Ikea business model Essay
KEA case study Question 1 Investigate Kike’s business model and sources of competitive advantage as depicted in the case. Why do you think it has been so successful In the fragmented furniture industry? What do you conceder to be Kike’s main weaknesses? To answer question one I will split the question Into three parts. Beguiling by investigating Kike’s business model and sources of competitive advantage. Then going on to address why It has been so successful In the fragmented furniture Industry. An finally explaining Kike’s main weaknesses. Kike’s business model and sources of competitive advantage
Business model Being one of the largest furniture companies in the world KEA must be doing things right. By analyzing the case study we can see KEAS strategies within its business model which have created such a successful business. Kea has a very unique business model. It starts with how they design there furniture products In the factory’s to ensure money is saved at the earliest stage with the saving being passed on to the consumer. For example the furniture will be produced with the construction and size in mind so it’s effective for transportation packaging and production .
KEA understand that the majority of Its customers
Need essay sample on "Ikea business model"? We will write a custom essay sample specifically for you for only $ 13.90/page
This showcases everything on offer while the customer walks round as a result they an see and potentially pick up other items they had not originally visited the shop for. Kea keep a large volume of the same article in order to keep costs down. Kea also put a lot of time into developing materials. They try to keep the cost low and environmentally friendly again passing the savings on the the customer. In china they took advantage of the abundant materials in the country and opened up their own plants processing the wood to cut importing costs.
KEA have expanded from their home in Sweden to over 37 other countries mainly in North America Asia Australian and Europe. No other competitor has achieved growth in this way. Kike’s unique way of sales, production and distribution have meant its been globally welcomed. KEA has been made to adapt to meet the customers need s when entering different countries it always makes the changes to meet with local practices. Competitive advantage One of Kike’s main mission objectives is to offer low prices to their customers.
By cutting costs but retaining a well manufactured finished product they keep prices low and the customer is happy and returns. To keep costs low they have chosen to use lat pack furniture allowing the customer to take the furniture items home without needing expensive delivery. KEA offers good services to it costumers to retain competitive advantage. By keeping up a good customer service reputation they know that customers feel comfortable shopping there. From my personal experience they are very good with returns and helping customers chose the right items for their exact needs.
This leads on KEA having good brand image which is a key competitive advantage. If a customer has been using KEA in their home country and moves broad there is a high chance they will be able to continue shopping with KEA and will feel at ease furnishing there new home . KEA is known for high quality with exceptional design which binned with its good prices means customers stay happy. Keeping up to date with styles and changing styles when entering different markets around the world enables KEA to retain competitive advantage anywhere in the world.
An example of this is larger beds when entering the USA. Within the KEA shops there is a massive variation of different products from bathrooms to kitchens and everything you need to fill pretty much every room. As a customer it is a one stop shop for furniture and homeward. When shopping at KEA customers know they are buying updated products with new innovative styles. A large customer base with variations of products to suit different price ranges allows KEA to appeal to wide variety of customers. Why has KEA been so successful in the fragmented furniture industry?
I believe a combination of KEAS unique business model which allows it to have broken in to a substantial amount of diverse markets allows the business to grow and adapt Kike’s main weaknesses The flapjack furniture has been listed as a competitive advantage but it is also a weakness. Certain consumer groups might find having to build their purchased furniture to much hassle and prefer to buy a ready made piece. Alto KEA is in over 37 countries it only has 301 stores which is a relatively small amount.
This can mean customers are to far away to travel to KEA especially in places such as China where not as many people own cars. The store layout has has some criticism especially in the USA where the customers didn’t want to have to walk around the maze like horror and requested shortcuts to the checkout. The Swedish design does not appeal to to other markets. Differences such as size and style needed to be changed which cosseted money. In the USA they thought the flower vases were drinking cups. The advertising they use could be better there is very little television adverts or online adverts which could be utilized.
Alto the furniture is stylish it is not built to last a lifetime which can put some customers off. Question 2 With use of relevant globalization and internationalization models analyses and evaluate Kike’s internationalization strategy. What do you conceder to be the key opportunities and threats facing KEA at the end of the case study? Within my answer to this question I am going to break the main question into three parts. Firstly listing the relevant global and internationalization models. Secondly Analyzing Kike’s internationalization greatest.
Thirdly analyzing the opportunities and threats facing ‘KEA. Relevant global and internationalization models Hecklers-Olin model Uses the countries most abundant materials to produce products. For example Bamboo in china to make furniture. The most abundant material is the main material used when making the product. They then export the finished product therefore saving money and sustaining the local economy. Kea fit into this model as they utilities the abundant material they however don’t export from china they sell within the country.
In other locations they have had ton outsource the manufacturing. In Europe they use cheap manufacturing plants in eastern Europe. This would be because alto Sweden had trees and forests its labor charges and general manufacturing costs are higher forcing KEA to outsource to save money. Lender hypothesis (Staff Bureaucrats Lender, 1961) Lender believed the more similar are the demand structures of countries the more they will trade with one another. Further, international trade will still occur between will be slightly specialized to create competitive advantage between the two nations.
For example KEA coming from Sweden having much the same preferences as the rest of Europe or USA needing larger beds / buying flower vase to drink from. Kike’s internationalization strategy KEA have used an organic growth approach to global growth. They have not used Rogers with smaller business or bought out other companies. They have grown due to a increase in customer base. They how however taken it upon themselves to move to different worldwide locations where they would not have had an existing customers and effectively started from scratch.
People in china would not have come across an KEA store unless they had traveled to a different continent. So advertising and promotion would have been from scratch. They have used aspects of both these models to internationalist there brand. KEA also has a franchising department which aids its globalization. As the franchiser KEA has the following main tasks: To expand Kike’s bunnies through franchising while retaining the KEA concept being its, pricing, individuality in its store design and its style.
To break into any global market ‘kea have undergone extensive market research for example when entering Switzerland they did extensive research but it appears they didn’t do so much in America. To analyses how the furniture giant broke into different global markets I have used main examples of America and China. These two very different locations gave KEA different challenges to overcome. USA The company initially tried to replicate its existing business model and products in the US but soon found It had to customize its products based on local needs. American customers, for instance, demanded bigger beds and bigger closets.
KEA had to make a number of changes to its marketing strategy in the US. The most drastic change was possibly to have to change the store layout to accommodate to the Americans who requested shortcuts to the checkout. China Before establishing themselves in China KEA understood Chinese apartments were small Customers required functional, modular solutions. The company made slight modifications to its furniture to meet local needs. The store layouts reflected the typical sizes of apartments and also included a balcony resolving the problem of high import taxes in China.
Opportunities and threats facing KEA Opportunities KEA has a number of opportunities firstly following the success of their global also expand its sales online. With location being an issue for some of its potential customers having on online store with conventional delivery methods might being more profitable business. KEA could also expand on there existing grocery and food arrest. Even possibly opening small local KEA stores offering these services . Another opportunity for KEA is to start a high end longer lasting range again to try to appeal to another market.
Threats Intensifying competition from online superstores such as Tests and Walter. They are offering online and in store cheap furniture. These shops are more localized compared with ‘KEA. The slowing of the first time buyers market. First time buyers are one of Kike’s main target audience. The economic regression and people not having cash to spend on thing which rant needed. In the recession people will focus on spending money on necessity such as food and healthcare rather than furniture and home comforts.