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3.1. IKEA BUSINESS STRATEGY:

IKEA is cost leader in the home furnishing market. To hold on to this position
IKEA isforced to make the internal production as efficient as possible. Otherwise,
competitors willtake over the cost leader position of IKEA.The suppliers of IKEA are
usually situated in low-cost countries. The suppliers can easilyaccess the rawmaterials needed for the production and they are capable to reach thedistribution
channel. The products that the suppliers sell on the market are standard
furniture.Because IKEA is such a big company it can buy thousands of pieces of
furniture at the sametime. With these hug orders it usually gets big discounts, this is
called economies of scale.
IKEA doesnt only provide low cost furniture but also a certain quality. IKEA has
become
such a strong brand because they create a good mix of low cost furniture with high
quality.Besides, IKEA is also a precursor on innovations.Also the brand IKEA is really
strong, IKEA stands for low prices and high quality. But alsothe more expensive
furniture has a certain target group. The combination of low costfurniture and more
expensive furniture provides that everybody can find what they want atIKEA.
To keep this position its necessary for IKEA to keep on refreshing and renewing
their
service model. But also innovations and new techniques are important to IKEA if
they want
to sustain their position. The global expansion of IK
EA gives some more opportunities, not
only to expand their brand but also to cut cost even more. (The times, 2011)

3.1.1. OPERATIONS STRATEGIES

IKEA's success is based on the relatively simple idea of keeping the cost
betweenmanufacturers and customers down.
IKEA doesnt have its own manufacturing facilities.
Instead, it is using subcontracted manufacturers all over the world for supplies
(Swedwood).On top of that, in order to maintain low cost, IKEA customers have to
assemble the boughtproducts themselves. That creates innovation upstream, which

help suppliers to save costs,and downstream, as self-assembly became a large cost

saver for customers. On the other hand all R&D activities are centralized in Sweden
IKEA follows the international business strategy IKEA follows all of Porters generic
strategies. Its mission statement indicates a costleadership strategy. However, the
company is also applying an indirect differentiationstrategy due to its unique way of
incorporating the customer in the value chain. Thiscombination indicates a focus
strategy.At a high level, IKEA designs distinctive products that are also designed for
low-costmanufacturing. Most furniture is designed for the customer to assemble,
and they are alsodesigned to fit into an efficient packaging cube for low-cost
transport, which benefits both the customer and IKEA. Because the company is a
very high volume retailer, it gets good priceson what it procures.

3.1.1.1. CATALOGUE
To make shopping to easy and comfortable experience, IKEA provides
catalogues,tape measures, shopping lists and pencils for writing notes and
measurements. The
stores main aim is to gather everything for the home under one roof. There are
IKEA
pick-up cars/bikes available for rental depending on the market customs; also car
roof racks are available for purchase at cost. Costs are kept under control starting at
the design level of the value-added chain. IKEA also keeps costs down by packing
items compactly in flat standardized package and stacking as much as possible to
reduce storage space during and after distribution in the logistics process

3.1.1.2. STORES DESIGN

KEA chose its store location on the city outskirts as the companys stores were large
and required huge parking spaces. IKEA realized that its customers were
visitingstores in their cars and that resulted in higher carbon emissions. Hence, the
companymade sure that the store location chosen was well connected through
public transportso that environment conscious customers could visit IKEA stores
using publictransport. The stores are designed as very large blue buildings with
yellow accentsand innovative layout inside. The stores were designed in such a way
that furniturewas displayed in a real room setup, along with the details of each
displayed product.Customers were given pencils and papers at the store entrance to
list down product
details like item code and respective aisle number in the stores warehouse.
IKEAswho entered the store with a planned shopping list would check out other

productswhich might interest him/her. However, shortcuts were also provided at a

few placesand these were mentioned on the floor maps that were made available to
thecustomers.
3.1.2.

IKEA COMMUNICATION STRATEGY

IKEA tries to standardize its products to people. Therefore the role of the
communication isto make people change their attitude and style and to show them,
that IKEA is not what theyhave thought. It is achieved by a radical change of
the tone of communication provocation.The communication of IKEA towards
consumers takes place in four types of major media thecatalogue and other
booklets, websites of the group, another advertising media such asnewspaper
industry, radio, television, cinema and posting, and the communication in thestores.
Promotion and advertising are in important part of strategies used by IKEA
.Allcatalogues and promotional advertising is the responsibility of the headquarters
3.1.3.

