What strategy did IKEA use to internationalize? What are the strengths and weaknesses of this strategy for IKEA?
IKEA developed an aggressive marketing strategy that was costly but achievable. This made the company become the largest warehouse in the world that sold furniture. The company’s strategic plan centered on the quality of the products produced. Knowing that the demand for furniture was high, IKEA understood that making a mark means that the company must develop a strategic plan that would give them a competitive advantage.
The firm then developed a marketing strategy of producing high – quality furniture with Swedish design. The company’s target was the young couples, and the average class that saw the advantage in buying ready-made furniture that only required fitting them together. Another strategic plan used by IKEA was seen in the firm’s resolve to cut down the cost of production. Remember that innovations are expensive and sometimes wasteful, but the result would always justify the huge cost of acquiring a strategic plan.
Transportation cost was a major issue at that time, so IKEA developed finished furniture that is flat and would easily fit into small spaces and save cost marginally. This gave the firm a competitive advantage all over Sweden. With the prospect of expansion in mind, IKEA had to make the growth rate increase geometrically. The key factor that contributed to IKEA Internationalization stems from the sale of low-cost furniture in countries that had available raw materials and could easy have access to transportation.
IKEA observed that using this marketing tool would be the major breakthrough needed to internationalize. IKEA used demographic study of countries around Europe to locate cities that could boast of low-cost of raw materials and transportation.
The strength of the strategy can be seen in the market growth of the company. The global growth of the firm has been alarming and the company recorded annual sales that topped that of Pepsi in 2008. Thus, the highest quality furniture, brand trademark, portability, and cost of furniture are the market variables that distinguish the company from the rest competitors. However, the company suffered setbacks because of the products that carried only Swedish identity. This is the major weakness of the company.
The company refused to produce localized furniture that suits the country and that has been a setback for the company. When it entered the US in 1985, its annual sales dropped drastically because of this weakness. Customers were of the opinion that furniture with US identities was best desired than furniture with a Swedish design. An example would be that of a kitchen furniture that was smaller than that produced in America. Although the company had a reason for not changing their product, which hinges on the cost of production, it cannot fully expand in the US until it produces furniture with US designs.
Why do you think it chose Switzerland as the first country outside Scandinavia to internationalize?
The most important decision taken by IKEA was to cut down production cost to the minimum. This was the turning point to the success of the company. Internationalization became easy thus; IKEA used market segmentation strategy to study the population size and dynamics. In addition, the company knew that to cut the cost of production it has to choose countries that had cheap raw materials and had cheaper access to them.
Although the raw materials were scattered all over the world, their availability at a reduced price determined where IKEA would invest. Carefully, IKEA examined countries internationally and picked some good sites that had cheap raw materials and supply of labor. By doing, this IKEA stood above the rest competitors in cutting the cost of production. This strategy was the reason for choosing Switzerland as a location for IKEA stores.
Market principles dictate that when the cost of production is reduced as compared to that of similar competitors, pricing would become a competitive advantage for the company. This is how IKEA won the hearts of the numerous customers in Switzerland. The location of a company, pricing, could affect the demand for any product. Thus, these factors are dependent on the population size in that location.
Do you think IKEA’s strategy was deliberate or emergent?
In marketing, any strategy that gives maximum profit defines the success of that business. Although developing these strategies can be expensive, wasteful and time consuming, it would be productive if it were planned well. IKEA used this principle to diversify internationally. I believe that this strategy was in the best interest of the company. However, it is worthy to note that the company had a major setback in the US and some part of Britain because of the product identity.
The strategy had a weak spot in that; they refused to produce furniture that wore US identity. For example, US citizens preferred large furniture and big kitchen furniture, and that of IKEA was smaller in shape. This hindered the sale in the US and reduced IKEA expansion in the US. I would rate this strategy as timely and realistic because the records have shown that it was successful.