IKEA STRATEGIC MANAGEMENT ANALYSIS

INTERNATIONAL BUSINESS AND

MANAGEMENT STUDIES
2019-2020

PROJECT SUPERVISOR: Oscar Peters Hassna Al manji (426712)

CLASS: EIB3V.B Kaley Kam Lerida (485550)
GROUP: 4 Maria Pastor Gimeno (484911)
Nawal Al siyabi (441160)
PLACE: Saxion University of Applied Sciences, Enschede
Sophie Hotovska (483417
11 OCTOBER, 2019
Yehin Lee (482806)

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2
PREFACE

This report is written by Sofiia Hotovska, Hassna Al Manji, Yejin Lee, Kaley Kam Lerida,
Nawal Al Siyabi and Maria Pastor - each of us has a different background. We are all
students of International Management and Business at Saxion Enschede. We are going
to use our theoretical knowledge about strategic management other business fields into
practice by applying it in this report.
We would like to thank our teachers for instructing us in terms of theoretical knowledge.

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INDEX
PREFACE ................................................................................................................... 3
SUMMARY ................................................................................................................. 6
INTRODUCTION ........................................................................................................ 8
CHAPTER 1: STRATEGY ........................................................................................ 9
1.1 COMPETITIVE ADVANTAGE ................................................................................... 9
1.2 MISSION AND VISION STATEMENT ...................................................................... 9
1.4 IKEA STRATEGIES ..................................................................................................10
1.4.1 IKEA GENERIC STRATEGY.......................................................................................... 10
A generic strategy is three strategies that can help brands to build and maintain their
competitive advantage. These strategies are called generic strategies – cost leadership,
differentiation and focus. Based on Porter’s model, Ikea uses both cost leadership and
differentiation. ............................................................................................................................ 10

CHAPTER 2: INTERNAL AUDIT ........................................................................... 11

2.1 CULTURE ...................................................................................................................11
2.2 MARKETING ..............................................................................................................11
2.2.1 CUSTOMER ANALYSIS................................................................................................. 11
2.2.2 SELLING PRODUCT AND SERVICE ........................................................................... 11
2.2.3 PRODUCT / SERVICE PLANNING ............................................................................... 12
2.2.4 PRICING .......................................................................................................................... 12
The IKEA uses reasonable and affordable prices for their furniture. Costs are cut and way
necessary to be able to sell the product for less and still turn a profit. They use large
volumes and flat packaging to cut cost. .................................................................................. 12
2.3 MANAGEMENT .........................................................................................................13
2.4 VALUE CHAIN ...........................................................................................................13
2.5 BENCHMARKING .....................................................................................................14
CHAPTER 3 INTERNAL AND EXTERNAL ANALYSIS OF THE COMPANY IN
MATRICES ............................................................................................................... 15
3.1 SWOT MATRIX ..........................................................................................................15
3.2 IFE MATRIX ...............................................................................................................15
3.3 EFE MATRIX ..............................................................................................................16
3.4. IE MATRIX.................................................................................................................17
3.5. THE COMPETITIVE PROFILE MATRIX ................................................................18
CHAPTER 4 STRATEGIC AND IMPLEMENTATION ......................................... 20
4.1. MARKET SEGMENTATION ....................................................................................20
4.1.1 GEOGRAPHIC ................................................................................................................ 20
4.1.2. DEMOGRAPHIC ............................................................................................................ 20
4.1.3. BEHAVIORAL................................................................................................................. 20
4.1.4. PSYCHOGRAPHIC........................................................................................................ 20
4.2. PRODUCT POSITIONING .......................................................................................20

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 4.3. RESEARCH AND DEVELOPMENT .......................................................................21
4.4. MANAGEMENT INFORMATION SYSTEMS (MIS) ..............................................21
CHAPTER 5 STRATEGY EXECUTION AND EVALUATION ............................ 22
5.1 GENERATE, EVALUATE AND SELECT STRATEGIES AND
IMPLEMENTATION .........................................................................................................22
5.2 STRATEGIC EVALUATION .....................................................................................22
5.3 CONCLUDING IKEA’S STRATEGIES ....................................................................23
5.3.1 STRATEGY RECOMMENDATION................................................................................ 23
5.3.2 INTERNAL RECOMMENDATION ................................................................................. 24
5.3.3 EXTERNAL RECOMMENDATION ................................................................................ 24
5.4 S.M.A.R.T. OBJECTIVES .........................................................................................24
6. BUSINESS MODEL CANVAS ..................................................................................... 25
6.1 Value proposition .........................................................................................................25
6.2 Customer segments ......................................................................................................26
6.3 Channels .......................................................................................................................26
6.4 Customer relationship ..................................................................................................26
6.5 Revenue stream ............................................................................................................27
6.7 Key resources ................................................................................................................27
6.8 Key partners .................................................................................................................28
6.9 Key activities .................................................................................................................28
6.10 Cost structure .............................................................................................................29
CONCLUSION ......................................................................................................... 30
Bibliography ............................................................................................................... 31
Appendix……………………………………………………………………………………...33

