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Posted on April 25th, 2014, by

1. IKEA’s firm-specific advantages

IKEA has a variety of firm-specific advantages since its business approach appeared to be quite unique for the furniture industry. First of all, IKEA’s strategy is to develop ethnocentric (Swedish) view on marketing for many of its subsidiaries (especially European subsidiaries) (Ireland & Hoskisson & Hitt, 2008). Secondly, IKEA managed to reduce shipping costs due to the idea of shipping the products in unassembled form. Furthermore, the most innovative decision of IKEA is to reduce merchandise costs through involving customers in the assembly cycle. This idea also allows to save on warehouse costs and helps to reduce costs for customers even more through reducing transportation costs. Another set of firm-specific advantages of IKEA is related to the relationships with suppliers. Finally, one more firm-specific advantage of IKEA is its reputation for quality: the furniture and other items sold by the company have been praised for high quality all over the world.

2. Cultural factors affecting IKEA’s expansion abroad

In general, retailers willing to export their products overseas and expand to other markets can face the following challenges: different preferences of customers in different countries, difference in approach to management, different political regulations and tax regimes, and technological differences between markets. Furthermore, cultural forces acting in the society such as religion, national traditions, education and family traditions, shape the preferences at local markets, and create additional challenges for international retailers (Daft & Vershinina, 2010).

When IKEA started its expansion throughout Europe, its ethnocentric approach to marketing was highly effective. However, when IKEA entered US market, their product mix was not accepted very well, because of different customer tastes and requirements to furniture in Europe and US. Standards of construction in the US were also different, and US customers thus required other types and sizes of furniture than European customers did. The difference in management style in US and Europe also affected IKEA’s operations, and created a need to adjust the company’s strategy in the US. IKEA also had to change its approach to advertising in the US, because its slogan which effectively worked in Europe, was not working in the US, and the word-of-mouth advertising channel was also not so effective in the US as in Europe (Segal-Horn & Faulkner, 2010).

IKEA managed to overcome these challenges through modification of its approach to selling furniture: the company performed a detailed market analysis and analysis of customer preferences at local markets, tailored its products to local tastes, and adapted its promotion methods in different markets. Along with its innovative approach to involving customers in the product value chain, IKEA created a new trend in furniture retail and changed competitive trends at global furniture market.

3. IKEA’s impact on furniture market

IKEA offered a unified approach to selling furniture, with a wide choice of standardized details which can be bought in different IKEA locations (Daft & Vershinina, 2010). IKEA also managed to create a new way of shopping, which was at the same time cost-effective, allowed customers to gain new experience (assembling furniture) and allowed them to test and touch most of IKEA’s offerings. IKEA managed to cater its products to local tastes and maximally reduced the costs added on furniture on the way from manufacturer to customer. IKEA was the first company to reach economy of scale in furniture retail, and had thus gained a unique competitive advantage.

IKEA added personal experience to the process of choosing furniture. Thus, IKEA managed to change competitive landscape in furniture retail sphere, and re-energized already mature markets. The requirements to furniture quality and convenience have increased due to IKEA’s impact, and the inclusion of customers in product value chain has dramatically changed the approach to selling furniture the market of furniture has become more personalized, more cost-effective and dynamic.

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