IKEA Case Study by Mapping the Facts

¶ … IKEA case study by mapping the facts to the two famous concepts known in marketing, the Porter's generic strategies and the Strategy Clock.

Difference in purpose and application of Porter's generic strategies and the Strategy Clock

Michael Porter, generally known as the king of marketing developed a scheme in which he devised three strategies that companies usually undertake or should undertake in order to maintain or achieve their competitive advantage. The model can be best summarized in the figure below.

Porter's Generic Strategies (Wikipedia, 2012).

If we carefully analyze the model above, on x-axis we will see strategies being devised on type of competency that they have and on y-axis we will see strategies being devised on the level of scope that the company is operating in (Porter, 1998). As the case facts suggest, IKEA had a broad market scope and had a low cost competency. Thus, the strategy for IKEA is Cost Leadership broadly. However, case facts also suggest that IKEA was customizing its products in some regions based on customer preferences. The market scope for those regions changes to narrow while the competency remains the same. Thus the strategy for those regions will be segmentation strategy.

It is important to note here that Porter's model is identifying the strategy that the company is using or should use based on its competency and market scope (Porter 1998).

Cliff Bowman provides us with another tool for analyzing the competitive position of the company in comparison with the competitors. While Porter's model also serves the same purpose, Bowman's model is detailed and offer enhanced information about the strategies. The model can be best summarized in the figure below:

Figure 1.2: Bowman's Strategy Clock (Marketing Teacher, 2010).

In Bowman's model, the competitive position is analyzed by the perceived added value (Marketing Teacher, 2010). It is important to understand that Bowman's model analyzes the company by its perceived added value while Porter's generic strategies model analyzes the company by its market scope and competency. While Porter's model can conclusively decide which strategy the firm is pursuing it cannot identify whether the firm is heading for failure. Bowman's clock on the other hand can identify the strategies that will be responsible for the company's failure. Thus through Bowman's clock we can see which area our firm is operating in if it is in the danger zone, we can shift our strategy to save the company from failing.

Strategy of IKEA according to the Strategy Clock

Strategy according to the Strategy Clock

According to the Strategy Clock, we will analyze IKEA on the dimension of perceived value and its competency. As the case facts suggest, the perceived value for Ilea's products is high amongst its target segment. IKEA is offering two kinds of competencies, one is generic that applies to all regions and defines IKEA all over the world, low and affordable price while the other is specific for some regions through which IKEA customizes its products for customers of different regions, Differentiation. On the Bowman's Strategy clock, IKEA is following a Hybrid Strategy, generically.

The Hybrid Strategy defines that the company has a low cost base and it is reinvesting in its ability to give low price to its customers while offering differentiation at the same time. This strategy is most suitable for IKEA to follow given its competencies and perceived value however; the strategy should be modified in the way it is implemented to cater to the increasing competition in various regions (Marketing Teacher, 2010).

Evidence from the case '

There are various evidences from the case that support that the strategy is Hybrid from the Strategy Clock. The evidence of high perceived value can be analyzed by the statement in last paragraph of first column (pg 709) "customers tend to think of the customer visit as more of an outing than a store visit." Page 709 continues to give evidence of high perceived value here onwards. The evidence of low cost can be analyzed on page 710 in statement of Mark McCaslin, "We look at the competition, take their price and then slash it in half." The case also states that IKEA invests in developing strong supplier network in order to get lower costs and offer lower prices. Last but not the least, the evidence of differentiation can be analyzed on page 710, second column where it is mentioned that products in China were customized.

I kea's Strategy - A Challenge for Competitors

Whenever a company has to enter an industry where competitors exist, there are various factors to be considered since the company will be entering as a competitor and will only survive if it meets the competitive advantage that its competitors have or offer better than that. So when any firm decides to come in competition with IKEA, it has to carefully analyze the competitive advantage that IKEA has and then analyze whether it will be able offer equivalent or better value to the customers. This analysis can be done through Porter's five forces model.

The bargaining power of suppliers is generally high in the industry but for IKEA is low since it has a strong supplier network and it invests in finding low cost and reliable suppliers. The barriers to entry are low; threat of substitutes and new entrants is high while bargaining power of customers is medium. Now, let's suppose a new firm is entering, it will have to develop a low bargaining power of suppliers and provide beautiful products of latest designs. Providing design with high price is easy, as stated in the case, but providing design at affordable price is extremely difficult. While IKEA is providing design, low cost, and differentiation at the same time, it will be difficult for any other new entrant or competitor to offer the same set of value proposition.

Thus for any competitor, the hybrid strategy of IKEA will be very challenging to imitate as it will take a long time to develop the low cost benefit and hence the low price to the customers.