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SUMMARY
Our group is analyzing the Ikea’s strategic management using the guidelines of the book
“Strategic Management” by Fred R. David and Forest R David. The aim of the study is
to find out if the company applies competent and effective strategic management tools
in order to be successful and competitive within the industry. In order to do this, such
matrices, as: SWOT, EFE, IFE, IE and Competitive one - will be provided and discussed,
as well as in-depth analysis, Value Chain, and SMART objective setting. Due to this
report our group was able to come up with the clear strategic recommendations based
on the IFE matrix for the company's performance.
Ikea is a strong furniture retailer which has a distinctive competitive advantage among
other companies. Ikea competitive advantage that they work with designers from all over
the world to provide the growing home furniture needs. The company does not have a
specific vision or a business idea that will be connected to their vision. They express their
vision as their mission statement. Although, Ikea is poorly communicating the core
purpose and reason for existing. Ikea’s focus is to make purchasing their production
affordable for all the people. Furthermore, the company uses genetic (cost leadership
and differentiation) and intensive (market penetration, market development and product
development) strategies.
Customers of Ikea are the working-class people and majorly in the age group of 20-50
years. Ikea’s selling product and service can be called brilliant. It dominates the art of
video making, so approaches its customers through visual tools. Moreover, IKEA makes
full use of the potential of each social network, creating campaigns tailored to the details
of each one. Furthermore, Ikea uses reasonable and affordable prices for their furniture.
Costs are cut and way necessary to be able to sell the product for less and still turn a
profit. They use large volumes and flat packaging to cut cost.
As from the SWOT matrix, it can be said that, although Ikea is a great brand with
distinctive strengths, it has to focus on its weaknesses that should be diminished, such
as poor quality of products and bad reputation because of it. The company has to pay
attention to the market threats and opportunities: expansion and partnership should be
focused on. The Competitive matrix identified the fact the Amazon company has an
advantage over Ikea company. But Ikea is stronger than Walmart. IE matrix showed that
Ikea takes the position in the average score “Hold and Maintain” that presents the ability
of the company to penetrate the markets and develop its products but it needs to consider
great developments in order to get to a stronger and more competitive position.
Strategy implementation focus on two main variables, which are: market segmentation
and product positioning. Ikea’s segments its market into Geographic, demographic,
behavioral and psychographic Geographically, there are about 330 stores in around 39
countries in different regions (Europe, Americas, Asia & Australia, Russia).
Demographically, the age group (22 and older), gender (female and male), Family life
cycle (new families and couples), income level (low and middle) and the occupation
(students, employees, professional). psychographic segmentation is based on the
lifestyle of the customers. Indeed, Ikea targets customers with a “do it yourself and save
money doing it”.
The company uses different marketing channels in order to reach its consumers, such
as: advertisements, brochures, publications, official website and public relations.
Management Information Systems of Ikea helps the organization to decrease cost
through hiring less stuff, developing productivity and enhancing organizational
integration. Types of MIS are discussed in the report.

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Ikea has created a new culture of DIY. It is following a leadership strategy: this company
tries to provide good products for good prices. When the major problem occurs, Ikea’s
management takes corrective actions as soon as possible. It is always regarded as best
practices for marketing strategies being stable in the market. However, they lack
innovation in designs and expansion in Asian market. The company was accused of
violating environmental regulations because of the huge consumption of plastic. There
is also information about poor employee treatment and suspicious advertising practices.
In order to be competitive in the market Ikea needs to offer more options to the customers
and constantly embrace changes.
Moreover, the last part of this report is applying the information from this research into a
canvas Business Model. Canvas Business Model, provided with an explanation of the
analysis of the Ikea company that can be found in the attachments.

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INTRODUCTION

A phenomenon that has changed the entire world's view of home furnishing and the most
famous furnishing in the furniture market, it is, of course, Ikea. Ikea is a Swedish furniture
store that offered smart and affordable home furniture products.
Ikea is a home furniture retailer that offers home furniture at a low price, operating on
more than 300 stores around the world. Their furniture is sold whenever possible in
compact "flat-pack" form for in-home assembly by the customer.
This report aims to analyze all the aspects that the strategic management of Ikea consist
of and determine whether they are a successful company. This comparison is made with
the help of the Strategic Management book.

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CHAPTER 1: STRATEGY

1.1 COMPETITIVE ADVANTAGE

The competitive advantage of any company is any activity a company does well
compared to activities that are done by rival firms, or any resources a firm possesses
that rival firms desire (David). Ikea competitive advantage among its competitors in the
industry is that Ikea works with designers from all over the world to provide the growing
home furniture needs. However, Ikea works to deliver wide range, artistically designed,
eco-friendly and affordable furniture at low cost is the driving force for the company.

1.2 MISSION AND VISION STATEMENT

Talking about the mission and vision statement of Ikea, the following one does not have
a specific mission. However, they do have a business idea which is connected to their
vision. So, it’s fair to assume this phrase as IKEA’s mission statement.

“To create a better everyday life for the many people,'' this is the IKEA vision. Our
business idea is ‘to offer a wide range of well-designed, functional home furnishing
products at prices so low that as many people as possible will be able to afford them’.
Our vision also goes beyond home furnishing. We want to create a better every day for
all people impacted by our business (Ikea , n.d.).

Ikea used their vision as their mission statement, even though each statement is
delivering different purpose. However, Ikea stated that their vision is to create a better
everyday life for many people. But the vision is missing to the reason for being, which
should be addressed by the vision of the company.
The mission statement of Ikea explains what Ikea wants to achieve a “high standard of
quality and to produce long-lasting products with lower prices”. And how the vision of the
company can be obtained, that by creating a better everyday life for the majority of
people. Lastly it addresses the value of Ikea, which is an excellent product at a low price.
Ikea mission statement does not address any stakeholders except customer, which it
seeks to satisfy them, so the mission of Ikea is customer oriented. However, the mission
statement of Ikea is missing five components of the nine essential of mission
components: markets, technology, concern for survival, public image and employees.
To sum up, Ikea is poorly communicating its core purpose or reason for existing to its
stakeholders.

1.3 LONG TERM OBJECTIVE

Ikea objective is to offer a wide range of home furnishing items of good design and
function, good quality and durability, at prices so low that the majority of people can be
able to buy them. The company aims to have a positive change and to have a possibility
to make a significant and lasting impact on the generations (Ikea , n.d.).

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1.4 IKEA STRATEGIES

1.4.1 IKEA GENERIC STRATEGY

A generic strategy is three strategies that can help brands to build and maintain
their competitive advantage. These strategies are called generic strategies –
cost leadership, differentiation and focus. Based on Porter’s model, Ikea uses
both cost leadership and differentiation.
Ikea uses a cost leadership strategy because they search for a supplier who could supply
them with well-designed subassemblies at the lowest cost. The customer receives the
product and assembles them by themselves. This method could save delivery cost for
both producer and customer. In that case, Ikea can offer an excellent product at a low
price.

Beside cost leadership, Ikea uses a differentiation strategy. Ikea has a unique purchasing
experience as each Ikea store is a unique building with the noted brand symbol and style.
They present its products in prototype rooms. It provides various choices suggestions
for customers to decorate their rooms. Furthermore, Ikea focus on delivering a high-
quality product with a competitive price, which is differentiation compared to its
competitors in the industry ( (Kristin's, n.d.).

