Identify where and how ikea has achieved cost leadership

1. Identify where (in its 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 IKEA’s business model in terms of value creation, configuration and capture?

‘Our business model is to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.’

This was the headline in IKEA’s yearly summary report for year ending 31 August 2015. 1 It reported a revenue increase of 11.2 per cent to €32.7bn (£26.2bn, $42.5bn), 2 profits of €3.5bn and share gains in most markets. IKEA continued to be the world’s largest home furnishings company with some 9500 products in 375 stores in 28 countries. 3 The company had 172,000 co-workers (of which 40,000 were in production and distribution).

The home furnishings market 4

By the late 2000s home furnishings was a huge market worldwide with retail sales in excess of $US600bn in items such as furniture, household textiles and floor coverings. More than 50 per cent of these sales were in furniture stores. Table 1 compares the geographical spread of the market and IKEA sales by region. IKea’s competitors

The home furnishings market was highly fragmented with competition occurring locally rather than globally and included competitors of several types:

• Multinational furniture retailers (like IKEA) all of whom were considerably smaller than IKEA. These included, for example, the Danish company Jysk (turnover €2.9bn).

• Companies specialising in just part of the furniture product range and operating in several countries – such as Alno from Germany in kitchens.