Ikea business model free essay sample

Investigate IKEAs business model and sources of competitive advantage as depicted in the case. Why do you think it has been so sucsessfull in the fragmentated fuurniture industry? What do you concider to be IKEAs main weaknesses? To answer question one I will split the question into three parts. Begining by investigating IKEAs business model and sources of competitive advantage. Then goin on to adress why it has been so sucsessfull in the fragmented furniture industry. An finally explaining IKEAs main weaknesses. IKEAs business model and sources of competitive advantage Business model Being one of the largest furniture companies in the world IKEA must be doing things right. By analising the case study we can see IKEAs strategies within its business model which have created such a sucsessfull business. Ikea has a very unique business model. It starts with how they design there furniture products in the factorys to ensure money is saved at the earliest stage with the saving being passed on to the consumer. For example the furniture will be produced with the construction and size in mind so its efective for transportation pacaging and production . IKEA understand that the majority of its customers will be price consious but are still expecting a decent standard and stylish looks. They know the challenges its customers face when shoping for furniture and egnolage customers tent to like a showroom to be able to view the item errect befor purchasing. They also like minimal delivery costs, this is why IKEA use flatpack pacaging for all its large items which are ready in store for the customer to take home. IKEA utilises a clever shgowroom design which almost fources the customer to view all IKEAs different departments. This showcases everything on offer while the customer walks round as a result they can see and potentially pick up other items they had not origanally visited the shop for. Ikea keep a large volume of the same articals in order to keep costs down. Ikea also put a lot of time into developing materials. They try to keep the cost low and environmentally friendly again passing the savings on the the customer. In china they took adavantage of the abundant materials in the country and opened up their own plants processing the wood to cut importing costs. IKEA have expanded from their home in sweden to over 37 other countries mainly in North america Asia Australier and Europe. No other competitor has achived growth in this way. IKEAs unique way of sales, production and distribution have meant its been globaly welcomed. IKEA has been made to adapt to meet the customers need s when entering different countries it always makes the changes to meet with local practices. Competitive advantage One of IKEAs main mission objectives is to offer low prices to their customers. By cutting costs but retaining a well manufactored finished product they keep prices low and the customer is happy and returnes. To keep costs low they have chosen to use flat pack furniture alowing the customer to take the furniture items home without needing expensive delivery. IKEA offers good servies to it costermers to retain competitive advantage. By keeping up a good customer service reputation they know that customers feel comfortable shoping there. From my personal experience they are very good with returnes and helping customers chose the right items for their exact needs. This leads on IKEA having good brand image which is a key competitive advantage. If a customer has been using IKEA in their home country and moves abroad there is a high chance they will be able to continue shoping with IKEA and will feel at ease furnishing there new home . IKEA is known for high quality with exceptional design which binded with its good prices means custermers stay happy. Kepping up to date with styles and changing styles when entering different markets around the world enables IKEA to retain competitive advantage anyware in the world. An example of this is larger beds when entering the USA. Within the IKEA shops there is a massive variation of different products from bathrooms to kitchens and everything you need to filll pretty much every room. As a customer it is a one stop shop for furniture and homeware. When shoping at IKEA customers know they are buying uptodate products with new inavotive styles. A large customer base with variations of products to suit different price ranges allows IKEA to apeal to wide varietly of customers. Why has IKEA been so sucsessfull in the fragmented furniture industry? I believe a combination of IKEAS unique business model which alows it to have broken in to a substansial amount of diverce markets alowes the business to grow and adapt easily. IKEAs main weaknesses The flatpack furniture has been listed as a competitive advantage but it is also a weakness. Certain consumer groups might find having to build their purchased furniture to much hastle and prefer to buy a ready made piece. Altho IKEA is in over 37 countries it only has 301 stores which is a relitivly small amount. This can mean customers are to far away to travel to IKEA especially in places such as China where not as manny people own cars. The store layout has has some critisism especially in the USA where the customers didnt want to have to walk around the maze like showroom and requested shorcuts to the checkout. The sweedish design does not apeal to to other markets. Differences such as size and style needed to be changed which costed money. In the USA they thought the flower vases were drinking cups. The advertising they use could be better there is very little television adverts or online adverts which could be utilised. Altho the furniture is stylish it is not built to last a lifetime which can put some customers off. Qusetion 2 With use of relevent globalisation and internetionalisation models analyse and evaluatwe IKEAs internationalization stetegy. What do you concider to be the key oppertunities and threats facing IKEA at the end of the case study? Within my answer to this question I am going to break the main question into three parts. Firstly listing the relevent global and internationalization models. Secondly Analising IKEAs internationalization srtategy. Thirdly analising the oppertunities and threats facing IKEA. Relevent global and internationalization models Heckscher–Ohlin model Uses the countries most abundant materials to produce products. For example Bamboo in china to make furniture. The most abundant material is the main material used when making the product. They then export the finished product therefor saving money and sustaining the local economy. Ikea fit into this model as they utilise the ubundant material they however dont export from china they sell within the country. In other locations they have had ton outsource the manufactoring. In europe they use cheap manufactoring plants in eastern europe. This would be because altho Sweeden had trees and forests its labour charges and general manufactoring costs are higher forcing IKEA to outsource to save money. Linder hypothesis (Staffan Burenstam Linder, 1961) Linder believed the more similar are the demand structures of countries the more they will trade with one another. Further, international trade will still occur between two countries having identical preferences and factor endowments. But the products will be slightly specialised to create competitive advantage between the two nations. For example IKEA coming from Sweden having much the same preferences as the rest of Europe or USA needing larger beds / buying flower vase to drink from. IKEAs internationalization strategy IKEA have used an organic growth approach to global growth. They have not used mergers with smaller business or bought out other companies. They have grown due to a increase in customer base. They how however taken it upon themselves to move to different worldwide locations where they would not have had an existing customerbase and effectivly started from scratch. People in china would not have come across an IKEA store unless they had traveled to a different continent. So advertising and promotion would have been from scratch. They have used aspects of both these models to internationalize there brand. IKEA aslo has a franchising department which aids its globalisation. As the franchisor IKEA has the following main tasks: To expand IKEAs buiness through franchising while retaining the IKEA concept being its, pricing, inderdiduality in its store design and its style. To break into any global market ikea have undergone extensive market research for example when entering Switzerland they did extensive research but it appears they didnt do so much in America. To analise how the furniture giant broke into different global markets I have used main examples of America and China. These two very different locations gave IKEA different challenges to overcome. USA The company initially tried to replicate its existing business model and products in the US but soon found 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. The most drastic change was possibly to have to change the store layout to accomidate to the Americans who requested shortcuts to the checkout. China Befor astblishing themselves in China IKEA understood Chinese apartments were small Customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs. The store layouts reflected the typical sizes of apartments and also included a balcony resolving the problem of high import taxes in China. Oppertunities and threats facing IKEA Oppertunities IKEA has a number of oppertunities firstly following the sucsess of their global expansion further expansion into developing economies such as India. IKEA could also expand its sales online. With location being an issue for some of its potential customers having on online store with conventional delivery methords might being more profitable business. IKEA could also expand on there existing grocery and food markets. Even possibly opening small local IKEA stores offering these services . Another opportunity for IKEA is to start a high end longer lasting range again to try to apeal to another market. Threats Intensifying competiton from online superstores such as Tesco and Walmart. They are offering online and in store cheap furniture. These shops are more localised compared with IKEA. The slowing of the first time buyers market. First time buyers are one of IKEAs main target audience. The economic ressesion and people not having cash to spend on thing which arnt needed. In the resession people will focus on spending money on nessesitys such as food and healthcare rather than furniture and home comforts. References