IKEA

ORGANIZING STRATEGIES
Because IKEAs
operations are spread worldwide, the management organized the companyin four
different areas.The first area is product range and development. The second one is
purchasing, followed bythe Distribution Service and the last area is retailing. All the
IKEA stores have the same retailconcept. That means that all the methods and
services are the same in all IKEA stores.Further Information about the areas can be
found in the functional analysis on page 7

3.1.3.1. Leading and controlling

IKEA is controlled by Ingka Holding BV located in the Netherlands. It controls
theoperations of most IKEA stores. The foundation is chaired by Kamprad who still
hastight control over the operations.

3.1.3.2. Product and service

intention was to take customers through all of its products so that even a customer
IKEA has a wide variety of product range. You can find everything for your
homefrom plants and living room furniture to toys and kitchen appliances.IKEA is
known for the splendid service it is providing. The service is one of thereasons why
IKEA was able to expand so much. The self service is a big part of IKE
As service model. It is a different concept then what the consumers are used to.If
consumers buy furniture at IKEA, they dont buy a fixed couch or bed but they
have to assemble the furniture themselves at home. Although most customers do
notmind the self-service, IKEA offers help with the transport and
assemblageadditionally. (IKEA, 2011)[
3.1.4.

VALUE CHAIN ANALYSIS OF IKEA

IKEA has quickly evolved from a local Swedish home furnishing manufacturer
intothe Largest home furnishing company in the world; partly by convincing
theircustomer to Perform the transport and assembly processes of the
furnituremanufacturing value chain. They have executed their strategy by building
aworldwide sourcing network of high quality global manufacturers to support
theirgrowth.
3.1.4.1.

IKEA Modified Value Chain

Ikea's role in the value chain is to mobilize suppliers and customer to help
themFurther add value to the system. Customers are clearly informed in the
catalogs of thefirm's business systems provides, and what they are expected to add
to the finalprocess. In order to furnish the customer with good quality products at a
low cost, thefirm must be able to find suppliers that can deliver high quality items at
low cost perunit. The headquarters provides carefully selected suppliers with
technical assistance,leased equipment and the necessary skills needed to produce
high quality items.
3.1.4.2.

This long-term supplier relationship

IKEA does not only produce superior products, but also add internal value to
thesuppliers. In addition, this value-chain modification differentiates Ikea from its
competition IKEAs supply chain is global with sales in more than 250 own stores in
24 countries and 32 external franchisees in 16 countries. The stores are
suppliedthrough 31 distribution centers, or directly from the 1,350 suppliers in more
than 50
countries. IKEAs supply chain consequently has a global spread with both sales and
purchasing in all major regions of the world. IKEAs growth has been tremendous
andsales are still growing. Currently IKEA plans to open 10-20 new stores every
yearwith a goal to double sales within the coming five year. Considering the pace
of growth in sales, the many stores and warehouses, and the fact that some
businessareas change up to 30% of its assortment every year, supply chain
planning is a realchallenge. The supply chain needs tight control and high levels of
visibility to keepcosts down and avoid obsolete inventory and/or stock outs. The
IKEA supply chain ismainly make -to-stock (MTS) and only a few Products are made
to customer orders.Consequently, the entire supply chain is heavily dependent on
forecasts. The regionsand the stores have traditionally had a strong power and a
high degree of localfreedom in terms of planning and placing replenishment
requests. This has led to afragmented supply chain planning with local optimization
and a lot of manualintervention with plans throughout the supply chain.
Furthermore, due to frequentshortage situations.
4.

MARKETING STRATEGY
Marketing, among all business functions, is most down-to-earth in terms of dealing
withcustomers. As ordinary customers, every one of us already knows about
marketing. After all,it is all around us. Many people may be under the impression
that marketing is only sellingand advertising, i.e. what we can see. However,
Armstrong and Kotler (2006) argue thatselling and advertising is only the tip of the
marketing iceberg. There exists a massive
network of people and activities, competing for customers attention and purchases.
Intodays
marketplace, marketing must be understood in the new sense of satisfying
customerneeds. They define marketing as the process by which companies create
value for customersand build strong customer relationships in order to capture
value from customers in return.On the basis of the above definition, we can describe

the marketing process in detail anddivide it into 5 steps. The first 4 steps create
value for customers and build customerrelationships. At first, the company has to
understand the marketplace and customer needsand wants. Therefore, the
company needs to research its customers and the market place inorder to collect
and manage marketing information and customer data. The second step,designing
a customer driven marketing strategy, takes place once the market place
andcustomers are fully understood. The company will select which customers to
serve throughmarket segmentation and targeting. A value proposition will also be
decided through