IKEA International Group is the largest furniture retailer in the world. Ingvar Kamprad founded the company in 1943. Since that time, the company opened many stores throughout the world and became tremendously popular. IKEA aims at making the lives of its customers better with the help of high-quality and fashionable furniture that is sold at competitive prices. Cost leadership is the essential business-level strategy of the company.
IKEA can propose low prices because of the efficient way of manufacturing and transporting goods. The corporate-level strategy refers to the constant improvement of the value creation through annual reducing of cost, manufacturing furniture with unique design and breaking with the traditional approaches for furniture selling. IKEA has chosen the best strategies for creating its brand and making it outstanding. Nowadays, the company is well recognized and preferred by people from more than thirty countries.
IKEA International Group has changed the appearance of the furnishing industry. Before its foundation, customers considered buying a piece of furniture as a significant step as they were planning to keep it for at least the next ten years. IKEA started manufacturing products with the interesting and attractive design.
The company changed the stereotypes concerning furnishing. It has developed the opinion that one has to buy a piece of furniture because of its style and not necessary for an extended period. Purchasing furniture became easier and funnier. IKEA implemented cost leadership strategy and broke with conventional traditions in the industry, which resulted in the company’s becoming the largest retailer of furniture in the world.
IKEA International Group
Ingvar Kamprad founded IKEA in 1943. Ten years later, the company opened more stores throughout the world. IKEA extended its markets in Europe, Asia, North America, and became the world’s biggest furniture retailer. Currently, IKEA has stores in more than thirty countries, and its annual revenue comprise more than twenty billion euros.
IKEA sells products that have a creative design. Customers can find a variety of goods starting from cabinets for kitchen and ending with simple candlesticks. IKEA aims at manufacturing its products with minimum expenses. That is the primary competitive advantage of the company.
IKEA’s aim is to make an everyday life of people comfortable and pleasant. The business idea reveals that purpose. The creating of the brand of IKEA is of great significance for its general development. The minimalistic and modern style of the products conveys particular emotional associations among customers. Besides, the company’s service is known everywhere. Customers have to wander in large stores, and then choose and carry goods themselves. Such a service seems to be unacceptable. Nevertheless, this feature makes IKEA exclusive.
General Description of Business-Level Strategies
Before analyzing the particular company, it is important to become aware of general information about business-level and corporate-level strategies. According to Hitt, Ireland, and Hoskisson (2014), business strategy is an integral part of success. It defines methods, approaches that assist the company in surviving in the competitive market. Even more, a good business strategy should point out an advantage of the company among contestants.
No business is impossible without the business-level strategy. The choice of the business strategy is a challenging and a time-consuming process. The initial step is the analysis of the target audience. Customers’ needs are essential for choosing the way to satisfy them. Thus, it is necessary to draw a psychological and social portrait of the average potential customer. The next step presupposes the definition of the client’s need.
Finally, it is significant to find out the most suitable and effective way to fulfill these needs. Five generic types of business strategies exist: cost leadership, focused cost leadership, differentiation, focused differentiation, and integrated cost leadership/differentiation. These strategies are also called “generic” because they can be implemented in any organization regardless of its activity. The goal of every strategy is to form competitive advantage for the firm.
When the company employs cost leadership strategy, it aims at selling goods or services at competitive prices. Differentiation strategy presumes the manufacturing of the products that differs both in quality and in price from the same goods of competitors. Focused cost and differentiation strategies fulfill the needs of the restricted number of customers. An integrated cost leadership-differentiation strategy is the most demanding. According to this approach, a company should be able to focus on differentiation but without too many expenses.
General Description of Corporate-Level Strategies
The corporate-level strategy represents the highest level of the decision-making. Several factors predetermine the choice of the strategy. First, a manager who handles the strategy development should find out which industries the company will join. The second step includes the way of increasing value creation.
Value creation stands for different actions aimed at promoting goods or services and improving their quality. The third step refers to the choice of the method of entering or developing in the particular industry (Hill, Jones, & Schilling, 2014). The most important thing concerning corporate-level strategy is product diversification or PD. PD deals with the entering to the new market, improving the current product, implementing the financial or pricing strategies.
The company may choose between horizontal and vertical integration of its business. During horizontal integration, the firm rivals with other organizations within the same industry. Vertical integration is the entering of the new industry. The purpose of such integration is to reinforce the primary activity of the company by growing revenues from other industries.
Two major types of vertical integration are distinguished: backward and forward. The first means the cooperation with industries that manufacture company’s goods while the latter — cooperation with organizations that will promote and sell services and products (Hitt, Ireland, & Hoskisson, 2011).
IKEA: Business-Level Strategy
The analysis of the company’s target audience preceded the choice of the business-level strategy. Harapiak (2013) states that IKEA’s primary customers are young people who belong to the middle class. Such people prefer something fashionable and creative at low prices. The founder of the company, Ingvar Kamprad, pointed out the fact that IKEA produced furniture with the democratic design. This design made it possible to manufacture products with minimum costs.
Thus, the company conducts cost leadership strategy. According to Palepu, Healy, and Bernard (2007), the competitive strategy of low prices included several significant elements that made it the world’s largest furniture retailer. The first part concerned the strategy for globalization. IKEA opened stores in more than thirty countries, and all of them were similar. The company made no cultural differentiation and offered the same line of products for customers in every country.
