Free Essay on Ikea's Generic Competitive Strategies

Published: 2022-03-09
Free Essay on Ikea's Generic Competitive Strategies
Type of paper:  Report
Categories:  Company Business strategy
Pages: 4
Wordcount: 1095 words
10 min read

The Strategy Clock Model

The above limitations of Porter's generic strategies can be overcome by applying the Strategy Clock model (Faulkner & Bowman, 1995). This model can be used by firms to explore the various options available for strategic positioning within the industry. One of these options is hybrid positioning. This option involves a combination of some elements of product differentiation and low price (relative to competitors). The objective of the hybrid option is to persuade customers that they can get a good added value through a combination of product differentiation and a reasonable price compared to what competitors offer. The hybrid option can be an effective strategy, especially if the firm observes consistency in offering the added value.

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Ikea's Generic Competitive Strategies

Ikea's primary competitive strategy with respect to Porter's generic strategies framework is cost leadership. Ever since the company was founded, it has aspired to maintain significantly lower prices than its competitors. The objective of this cost leadership strategy is to give a large number of potential customers the opportunity to buy its products. To achieve this objective, the company offers massive price reductions of up to 20% and in some cases 50%. Ikea relies on economies of scale to make this generic strategy sustainable in the market. It has built strong long-term relationships with key business partners such as suppliers and vendors from whom it buys materials in bulk, hence getting huge trade discounts.

Also, the company has maintained low operational and production costs, which translate into reduced prices for the final products. By minimizing operational and production costs, the company is able to attract more customers achieving high sales, which drive its competitive strategies. Coupled with the low cost of production, the company has implemented an excellent supply chain management system. The focus of this system is on minimizing delays in the supply chain and also in reducing inventory costs. All these cost reduction efforts are aimed at making the final products more attractive to the consumers regardless of their social status or ability to pay for them.

Ikea's generic strategy is based on two important intensive strategies. The first strategy is market penetration, which involves selling more of an existing product to an identified market segment (Kraaijenbrink, Spender & Groen, 2010). IKEA started as a small furniture store in Sweden in 1943. Since then, it has opened hundreds of stores in 26 countries. This has been made possible through the strategy of market penetration. The company has always kept the prices of its products lower than what competitors offer. The cost leadership strategy does not just give Ikea a competitive edge over competitors but also helps in brand development. The benefit has been double for Ikea whose low prices has enabled it to expand and attain a dominant position in a number of emerging markets such as China, Eastern Europe, and Russia. As a result, the company's customer base has been growing over the years.

Market development is another important strategy that Ikea has used to prop its cost leadership strategy. The company is constantly looking for opportunities to expand its market and grow the customer base. This has led to a sharp increase in the number of retail units operated by Ikea. Overall, the company has grown to become a well-known retail brand mainly because of its low-cost strategy. As competition intensifies in the industry, the company is looking for new ways of growing its market share. One of these ways is customization of products to meet customer needs.

In terms of the Strategy Clock model, Ikea's generic competitive strategies can be said to be a combination of low cost and focused differentiation. Under the latter strategy, the company's aim is to offer customers the highest possible quality across all product categories. The long-term goal is to develop products whose value is fundamentally different from that offered by competitors and which are appreciated by a large number of buyers (Brem, 2011). Companies that employ this strategy achieve competitive advantages by offering better products at prices that are lower than competitors or by enhancing margins through slightly higher pricing as a result of premium quality. As to achieve the desired quality, the company may incur high operational costs which may push prices high. It avoids this outcome through the economies of scale. By producing products in huge quantities and dealing with several suppliers, Ikea maintains a strong bargaining power over its business partners (Johnson, Whittington & Whittington, 2008). In effect, the company produces high-quality products which are sold at reasonable prices. But the company also gives premium prices for high-end customers. This strategy has enabled the company to maintain high-profit margins and overcome major competitive forces in the industry.

In the low price positioning, the company focuses on cost minimization. The aim of this strategy is to achieve the lowest possible ways of producing and delivering products to the customers while maintaining high-profit margins (Brem, Maximilian & Wimschneider, 2016). For Ikea, cost minimization is not about compromising quality standards or shortchanging customers. Rather, it is about offering the best quality at significantly reduced prices. This way, the company is able to maintain higher profits and better cash flows. Since the company seeks to achieve low prices, the success of this strategy depends on the ability to deliver sustainable benefits to customers. Failure to offer guaranteed benefits will see the company lose its competitive edge to rivals in the market.

Sustainability of the Adopted Strategies

Given Ikea's scale of business and the rate of financial growth achieved over the years, it is clear that the generic strategies are sustainable in the long-term. The strategy of cost leadership will enable the company to organize its core resources around developing products at the lowest possible cost and selling them at significantly reduced prices. By having the lowest associated costs for its products, Ikea will put its business at a unique position of being able to offer customers the most attractive prices in the various markets where it operates (Barney, Ketchen & Wright, 2011). There are a number of ways through which the company can implement the cost leadership strategy. These include modification of the supply chain, economies of scale, lean manufacturing and minimization of costs in areas such as R&D, advertising, and sales force.

The differentiation strategy is sustainable because it will enable the company to charge premium prices that are higher than the extra cost incurred through differentiation. Through the premium pricing, the company can sustain high sales revenue, which is critical for successful competition in the industry (Johnson, Whittington & Whittington, 2008). Given the company's globally internationally recognized corporate ident...

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