1.4.2 IKEA INTENSIVE STRATEGY

The intensive strategy is strategies used by companies to increase market share and
brands customer base. There are four types of intensive strategy; they are market
penetration, market development, product development and diversification. Ikea uses
market penetration, market development and product development.

Market penetration is when a company sell more to the existing customer base either by
quality or low price. Ikea provides a great quality product at an affordable price.

Market development is selling to a new and larger customer base or entering new
markets or geographical areas. Ikea is expanding its business over the globe; there are
296 IKEA stores in 36 countries/territories. IKEA Group owns 262 of them. Ikea has faced
some difficulties with the cultures of these countries, but they overcome these difficulties
by understanding local people’s needs and tastes and catering to them. Market
development strategy helped Ikea to growth globally.

Product development is bringing new products and innovation to the market. Ikea has
known for its product and design innovation. This strategy had helped Ikea to grow its
product range (Pratap, 2018).

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CHAPTER 2: INTERNAL AUDIT

2.1 CULTURE
The culture of the company originated in enthusiasm, union and the “start” attitude, and
this is formed when we put these values into action. Togetherness is at the heart of the
IKEA culture, born from their roots in southern Sweden and inspired by the IKEA founder,
Ingvar Kamprad. Ikea is constantly trying to find better ways to get things done and to
bring out the best for them and others.

Besides, the company has eight key values like:

● Caring for people and planet

● Cost - consciousness
● Simplicity
● Renew and improve
● Different with a meaning
● Give and take responsibility
● Lead by example

The corporate culture determines the way the company moves; whether in a positive
aspect or otherwise. So, it is not only the exciting and engaging IKEA’s culture that brings
the team together, but their culture really helps them have a community feeling in the
company.

2.2 MARKETING
2.2.1 CUSTOMER ANALYSIS
Customer analysis is the process of identifying and evaluating the characteristics of
customers in order to develop an effective mission statement.

Customers of IKEA are the working-class people who are looking for value for money
home furnishing solutions. These are majorly in the age group of 20-50 years. These are
the consumers who are inclined towards the stylish & modern home furnishing solutions.

2.2.2 SELLING PRODUCT AND SERVICE

Successful strategy implementation generally rests on the ability of an organization to
sell some product or service. Selling includes many marketing activities, such as
advertising, sales promotion, publicity, personal selling, sales force management,
customer relations, and dealer relations.

The brilliance of IKEA's digital marketing strategy in taking full advantage of Social
Media has helped its brand grow. IKEA knows its customers and knows where to find
them and how to increase reach and brand interaction. IKEA makes full use of the
potential of each social network, creating campaigns tailored to the details of each one.

The Facebook content strategies of all local IKEA pages are similar and consist of daily
publications, usually with a short video or an attractive image of a room equipped with
IKEA furniture.

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Moreover, IKEA dominates the art of video marketing, is one of IKEA's core content
marketing approaches and is intended to show (not tell) customers how to improve their
lives. The videos tell the IKEA story in fun, educational, instructive and inspiring ways. In
its videos, IKEA continues to convey the main message in a positive way. One of the
most inspiring campaigns is "The Wonderful Everyday”.

Therefore, IKEA follows its client to other social networks, where its buyers are active.
IKEA has established its presence on Facebook, Instagram, Twitter, YouTube, Pinterest
and Google+, with the aim of inspiring its audience. In all networks IKEA has its local
country accounts.

2.2.3 PRODUCT / SERVICE PLANNING

The design of home furnishing products at IKEA starts with an understanding of people’s
everyday needs at home, especially the needs of the majority of people, who have limited
incomes and limited living spaces. This is how IKEA succeeds in offering well-designed,
functional products at prices so low that most people can afford them.

In order to make products saleable and right for the IKEA identity, IKEA co-workers in
product design and product development focus on price and quality, design and function,
environment and health. They scrutinize every product idea regarding the best use of
raw materials and manufacturing opportunities. Therefore, elements of the design are
often decided on the factory floor, where designers and manufacturers work together.

2.2.4 PRICING
The IKEA uses reasonable and affordable prices for their furniture. Costs are cut and
way necessary to be able to sell the product for less and still turn a profit. They use large
volumes and flat packaging to cut cost.
Also, the transports are economic from the furnisher via the stores, to the customers,
there are more expensive than most competitors, and they are outside city centers to
keep prices even lower.

2.2.5 DISTRIBUTION

Coordinating difference means of transport to make the movement of goods as quick

and efficient as possible is a real art. And it’s not only is to make sure the goods arrive
at the right stores and customers; they must also arrive in good shape.

Coping with the company’s expansion presents an enormous challenge for distribution.
Growth on this scale necessitates regular adaptations to our distribution structure.

On the other side, a future challenge for our experts in distribution is to meet the demands
generated by remote shopping over the phone and Internet. Although we expect IKEA
customers will always enjoy an inspiring visit to the store, Internet shopping and
telephone orders are steeply on the rise, requiring new, quick and flexible distribution
solutions according to the customers’ expectations.

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 2.3 MANAGEMENT
Main structure of IKEA family comprises of “INGKA Holding” which is the main (parent)
company for all the IKEA group companies. IKEA Group company supervisory board
comprises of Goran Grosskopf, the chairman and Ingvar Kampard being senior advisor
and many others representing their own territories. This group of companies is basically
concerned with carrying out all the necessary functions to bring the right product to
markets. These companies include IKEA Sweden, Swedwood (Industrial IKEA
production company), purchasing, distribution, human resource services, internet
technology and communications departments (all working together).

All scattered branches of IKEA (Franchisees) are connected to a common system

networking “inter IKEA system” at national as well as at international level (monitoring all
the sales, stocks, cash, inventory, demand and supply balances). The basic unit of
information is provided by managers at local stores (shift / branch/ area/ territory
managers), all collaborating to disseminate information from local up to international
level. This propagation of information is carried out through the internet using wide area
networks (ultimately spreading information from end user to main supplier).

