Ikea SWOT analysis Essay

1. Customer knowledge: one of the key competitive advantages IKEA has the deep knowledge about the customer. The company understands the purchasing factors that influence customers to buy and implements the best practices to induce that decision. IKEA offers low prices and a huge range of products. Designers constantly introduce new design products that look stylish in the eyes of customers. All the products are designed so it would be easy to transport and assemble. Moreover, the company offers the widest product range and positive shopping experience. All of these factors are aligned with what customers want and need and which results in higher sales. 2. Constantly using innovations to drive costs down. Low prices are the core business of IKEA business idea and company always tries to do things as efficient and cost-effective as possible. To drive costs down all the time, the company must find new and innovative ways to do that and to incorporate them in its businesses model. The business’ innovations include new materials that help IKEA using the recycle material to become a friendly environment company or using the newest ways of packaging. 3. Supply chain integration. IKEA is committed to long lasting relationships with its suppliers. In this way, the company can order large volumes and benefit from lower prices and greater quality while suppliers are assured of guaranteed orders. IKEA sources its materials close to suppliers to reduce transporting costs. All the efforts of closely integrating supply chain results in lower costs and a competitive advantage. 4. Brand reputation and market presence. According to Inter brand, IKEA is the most valuable furniture retailer brand in the world, valued at nearly $US 12. 8 billion in 2012. The business operates 332 stores in 38 countries and is present in the major world markets. More than 600 million customers visit IKEA stores every year. Worldwide market presence and strong brand reputation ensures that customers will often choose IKEA over its competitors. 5. Diversified product portfolio. Unlike IKEA’s largest competitors, the company has fairly diversified businesses. In addition to its furniture products, the company operates restaurants, houses and flats. Although, firm’s main business is designing, manufacturing and selling furniture it is not so affected by the changing forces in this market as other furniture retailers. 6. IKEA uses cheap labor which keeps its costs down and gives them a competitive advantage. Starting from the days when it discovered that furniture manufactured in Poland was as much as50% cheaper than furniture made in Sweeden, IKEA has started looking for cheap labor. It top five supplying countries are China (21% of supplies), Poland (17%), Italy (8%), Sweden (6%)and Germany (6%). China, as everyone knows, provides really cheap labor so IKEA gets its largest chunk of furniture manufactured from there. Cheap labor keeps the costs down and allow them to charge customers low price and helps IKEA sustain its competitive advantage. (IKEA SWOT 2013 ) Weaknesses 1. Negative publicity. The company has been criticized many times for issues like poor treatment of employees, questionable advertising practices or lobbying government authorities. Negative publicity decreases brand reputation and customer loyalty. 2. Low quality of products and services. IKEA is unable to find compromise between continuous cost reductions while maintaining the same quality of products. According to UK Customer Insights report on IKEA by Verdict, IKEA’s customers are less satisfied with its product and services quality than the average customer in UK buying at other stores. Firm’s cost reductions lead to decreasing product quality, which was followed by higher number of products returned and damaged brand. Furthermore, the Ikea product lack of innovation like KEA designs the price tag first, then the product. IKEA’s product strategy council is so much Obsessed with low price that they spend almost no time on product innovation. IKEA has been enjoying sustainable competitive advantage due to their low cost strategy 3. Standard products. IKEA’s main competitive advantage derives from low costs, which in part are achieved due to standardized products. Standardized products attract fewer customer segments. Therefore, the business inability to offer better quality more customized products allows its competitors to fill that niche and fortify their position in it. 4. It lacks thorough market research on customers’ preference before entering into a new market. To provide a good quality product and also value the customers need and wants should be the organizational motto; this is because it’s a furniture company. IKEA did not do any sort of market research regarding customer’s needs and wants. So they should come up with a market research results that will give them more profit. > Furniture > Ikea Online > Strategic > Ikea Design Opportunities 1. Further expansion into developing economies. Retail markets grew by at least 5% on average in emerging markets in the last year, opening huge opportunities for IKEA’s revenue growth. The company currently operates in most of the developed economies but hasn’t firmly stepped into developing economies, except China. There are great opportunities for IKEA to expand into Brazil, Mexico, Indonesia and Malaysia to increase its presence in these markets to sustain future growth. 2. Growing online sales. Online retail sales account for 17% and 4% of total retail sales in UK and US respectively. Online sales grow constantly and with 870 million visitors to its website IKEA could exploit this opportunity and benefit from increased sales and lower costs. 