Ikea Differentiation Strategy
IKEA is the world’s largest furniture retailer from 2008. It is well-known for its low cost control, at the same time providing high quality product. Moreover, the corporate structure of IKEA is complex while it got a success in the global expansion. In the following parts, I will introduce the differentiation point of IKEA in different dimension, and how it achieves a lower cost position than its rivals.
Since the 1990s, some of IKEA’s product was produced internally. At the very beginning, Ingvar Kamprad who is the founder of IKEA hired Gillis Lundgren as a designer. A certain proportion of products were designed in house.
However, when IKEA entered to US market, it found that the taste of furniture didn’t fit U.S style. In order to suit
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The first thing is self-assembly. In order to be efficiently pack and ship, it is better to have flat packed. On one hand it can reduce transport and warehouse cost. On other hand it can reduce damage. Besides, customers are willing to have self-assembly in exchange of lower prices. Secondly, IKEA sell the furniture by itself rather than employing an agent or retailer, so the price of product can sharply undercut as well as the cost can be lower.
Moreover, IKEA did a clever decision of manufactured and outsourced in different countries which are lower cost in order to cut prices even further. For example, the furniture manufactured in Poland was 50% cheaper than furniture made in Sweden. Therefore IKEA transferred the production from Sweden to Poland. After that, for the purpose of avoiding the costs of shipping and also the currency difference, IKEA decided to work with suppliers in different big market’s company. And now, 90% of the product sold in IKEA was outsourced to independent suppliers and only 10% was produced by
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IKEA introduce new technology such as a better way of treating the surface of wood, so it can save the cost of production. Besides, it invested a lot in building long-term relationships with suppliers, so those suppliers feel satisfy and hence willing to devote a lot to help IKEA develop and purchase new technology for lowering the cost of production. Furthermore, IKEA also purchased a Swedwood as a mean to buy and run manufacturers and also invest lots of money to it to help suppliers adopt new technology and further drive down the
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