The next constituent of IKEA’s business strategy is the choice of manufacturers. The firm has only one own producer — Swedwood. Besides, it works with more than one thousand suppliers in approximately fifty countries. Such a cooperation assists IKEA in finding the most efficient and money-saving ways of producing furniture. The third part of business strategy deals with the design of products. IKEA’s engineers have created furniture that is simple to assemble and economical at the same time.
As a result, the customers are satisfied with minimalistic design while IKEA has an advantage from minimum expenses. Finally, the company saves considerable sums by implementing the individual system of service. IKEA sells furniture in flat-packs. It makes the transportation easy.
In my opinion, the choice of cost leadership strategy is the best one for IKEA. The firm altered it to create a unique brand and make the profit. Nowadays, IKEA is famous for selling creative accessories at competitive prices, and this stereotype will assure the long-term success.
IKEA: Corporate-Level Strategy
IKEA horizontally integrated to the furnishing industry. The company always improves the value creation and product diversification. The principal goal of IKEA’s corporate strategy is to provide consumers with up-to-date and functional furniture available at the lowest prices. IKEA is also famous for the sharp cutting of prices.
Every year, the company decreases the prices for products by 2% or 3%. Such a value creation gives IKEA a drastic preference among its competitors. This value creation is possible because of the persistent product diversification. IKEA invests in finding new ways to make manufacturing cheaper.
Engineers try to discover efficient solutions of producing furniture more efficiently (Harapiak, 2013). However, the most significant factor concerning the corporate-level strategy is the philosophy of the company. IKEA is unique in the furnishing industry as far as it does not follow conventional ways of the business development. Conservative furniture retailers share the opinion that tastes differ in regions. As a result, the table they sell in China varies from the one in Spain.
IKEA provides consumers with the same products everywhere. The next factor refers to the transportation of furniture. It is expensive to transport large pieces of furniture. IKEA prefers flat-packs that allow carrying furniture quickly and economically. The last advantage is the presentation of the products. One can find separate departments for tables, chairs, beds in the typical store. IKEA’s sectors display the rooms.
For instance, one section will include all furniture and accessories for the kitchen. I must agree that this method is excellent. IKEA creates its brand and provides exclusive opportunities for customers. I think that the type of the organization ideally coincides with the needs of the selected target audience.
The Analysis of Competitive Environment
It is hard to analyze IKEA’s competitors as far as it is the largest furnishing retailer in the world. Nevertheless, IKEA has powerful competitors in the United States of America and the United Kingdom. Ashley Furnishing Industries is the leading manufacturer of the furniture in the world. It has a chain of stores in the world and sells furniture for private retailers as well. The second competitor of IKEA is Argos.
It belongs to Home Retail Group that is the leader in the United Kingdom. Though Argos does not function worldwide yet, it is worth analyzing because of its strategies. According to Ranchhod and Marandi (2008), Argos’s main advantage lies in the active implementation and development of the multi-channel approach. Argos offers quality products at competitive prices. The company follows the cost leadership strategy.
Business-level strategies coincide in both companies. Argos’ corporate-level strategy differs. Argos focuses on the broadening of the ways of buying goods. The multi-channel approach presupposes the usage of various methods for work organization. Customers have the possibility to buy everything online, via telephone, or in stores. Ever more, Argos introduced a mobile version of the site for quick accessibility.
One more benefit was the launching of Argos TV. Argos is keen on creating new advanced ways of shopping. The company also used plasma screens and interactive equipment to improve client servicing. In my opinion, the employment of technologies is the significant benefit that will allow the company to be successful during the extended period. IKEA lacks this approach. It does not mean that IKEA will not be successful for a long time.
There is no doubt that it will, and its services may be improved with the help of technologies. Furnishing industry is a slow cycle market. I assume that the effective brand of IKEA guarantees the lasting success. The usage of modern technologies is an advantage too.
Still, it cannot assure that the company will be relevant long. It is easier to create a mobile application and develop the system of online ordering rather than make the brand famous and unique. I think that a situation would change in a fast cycle market. Argos would prevail over IKEA due to the rapid impact of multi-channels on business development.
The success of IKEA can be explained from the perspectives of its business-level and corporate-level strategies. The implementation of cost leadership strategy allowed the company to sell good products at the best prices. The corporate-level strategy resulted in the creation of the distinctive brand. All of these explain the fact why IKEA is the largest and outstanding retailer of furniture in the world now.
Harapiak, C. (2013). IKEA’s International Expansion. International Journal of Business Knowledge and Innovation in Practice, 1(1), 25-51.
Hill, C., Jones, G., & Schilling, M. (2014). Strategic Management: Theory: An Integrated Approach. Boston, USA: Cengage Learning.
Hitt, M., Ireland, R., & Hoskisson, R. (2011). Strategic Management: Concepts and Cases 9e. Boston, USA: Cengage Learning.
Hitt, M., Ireland, R., & Hoskisson, R. (2014). Strategic Management: Concepts: Competitiveness and Globalization. Boston, USA: Cengage Learning.
Palepu, K., Healy, P., Bernard, V. (2007). Business Analysis and Valuation: Text and Cases. Wales, United Kingdom: Cengage Learning EMEA.
Ranchhod, A., & Marandi, E. (2008). Strategic Marketing in Practice. London, United Kingdom: Routledge.