Strategic Marketing for Creating Competitive Advantage

Discuss about the Strategic Marketing for Creating Competitive Advantage.

Introduction

The following report is based on IKEA’s global approach to gain success and become the market leader in the category of home furnishing products. The purpose of the report is to analyze the global approaches of IKEA. The report effectively discusses how IKEA has achieved a tremendous growth both in domestic and global market in spite of aggressive dynamic strategies of competitors in the industry. The major mission of the company is to provide a large range of well-designed activities, innovative home furnishing products at low price so that all customers could afford the price charged for the products. As mentioned in the case study, IKEA undoubtedly has become the biggest home-furnishing firm with 278 stores in more than 26 countries. The case study indicates that the overall sales of the company had gone beyond €25 billion in 2012.  The report also highlights how IKEA has become able to gain cost leadership and differentiation.

It is a well-known fact that IKEA is an international brand in the home furnishing market with more than hundreds of stores in the global market. The company has a clear mission of providing vast range of furniture as well as accessories at reasonable price to make it easy for the buyers to the purchase the items. The major keyword of selling the vast range of products is the “functionality” (Hultman et al. 2012). Thus, the end users could find everything they need under one roof. The success of IKEA is based on a simple approach of keeping the cost low between the manufacturer and buyers. The customers of IKEA have to assemble to the purchased items, which creates “innovation upstream”. Hence, the suppliers find it easy to save cost since self-assembly of furniture items remain as cost saver for the buyers.

This approach of IKEA implies that it implement the cost leadership strategy of Porter’s Generic. As put forward by Tansey, Spillane and Meng (2014), Generic Strategy of Porter is the best way of gaining competitive advantage.  While applying the cost leadership strategy, the organizations usually maximize the profits by minimizing the costs but they charge the industry-average price. In addition, the companies increase the market share by setting low price for the products but they still make a good amount of profit on each purchase of buyers as they have minimized the cost. The case study indicates that IKEA has applied the same principle as they are mentioned in Porter’s Generic strategy. The company has achieved its market growth reducing its cost of products by 20%, which is below the price of competitors but average price of the industry. When the competitors sell the furniture items reducing the cost by 5 to 10%, IKEA’ products are 20 percent cheaper than the rivals are. In addition, the reduction sometimes goes up to 50% (Hultman et al. 2012).

The case study indicates that IKEA has become the leader in respect with the cost in the market. However, Tanwar (2013) commented that it is not always effective for a firm to become the low-cost producer in the market, due to other low cost producers in the industry who might try to undercut competitor’s price. The competitors prevent the attempts to maximize the market share. For example, the competitors like small but specialized retailers and manufacturers acquired a large share of the market by decreasing their cost of products. However, IKEA has overcome this challenge by investing on the technology that brings the cost down.  IKEA developed a low-cost base such as raw materials, labor and other facilitates as the approach of minimizing the cost below the rivals.

IKEA’s achievement of differentiation from its competitors

The home-furnishing giant IKEA tend to follows all aspects of Generic strategies. The mission statement of the company implies that the company relies on the cost leadership strategy but it is also implementing an “indirect differentiation” strategy.  This is because of its unique way of engaging customers in the value chain. The buyers tend to look for stylish as well as fashionable furniture and household accessories at low cost. This has become the targeted market segment for IKEA. Thus, for this sort of customers, the organizations offer home furnishing that incorporate innovative designed products, functionality, and acceptability at low price. As put forward by Baroto, Abdullah and Wan (2012), the principles of differentiation helps to keep the products different from others as well as more attractive than the competitors do. While doing this, the organizations have to pay attention to functionality, durability, design and the brand image. However, Banker, Mashruwala and Tripathy (2014), commented that the company must have to ability to provide high quality of products.

Nevertheless, IKEA applies the differentiation strategy to remain agile with its new products development techniques. The company positions its products and services by implementing a domestic setting. Characteristically, the furniture stores of competitors usually display large varieties of a single product in an isolated room. This means the buyers could examine living room sofas in one room; likewise, the tables in another room. The chairs probably in another room but accessories are placed entirely somewhere in the store.  Conversely, the customers of IKEA could examine multiple furniture combinations including the sofas, chairs and tables in a single setting. This omits the requirement for sales person and the decorators to help the buyers imagine how a furniture arrangement would look when they are placed in the home.  This strategy of IKEA needs only a fewer sales personnel; thus, IKEA keeps its cost low.

The data provided in the case study helps to understand that low-cost strategy has always become a top priority for IKEA as this strategy is applied to all stages of its marketing activities. Even though, being a cost leader IKEA provides several differentiated furniture items that attract its target customers, the focused cost-leadership strategy helps IKEA to provide some differentiated features with their low-cost items. As put forward by Elg et al. (2012), the customers of IKEA are positively involved in the shopping experience. The core idea of IKEA relies on the buyers to select, collect, transport as well as assembles the items themselves.  Thus, it can be mentioned that such wide engagement of buyers largely contribute to IKEA’s low cost.

IKEA’s approach to global expansion

Even though IKEA was running its operation successfully, the company needed to expand its business in the global environment.  Although, IKEA has been successful in building its stores in 29 nations, an undeniable fact was that the market share of the company was still limited (IKEA 2017).  The market has become dynamic, the needs of customers are changing; thus, the change is inevitable. The case study implies that IKEA’s competition had been very fragmented and it remained locally. However, the large organizations were shifting the strategies with a focus of global expansion. In fact, the large firms were widening their range of products, which was potential threat for IKEA. These large competitors were strong financially and with retailing competence. Thus, to deal with the coming challenge, IKEA implemented the approach of keeping the price low again and reinforcing the presence in the market. IKEA developed the control as well as coordination in the large value chain, which includes raw materials, production, range of development, distribution of products into stores. The company has increased the number of stores in the existing market. IKEA has developed the strategy of becoming the market leadership in each market.

Nevertheless, it can be added that increasing sales in existing stores enabled the company to expand the business in the global environment. In European market, the customers use vehicles; thus, the firm has developed its stores in the suburbs and downtown of the cities. Additionally, the retail organizations in the industry probably have control on retail end or product design as well as production. Conversely, Jonsson,  Rudberg and Holmberg (2013) have mentioned that vertical integration makes the firm complex compared to the competitors because IKEA owns productions, development of product categories, stores as well as distribution. More specifically, to reach the customers easily, IKEA adjusted its store location approaches.

The china market proved to be challenging IKEA to acquire. In most of the market of foreign countries, the firm tends to use its product catalogue as the primary marketing tool. Nonetheless, in China, the catalogue increased the opportunities for rivals to imitate IKEA’s products such as design. Thereafter, the competitors provide similar products at low cost. However, IKEA understood the situation but it did not react because Chinese laws were not effective enough to prevent such activities. Instead of reacting on the situation, IKEA used social media and micro-blogging site of China to target the urban areas (Hrelja, Isaksson and Richardson 2012). Alternatively, the products of IKEA were extremely expensive compared to local competitors. The buying expectations of the customers were based around the small and local shops. IKEA could have some changes in its strategies to adapt to Chinese market.

Conclusion

As the furniture company IKEA gears up to get in Indian market, it realized that experience gained China market might not be useful because in emerging markets, the global firms may not be able to replicate their successes implementing a low-pricing strategy.  This happens as the local manufacturer of that market might have a lower cost structure.

Reference list:

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Banker, R., Mashruwala, R. and Tripathy, A., 2014. Does a differentiation strategy lead to more sustainable financial performance than a cost leadership strategy?. Management Decision, 52(5), pp.872-896.

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