So Human computer interaction results in:

● Cost reduction less staff needed

● Resource Land saving Tangible
● Deployment Business
● Improved More messages
● Productivity transmission
● New ideas/products
● Organizational new forms of integration
● Enhancement improved business
● Work Intangible
● Enhancement Business
● Human Resource Structure of IKEA:
● Human Resource is one of the strongest departments of IKEA as it gives
emphasis on IKEA’s vision
● Their HR philosophy believes that employees are more productive and committed
when company takes care of them and their needs.

2.4 VALUE CHAIN

The value chain is a strategic tool coined by Porter, whose objective is to provide the
greatest possible value to the customer through the services and activities provided by
the company.

This analysis allows to optimize the production process since we can appreciate in detail
the operation of the company. The study of the value chain facilitates achieving a
strategic advantage since there is the opportunity to generate a unique value proposition
in the market. (Valor, 2009)

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VALUE CHAIN OF IKEA:

2.5 BENCHMARKING
Benchmarking is a tool from the internal audit that seeks to assess the strategic
capabilities of the organization in relation to competition and then make improvements
and implement them. There are three types of benchmarking: competitive, internal and
functional.

● Competitive benchmarking: It seeks to measure the products, services,

processes and functions of the main competitors to make a comparison with our
company and to detect and carry out improvements that exceed those of our
competitors.
● Internal benchmarking: is a comparison of a business process to a similar
process inside the organization.
● Functional benchmarking: is a comparison to similar or identical practice within
the same or similar functions outside the immediate industry.

BENCHMARKING OF IKEA:

1. Define what process, product or system we will analyze: what do we want to

change?
2. Identify with what we are going to compare.
3. Collect the information.
4. Analyze the information.
5. Implementation: we will obtain the results of the analysis and they will be
communicated to the company; they will have to be accepted by the members of
the organization.

The purpose will be to identify the system process that we want to address and improve
the weak points of these and to reinforce the weaknesses of the company.

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CHAPTER 3 INTERNAL AND EXTERNAL ANALYSIS OF THE COMPANY IN
MATRICES

3.1 SWOT MATRIX

The SWOT Matrix is an essential matching tool that helps to develop strengths-
opportunities and weaknesses-threats strategies. In this part major strengths and
weaknesses in the functional areas of business are evaluated and summarized.
Strengths Weaknesses

- Recognizable brand worldwide; - Low-level of quality;

- Permanent upgrade in production; - Bad reputation due to problems with
furniture, employees’ poor treatment and
- Relationships with customers, suppliers,
dangerous products
distributors;
- Demographic design concept is not
- Affordable prices. developed enough

Opportunities Threats
- Further expansion of markets; - Intensifying competition;
- Growing online shops; - Customers’ lawsuits against the company;
- Partnership; - Average level of income is increasing, so
the customers will prefer more qualitative
- Adding products of luxurious quality.
products.

3.2 IFE MATRIX

Internal Factor Evaluation Matrix summarized the main strengths and weaknesses,
provides a foundation for distinguishing relationships among business areas in Ikea’s
company.

Strengths Weight Rating Weight score

-Brand reputation 0.06 3 0.18

-Stable innovation (upgrade of 0.08 4 0.32

design)

-Customer observation 0.06 3 0.18

-Worldwide presence 0.09 4 0.36

-Strong relationships with 0.1 4 0.4
distributors and suppliers

-Strong product portfolio 0.07 3 0.21

-Use of recycled products 0.05 3 0.15

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 -Affordable 0.1 4 0.4

Weaknesses:
-Low quality 0.1 1 0.1

-Not developed position in 0.08 1 0.08

Asian countries
-Demographic design concept 0.05 2 0.1
which weakens competitive
advantage
-Children are hurt in relation to 0.09 1 0.09
furniture from IKEA

-Negative publicity 0.03 2 0.06

-Poor employees treatment 0.04 2 0.08

TOTAL 1.0 2.71

The Total Weighted Score of Ikea is 2.71 which is below average. Ikea should improve
quality and expand demographics in order to be more competitive within the market. The
managers of Ikea should change the way they treat their employees, check on a regular
basis the furniture so it will be safe for children (Olson, 2017)
3.3 EFE MATRIX
The External Factor Evaluation Matrix enables strategists to evaluate economic, social,
cultural, demographic, environmental, political, governmental, legal, technological, and
competitive information.
Opportunities Weight Rating Weight score

-Online shopping 0.2 4 0.8

-Food outlets 0.09 4 0.36

-Emerging markets 0.08 3 0.24

-Strategic partnership with other brands 0.1 4 0.4

-Adding luxurious products 0.04 3 0.12

Threats:

-Intensive competition 0.2 1 0.2

-Government policies 0.08 2 0.16

-Lawsuits from customers 0.1 1 0.1

-Increase of average income level 0.07 2 0.14

-Growing demand for premium products 0.05 2 0.1

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 TOTAL 1.0 2.62

Ikea reacts to the opportunities of the industry quite quickly. Online shopping is
developed, food outlets are implemented so it attracts more people. Market evolves day-
to-day and corresponds to the current trends. However, the company should be
concerned about the customers lawsuits which can create bad press and spoil the brand
reputation.

3.4. IE MATRIX
The Internal-External Matrix analyses the actual condition of the divisions and gives
suggestions for future strategies. It is based on the analysis of internal and external
factors which are combined in one model.

Strong Average Weak

4.0 3.0 2.0 1.0

High 3.0
I II III

Medium 2.0
IV V VI

Low 1.0
VII VIII IX

According to the IFE and EFE total scores, Ikea has its position in the middle of the IE
Matrix (Total Weighted Score is 2.63).
V (average - medium) – means “Hold and Maintain”. The firm uses market penetration
and product development. The company should decrease its weaknesses and this way
Ikea will be able to switch to “Growth and Build” ((II) – average – high) when it passes
3.0 point if improves IFE matrix. If Ikea wants to expand and open new stores in new
countries, it should develop its production in the first place and maintain remained
strategies and decisions, so this way it will be able to reach “Grow and Build” score which
will allow the company to move further. It can improve some of the internal factors and
address external factors.

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3.5. THE COMPETITIVE PROFILE MATRIX
The Competitive Profile Matrix indicates a company’s main competitors, its strengths,
weaknesses and provides crucial internal strategic information. It helps to identify the
company’s competitive advantage.