3. Expansion to growing grocery market. The current trend of eating healthier food has resulted in higher demand for grocery products in many developed economies. IKEA has an opportunity to expand its grocery business by introducing more grocery stores in its current retail places. The company is already successfully managing its food outlets, so this expansion opportunity would be well aligned with the current operations. Threats 1. Intensifying competition. Many low cost retailers such as Walmart, ASDA or Tesco are entering homeware specialists market where IKEA operates. These large retailers have similar specifics as IKEA, including low costs, well managed supply chain and huge market presence and can easily gain some market share from IKEA. 2. Growth of average consumer income. Growth of average consumer income means that people buy less low price and low quality products, which is exactly what IKEA offers in its stores. With the rising income people will be less attracted to IKEA and will turn to retailers that offer higher quality home ware products. ( IKEA SWOT 2013 ) Porter†s Five forces Analysis 1. Rivalry within the industry In Sweden there is handful of companies involved in the furniture industry. Moreover there are a lot of retailers in the market. The condition is pretty much same in USA. There are Home Depot,Wal-Mart, Costco and many other small retailers. On top of this many retailers import from china and sell it in the market at low price. This indicates that the competition within the industry is very high. 2. Bargaining power of suppliers It can be say that the bargaining power of suppliers is low. IKEA has a well-established relation with suppliers all over the world. Till 2008 IKEA has 1380 suppliers in 54 countries 21% of which are in China. Moreover IKEA also own manufacturing company like Swedwood Manufacturer. So it is evident that IKEA can threats the suppliers to enter into their business. 3. Bargaining power of buyers There are a lot of retailers who are directly involved in price war against each other. There are importers who are importing from china also in direct competition in the market. So the consumers have many alternatives. They can chose which manufacturers they will buy from. So the bargaining power of buyers is high. 4. Threats of new entrants There are no entry barriers in the industry. But the intensity of competition may scare off potential entrants. The required initial investment is not too much. Anyone can open a retail shop with small investments. But if someone wants to become a major player in the industry; than the firm needs to invest a lot of money, need to establish relation with suppliers, select suitable locations for outlets. These will require a lot patience and capital. So it is safe to say that the threats of new entrants are high if competitors want to do business for a long term. 5. Threats of substitutes Since the born of civilization men are using furniture. The styles are changing so as the trends. The industry is moving wood to plywood, rot iron even plastics. As the market is becoming more environment concerned many firms are giving slogan to go green. But the basic functional demand has remained the same. So it is safe to say that there are no threats of substitutes Opportunities IKEA can expand its product line by producing high end products From the very beginning IKEA’s target market has been the middle class to lower middle class people. This strategy has been worked for a long time but IKEA never wondered about how farther they can reach. In USA the trend was changing; people were getting thirstier for elegant design. IKEA can develop products that are designed for the high class people who are sensible about the design and quality and do not care about the price. For example Toyota: Lexus. IKEA can expand its business into interior designing and crockery products IKEA can expand its core business of furniture to a next level. IKEA can place crockery item swith the kitchenware furniture. This way when a customer walks through the kitchenware department he/she will be attracted to these products and may end up buying some. IKEA can go for environment friendly technology Customers now a days are now more concerned about the environment than ever. So IKEA can make products that are environment friendly; products that consume less water so the carbon footprint will be at minimum. Product customization can boost up IKEA’s sales IKEA can call for idea from its customers. This will definitely bring in some unique idea to the tent. IKEA can initiate a service that will allow customers to order customized products for some extra charges. This will help IKEA to capture the particular segment of the market who loves customization Threats Changing social trend can hinder the growth of sales of IKEA IKEA’s objective is to provide products to its customers at cheaper rate than the competitors. This objective does not recognize the necessity of a constant development of design and quality. In the pursuit of becoming a cost leader in the market IKEA can lose a major portion of the market that want quality and well designed products. Accelerated market competition in USA The furniture market of USA is very fragmented. But there are some well-established retailers who are selling functional furniture at a very low cost for example: Wal-Mart, Office Depot. These retailers will be in direct competition with IKEA. On top of this there are also some high end retailers who sell high-quality, well designed furniture. These high-end retailers often provide additional services like interior designing, home delivery and free set-up. The risk of global financial crisis The global is under a constant threat of depression since 2007. The whole economy of the world is suffering from a recession since fiscal year 2006-07. This economic condition may affect IKEA. Since the purchasing power of buyers has gone down they would be reluctant to purchase products that are not vital to them. This can cause a free-fall of sale revenue of IKEA worldwide; especially in USA ( Dahman J 2011). Reference Dahman, J 2011, IKEA’s Strategic Management, Scribd, viewed 12 October 2013,< http://www. scribd. com/doc/59951004/Case-Analysis-IKEA>. SWOT analysis of IKEA, IKEA’s Strategic management, viewed 11 October 2013, < http://www. strategicmanagementinsight. com/swot-analyses/ikea-swot-analysis. html>