Posted at 10.09.2018
The case study discusses about IKEA, being truly a retail industry proven in different countries and just how do they remain competitive in terms of its competitive advantages, as well to preserve through a global recession. Therefore, IKEA's motion can be analysed or decided by using Michael Porter's PESTEL analysis, its Five Causes, SWOT analysis, and Michael Porter's Universal Strategies.
In relationships to the above mentioned, Michael Porter's PESTEL analysis has made effort to acknowledge analytically its political, economic, social, technological, environment, and legal element in the retailing industry. In politics factor, there are different tax laws and rates for different countries that have been enforced to employees into income tax, etc. This is because employees in IKEA must adhere with the duty rate controlled by the federal government and they would like to work in places with lower taxes rates.
Next in economical factor, IKEA also faces global recession which was dragged on till today. Therefore, this resulted in a higher unemployment rate whereby IKEA also slashed about 5, 000 jobs in order to save costs.
In relations to interpersonal factor, the people have become the main consideration whereby IKEA has produced catalogues into 27 different dialects whereby people from differing backgrounds or ethnicity were able to read and understand. Thus, IKEA is able to capture a more substantial market through globalisation whereby the needs of the people are achieved when they have recommendations or catalogues. Besides that, IKEA also needs customers to have an ownership of automobiles, such as autos. This is because IKEA were situated near commercial establishments at certain geographical location where there is no accessible public transfer and are expecting visitors to drive instead because of the fact that customers are to recreate their own flat-pack furniture.
In technological factor, one of all widely plan used to improve sales by technical means are e-commerce and online sales. Thus, customers have the ability to place purchases online and some retailers were able to provide delivering service with their door step. Thus, by using e-commerce, they could do businesses online where it able to save costs as well.
Next in environment factor, commercial social responsibility has played a significant role to consider cognizance of the people as well of the surroundings. However predicated on the case, character concern has increased because of the fact that the increasing number of catalogues produced was implicating it deteriorate the nature or trees. This may further discussed whereby the furniture is also an implication to the utilization of natural resources whereby people or the modern culture has concerns over trees and shrubs.
Lastly in legal factor, there are Functions which were taken into consideration like the Employment Work and the Environment Act. In different countries, these Works may be enforced in another way but however, Employment Action is important to protect the protection under the law of the employees whereby IKEA have slashed about 5, 000 jobs. Thereby, employees may face an unfair dismissal and looking for solution. Inside the other hand, the surroundings Act is to protect the nature from being misused whereby IKEA may be the main reasons for affecting the nature or environment.
Moving to Michael Porter's Five Causes, it comprises of its buyer, suppliers, power of rivalry, hazards of substitutes as well as new entrants in the retailing industry. In buyer, they could have a higher bargaining ability whereby potential buyers have different alternatives to change to the competitor's products whereby IKEA has many rivals in the industry. However, the bargaining ability of the purchasers may be low as well because not absolutely all competitors has the flat-pack design where IKEA has which design is unique and able to save space at home. In addition, the low-price products of IKEA also made clients' bargaining electricity low when customers are able to save costs as well.
Next in suppliers, they may have a low bargaining power because of the fact that IKEA has a solid brand in the retail industry. These suppliers made up of small and big ones when IKEA also needed on the established cartels by purchasing direct from small manufacturers in which also learned its flat-pack designs, whilst Poland and China has become the biggest suppliers. The reason for having these small suppliers is basically because IKEA may have different alternatives in conditions of its businesses whenever a particular distributor closes down. In so doing, these suppliers have a low bargaining vitality also because of the huge number of suppliers available particularly in China plus some other countries.
On the depth of rivalry, there is a high depth in relationships to the U. S. companies such as Foundation, Bath tub & Beyond Inc. that has accounted high earnings in competition with IKEA. On top of that, there's also multinational furniture suppliers as well as companies who are specialised in this industry.
Next on the risks of substitutes, the threat is high due to the fact that customers have many different options for furniture such as furniture and chairs. However, IKEA may use its competitive edge to lessen the risk of swap through differentiation and its unique in comparison to other substitutes available for sale. Furthermore, the threat of substitute may differ in various countries as well as the quality and materials to produce them.
Lastly on the threats of new entrants, the obstacles of access is high due to the fact that big businesses have higher competitive benefits in conditions of its size, cash flow, the variety available throughout the stores, as well in a position to achieve economies of size. In addition, the market composition of IKEA has been a monopolistic competition whereby they do not compete in price, but remain competitive in conditions of quality, branding, and in a position to produce a greater quantity at a lower price. Therefore, this would impose a problem for new entrants to contend with bigger companies.
