Analysis of current strategic choices of IKEA

1201 words (5 pages) Essay

1st Jan 1970 Marketing Reference this

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The detailed report is based on the IKEA which is a low cost contemporary furniture company based in Sweden and which has expanded globally creating a popular brand for its value added furniture.

As a consulting service, the purpose of this detailed report is to conduct a strategic analysis and present strategic choices, recommending new strategic initiatives and areas for improving strategy implementation for the senior management team of IKEA.

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Even though IKEA is currently at its peak there are many competitors developing amongst the industry and it is for IKEA to make a strategic move to maintain their popularity in future as well. Therefore understanding given threats and opportunities of the external environment will help IKEA in terms of not seen themselves in a position of stuck in the middle.

Many of the strategies recommended have been supported through models and theories to understand the strategy in a more analytical manner. The report also identifies the main choices and changes to be made to overcome the situation faced by IKEA followed by recommendations which will give an idea so the most effective strategy to take on by IKEA.

Contents Page

1.0 Introduction

This case revolves around the company IKEA, which is a Swedish contemporary furniture company that has expanded itself globally within the years. The case explains the company’s status, competitors and issues as at year 2005.

IKEA is a globally known brand for contemporary furniture with its main based located in Sweden. The brand it well known for its unique furniture, flat packs, Do it yourself packaging and above all things its low cost furniture.

The key issues that are mentioned in the case include; the rapid increase in the number of competitors and the company’s thoughts to enter into the Japanese market after the initial attempt been unsuccessful. The other major issue that’s surrounding IKEA is the way to keep the core values alive while moving forward as a company.

These issues will be analysed in a more detailed manner in terms of the macro environment, industry and internal analysis. The macro environment is analysed through a PESTEL analysis where every angle of the external environment is well understood. The industry analysis would be analyzed through the theory of Michel porter’s five force model. Other models such as value chain analysis and porter’s generic strategies are also used to analyse the environment along with a SWOT analysis.

2.0 External Environment

2.1 PESTEL

Political:

IKEA has provided good working conditions to their employees all over and has managed to be a successful brand both domestically and internationally by being a part of the national and globally changes that have taken place in each country that the brand is located within.

Economic:

Even though many changes in the economy have taken place, IKEA has been able to adjust to those changes with their key success of low price. As IKEA has development different kind of strategies to stay in business. For an Instance, when trends changed externally they expanded their products towards dinnerware, lighting and rugs.

Social:

The company continues to provide more high quality furniture that goes with their original concept of stylish furniture at a low price, with this approach they tend to adjust well to the current trends and fashions in the market of furniture. IKEA also contributes to the society through providing opportunities for employees within by providing them with insurance and pensions.

Technological:

IKEA uses technology in terms of making their services efficient, in ways such as using technology to help reduce the queues at the counters by using a more efficient and effective billing system and planning proper schedules to track and keep records of trading patterns.

This usage of technology has given IKEA a chance to ensure that their employees (staff) are strategically located at each store.

Environmental:

IKEA is one company that has shown leadership with taking on more environmentally friendly methods in their manufacturing process.

Legal:

IKEA works according to strict laws and regulations that relate to the environment.

2.2 Industry analysis:

Porters five forces

3.0 Internal Environment

Value chain analysis

Critical success factors

Resource audit

4.0 SWOT Analysis

Strengths

IKEA is a well known international brand

IKEA has a unique business model and the way many of their products are constructed and sold cannot be compared to its competitors.

The low prices of the products have been the key success for IKEA, as it offers the customer value in terms of innovative and functional products.

The products are packaged in a flat package where any customer could attach the furniture at home with the instructions given, which uniqueness of IKEA.

IKEA’s product portfolio caters to all types of customers in terms of lifestyle and budget.

Weaknesses

Many of the stores are based within Europe (90% of the stores) which does not balance out the stores worldwide in a systematic manner.

IKEA to emphasise on price has to reduce all expenses therefore they reduce on sales assistance as the products do not require much assistance however this will look as if there is a low level of customer service (Ex: due to lack of staff, during weekends there are huge queues to be seen at the counters).

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With the increase of multi channel retailing (ex: Ecommerce), there could be a situation where customers will back out from purchasing IKEA products as it moves the customer away from actually seeing and touching the product before purchasing.

Opportunities

With the developments made in Asia and Eastern Europe, IKEA is moving from an international brand towards a global brand.

IKEA being a low priced high volume product can move into a mid and high price product range and grab other opportunities of expanding their demographic base.

Having a website for IKEA will be an advantage in the competitive online sales market, to expand and increase levels of customer service provided. This also reduces volume of products demanded at the existing stores.

Threats

Many other retailers could copy the model of low cost value flat packed furniture by IKEA and bring to the furniture market.

Economic instability has made individuals disposable income a cause for concern which in turn could be held as a threat to the performance of IKEA with the countries that are affected severely by the economic down turn been some of the most important store bases of the company. (Ex: UK and USA)

Political and economic instability of the Chinese and Russian markets in which IKEA plans to invest heavily in the short term, could be a potential threat.

(Johnson, Scholes and Whittington, 2005).

