Case 2: IKEA DESIGN & PRICING

Submitted By: Team Samyeong

Arcedo, Lloyd L. ● Ladja, Johnraja-Zaid M. ● Mendoza, Sheila Mozenda C. ●
Pangilinan, Jayson E.

I. PROBLEM STATEMENT
Given IKEA’s success in the global market, how can it ensure continued
success in the business?

II. CASE ANALYSIS

What are IKEA's competitive priorities? Describe IKEA's process for
developing a new product. Cost leadership and an exceptional supply
chain management are IKEA’s major competitive advantage. With the
principle of “low price with meaning” IKEA is able to incorporate cost
minimization in every process of developing a product that are modern,
functional and a true value for money.

What are additional features of the IKEA concept that contribute to

creating exceptional value for the customer? Aside from creating chic
functional products at a low cost, IKEA is also keen to reducing negative
impact of products in the health of its customers and the environment.
Inbound and outbound logistics also contributes in making IKEA products
affordable and available to its customers.

What would be important criteria for selecting a site for an IKEA store?
IKEA stores and distribution areas should be close to shipping, rail and
truck routes to allow a faster delivery response time which also translates
to lower logistics costs. A market study should also be done to align IKEA’s
array of products with customer needs. Study may include information
about the location, cultural background and market condition of target
area.

SWOT Analysis
Strengths
• Strong international brand recognition built upon a unique
philosophy and low product prices. Success has been driven from the
price architecture offering value to the customer in innovative but
functional products.
• Total control of its design and pricing. Supply of product ranges
globally as well, thus, a product portfolio that caters to most consumer
lifestyles who are likewise budget conscious.
• Established long-term relationship with suppliers. Collaboration
with the manufacturers and suppliers helps IKEA manage demand and
expectations.
 • Sourcing materials close to the supply chain and delivering
products directly from the supplier to IKEA stores. This slashes
handling costs, reduces road miles and lowers the carbon footprint.

Weaknesses
• Reliance on European and US market.
• IKEA store branches require extremely large areas which is very
expensive to maintain.
• Designs of IKEA products are homogenous which may appeal
only to certain markets.

Opportunities
• Growing demand for low priced products due to the current
financial climate may result in consumers trading down from more
expensive stores.
• Growing demand for greener products.
• Consumer preference of buying products online. Development of
e-commerce sites can increase sales, improve customer service, and
reduce the volume demand on local stores.
• Development of premium lines, whether within existing stores or
through new high street fascias complementing the out-of-town stores.
• Untouched market in Asia and Canada.

Threats
• With economic concerns over rising living costs and depleting
disposable income there is an overall threat to the performance of the
business in European and American markets specifically.
• Pricing parity may exist.
• Different living conditions, diverse culture and society traditions,
as well as different economic environment may hinder success of
implemented IKEA strategies in certain countries despite it being
successful in other areas.

III.RECOMMENDATION
Short-term strategies
• Make known to market IKEA’s effort to produce greener products. IKEA
is able to reduce its carbon footprint through less transport and
packaging and increased use of renewable materials. Adhering to
IKEA’s code of conduct also ensures safe working conditions to its
people.
• Strengthen strategies with selling products online. This could reduce
the need to open local stores, ultimately reducing cost in terms of
maintaining an office
• Revisit pricing mechanisms to learn if pricing parity exists and take
corrective action to ensure that gross profit is maximized by
decreasing price arbitrage in several countries where IKEA operates.
Medium-term strategies
• Adjustment in IKEA’s strategy as a result of the economic trend of a
shrinking low-income population, to which IKEA directs its business, as
oppose to large market slice, the higher income population, to which
IKEA did not target so far.
• Improve the understanding of various markets all over the world for a
better strategy planning. IKEA can incorporate in their design process
the uniqueness of each market (e.g. differences in lifestyle and taste)
because a homogenous product may not always appeal to everyone.
This way, IKEA can make certain the success of each product
introduced in every country.
• Expand market in Asia and Canada. Differences in cultural background,
society traditions and economic environment should be studied when
choosing what products to sell and strategies to implement in these
locations.