total of 267 Group stores by the end of 2009, with Germany being the highest selling country by far as a percentage of total sales. Their model incorporates the various principles of expansion that in turn harmonize their competitive advantage of price in several other markets. They achieve this by the process of internationalization. Internationalization for a company is a crucial stage of development, as it serves to integrate it into the retail sector for a consumer based economy (Dawson 2007). It not only increases the life cycle of a product, but also attains economies of scale by extending the size of potential markets. In order to pursue this task for any company, it must develop some conceptual strategies IKEA has managed to successfully integrate into other markets with the strategies of cost leadership, focused cost leadership, and focused differentiation. Cost leadership engages in reducing the product costs and ignoring the various market segments that the company caters to, while focusing on a distinct narrow segment, thereby saving on the additional research, analysis and management requirement that necessitate additional investment and lead to a rise in manufacturing costs. IKEA does this by allowing the customers to choose, buy, assemble and transport their own goods, passing on the benefit of cost leadership directly to the consumers in the form of a 25 to 50% discount compared to competitor rates. Moreover, IKEA’s Scandinavian image capitalizes on the persistence of quality, so that their target audience of first-time buyers, and elderly people are infused with the perception that ...Download file to see next pagesRead More
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