ikea ayesha
TRANSCRIPT
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A CASE STUDY ON IKEAPresented by:
Ayesha Rehman
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ABOUT IKEA
TYPE : Private
INDUSTRY : Retail
FOUNDED : Almhult, Sweden (1943)
FOUNDER(S) : Ingvar Kampard AREA SERVED : Worldwide
HEADQUATERS : Delft, Netherlands
KEY PEOPLE : Mike Ohlsson
PRODUCTS : Self-assembly Furniture
REVENUE :23.5 billion(2010) NET INCOME :2.7 billion(2010)
OWNER : INGKA Foundation
EMPLOYEES : 127000(2010)
STORES : 316 Stores(2010)
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STRATEGIC INTENT
Business Idea:
To offer a wide range of well designed, functional products at low prices.
Vision:
To create a better everyday life for many people.
Mission Statement:
Ikea's mission is to offer a wide range of home furnishing items of good
design and function, excellent quality and durability, at prices so low
that majority of people can afford to buy them
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BUSINESS DEFINATION
CUSTOMER
GROUP(What is being
satisfied?)
ALTERNATETECHNOLOGY
(How are customers needbeing satisfied?)
CUSTOMER
FUNCTION(Who is being
satisfied?)
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Contd.
? Who are IKeas customers Individuals and families for whom price is more important than cultural
values
Starting a new home and have no or very little furniture
?What needs are being satisfied Need to buy a whole array of furniture at an affordable price
? How are customers need satisfied A bundle of skills and technologies that enables a company to provide
a particular benefit to customers. Low cost of the products satisfy
customers need.
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PORTERS FIVE FORCES
ANALYSIS
Rivalry among existing firms is intense in the global market ofdiscount furniture and the major players in the industry include Euromarket
Designs Inc, Galiform plc, Wal-Mart Stores Inc, Argos and others.
However, currently IKEA is the undisputed market leader in the industry of
discounted furniture at a global scale.
The threat of new entrants into the industryis low, and thechances of emergence of new competition for IKEA is insubstantial as the
current market is saturated and significant amount of financial investments
and expertise are required to become a discounted furniture retailer at a
global scale.
However, the threat of substitute products and servicesis low as there
are not too many products and services available that can substitute the
demand for furniture, home appliances and a range of other products
offered by IKEA.
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Contd.
IKEA suppliers do not possess substantial bargaining poweras there
are numerous factories around the globe with the capabilities and
resources to form partnership with IKEA. At the same time, IKEA pursues
the strategy of forming strategic long-term relationships with its suppliers.
The bargaining power of IKEAs customeris strong, as thecompetition is intense and the customers have a wide choice of alternative
options offered by global furniture retailers, as well as, local furnitureproducers.
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PESTEL ANALYSIS
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PESTEL
Political factors There are no data about the political influence over the industry
Though it is anticipated that the organizations are heavily supervised by
the government
Economical factors Better purchasing power of emerging countries
Pricing different , according to the country
Social factors Decent work condition to its suppliers
Partnerships with many social organizations as well
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Contd..
Technological factors Creation and innovation of new products
Better stock management
Lowers barrier to entry
Influence outsourcing decision
Environmental factors
Create products with a minimum impact on the environment Partnerships with many environmental organizations
Legal factors Strengthening of International Importation Regulation Norms.
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SWOT
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STRENGTHS
IKEAs cost leadership concept keeps it ahead of its competitors.
IKEA has successfully combined low cost with good quality.
IKEAs research and development team finds ways to alter designs to save
on manufacturing cost.
A key feature of IKEAs furniture is self-assembly.
IKEA uses cheap labor which keeps its cost down and gives them a
competitive advantage.
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STRENGTHS
Its strong long-term relationship with its suppliers gives it a
competitive edge.
IKEA has the ability to adapt its tactics according to the market.
Flat packing reduces shipping costs, minimizes transport damage,
increases store inventory capacity, and makes it easier for customers
to take the furniture home themselves, rather than needing delivery.
Customer Service Restaurant and Child Care Supervised Playroom arealso its major strengths.
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WEAKNESESS
Its organizational culture can become a demotivating factor for many of its
employees.
It lacks thorough market research on customers preference before
entering into a new market.
IKEA never took economic issues into consideration before being faced
with the problem.
Kamprad does not take into consideration the change of times.
Not enough distribution channel.
