Competitive strategies for IKEA

IKEA is a company that was established in Sweden in 1943 and has expanded profoundly at a global presence marking more than 375 stores worldwide. Its ability to constantly grow and improve throughout the years has been enabled by creative and innovative decisions from basic concepts of business. Using the generic strategies by Michael porter and the PESTLE analysis, IKEA has been able to make profits even in times of recession. Below is a detailed description on how IKEA has harnessed these basic business concepts which have guaranteed its success.

Generic strategies

These are approaches developed by Michael porter that a company could employ so as to gain competitive advantage in the industry, regardless of the product or service being offered. The comprise of the following three aspects:

Cost leadership strategy

The cost leadership strategy is an approach used by firms to increase its market share by appealing to price sensitive or cost conscious consumers. It mostly involves offering the lowest price among competitors in the same industry or having the lowest price to the value ratio, that is, the minimum price to what customers receive.

IKEA is known for its affordability and the low prices for home furnishings. Even in its slogan, it emphasizes on offering consumers a reasonable price so that people would be able to buy their products. In order for a company to apply the cost leadership strategy, there is a high need for the operations and production costs to be kept at a minimum because the profit does not come from the profit margin but rather the sales volume. IKEA has been able to achieve this by hiring third party manufacturers who are not overly expensive. It also has its own engineers who have been able to reduce the cost of complete outsourcing. In IKEA, customers assemble their own furniture which has gone a long way in reducing the amount of cost that would have otherwise been spent on mechanics or experts. Unlike most firms who sell furniture, IKEA displays its furniture in a single setting, where a customer is able to look through and find a variety stacked within the same space. This has in turn reduced the cost that would be spent on sales people. This is because the sales people have not specialized in the knowledge of furniture of a particular setting like bedroom or living room, but they have the general grasp of every furniture regardless. (Gamble, 2010)

Differentiation strategy

This is an approach best applied when the customers are not price sensitive and have specific needs. This translates to a firm incorporating unique aspects to a product or service so as to fulfill a need that is underserved. For IKEA, it has been able to cater for a market segment of those who want stylish and fashionable furniture. Its inventory contains a variety of items, not just basic furniture but those with unique aspects. Some of its furniture has a multipurpose aspect to it which makes it functional in various ways. There is also a variety of designs to the different types of furniture.

Focus strategy

This is an approach where the company seeks to find a niche for the products it offers. The niche is normally small but gives a substantial amount of profit. These groups are very distinct with specific needs. In India, IKEA has been able to adopt the focus strategy by having stores that deal with traditional design furniture. This furniture portrays the culture of the Indian people and more often than not, customers have inclined to buy such

PESTLE analysis

This is a tool mostly used by firms to track the environment of their business operations and how to best take advantage of it. this occurs when accompany is launching a product or service in new territory for example a new country. PESTLE stands for political, economic, social, technological, legal and environmental. (Kiechel, 2010)

Political

These are factors in which the government is able to influence a particular industry. Some of these factors include fiscal policies and trade tariffs. This has affected IKEA in a lot of ways more specifically in its supply chain activities. The sourcing of materials has been constantly revised because a small change in the supply chain can cause a drastic change, a delay or substantial costs downstream. This is because by government policy, they are required to source some of the materials form India and to achieve that, adjustments have had to be made concerning the suppliers involved.

Economic

These are determinants that affect the performance of a company. IKEA has been able to steadily gain profits even in a country like India where the purchasing power is on an average low. This is because the management of its prices have been very strategic in order to accommodate economic fluctuations experienced in India. 

Social

This relates to the social environment of a country like demographics, trends and population analytics. Ikea is one of the few companies that have scrutinized and found local nuances that have played a major role in blending in with the community. Its content in advertising has been revised thoroughly so as to ensure not to hurt the culture and the beliefs of the people in India. Social trends and styles have also been the backbone of bringing in furniture that reflects on the culture of the Indian people.

Technological

These are factors pertaining to the innovation in a particular industry that affect the operations in a firm in a favorable or unfavorable way. IKEA has used augmented reality in India so as to promote awareness of its products and reach a large market share. However, the government has banned the online selling in IKEA which has threatened its reputation of being modern and up to date with trends.

Legal

These are laws that affect the business environment. Compliance of these legislations is key because failure to do so might be dire to the extent of a company undergoing losses. One of the things IKEA is struggling with in India is the policy that 30% of its inventory is sourced from India. Though it might be more expensive for the business, the only way that they are allowed to operate in India is by adherence to this rule. (Porter, 1980)

Environmental

These are factors relating to the surrounding environment. Most firms venture into corporate social responsibility. IKEA has set up IKEA foundation which helps look after destitute women and children. It also uses renewable energy in its operations. It has set up various points for wind and solar panels which generate electricity to be used by the firm in its operations.

References

Gamble, A. (2010). Crafting and executing strategy. Boston: McGraw Hill.

Kiechel, W. (2010). The lords of strategy. Havard Business Press.

Porter, M. (1980). Competitive Strategy. Free Press.