5.0 Conclusion

6.0 Recommendation

7.0 References

The detailed report is based on the IKEA which is a low cost contemporary furniture company based in Sweden and which has expanded globally creating a popular brand for its value added furniture.

As a consulting service, the purpose of this detailed report is to conduct a strategic analysis and present strategic choices, recommending new strategic initiatives and areas for improving strategy implementation for the senior management team of IKEA.

Even though IKEA is currently at its peak there are many competitors developing amongst the industry and it is for IKEA to make a strategic move to maintain their popularity in future as well. Therefore understanding given threats and opportunities of the external environment will help IKEA in terms of not seen themselves in a position of stuck in the middle.

Many of the strategies recommended have been supported through models and theories to understand the strategy in a more analytical manner. The report also identifies the main choices and changes to be made to overcome the situation faced by IKEA followed by recommendations which will give an idea so the most effective strategy to take on by IKEA.

Contents Page

1.0 Introduction

This case revolves around the company IKEA, which is a Swedish contemporary furniture company that has expanded itself globally within the years. The case explains the company’s status, competitors and issues as at year 2005.

IKEA is a globally known brand for contemporary furniture with its main based located in Sweden. The brand it well known for its unique furniture, flat packs, Do it yourself packaging and above all things its low cost furniture.

The key issues that are mentioned in the case include; the rapid increase in the number of competitors and the company’s thoughts to enter into the Japanese market after the initial attempt been unsuccessful. The other major issue that’s surrounding IKEA is the way to keep the core values alive while moving forward as a company.

These issues will be analysed in a more detailed manner in terms of the macro environment, industry and internal analysis. The macro environment is analysed through a PESTEL analysis where every angle of the external environment is well understood. The industry analysis would be analyzed through the theory of Michel porter’s five force model. Other models such as value chain analysis and porter’s generic strategies are also used to analyse the environment along with a SWOT analysis.

2.0 External Environment

2.1 PESTEL

Political:

IKEA has provided good working conditions to their employees all over and has managed to be a successful brand both domestically and internationally by being a part of the national and globally changes that have taken place in each country that the brand is located within.

Economic:

Even though many changes in the economy have taken place, IKEA has been able to adjust to those changes with their key success of low price. As IKEA has development different kind of strategies to stay in business. For an Instance, when trends changed externally they expanded their products towards dinnerware, lighting and rugs.

Social:

The company continues to provide more high quality furniture that goes with their original concept of stylish furniture at a low price, with this approach they tend to adjust well to the current trends and fashions in the market of furniture. IKEA also contributes to the society through providing opportunities for employees within by providing them with insurance and pensions.

Technological:

IKEA uses technology in terms of making their services efficient, in ways such as using technology to help reduce the queues at the counters by using a more efficient and effective billing system and planning proper schedules to track and keep records of trading patterns.

This usage of technology has given IKEA a chance to ensure that their employees (staff) are strategically located at each store.

Environmental:

IKEA is one company that has shown leadership with taking on more environmentally friendly methods in their manufacturing process.

Legal:

IKEA works according to strict laws and regulations that relate to the environment.

2.2 Industry analysis:

Porters five forces

3.0 Internal Environment

Value chain analysis

Critical success factors

Resource audit

4.0 SWOT Analysis

Strengths

IKEA is a well known international brand

IKEA has a unique business model and the way many of their products are constructed and sold cannot be compared to its competitors.

The low prices of the products have been the key success for IKEA, as it offers the customer value in terms of innovative and functional products.

The products are packaged in a flat package where any customer could attach the furniture at home with the instructions given, which uniqueness of IKEA.

IKEA’s product portfolio caters to all types of customers in terms of lifestyle and budget.

Weaknesses

Many of the stores are based within Europe (90% of the stores) which does not balance out the stores worldwide in a systematic manner.

IKEA to emphasise on price has to reduce all expenses therefore they reduce on sales assistance as the products do not require much assistance however this will look as if there is a low level of customer service (Ex: due to lack of staff, during weekends there are huge queues to be seen at the counters).

With the increase of multi channel retailing (ex: Ecommerce), there could be a situation where customers will back out from purchasing IKEA products as it moves the customer away from actually seeing and touching the product before purchasing.

Opportunities

With the developments made in Asia and Eastern Europe, IKEA is moving from an international brand towards a global brand.

IKEA being a low priced high volume product can move into a mid and high price product range and grab other opportunities of expanding their demographic base.

Having a website for IKEA will be an advantage in the competitive online sales market, to expand and increase levels of customer service provided. This also reduces volume of products demanded at the existing stores.

Threats

Many other retailers could copy the model of low cost value flat packed furniture by IKEA and bring to the furniture market.

Economic instability has made individuals disposable income a cause for concern which in turn could be held as a threat to the performance of IKEA with the countries that are affected severely by the economic down turn been some of the most important store bases of the company. (Ex: UK and USA)

Political and economic instability of the Chinese and Russian markets in which IKEA plans to invest heavily in the short term, could be a potential threat.

(Johnson, Scholes and Whittington, 2005).

5.0 Conclusion

6.0 Recommendation

7.0 References

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