IKEA WALMART AMAZON

Critical Weights Rating Weighted Rating Weighted Rating Weighted

Success Score Score Score
Factors
Advertising 0.10 4 0.40 3 0.30 4 0.40

Customers 0.09 4 0.36 3 0.27 4 0.36

Loyalty

Global 0.08 3 0.24 2 0.16 3 0.24

Expansion

Product
Quality 0.10 2 0.20 3 0.30 3 0.30

Market 0.14 3 0.42 3 0.42 4 0.56

Share
0.16 4 0.64 3 0.48 4 0.64
Price

Online 0.03 4 0.27 3 0.09 4 0.27

presence

Social 0.02 3 0.06 3 0.06 3 0.06

Accountabili
ty 0.13 4 0.52 3 0.39 3 0.39

Innovation
0.06 3 0.18 3 0.18 4 0.24
Customer
Service 0.04 3 0.12 3 0.12 3 0.12

Guarantee 0.05 3 0.15 3 0.15 3 0.15

Growth

TOTALS 1.0 3.56 2.94 3.73

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As the table shows, so far Amazon has stronger positions than Ikea does. The reason is
that Amazon covers more countries since it is about online sales. That is easier to buy
furniture and different things on Amazon since it does not require any efforts to order
anything a customer may want. It also has more developed demographics. The Ikea’s
weaknesses about demographics and market development are described in IFE matrix
above. However, Ikea has a big advantage in innovation field. Walmart loses its positions
in relation to Ikea and Amazon. Ikea should improve the quality of their products, expand
their markets and improve online stores. By upgrading the strategy and implementing
some adjustments, Ikea can exceed its competitors. (Lehmann, 2015)

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CHAPTER 4 STRATEGIC AND IMPLEMENTATION
Strategic implementation is a procedure through which Company puts methods and
plans into action, so as to achieve the long-term goals of the Company. Strategy
implementation focus on two main variables, which are: market segmentation and
product positioning.

4.1. MARKET SEGMENTATION

Ikea’s segments its market into different types:
4.1.1 GEOGRAPHIC
There are about 330 stores in around 39 countries in different regions (Europe,
Americas, Asia & Australia, Russia). Those regions have different familiar backgrounds,
with market segmentation, so Ikea mainly divided into geographical segmentation of the
European market and Asian Market. In fact, Ikea’s stores can be found in urban sectors.
4.1.2. DEMOGRAPHIC
Moreover, the demographic segmentation consists of different criteria. Such as, the age
group (22 and older), gender (female and male), Family life cycle (new families and
couples), income level (low and middle) and the occupation (students, employees,
professional).
Moreover, Ikea has a great value because of its best quality and incredibly cheap prices.
Therefore, Ikea targets the people who are looking to buy furniture for the first time. Such
as, College students and young adults, who tend to be in the low-income category
4.1.3. BEHAVIORAL
This segmentation is linked to behavior. The behavioral segmentation comprises of the
degree of loyalty (Hard core loyal, softcore loyal and Switchers), Personality (easygoing
and determined) and User status (non-users, potential users, first-time users and regular
users).
Ikea develop their customer brand loyal in order to make a profit. Therefore, IKEA needs
to focus on how to make non-loyal customer loyal, so it requires buyer-seller relationship.
4.1.4. PSYCHOGRAPHIC
This is the last segmentation, which is based on the lifestyle of the customers. Indeed,
Ikea targets customers with a “do it yourself and save money doing it”. IKEA focuses on
this kind of customer with this lifestyle, so in order to save their money, they don't mind
traveling a little bit and assembling the furniture on their own. (Dudovskiy, 2017)

4.2. PRODUCT POSITIONING

The Company has been completed with the market segmentation, so it is able to target
specific customer groups. Therefore, the next process is to find out what are the
customer’s needs and wants through product positioning.
Product positioning is a part of an organization’s marketing plan and to determine how
to communicate their product to the target groups. Ikea’s positioning strategy helps the
company to reach different people by using different marketing channels. Moreover, Ikea
Catalog is one of the most important tools in the marketing strategy because they use
their employees to showcase in new product. Besides that, Ikea use several
communication channels such as, Ikea website, advertisements, brochures, publications
and public relations.

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Ikea also use the latest digital marketing strategy to effectively interact with their
customers. For example, they have the latest technology, which is called Augmented
reality. It is one of the interactive experience technologies of a real-world environment
and use the existing environment to apply the new information on top of it. So, this
program allows the customers to see how the furniture will fit their homes.
Ikea’s goal from their product positioning is to attract more customers to their product
and let them more loyal to their brand. All over the world, Ikea use insights from real life
at home, learning about the needs and dreams of people. (Uk essay , 2016)

4.3. RESEARCH AND DEVELOPMENT

Research and Development encompass improving new products and developing
existing products in a way that will allow effective strategy implementation. Moreover, the
R&D of Ikea focus on addressing customers need by providing new technology beside
their product. For example, Ikea came up with innovative tools and well-designed
product, functional products at low price that most customers can afford them.
Ikea develop their products based on price, quality, design, environment and health.
Therefore, Ikea’s materials go through testing department to check the best use of raw
materials and the opportunities of the manufacturing. (Ikea , n.d)

4.4. MANAGEMENT INFORMATION SYSTEMS (MIS)

Management Information system is the effective management information system, which
defined the favorable outcome of the Company. The company collects data from multiple
systems, then processes it, stores, analyzes the information, and reports data in order
to have decision-making in management.
The MIS of Ikea helps the organization to reduce cost through hiring and attracting less
staff, developing productivity to introduce new product and enhancing organizational
integration and operations.
Types of information systems that are used in Ikea’s are:
1- Geographical information systems: Ikea uses this system in order to find solutions for
business operation problems, then they store the data and information from the problem
as reference which can be reviewed by the management.
2- Point-of-sale System: Ikea work together with Wincor Nixdorf who helps Ikea and
provide them with Point-of-sale infrastructure solution. This system can check out
transaction of data through the retail group.
3- Express checkout systems (ePOS): it is self-service checkout system, which is used
by Ikea to help the customers who want to pay by card.
4- Vendor Managed Management System: the idea from this system is to guide operating
cost and make it low in order to provide more services to the customers.
5- Proprietary Inventory System: Ikea Logistics managers use this tracking system as a
technique to forecast sales and Inventory level to meet the demand.
6- Cash Management System: It is also known as CINEO system, and Ikea use this
system for transparent and secure cash management process. (UK essays, 2018)

