IKEAs business model and sources of competitive advantage Essay

IKEAs business model and sources of competitive advantage - Essay Example What is best about IKEA’s furniture is that although it is cheap, yet it is stylish and durable. IKEA’s business model is based on maintaining low cost structure so that it can continue to deliver its promise of low price and good quality lifestyle to its customers. IKEA has very carefully managed to keep its cost structure low by practicing a few strategies. For instance, it has chosen suppliers from different parts of the world and maintained strong and long term relationship with them by offering them office facilities and technologies to carry out their business smoothly. IKEA focuses on efficiency though long production runs so as to entice investors and bring down the cost structure. The raw material needed for the manufacturing of furniture is chosen carefully without any interference of third party; expensive wood is replaced by less expensive and good quality raw material. To further reduce its cost structure, IKEA’s furniture arrives at the stores in disassembled parts in flat packaging along with instruction manuals; this not only lowers the transportation costs but offers ease of handling to the customers. Unlike other stores in the category, IKEA’s stores are located in the outskirts and only few are owned by the company. Franchising is a good option for lowering the cost structure and IKEA has taken it up religiously. Moreover, IKEA ensures that it does not rely on one supplier for the manufacture of a single product. Take an example, for an IKEA chair, the seat is supplied by a manufacturer who is in one corner of the world, legs come from a supplier from another corner and nuts and screws are supplied from totally different regions. IKEA’s furniture designs are basically Scandinavian with little or no modifications. These designs are considered outclass and accepted widely in non Scandinavian countries equally. However in some regions the customers’ exhibit displeasure towards Scandinavian designs because the items do not fulfill their cultural and personal needs. Apart from all the good steps taken by IKEA to maintain cost leadership, there is still room for weaknesses which must be addressed to as to strengthen the brand image. Although IKEA has expanded its operations in major territories of the world for earning more revenues but it has failed to understand is that every country has different culture, demand, taste and most of all, legislations which it has to abide by. Since these factors vary from country to country, it has come to IKEA as a big challenge to meet the customer and co untry’s requirements while maintaining cost leadership. Because IKEA promises low priced furniture to its customers, innovation is not seen much because bringing in new designs can disturb the cost structure. Sometimes IKEA fails to understand that one size fits all cannot hold in the line of furniture. Scandinavian designs might be appealing to countries in the Europe and nearby but cannot please the Americans in the same manner. The stores of IKEA are located outside the cities as per the low cost strategy. This causes the customers to travel long distances so they prefer to make purchases from nearby stores. We have learned from the given case study that IKEA has chosen cost leadership to be its core aim and strategy but only this one factor is not enough for its survival. It has to have more points of differentiation because when other competitors in the industry bring their prices down and offer quality and superior customer service, then chances are likely that customer loyalty and brand image of IKEA will drop