BHS0027: Strategic Management Hong Kong 2013/14 Written Individual report Task C/011(., Using Porter's Generis Strategies model, critically analyse IKEA's competitive strategy. You must also recommend...

Running Head: IKEA’S COMPETITIVE STRATEGY 1
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Module Code: BHS0027
Word Count: 2385
IKEA’S COMPETITIVE STRATEGY 2

Contents
Abstract ........................................................................................................................................... 3
Section 1: Critique and Evaluation of Porter‟s Generic strategies ................................................. 4
Section 2: Critical Analysis of Ikea‟s competitive strategy ............................................................ 7
Section 3: Conclusion and Recommendations ................................................................................ 9
Section 4: Literature Review ........................................................................................................ 11
References ..................................................................................................................................... 13
IKEA’S COMPETITIVE STRATEGY 3

Abstract
In today‟s globalized world, enterprises have to compete not only in their own geographic
territory, but also with companies around the world. To be successful in such a competitive
world, organizations strive to offer greater value to customers. To guide the organizations
through competition, Michael E. Porter suggested some strategies that the organizations could
use. The present report evaluates those generic strategies and applies them to IKEA (Swedish
Furniture brand). IKEA‟s competitive strategy is also analyzed. The report also presents some
recommendations for IKEA to improve its strategy to compete in the industry.
IKEA’S COMPETITIVE STRATEGY 4

Section 1: Critique and Evaluation of Porter’s Generic strategies
Michael E. Porter has described three basic business level strategies that each business
follow to achieve competitive advantage. The accompanying figure explains the strategies.
Basically, two dimensions viz. target
scope and competitive strength are
used to explain these strategies. Target
scope is the demand side dimension
which focuses on the size of the target
market. A firm may target either the
whole market (broad scope) or a
particular segment of the market
(narrow). Competitive strength is the
supply side dimension which is concerned with the supplier‟s core competencies on which it
competes in the market. The suppliers can have an advantage with respect to low cost of the
offering or the product uniqueness as perceived by the customers. Thus a firm may follow any of
the following strategies:
Cost Leadership- this strategy is used by the firms to become cost based leaders in the
industry. This means that the firms supply low cost products to the customers who are cost
conscious. Such price sensitive customers primarily base their decisions on the price of the
products. Thus the firm caters to not a particular segment but the whole market of the product it
supplies. To offer low prices of the products, the firm has to ensure that it incurs low costs in
manufacturing that product. There are three approaches to achieve low costs- increasing the level
of operations so as to get the benefits of economies of scale and also the learning curve, offering
Source:
http://www.bordbiavantage.ie/marketingbusiness/marketing/com
petitivestrategy/pages/developingacompetitivestrategy.aspx
IKEA’S COMPETITIVE STRATEGY 5

high quantities of standardized products to operate with low direct and indirect operating costs
and maintaining control on supply chain and efficient inventory management. A low cost
business may be profitable however such business may face problems of low customer loyalty as
the customer may at any time shift to another product offered at even lower price. Also, some
customers may perceive low price products to be of low quality.
Differentiation- this strategy is followed by firms who are able to create actual or
perceived differences in the products it offers. This means that the customers feel that the
products are different from their competitors and hence they prefer these products over others;
and may even be ready to offer higher prices for such differentiated offerings. For example,
Apple is able to charge premium prices from its customers for its products as its products are
innovative and customers are ready to pay for such differentiated products.
Focus Strategy- this strategy is used by firms who focus on limited segments of the
market (narrow scope). Such firms compete in the target segments either on the basis of low
costs or product differentiation. The firms basically focus on specialized needs of the customers
and strive to serve those needs in the most efficient manner.
Porter‟s generic strategies are largely criticized on the grounds of inflexibility because he
advocated that a firm should use one of the above strategies. Using more than one at a time may
lead to chaos. This argument is based on the explanation that differentiated products can be
offered only at high costs, thus it‟s difficult to converge the two strategies. However, these days
customers demand differentiated products at low costs. So, firms have to follow an integrated
strategy in which they strive to offer products which are perceived as unique by the customers
and also cheap. In fact, these days many firms do follow this integrated strategy, for example,
IKEA’S COMPETITIVE STRATEGY 6

Zara is an apparel brand which offers latest fashion at affordable prices. (Hitt, Ireland &
Hoskisson 2011)
IKEA’S COMPETITIVE STRATEGY 7

Section 2: Critical Analysis of Ikea’s competitive strategy
IKEA is a Swedish furniture brand which began operating in 1943. IKEA stands for
Ingvar Kamprad Elmtaryd Agunnaryd; where Ingvar...