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CHAPTER 5 STRATEGY EXECUTION AND EVALUATION

5.1 GENERATE, EVALUATE AND SELECT STRATEGIES AND IMPLEMENTATION

IKEA is already a successful company in many countries, despite the labor of having to
assemble furniture on its own. They are following a cost leadership strategy. Most
companies want to provide people with good products and services at affordable prices.
But this is never easy. IKEA has a strategy to provide our customers with quality furniture
at an affordable price. Other companies failed to implement their own strategies as
follows. They used a tradeoff strategy. Instead of offering their products at an affordable
price, they have to pay for it. They gave up a variety of products to lower prices. They
offer their customers a limited and narrow choice of Nordic styles. However, the mass
production of small props reduces the cost of the product and rewards it with a low price.
They also give up services in stores. IKEA's store has very few employees. The
customers of IKEA can view different furniture combinations in one setting which that
eliminates the need for sales people helping the user to imagine how furniture
arrangements will look like in the customer’s house (Strategic and planning management
Assignment Help, 2013). By doing so, they can reduce human rights costs. And they
gave up the convenience of customers. They sell prefabricated products that allow
consumers to assemble their own furniture. At the same price, many people would have
bought the finished product. But they developed this with their own emotions. The IKEA
effect is that the increased valuation that people have for self-assembled products
compared to objectively similar products which they did not assemble (My Assignment
Help, 2013). In other words, it is no exaggeration to say that IKEA created a new culture
of DIY. They have a recognizable brand name and strong positioning in the global
market.

IKEA is a global company. Consumers in all countries do not have the same needs.
IKEA's core operating strategy of selling affordable, quality furniture is the same
everywhere in the world, but with slightly different strategies for each country.
Considering the cultures and laws of each country, products such as the size of raw
materials and furniture had to be customized to meet current needs. For example, when
IKEA first entered the United States, American customers demanded larger beds and
larger wardrobes. As a result, they had to change the US marketing strategy several
times. This example shows that IKEA enthusiastically implements their strategies and
improves and changes them as needed.

5.2 STRATEGIC EVALUATION

We can see that IKEA used some of the strategy-evaluation frames. When a major
change or problem occurs, they take corrective action as quickly as they can. Even if
nothing happens, they continue to develop and strive for better results.

Ikea usually evaluates the performance of an organization based on figures. They set
target outcomes for their activities, compare actual and expected outcomes, calculate
deviations, and evaluate individual performance. It also identifies progress toward short-
and long-term goals. They operate with three years business plan. Actions to the three-
year goal and follow-up to the degree of achievement are carried out once a year. Follow-
up is mainly based on relevant data assessed by the staff and a more thorough

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evaluation is made after 3 years. They found it important to clearly communicate the
strategy. Individual performance assessments follow a nearly identical and clear process
at the global level of the entire IKEA Group, making it easier to transfer between countries
and departments. Conduct annual performance assessments to set goals for the
following year and work towards them. They use S.M.A.R.T to set individual goals to
maintain the objectivity and subjectivity of individual employees' evaluations ( (Cirillo),

5.3 CONCLUDING IKEA’S STRATEGIES

This report shows that IKEA has a very strong business model. As it was said before,
they are recognized furniture companies around the world and are leading the way in
improving and innovating the furniture industry. They took the necessary steps to
improve their business model and continued to stay ahead of their competitors. In
addition, IKEA is investing heavily in smart home technology by selling smart blind and
smart lighting according to the rapidly growing smart device market. They have teamed
up with Ori, an American startup, to establish “ROGNAN” to provide robotic furniture
(Ikea, n.d)They are continually evolving and their business model is a very strong model,
an excellent example of global business operations.

They have a strong position in the market and continue to expand their reach. They are
always regarded as best practices for marketing strategies.

IKEA's strategy has already been successful and achieved, but some recommendations
can be made.

5.3.1 STRATEGY RECOMMENDATION

First of all, using a cost leadership strategy, IKEA has a stable position in the market.
They can improve the competitiveness of their brands through low-priced products. But
by emphasizing their strongest point, cheap prices, they are suffering from a lack of
product innovation and face the problem of providing very similar designs. Standardized
products attract fewer customer segments, which allows competitors to fill the niche
markets and strengthen their position. To minimize this fundamental problem, IKEA
should constantly study for creative attempts and various design strategies. It may also
be helpful to expand your range of employment. The mix of people of diverse
backgrounds and personalities will promote diversity and the creation of new ideas.

Another problem with IKEA is that it has some negative issues. Swedish environmental
protection group Protect the Forest (PTF) has suspended IKEA’s FSC certification for
violating environmental regulations (FSC Suspends IKEA's Certification After
Discovering Use of Old-Growth Forests in Russia, 2014). IKEA was attacked as a paper-
wasting company because of a huge catalog of plastic being distributed, and were also
accused of using PVC, a type of plastic. In addition, the company has been criticized
several times for issues such as poor treatment of employees, suspicious advertising
practices or lobbying of government authorities. IKEA is well known for coping with these
crises, but negative public relations undermine brand reputation and customer loyalty.
IKEA needs care and attention before problems arise, such as environmental issues,
employment issues and political issues. (ELKS, 2014)

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5.3.2 INTERNAL RECOMMENDATION

IKEA has many advantages related to the internal environment, such as strong brand
equity, reputation and brand awareness. But they also have some weaknesses. They
should develop further. They need to be more confident in Asian markets. They did not
perform as well in Asian markets as in other markets. Its presence and demand in the
Asian market were low. And they have to compete with big and small brands in Asia that
offer affordable furniture. There are not many Ikea stores in Asia compared to the
population. IKEA deserves to pioneer Asian markets. They must study Asian culture,
trends, interiors, and lifestyles carefully to develop furniture tailored to them. They must
actively pursue marketing strategies to increase brand awareness in Asia. They can
partner with local retail brands to lay the groundwork for emerging markets. And they
should create stores in the city center, not on the outskirts, so that customers can easily
access them. If they have their stable position in Asia, they will be able to develop further
globally.

