IKEA’s Strategy
General Description
In general, IKEA’s business idea is based on its partnership with customers. First, IKEA does its part, namely, their designers work with manufacturers and search for a smart way to make furniture using the production processes available. Then, the buyers search for reliable suppliers all over the world who have the most suitable raw materials. After that, the company buys these materials in bulk in order to get the best deals and provide the lowest prices to the customers (“The IKEA business model,” 2017).
One more peculiarity of such a strategy is that when customers want to buy a product, they browse the shop floor, select the required items, head to the warehouse, and retrieve the package. Thus, the customers themselves are responsible for transporting and then assembling the furniture. This strategy allows IKEA to save on labor and furniture delivery and assembly (“The IKEA business model,” 2017).
Pros and Cons
Regarding the advantages of this strategy, the most prominent of them is the price. Due to saving on packaging, warehousing, delivery, and assembly, IKEA can provide extremely low prices for their products, thereby attracting customers that cannot afford expensive furniture. The most conspicuous disadvantage of this strategy is that IKEA loses customers who prefer quality and service over price by making them transport and assemble the furniture themselves and by focusing primarily on the design of the furniture rather than on its quality (“The IKEA business model,” 2017).
PESTEL Analysis
Political Factors
Overall, IKEA’s political environment is favorable, as it operates mostly in Europe, some Asian countries, and America where political systems are stable and provide reasonable policies on tariffs, trade restrictions, and taxation. In Africa, where most countries are politically unstable, IKEA does not operate (Pratap, 2017).
Economic Factors
Asian emerging economies show high economic growth, thereby assuring a good future to IKEA. However, China and India being popular for their rather skilled and low-cost labor offer the company a high-profit margin. Inflation rates are stable in the countries where IKEA operates which does not cause any sharp changes in the consumer’s behavior (Pratap, 2017).
Social Factors
IKEA tries to consider cultural and demographic aspects of the environment very carefully. IKEA even developed a comprehensive social responsibility program that provides for humanitarian support and donations to various charities including UNICEF and the World Wildlife Fund (Pratap, 2017).
Technological Factors
IKEA is actively using modern technology as its business tool. It has its own website where the customers can browse online catalogs, check if the product is available, and order products online. IKEA also uses social media to promote its products (Pratap, 2017).
IKEA’s Main Competitors
One of the main IKEA’s competitors are online retailers such as Amazon, eBay, Alibaba Group, H&M, Zara, and so on that are also actively adding home furnishing products to their offerings. Since these companies are very popular on the Internet, IKEA risks losing part of its customers. However, compared to IKEA, these companies do not have their unique design (IKEA eyes higher,” 2016).
Another IKEA’s competitor is Wal-Mart Stores, Inc. It provides higher prices, and its furniture is of higher quality than that of IKEA. However, since Wal-Mart is a much larger company than IKEA and it specializes in many other products, it provides fewer options regarding furniture than IKEA.
One more IKEA’s competitor is Barn Furniture Mart. It provides quality furniture with a unique design and for the affordable price. However, it is a small company that operates only in the USA (IKEA eyes higher,” 2016).
Recommendations
First of all, IKEA should reconsider its attitude towards the labor force when in such countries as China and India, as it will only benefit the company. Second, I would recommend the company to place a larger focus on quality. Concerning the design, it is excellent and unique, but the quality should be improved even if it presupposes higher prices.
Additionally, the company should continue its strategy of adjusting their business to different cultures all over the world, as it makes them more global and allows them to cover a larger audience.
References
IKEA eyes higher quality to fend off new rivals. (2016). Web.
Pratap, A. (2017). IKEA PESTEL analysis. Web.
The IKEA business model. (2017). Web.