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OPPORTUNITIES
IKEA can expand its product line by producing high end products
IKEA can expand its business into interior designing and cookery products
IKEA should listen to the customer demand to make more sustainablesolution
Product customization can boost up IKEAs sales
Bright prospect of online sales
Target all levels of the market, upper, middle and lower classes
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THREATS
With economic concerns over rising living costs and depleting disposable
income there is an overall threat to the performance of the business in UK
and American markets specifically
Accelerated market competition in USA
The risk of global financial crisis
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IKEA,s VALUE CHAIN ANALYSIS
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PRIMARY ACTIVITIES
ACTIVITY IMPLEMENTATION BY IKEA
INBOUND LOGISTICS Distribution of products to the stores from 27 distribution centres
10,000 IKEA products are manufactured by 2000 suppliers and
transported to the IKEA stores
Jobs in logistics account for about 20 -25% of each stores co-workers
OPERATIONS Operations in more than 38 countries; 208 companiesoperated stores in
26 countries, remaining stores operated by franchisees.
IKEA does not manufacture its own products
OUTBOUND LOGISTICS Transportation of products is done by customers
MARKETING AND SALES Targeting mainly families with lower income, students and singles
Family-friendly environment within stores
SERVICES Very limited level of customer services according to the chosen business
strategy
Information to customers mainly provided through explanatory catalogues
and displays
Low number of sales assistants in stores
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SECONDARY ACTIVITIES
ACTIVITY IMPLEMENTATION BY IKEA
FIRM INFRASTRUCTURE Hierarchical tall organisational structure
The IKEA Group is controlled by INGKA Holding B.V. that belongs to
Stitching INGKA Foundation
Stores are large in size
HUMAN RESOURCE MANAGEMENT High level of commitment to HR practices
Effective staff training and development programs
TECHNOLOGY DEVELOPMENT Research and development activities are initiated in Sweden
Extensive use of information technology in various businessprocesses
PROCUREMENT No need for raw materials as IKEA does not produce own brand
products
Long-term strategic relationships with suppliers
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STRATEGIES
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OPERATIONAL STRATEGY
Low Costs
Packing Compactly
Flat-Standardized Products
Design-level of Value-Added Chain
Attract with Catalogues
Retained by Superior Service
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GRAND STRATEGIES
Concentrated Growth
Single Market -Furniture
Product Development
Self developed Designs
Vertical Integration Forward (Assembly)
Backward (Supply)
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CORPORATE LEVEL STRATEGIES
a.) Vertical Integration
IKEA has been using VERTICAL INTEGRATION to the Global furniture
industry.
Managers use corporate level strategy in VERTICAL INTEGRATION to
identify which industries their company should compete to maximize its
long run profitability. There are two types of vertical integration:
1. Forward vertical integration
2. Backward vertical integration.
IKEA is using backward vertical integration to expand their business and
to make profit.
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BENEFITS OF VERTICAL INTEGRATION
Facilitating investment in specialized assets
Here IKEAs specialized asset is employee skills that are acquired
through training and experience.
IKEA invested in specialized assets because it allowed it to lower its coststructure and differentiate their products.
Enhancing product quality
By entering industries at other stage of the value added chain, IKEA
enhanced the quality of the product in its core business and thusstrengthened its differentiation advantage.
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Contd...
Improved schedulingStrategic advantage has been obtained when vertical integration makes it
quicker, easier, and more cost effective to plan, coordinating, and transfer of
product like finished goods from manufacturing plant to retail or distributingshop.
Increased bargaining powerIKEA uses VERTICAL Integration because it allows them to obtain bargaining
power over suppliers and increase their profitability. By consolidating theindustry through VERTICAL Integration IKEA has become a much larger buyer
of suppliers product and use this as leverage to bargain down the price. IKEA
pays for its input, there by lowering its cost structure.
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b.)Outsourcing
Strategic outsourcing is the decision of IKEA to allow one or more company to
perform specifically or selected value chain activities or function by
independent specialist companies that focus all their skills and knowledge on
just one kind of activity.
According to available information IKEA now outsource 90% of their
product and rest 10% produce internally.
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BENEFIT OF OUTSOURCING
Low cost structure
IKEA now outsources 90% of their product and rest 10% produce
internally which helps them reduce their overall average cost.
Focus on the core business
The final advantage of strategic outsourcing for IKEA is that it allowsmanagers to focus their energies and companys resources on
performing those core activities that have the most potential to create
value and competitive advantage.
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Offers Products to
Only One Group
of Customers
Offers Products to
Many Kinds of
Customers
Offers Low-
Priced Products
to Customers
Offers Unique
or Distinctive
Products to
Customers
Focused Cost-
Leadership
Strategy
Focused
Differentiation
Strategy
Differentiation
Strategy
Cost-
Leadership
Strategy
Generic Business-Level Strategy
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OVERALL COST LEADERSHIP
The strategy of overall cost leadership is IKEAs biggest aim.