5.3.3 EXTERNAL RECOMMENDATION

To survive in a changing environment, IKEA must constantly embrace change and

recognize trends in customer preferences. They can focus on improving their value
proposition and maintaining a competitive advantage. Their target customers are middle
class. They sell good quality and durable but affordable home furnishing products.
However, as the world economy improved, the demand for premium products increased.
It can be a threat to IKEA, which sells mainly on inexpensive products. So, IKEA needs
to add luxury premium quality products to its portfolio. It can also offer more options to
customers, including more innovations, and they already do some but can do more.

5.4 S.M.A.R.T. OBJECTIVES

SMART Objectives help to make the ideas and strategies clearer and more sensible in
order to understand and achieve them without any problems that can happen during the
implementation. This is a guide which supports the goal setting.
Specific (What is to be done?): the company should develop its production in Asian
countries so it will target more customers and increase the revenue and make the quality
of products better so it will omit lawsuits from customers, accidents caused by the
furniture and full refunds. Also, it should expand its services via internet so it will help
Ikea to surpass Amazon.
Measurable (How will it be known that it meets expectations?): company can use
customers satisfaction rate in order to know the improvements of the products and what
should be improved. In case of opening new stores in Asia it can check the amount of
people visiting the stores. In case of online shopping is can check the customer
attendance of the websites and the amount of purchases they make a day.
Achievable (Are the objectives achievable and attainable?): Ikea has all the necessary
resources in order to open new stores considering number of employees and its cash
flow. Moreover, it can also achieve the mission with improving product quality, although
it might require an increase in price. Ikea has already made a website, but it should be
improved and become more visible in order to be more attractive to the customers.

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Realistic (Is the business likely to achieve the objectives with the resources available?):
Ikea is a worldwide known company which attracts millions of people every year,
develops on a regular basis and has strong relationships with suppliers and distributors.
It can expand its business having a minimum amount of problems. Ikea already has loyal
customers and a lot of different people from different countries want to approach the
store that is why developed online shopping will be successful.
Timely (When is it going to be implemented?): Ikea can make the final program outline
by February and implement it by April during Easter holidays so more people will notice
new actions from the side of the company. After implementation every store can be
opened each year in a new city or a country (capital). Supplying more qualitative
production can be done already with the usage of old materials. Developed online
shopping should be done as soon as possible.

6. BUSINESS MODEL CANVAS

6.1 Value proposition
IKEA’s value proposition is to provide high quality and stylish home furnishings at
very affordable prices. IKEA creates “a better everyday life” at home for many people
around the world. It does not just provide luxurious and expensive furniture but
produces furniture that meets the needs of people with many different needs, tastes,
and properties, and those who want to improve their homes and daily lives. It lowers
the price of products as much as possible and allows most of the people to buy them.
Because if products are priced too high, consumers will see their perceived value fall
below cost, eliminating the opportunity for the company to sell the products.
IKEA offers value propositions through the following differentiation:
ü Understanding the customer's lifestyle
IKEA has a deep understanding of how customers live at home. It applies these
insights to a variety of design, production, and retail practices.
ü Price-conscious and stylish product design
IKEA integrates customer engagement, supply chain efficiency, and price
considerations into the design process itself.
ü Efficient, scalable, and sustainable operations
IKEA has developed its own distinctive operational capability integrating supply
chain, manufacturing, and retail practices.
ü Customer-focused retail design
The company knows how to create a distinctive combination of immersive and open-
warehouse environments that provide engagement, inspiration, and a distinctive “day
out” shopping experience where people can comfortably spend time choosing the
things they live with every day.

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6.2 Customer segments
IKEA has segmented their markets by various types such as income, demography,
behavior, etc. Their excellent segmentation led them to success.
ü Middle class customers
IKEA uses the various strategies mentioned above to sell their furniture to the middle
class whose income level is quite low by minimizing the price of their products. They
have analyzed the needs and uses of the middle and lower classes and built the
products accordingly. They are attracting customers at low prices with good quality.
ü Young and fashionable people
IKEA targets young people with little money and are sensitive to fashion. They love
modern furniture and accessories. IKEA made colorful and novel products for them.

6.3 Channels
ü Franchise stores
Franchise stores are physical channels. IKEA has 430 franchises in 52 countries
(The IKEA Franachise system, 2019). Franchise stores are a way to contact with
customers a lot and easily. They allow customers to look around their store, buy their
products and receive the services. IKEA can also communicate their value proposition
to customers through franchises. They are growing and approaching their customers
by increasing the number of stores under the franchise contracts.
ü Website and app
IKEA has their Website and app. Customers can browse and buy products there.
There are not only sales, but also marketing and promotions using pictures and videos.
They raise awareness about new products. And by providing their catalog online,
prospective customers are introduced to the functionality, features, price, and design of
their products and promote their purchase. Ikea also tells them what's happening by
posting their news online.

6.4 Customer relationship

ü IKEA family
IKEA has an IKEA family membership program that increases customer loyalty. It is
possible for everyone to register for free, and its members can enjoy many benefits.
Members get membership cards and they can enjoy special discounts and privileges
exclusively for them. IKEA instantly activates cards so that members can enjoy the
benefits of the program on their first purchase. Members of IKEA family can earn points
every time they buy and get some special gifts. They can also get free coffee and tea
on weekdays. They will receive promotion and discount information and IKEA news
from newsletters, SMS, and the online magazine “IKEA FAMILY magazine”. Their
benefits make their customers to have stronger relationships with company and form
higher loyalty.
ü Self-service and limited in-store associates

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 In fact, self-assembly furniture and minimal personnel in store are things that can
cause inconvenience to customers. However, IKEA has taken these actions to reduce
the price of products by lowering labor costs because their main target customers are
the middle class and their business ideas are to provide quality products at lower
prices. Lower prices help secure customers.
ü Assembly and delivery
IKEA's furniture is made easy to assemble and deliver, so it originally consisted of a
system where customers do it themselves. But for those customers who want to deliver
and assemble, they provide the services for a fee.
ü Restaurants and childcare
IKEA offers meals and childcare services to make your shopping experience
comfortable. This helps guests to visit IKEA more often.

