The company: IKEA

Motivation:
We chose this company because it's on the international markets of furniture for a long time and it
has a sustainable success. The strategy of this company is interesting because it's different than
other companies. It's also a popular company in the global field. The company is well knowed brand
image because of it's performance and high efficiency in the work process, safe work environment
and in relationship with customers. The company is unique in the sence of competitiveness.

In this project we do marketing analysis of the strategy of the company and brand.

Concerning the three generic strategies(cost leadership,differentiation,focus strategy), this means

that the company focuses on low cost and low prices. The target is average customers for mass
market , with little differetiation(e.g young buyers who search stylish and fashionable furniture and
house holds accessories at low cost). Moreover, it offers better value to customers in house
furnishings that combine good design, functionality (acceptable quality in low prices).
The major priority of IKEA is the low cost. Therefore, every activity or plan is based on this
philosophy. For example, there are no third party manufacturers. The furniture are designed by the
firms engineers in low cost. Furthermore, the products are positioned in domestic settings. This
means that instead of having each product to be sold seperately, there are different combinations, so
as they seem like they are placed in the customer's home. By that way, there is no need for many
sales personel and IKEA keeps the low cost policy. There is also no delivery service. The customers
transport their own purchases. In other words the customers contribute to IKEA low prices as they
choose,collect,transport and assemble IKEA products themselves. This is the idea behind “ you do
your part. We do our part. Together we save money”. On the other hand, IKEA offers some
differentiated features, apart from it's low cost products, so as it's more appealing to it's customers.
For exapmle, in-store playrooms for children, wheelchair for customer use and extended hours.
Outside of the stores there are “Sweden shops” where Swedish specialities are sold such as herring,
bread, swedish caviar, gingerbread biscuits.
IKEA believes that these services and products are uniquely alinged with the needs of its
customers, who are young, not wealthy, likely to have children and because they work for a living,
need to shop outside of regular hours. Through this strategy, there is also defence against five
forces. For example there is no bargaining power of supplyers if there is a problem with the price
the purchaser will “work” with the supplier to reduce cost rather than looking for a different
supplier. The most dinstinctive image of IKEA is the price that everyone can afford. That means a
commitment to design that concentrates on aesthetics and economy of effort in materials, assembly,
storage and transport. From the design prespective, the designers have first of all, to understand the
supply chain. (suppliers-manufacturers-distrubutors/wholesalers-retailers).
Product flow structure is described as the network structure for sourcing, manufacturing, and
distribution across the supply chain. Since inventory is necessary in the system, supply chain
members may keep a disproportionate amount of inventory. When decisions are made to rationalize
the supply chain network, it is necessary to determine where the inventory should be held to
maximize total supply chain efficiency and effectiveness.
The intergrated project team approach ensures that all these aspects are covered. The internal
1
market ensures that prototypes from aspirant supply change are rigorously tested through the
manufacturing and logistics phases of production. Furthermore, there is high volume on low margin
approach.Even though the manufacturer acknowledges that the margins he earns from the products
he sells to IKEA are far lower than from other customers, the degree of support is impressive. But
the support he receives and the nature of the relationship he has with IKEA far outweigh this
disadvantage. This includes some other elements. For example Contractual Trust. He knows that he
will always be paid within 30 days. He knows that in all probability IKEA will stick with him and
that, if for any reason the relationship or a product is discontinued, he will not be disadvantaged and
any stock in the pipeline will be bought from him. Also the Product Life Cycles. IKEA tries to keep
product life cycles as long as possible. Typically they range from 3 years out to 20 years. This helps
manufacturers to plan for the long term.
Concerning the investment, if he has an opportunity to generate extra capacity that will allow him
to manufacture products more cheaply for IKEA they may assist with credits to allow him to pay for
the plant now and pay IKEA back with his goods later. If he goes to a bank IKEA may help him to
gain a loan by guaranteeing a certain level of future business.Furthermore, he focuses on profit
rather than volumes or margins.When it comes to price negotiations, it means that the IKEA traders
will work with purchasers to lower his costs so that they can buy at an acceptable price and he can
sell at an acceptable profit.IKEA keep the same suppliers for a long time so that they can develop
them and to avoid the expense of starting new relationships with suppliers.On technical advice,
IKEA staff are on hand to give advice on a number of aspects of the business from the layout and
flow on the factory floor to the design of packaging. This allows the supplier to develop distinctive
competences.
Supervising using information tecnologies the supplier will be linked to ECIS, IKEA’s own
system. This will allow him to have total transparency of the supply chain so that he can see IKEA
sales forecasts and view inventory levels in distribution centres and stores. This helps him to
anticipate orders. Also this heps to find the cheapest sources of raw materials and components.
Finally on logistics, IKEA has a strong competence that it spreads to its suppliers. In the form of
advice to find the most cost effective option from the packaging, through the filling rate of
containers to the route and choice of transport system. It also comes in the form of a railhead, if it is
viable, that gives a cost reduction of around €10/m3 for all goods leaving the factory.

SWOT Analysis

2
Strengths Weaknesses
-strong international brand recognition -much reliance on Europe,(with 82% of stores
located in this region)
-low product prices
-difficulty in meeting customer expectations of
-solid sales performance
service and price
-total control of its design, pricing and supply of
product ranges globally
-product portfolio that includes consumer
lifestyles and budgets

Opportunities Threats
-expansion into emerging markets in Asia and -over saturation of the market
Eastern Europe -competitors imitation
-development of premium lines within existing -drop on sales of continued depressed economic
stores or new high street fascias conditions in its core European market
-complementing the out-of-town stores -adverse effect of a weak dollar on sales in the
-increase of sales through the development of e- US
commerce sites in each country -the political and economic instability of the
-improve customer service Chinese and Russian markets (the company
planed to invest heavily in the short-mid term)
-reduce the volume demand on existing stores

Conclusions
IKEA was long term oriented strategy which included the details of production, suppliers,
constumers relationship in particular. The focus in lead time to tried to help the suppliers to reduce
the leadtime and partners by technical advices training superviser. The design of the product is
based on few criterias of style. The company have a strong logistics framework. Maneging the
transportesing and other issues separality. Logistics develop the details of the strategy
implemantion. The goals of the strategy is to reduce the cost of the process in other to meeting the
best way of clients needs. The suppler benefits, contractual trust in business relation long product
life cycles and investment are the key elements of the basics the strategy.

Recomendations from IKEA strategy

– companies that operated in field furniture can take the example of IKEA
- the attemps to reduce the lead time of suppliers to build the long term strategy in production
and costumer relationship can be also usefull for the companies that depending of demand of
costumers
– the design can be also usefull for house design companies
– logistics are applied for all companies operated in internalcional markets especilly that ones,
that operate with heavy and easy accesible resources
– their approach regarding supplier benefts, contractual trust, business relation and investment can
be related to the efficiency and success on other company.