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Case Study of IKEA

IKEA achieves cost leadership through bulk purchasing from global suppliers and efficient packaging and transportation that allows unassembled shipping. It achieves differentiation through modern Scandinavian designs, quality products at 20% lower prices than competitors, and investment in research and development. To avoid being stuck in the middle, IKEA focuses on both low costs and differentiation through value that is difficult for competitors to copy. In China, IKEA increased local sourcing and manufacturing to reduce import taxes and prices, cutting prices over 60% while maintaining mass production and trimming supply chain costs to overcome barriers of high perceived prices for Western brands.

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2K views2 pages

Case Study of IKEA

IKEA achieves cost leadership through bulk purchasing from global suppliers and efficient packaging and transportation that allows unassembled shipping. It achieves differentiation through modern Scandinavian designs, quality products at 20% lower prices than competitors, and investment in research and development. To avoid being stuck in the middle, IKEA focuses on both low costs and differentiation through value that is difficult for competitors to copy. In China, IKEA increased local sourcing and manufacturing to reduce import taxes and prices, cutting prices over 60% while maintaining mass production and trimming supply chain costs to overcome barriers of high perceived prices for Western brands.

Uploaded by

Ehtusham
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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THE IKEA APPROACH

1. Identify how IKEA has achieve its cost leadership?

At the beginning the product developers and fashioners is consistently the price. IKEA with
its suppliers, consistently make a point to benefit from prospects production plants. They
have cost-cuttings in bundling and transport in productive manners.

The enormous sales volume additionally makes it feasible for IKEA to hold expenses and
price down. Designs are based upon the use of low cost materials and excellent protective
packaging. This allows IKEA to make, ship and sell furniture at a quality level that would not
survive normal transportation hazards if shipped fully assembled.

2. Identify how IKEA has achieved differentiation from its competitors?

IKEA uses a lot of methods in terms of gaining competitive advantage, such as:
Low price and better quality. The products are low priced, 20% less than competitors while
maintaining better quality.
IKEA’s main aim is to be low cost producer in the market it operates in and therefore has
introduce innovative and cost efficient methods of manufacturing products. Components for
products are bought from around the world and wastage of raw materials is seen as another
invention to make another production, manufacturing and distributing process so that the
products that reach the customers are affordable for as many people as possible.
IKEA has positioned itself well in the mind of consumers as the brand that cares of its
customers in terms of pricing and importance towards their liking. The IKEA product designs
are very modern and stylish rather than traditional. The products of IKEA are very stylish and
modern, Scandinavian style than the traditional ones. Higher expenditure in terms of
Research and Development. In terms of R&D, IKEA spends a lot of money towards
Technology as well as design.
3. How IKEA ensures its “Hybrid Strategy” and doesn’t get stuck in the middle?

With both low expenses and differentiation, IKEA has viably working a hybrid strategy. This
system can work if clients esteem the offer and it is hard for competitors to impersonate.

Their system is by all accounts functioning admirably and supportable according to the
Developed nations, notwithstanding, in places like India or China, where the clients are very
cost and structure cognizant, maybe they could select methodologies that oblige these.

To abstain from being stuck in the center, the organization needs to get intense about the
differentiating feature and cost management.

4. What are the lessons from China in IKEA’s case?

IKEA built a number of factories in China and increased local sourcing of materials. While
globally 30 per cent of IKEA's range comes from China, about 65 per cent of the volume
sales in the country come from local sourcing. These local factories resolved the problem of
high import taxes in China. The company also started performing local quality inspections
closer to manufacturing to save on repair costs.
Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the price of its
"Lack" table has dropped to 39 yuan (less than five euros at current exchange rates) from 120
yuan when IKEA first came to the Chinese market. The company plans to reduce prices
further, helped by mass production and trimming supply chain costs.
High prices were one of the biggest barriers in China for people to purchase IKEA products.
IKEA's global branding that promises low prices did not work in China also because western
products are seen as aspirational in Asian markets. In this regard, IKEA's low-price strategy
seemed to create confusion among Chinese consumers.

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