6.5 Revenue stream

ü Furniture sales
IKEA primarily makes profits by selling furniture such as prefabricated furniture,
bedding, kitchenware and bedroom items. This is a big part of their revenue. Their
products are already world famous and many people pay for the value of their
products.
ü Non-furniture sales
Customers can purchase accessories and food in addition to furniture at IKEA. IKEA
sells yarn, tools, towing equipment, and recently opens restaurants and cafes in stores
around the world, offering a wide range of food and beverages.
ü Service fees
IKEA receives fees from its customers when providing assembly and delivery
services.

6.7 Key resources

Key resources are required for a company’s business model to work. They can be
owned and leased by the company, or acquired from key partners (Key Resources,
날짜 정보 없음). Companies can generate value propositions and revenues only
through resources.
Key resources are classified into the following categories:
ü Physical
megastores, actual furniture for sale, factories, trucks for transport, lifting equipment
and tools
ü Intellectual
Brands (IKEA rely heavily on their brands)
ü Human

27
 Skilled personnel such as store staff, designer, marketer, and so on
ü Capital

6.8 Key partners

Key partnership means all relationships except customers. A key point to IKEA’s
success is credited to its relationship management and communications with materials
suppliers and manufacturers to get good prices for procured products. They create
partnerships to optimize business models, reduce risk or acquire resources.
ü Key suppliers
IKEA is a very high-volume retailer – it buys products from more than 1,800 suppliers
in 50 countries, uses 42 trading service offices around the world to manage supplier
relationships (IKEA supply chain: How does IKEA manage its inventory?, 2018). For
example, IKEA US contracts with supplier Sauder Woodworking Co. Sauder has
produced four furniture families for IKEA US including bedroom furniture, office,
entertainment and children’s storage furniture (DUFFMIKE, 2014).
ü Social initiative partners
The IKEA group co-operates with companies, trade unions, NGOs and organizations
to develop and enhance work impacts in the social and environmental sectors (our
partnership, 날짜 정보 없음). From a social perspective, the IKEA Foundation has
partnered with UNICEF, Save the children and UNDP. From an environmental
perspective, the IKEA Group has partnered with WWF. Through these partnerships,
they focus on improving children's rights and on responsible forestry, cotton planting
and reducing CO2 emissions.
In addition, IKEA partners with manufacturing firms, transport and trucking firms and
delivery companies.

6.9 Key activities

ü Product development and designing
In order to produce products that are marketable and fit the identity of IKEA,
employees and partners who design and develop their products focus on price and
quality, design and function, environment and health.
ü Advertising and marketing
IKEA has been reducing advertising costs by leveraging global advertising
campaigns and social media rather than TV ads.
It has shown so many creative and unique advertising campaigns that what they
want to sell is a lifestyle and experience beyond furniture. It uses its creativity and
understands the needs and wants of its customers well, which attracts more people,
generates more sales, and makes people love it. Its advertising also has a strong
brand identity. It clearly communicates the message the brand wants to send by
understanding how it wants its brand to be perceived by people, what words it uses to
describe it, and how it differs from competitors. As a result, people can think of their
ads as theirs without analysis. And it builds opportunities to interact with customers

28
through content marketing, strengthening relationships with them and promoting their
products.
It knows the social media platforms that customers use a lot and makes the best use
of those SNS. It posts promotions, discounts, events, news on Facebook, Twitter,
Instagram, and Pinterest. It also receives feedback from customers through SNS and
resolves their complaints quickly.
ü Services
IKEA sells Modular Furniture that customers can easily assemble on their own, and
most products are made flat so that they can easily fit in your car. But if customers
want, IKEA builds furniture in their homes and ships their products. It also provides
kitchen planning and installation services. And when customers buy new products, it
gets rid of their existing furniture and appliances.

6.10 Cost structure

It costs a lot of money to run the company. IKEA needs to pay R & D costs for
product development, raw material costs and manufacturing costs for furniture
production. Then there will be shipping and storage costs for their complete product. It
will also cost advertising to sell their products. In addition, the expanses such as taxes
and salaries are required.
IKEA's low-cost structure has been central to its success. Let's see how IKEA saved
money. It must meet the criteria for economics, sustainability, superior design and
functionality in the product design process to reach the job site, which sets the price of
the product first when planning the product design. In the process, their designers
choose to minimize the cost of production in the selection of design elements, raw
materials and production technology for their products. In addition, during production
and distribution, IKEA relies on long-term planning to balance production across more
than 1000 third-party manufacturer networks. Decentralizing production demands
allows suppliers to have a uniform cycle time, ultimately lowering production costs per
unit. And their finished products are tightly packed in flat packaging, which transports
the product easily, reducing the transportation cost and easily storing it, which reduce
the warehouse cost. In addition, its customers are responsible for transporting their
purchased furniture out of the store and assembling them directly, which can reduce
labor, transportation and overhead costs.

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CONCLUSION

IKEA is a worldwide recognized and valued company that has continued and balanced
growth since its inception. The good position in the market segment in which it operates,
with a wide range of products, lower prices than those of its competitors and an attractive
product make its sales grow and its expansion continues.

The low price is sought before having the product completely designed and, of course,
long before it is manufactured. In addition, once the product has been incorporated into
the company's range, the search for a cost reduction is not abandoned and IKEA can
thus maintain prices or even reduce them.

On the other hand, control of the supply chain is essential for the proper development of
the company. The combination of own production with a network of external suppliers
allows you to obtain advantages, due to the bargaining power of your high purchase
volume, and to solve supply problems where it is not.

Finally, through financially sustainable growth, it has been seen that the group advocates
financial independence to stay away from the instabilities that foreign financing could
lead to in its growth. This provides the necessary resources to continue its expansion
without being forced to go to the capital market or borrow. In fact, the company even
operates with a surplus of idle resources that can harm its growth.

30
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APPENDIX

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