Customer knowledge. One of the key competitive advantages IKEA has is its extensive knowledge about the customers. The company understands the purchasing factors that influence customers to buy and implements the best practices to induce that decision. IKEA offers low prices and a huge range of products. Designers constantly introduce new design products that look stylish in the eyes of customers. All the products are designed so it would be easy to transport and assemble. Moreover, the company offers the widest product range and positive shopping experience. All of these factors are aligned with what customers want and need and which results in higher sales. Without such extensive customer knowledge and best practices to benefit from that knowledge, IKEA would be unable to outcompete its current competitors.
Constantly using innovations to drive costs down. Low prices are the cornerstone of IKEA business idea and the the company always try to do things as efficient and cost-effective as possible. To drive costs down all the time, the company must find new and innovative ways to do that and to incorporate them in its businesses model. The business’ innovations include new materials that contribute more to sustainable environment and are less costly or using newest ways of packaging, handling and transporting materials.
Supply chain integration. IKEA is committed to long lasting relationships with its suppliers. In this way, the company can order large volumes and benefit from lower prices and greater quality while suppliers are assured of guaranteed orders. IKEA sources its materials close to suppliers to reduce transporting costs. The company also uses IWAY approach to closely integrate suppliers with its supply chain. All the efforts of closely integrating supply chain results in lower costs and a competitive advantage.
Brand reputation and market presence. According to Interbrand, IKEA is the most valuable furniture retailer brand in the world, valued at nearly $US 12.8 billion in 2012. The business operates 332 stores in 38 countries and is present in the major world markets. More than 600 million customers visit IKEA stores every year. Worldwide market presence and strong brand reputation ensures that customers will often choose IKEA over its competitors.
Diversified product portfolio. Unlike IKEA’s largest competitors, the company has fairly diversified businesses. In addition to its furniture products, the company operates restaurants, houses and flats. Although, firm’s main business is designing, manufacturing and selling furniture it is not so affected by the changing forces in this market as other furniture retailers.
Negative publicity. The company has been criticized many times for issues like poor treatment of employees, questionable advertising practices or lobbying government authorities. Negative publicity decreases brand reputation and customer loyalty.
Low quality of products and services. IKEA is unable to find compromise between continuous cost reductions while maintaining the same quality of products. According to UK Customer Insights report on IKEA by Verdict, IKEA’s customers are less satisfied with its product and services quality than the average customer in UK buying at other stores. Firm’s cost reductions lead to decreasing product quality, which was followed by higher number of products returned and damaged brand.
Standard products. IKEA’s main competitive advantage derives from low costs, which in part are achieved due to standardized products. Standardized products attract fewer customer segments. Therefore, the business inability to offer better quality more customized products allows its competitors to fill that niche and fortify their position in it.
Further expansion into developing economies. Retail markets grew by at least 5% on average in emerging markets in the last year, opening huge opportunities for IKEA’s revenue growth. The company currently operates in most of the developed economies but hasn’t firmly stepped into developing economies, except China. There are great opportunities for IKEA to expand into Brazil, Mexico, Indonesia and Malaysia to increase its presence in these markets to sustain future growth.
Growing online sales. Online retail sales account for 17% and 4% of total retail sales in UK and US respectively. Online sales grow constantly and with 870 million visitors to its website IKEA could exploit this opportunity and benefit from increased sales and lower costs.
Expansion to growing grocery market. The current trend of eating healthier food has resulted in higher demand for grocery products in many developed economies. IKEA has an opportunity to expand its grocery business by introducing more grocery stores in its current retail places. The company is already successfully managing its food outlets, so this expansion opportunity would be well aligned with the current operations.
Intensifying competition. Many low cost retailers such as Walmart, ASDA or Tesco are entering homeware specialists market where IKEA operates. These large retailers have similar specifics as IKEA, including low costs, well managed supply chain and huge market presence and can easily gain some market share from IKEA.
Growth of average consumer income. Growth of average consumer income means that people buy less low price and low quality products, which is exactly what IKEA offers in its stores. With the rising income people will be less attracted to IKEA and will turn to retailers that offer higher quality homeware products.