IKEA offers low-priced products to many Customers
They use flat-package to reduce the cost of transport.
They reduce the staff in store to reduce the cost of store.
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DIFFERENTIATION
Today, IKEAs product range consists of 9,500 home furnishing
articles, designed to be functional and good looking but at a low price.
You can find almost everything you need in IKEA.
Customers need goods of low price and better quality. Low price or
good quality is easy to achieve, but it is not easy to get both of them.
IKEA chose a different way which is to stand on the side of everybody
by taking care of every customers need.
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FOCUS
There are three main part of IKEA: IKEA office, home storage,
Childrens IKEA.
The target customer is everybody.
IKEA also take children as their customer, and the spirit of care for
children really wins many customers heart.
According to the life system, they segment the market in many parts
to meet the requirement of different customers.
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COMPETITIVE ADVANTAGE
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COMPETETIVEADVANTAGE
ECONOMIES OF
SCALE:
STANDARDISATION
ECONOMIES OFSCOPE:
FURNITURE AND
RESTAURANT
DIVERSITY IN
ASSORTMENT
STRENGTH OF
BRAND NAME
DISTINCTIVENESS
IN DESIGN
NETWORK OF
SUPPLY: 1300
SUPPLIERS IN 53
COUNTRIES
ECONOMIC
DESIGN
LOGISTICS
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BCG MATRIX
Relative Market Share
Star Quest ion Mark
DogCash Cow
High
Market
Growth
Low
WeakStrong
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Question marksare IKEAS slow growing products, with low growing
shares in a growing market .
Rising Stars - these are often associated with IKEAS products with a
strong growth stage of the cycle. The sales of IKEAS products here aregood with the potential for market leadership. The market itself is
expanding .
Cash Cows- relate to IKEAS products that sell strongly with good
market share, but in a mature market i.e. low growth, these ranges ofIKEAS products are associated with the decline stage of the product
lifecycle, and may be discarded if profitability declines further.
Dogs: relate to IKEAS products that are no longer profitable.
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PRICE-STYLE MATRIX
At IKEA, all articles are divided into sixteen different categories
considering their style and price.
Four styles are Sty le1, Sty le2, Sty le3and Style4 whereas the four price
groups are referred to as A, B, C and D.
The products in the price group A are more aggressively
merchandised and positioned out in the stores than products
belonging to the other price groups.
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Example of a price-style matrix
Price
D
C
B
A
Style1 Style2 Style3
Style4
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PRICING NEW PRODUCTS
When Management decides on developing a new product they
examine if there is a market demand for the product.
Thereafter the position in the price style matrix and the absolute price-
tags are established.
When placing a product into the matrix its target groups ability to pay
is taken into consideration.
An introduction of a new article often results in price adjustments forrelated products, in order to retain the price balance within the matrix.
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EXPANSION PLANS IN INDIA
Although Ikea stores are yet to arrive in India, its catalogs are sold bystreet hawkers and bookstores in many major cities.
Locally made knockoffs of Ikea furniture are ubiquitous in the homesof professionals in India's rapidly modernizing cities.
Government's single-window body to clear foreign investment
proposals, FIPB, cleared Swedish furniture major IKEA's Rs. 10,500-
crore project, the largest FDIin single-brand retailso far.
IKEA Group, which manufactures and sells home and office furnishingproducts, proposes to investin single--brand retail trading in India
through a 100 per cent subsidiary.
http://timesofindia.indiatimes.com/topic/Fdihttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/Investhttp://timesofindia.indiatimes.com/topic/Investhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/single-brand-retailhttp://timesofindia.indiatimes.com/topic/Fdi -
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IKEA's proposal to set up 25 stores in India has already been
scrutinised by the Department of Industrial Policy and Promotion
(DIPP) in the Commerce and Industry Ministry.
The proposal will now have to be cleared by the Cabinet Committee onEconomic Affairs ( CCEA) as the FIPBcan clear investment
applications worth up to Rs 1,200 crore only.
IKEA's would be the largest investment in the single- brand retailing
ever since the government has allowed foreign investment in this
sector in January.
With the government relaxing the mandatory 30 per cent sourcing
clause in September, IKEA which had earlier expressed concerns over
the issues had put in its final application earlier this month.
http://timesofindia.indiatimes.com/topic/CCEAhttp://timesofindia.indiatimes.com/topic/FIPBhttp://timesofindia.indiatimes.com/topic/FIPBhttp://timesofindia.indiatimes.com/topic/CCEA -
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THANK YOU