UNIT 6 GENERIC BUSINESS-LEVEL STRATEGIES ACTIVITY: IKEA CASE STUDY 1.

. What would you say is the basic business-level strategy (or strategies) followed by IKEA? The generic business level strategy followed by IKEA is the Cost Leadership strategy. Cost leadership strategy means minimising your cost and passing the savings to the consumers. Explain the key elements of the strategy. The key elements of its strategy are Cost efficiency, pursuing differentiation and innovation. Cost Efficiency: Its stores are its key element. By locating the stores just at the suburbs of the city, they are able to acquire a large piece of land for a reasonable price. If they have to keep their stores inside the cities, there would be no space for warehousing; less space for the showroom; unable to display all the available varieties; require more sales personnel to explain the IKEA ideas and products to the customers, thus increases costs. It manufactures its products at low labour cost countries. It locates its manufacturing unit close to availability of raw materials. Do-it-yourself concept reduces staff requirement thus reducing the cost. Differentiation: IKEA also offers differentiated features to their customers like- unique furniture design, self-fixing method, in-store playrooms for children, and wheel-chairs for customers, inhouse restaurants and extended hours. Innovation: IKEA is well known for its product innovation. IKEAs 300-400 page product catalog, apps for iphones and android phones, uniquely designed furnitures which are easy to assemble by the users are the few examples of its innovation. They do have youtube presentations for those who are unable to follow or understand their instructions. 2. What are some ways that IKEA maintains its strategy at the functional level? The functional level comprises of departments that are related to specific business functions like marketing, procurement, production, sales or information processing. Successful use of the word of mouth and the use of catalogues reduce the advertising costs. IKEA has simple and plain staff levels, lowering the fixed costs and giving more freedom to its employees. This management structure also helps making decisions in a faster way. In house designs, interchangeable parts, mass production, cheaper raw materials, easy to transport modular products compared to finished bulky products, computerised logistics system, simple display facilities, self-service, self-assembly, selftransportation, and out-of-town display are some of the ways that IKEA maintains its strategy at the functional level. 3. How is IKEA different, as perceived by the customer? IKEA is different than other competitors because it is a retail company which offers large number of reliable and unique products at low costs. It enhances customers experience shopping at IKEA. Customers need to plan for IKEA shopping in advance due to their out-of-town location, size of the store and the wide variety of products. There is uniqueness in IKEAs products that they cannot be compared with any other retailer.

4. Why might it be difficult for competitors to imitate IKEAs strategy? Unique designs of its product with Swedish image are difficult to imitate. It is not feasible for the rivals to imitate the unique design, high quality at low cost. IKEA has been able to do it due to its economies of scale and their hybrid strategy. They gain in labour productivity as their employees simply learn to do things more cheaply over time (learning curve effect). The costs are saved through more efficient designs or equipment as experience shows what works best. The rivals do not have that privilege. These qualities will make it difficult for competitors to imitate IKEAs strategy. 5. What are the potential threats or dangers faced by IKEA given its strategy? IKEA is a global retailer who is successful in most of the countries; however you have to fight it out with the local rivals in each country. In case of any Global economic crisis, the economic recession will slow down the consumers ability to spend due to decrease in income. More competitors might enter the low price household and furnishings market. Therefore, IKEA will need to reinforce its unique qualities to compete with these market forces. First time buyers are the important core customers for IKEA. Change of any social trends will affect their market. As they keep on expanding globally, availability of like-minded managers will be scarce. They might suffer from a lack of innovation and new ideas to meet change in the new markets. Fluctuation of exchange rates, increasing costs of raw materials, changing customers need and taste are the few other potential threats would be faced by IKEA. 6. What must IKEA do to sustain its competitive advantage and strategy in the future? Maintain the low price and good quality more than the competitors. Good service and quality of designs, Availability of variety of products through enhanced R&D team, Good brand image in consumers minds, promoting and updating technological development are some of the tactics they can use to sustain its competitive advantage. Do a SWOT analysis Scenario analysis and take countermeasures in order to enhance its strength, limit the weaknesses, utilize the opportunities and take appropriate actions and measures against possible threats.

7. What could you imagine will be the biggest challenges facing IKEA over the next 10 years? IKEAs major markets are faced with maturity and fierce price competition. Therefore, IKEAs brand and growth sustainability in its major markets is one of the key challenges, so as to ensure the brand does not fade away in the next decade.

Other challenges facing IKEA over the next 10 years are:

Shortages of resources and impacts of climate change. Rising prices of raw materials and transportation cost. Intense competition between the rivals. Maintaining or improving corporate image through social or environmental responsibility. Economic crisis