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1.Identify where (in their value system) and how IKEA

have achieved cost leadership.

2 Identify how IKEA have achieved differentiation from their competitors.

3 Explain how IKEA tries to ensure that their hybrid strategy remains sustainable and does not become stuck-in-the-middle.

4 How would you explain IKEAs business model in terms of value creation, configuration and capture?

Table 1 IKEA's 'unside-down'anoroach You may well say that they are similar to those of Managing the value chain most companies. The difference, in my opinion, is that IKEA is much better at delivering on these Dahlvig explained that IKEA's strategy crucially requires customer needs than are other retailers. ... Most the 'design' and control of their wider value chain in detail: competitors focus on one or at most two of these secret is the control and coordination of the customer needs. High-street shops focus on design whole value chain from raw material, production, and inspiration. Out-of-town low-cost retailers focus and range development, to distribution into stores. on price. Department stores focus on choice. The real Most other companies working in the retail sector strength of IKEA lies in the combination of all five.' have control either of the retail end (stores and distribution) or the product design and production IKEA's competitive strategy end. IKEA's vertical integration makes it a complex Dahlvig explained IKEA's approach to competition: company compared to most, since it owns both 'You can choose to adapt your company's product stores.. ... This included backward integration range to the markets you are operating in, or you by extending the activities of Swedwood (IKEA's can choose to shift the market's preference toward manufacturing arm) beyond furniture factories, your own range and style. IKEA has chosen the into control over the raw materials, saw mills, board latter. By doing this, the company can maintain a unique and distinct profile. This is, however, a more difficult path to follow... A significant under- The Franchise system 11 standing of the customer's situation at home is the basis for IKEA's product development.?... For most By 2018 all but one of the 422 stores were run by 11 competitors, having the lowest price seems to mean franchisees (partners). The role of the IKEA Group was being 5 to 10 per cent cheaper than the competition to provide the best possible support for franchisees to on comparable products. At IKEA, this means being implement the IKEA concept worldwide. For this the a minimum 20 per cent cheaper and often up to 50 Group received 3 per cent of the franchisees' sales. This per cent cheaper than the competition. 8 was provided through the following activities: - Maintaining the IKEA concept and marketing product range... with much more muscle than IKEA's communications. traditional competitors... One way to dissuade them - Developing the product range. from entering into the home furnishing arena was to - Managing suppliers' relationships, procuring product aggressively reduce prices and increase the company's presence with more stores in all local markets in the and distributing/selling to franchisees. countries where IKEA was operating. .13 - In addition, IKEA themselves manufactured about 10 per cent of products and materials (mainly wood-based) through 40 production units. China So, of the 38.8b I IKEA sales in 2018 the revenue of the By 2015 around 70 per cent of IKEA stores were still in Europe Group was 24.9 bn (the remainder being the franchisees' and expansion into Asia was crucial, but the company had 'mark-up'). come to realise that emerging markets could be particularly challenging as head of research Mikael Yolholm remarked: Global expansion The more far away we go from our culture, the more we Despite IKEA's strong global position when Dahlvig took. need to understand, learn, and adapt. .14 over as CEO in 1999 he felt there was a need for improvement. Earlier growth had come from going 'wide but thin'. company's fastest growing market. By 2009 it had eight with limited market shares, but now they would go 'deep'. of its ten biggest stores there. The Chinese market was and concentrate on their existing markets 12 extremely challenging for a company that had built He explained his reasoning: global success through standardisation. 15 The main problems were that in emerging markets IKEA products very fragmented and local in nature. However, many consumer shopping expectations were centred on small, of the very big retail companies were shifting strategy. local shops and personal service. IKEA thus had to be fiex: From being local, they were looking to a global expan- ible and presented an image as exclusive Western Eurosion, not least in the emerging markets like China, - pean interior design specialists - popular with younger, Russia, and Eastern Europe... [and] broadening their affluent, city dwellers. Their shops were smaller than usual

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