Moving on to SWOT analysis, it comprises of its talents, weaknesses, opportunities, and hazards of IKEA in the retailing industry. In talents, IKEA has a strong brand image whereby it's known worldwide because of its furniture in the retailing industry whereby it offers an array of product and styles available. On top of that, the products are affordable due to the low-cost or cost keeping strategy as stated to align to the needs of the clients and have a solid global sourcing capabilities on the market. Furthermore, IKEA also offers an informal composition whereby they are able to empower its employees to steer and navigate customers throughout the stores for occasion. Thus, this non-hierarchical framework would lead to wide selection of decision-making amongst the lower levels.
Next in weaknesses, the store design of IKEA may be considered a hassle for customers who are searching for a particular product only plus they may need to proceed through high and lows in IKEA. However, this may be an edge for IKEA's point of view whereby customers are more likely to buy something if they were to undergo IKEA's store and could referred to as a 'trap'. In addition, IKEAs derive from relatively few locations and other expresses in Malaysia for illustration, may have trouble traveling completely to IKEA. Also, the Swedish design may well not appeal to all or any market as well due to the fact that different cultures on different customers may have different personal preferences based on their household needs, such as with Japan.
In opportunities, IKEA might be able to expand internationally into different marketplaces rather than left over in the existing markets. This is because some countries may have modified with the western ethnicities or modern lifestyle and this may be a chance for IKEA to grow into these countries. In addition, IKEA has brought in a variety of designers to design its products and furniture, and may be used to design specifically based on customers' special needs which might bring about higher market sales. Also, the online design and home delivery would create convenience for customers to reduce the hassle venturing completely to IKEA specifically for the ones who reside in another status.
Next in risks, the global downturn also affects IKEA in the retailing industry which also resulted in IKEA to slash about 5, 000 careers and this would definitely affects its functional matters and the creation line as well. On top of that, the intensity between the rivals in conditions of its competition also will be a threat because potential buyers would have an increased bargaining electricity and easily switch to other competitors. The reasons for turning may consist of into various aspects and marketing combination such as price, its products, campaigns, and place.
Moving to Michael Porter's Common Strategies, it comprises of its cost authority, differentiation, as well as the concentrate strategy. These strategies here have two different scopes as with broad or slim and it pertains to its competitive advantages that refer to a lower or more costs. Thus, IKEA can be considered a hybrid between cost management and differentiation and not on its mere concentration strategy with centers extensively on just cost leadership and differentiation. In cost leadership strategy, it means it has an advantage over the price and by scientific means. Therefore, IKEA has an inexpensive of resource through a major volume of sales which driven the expenses and prices down. In addition, IKEA also slashed away 5, 000 jobs during global recessions to conserve costs. Furthermore, the flat-pack furniture designs were stated in IKEA and they are in a position to have an efficient logistic movement that could reduce safe-keeping capacity, and able to deliver more than standard as with one-size-fits-all. The flat-pack design also sorts a part of innovation, for case customers have the ability to have a more substantial space at home whereby IKEA is also in a position to achieve economies of range by creating a larger variety with a lower cost.
Next in the differentiation strategy, IKEA comes out with a flat-pack design as mentioned and it might be different than other furniture retailers on the market. On top of that, IKEA also brought in a Danish custom made to create furniture to differentiate itself from other competitors whereby its catalogue comes with 27 different languages to complement the needs of different market segmentations. However, IKEA may be increased more through cost control strategy somewhat than being a cross with differentiation, because the flat-pack furniture designs may well not match and fit with the various ethnicities in various countries. For example, these designs might not match with the Japanese in Japan due to the fact that their home furniture such as table can be used to be much smaller in proportions than usual. Furthermore, if IKEA were to design the flat-pack furniture designed for the Japanese, it might be costly and it influences its procedures whereby IKEA also wouldn't normally have sufficient stores as well to capture the market in Japan. This subject would fluctuate if IKEA were to design the flat-pack furniture specifically for the Americans in the us whereby IKEA can capture a more substantial market by establishing more stores through America. Thus, it could be seen that the differentiation strategy may well not be befitting all countries especially in the Japan, and some others.
In the concentrate strategy, IKEA weren't merely focusing on both cost management and differentiation strategy because IKEA has its market niche categories against customers that are broadly ranged from 20-50 years. Therefore, IKEA has a broader opportunity in achieving competitive edge in the retail industry against its challengers.
In conclusion, it could be seen that IKEA has targeted into low-cost strategy to capture a larger market in various countries by also providing customers with original designs by using modern technology. Thereby, this idea is to meet up with the needs of customers when IKEA knows that many of your customers have less money to spend anticipated to global tough economy and by other means. Lastly, IKEA also benefited by matching the products with countrywide characteristics and ethnicities, which is what folks love and also to preserve sustainability in the retailing industry.