All businesses regardless of their sizes ought to gain and maximize on competitive advantage in order to be profitable. A competitive advantage can be gained if a firm outperforms its competitors in some business aspects. Notably, this may involve the production of quality goods and services at affordable prices. The decisions that a firm makes in an attempt to develop, sustain and explore on its competitive edge is referred to as business-level strategies. Usually, the first step in any business process is to identify goods and services to be produced, the market niche and available competition. The next important consideration after this step is to evaluate opportunities for competitive advantage (Machulskyi, & Bogomyagkov, 2012) . The competitive advantage can be price or quality based among others. As such, business strategy would influence the functional decisions of a firm.
On the other hand, a company might opt to diversify if it identifies an opportunity in other industries. In such instances, a business can contemplate corporate-level strategy. In essence, the resulting company must guarantee competitive advantage, efficiency, and profitability to the various corporate units (Bowman & Helfat, 2001) . Understanding business and corporate levels strategies are vital since it helps in determining the success of a company. Essentially, a business should understand that competitors could influence the strategy that a business can adopt. Such information is insightful because it tells a company about how to navigate towards success in the prevailing and future market conditions. The gist of this report is to provide details about the business and corporate levels strategies of IKEA. Moreover, the competitive environment will be analyzed to ascertain the primary competitor of the selected company. An additional section will be included to evaluate the long-term effects of the strategies adopted by IKEA and its main competitor.
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Analysis of IKEA’s Business-Level Strategies
About the Selected Company
IKEA is a firm that is involved in the selling of furniture. Ingvar Kamprad founded IKEA in 1943 (Ikea.com, 2017). Before, starting this company, Ingvar used to sell matched to members of the society. At this time, he was five years old. Later on, Ingvar discovered that he could buy matches at an affordable price from Stockholm, sell them cheaply and still make good revenues. Apparently, this is a trait of a good entrepreneur. In spite of the humble start, Ingvar managed to start a furniture business that today has grown to be a big business. Notably, the furniture was built locally and close to Ingvar’s family land. Ingvar managed to produce many furniture products at a relatively lower price because he used local industries to manufacture his products. Nevertheless, he was still able to make good profits from the sale of furniture.
Business-Level Strategy
As aforementioned, Ingvar used to explore on local manufacturers to manufacture furniture. Despite him selling them cheaply, he still managed to generate revenues. Nowadays, this strategy is commonly referred to as cost-leadership (Sandybayev, 2017) . Under this strategy, a firm is able to increase its market share by focusing on product prices. Typically, this strategy is attractive to those customers who are cost sensitive. Scholars have shown that the best way of achieving this strategy is by setting minimum prices in a particular target market (Sandybayev, 2017) . The same purpose can be realized by having the least cost to value ratio in the targeted market.
The success of IKEA is largely attributed to this business-level strategy. The company creates quality products at an affordable price for its customers (Sandybayev, 2017). IKEA, notably, operates in a free market. As such, the market provides equal opportunities to both existing companies and new entrants. In such markets, many furniture stores exist that provide IKEA with stiff competition. These include DWR (Design Within Reach). The products that DWR avails in the market are similar to those of manufactured by IKEA. Nonetheless, IKEA offers competitive prices when compared to DWR. On the other hand, this provides the customers with the opportunity to design their dwellings at lower costs. Apparently, this business-level strategy has helped IKEA to gain a competitive edge over DWR.
The strategy adopted by IKEA is not only a good choice but also robust. It helps the company to increase its market shares and subsequently increasing its revenue base. As a result, the company would be able to prosper. Various scholars have demonstrated that the strategy that firms adopt can influence their objectives (Sandybayev, 2017) . For example, if the strategy of a firm aims at increasing revenues, chances of that particular company remaining successful in the long-term are minimal. On the contrary, if a firm’s strategy seeks at increasing market shares, that firm is likely to achieve long-term success. The IKEA’s strategy is appealing to the customer since it provides them goods at affordable prices in order to win their loyalty. That would make IKEA remain relevant in the market as long as it can retain its strategy. Nevertheless, for the company to continue its operations it needs to conduct a regular market survey to understand if there are new entrants offering lower prices. The outcome of such studies ought to help the organization revise its pricing strategy.
Analysis of IKEA’s Corporate-Level Strategies
Corporate strategy plays an important role in ensuring the growth and stability of a company (Machulskyi & Bogomyagkov, 2012) . Corporate strategies can take various forms such as diversification and value creation among others (Sandybayev, 2017) . Essentially, they help organizations to identify new opportunities in the market and explore them to achieve growth and sustainability. Prior to formulating a corporate-level strategy, a firm needs to understand their target markets. Once such insight has been obtained, a company can then plan how to utilize available resources to achieve the main objective. IKEA has done a commendable work in ensuring that people from all lifestyles know its products. For instance, the company has located its stores in many parts of the world including but not limited to the United States, Mauritius, Netherlands, and China. Typically, this has enabled the firm’s products to gain a worldwide recognition.
Despite this achievement, IKEA still strives to make sure that the products consumers purchase are worth the money they are paying (Sandybayev, 2017) . Scholars refer to this type of corporate-level strategy as value creation. Under this strategy, a company often tries to ensure that it improves the quality of goods and services it is providing to its customers. In so doing, the prices that the customers will pay for particular products will be proportional to the quality of the products they buy. In addition, IKEA envisions improving customers experience with their products (ikea.com, 2017). The corporate wants every person to have a well-furnished home. Apparently, this is the point where the value-creation sets in because IKEA provides customers with a variety of well-designed products at competitive prices.
Since its inception, IKEA has managed to provide customers with quality products at an affordable price. Besides, the firm makes maximum use of raw materials so as to meet the demands of the potential customers. Additionally, the company is in constant touch with other manufacturers that have a reputation for producing quality furniture products. IKEA also allows their customers to identify suppliers who have quality raw materials (Ikea, 2017). The company will then purchase the raw materials in bulk in order to ensure that they get them at lower prices. On the other hand, this will ensure that they sell the products to customers at affordable prices.
The corporate-level strategy of IKEA is the best. Traditionally, businesses that take into consideration consumer tastes and preferences in creating products and services are always sure of consumer loyalty. Apart from it providing customers with cheap products, IKEA also wants the prices of furniture products to be proportional to their value. One of the ways in which companies can satisfy their customers is by creating products that are worth their price tags. IKEA has creatively managed to achieve this goal through its corporate-level strategy. Moreover, the ability of the company to make maximum use of resources has enabled it to maintain lower prices in times of inflation. As such, IKEA is among the few firms that strive to ensure that it avails products to the market regardless of the prevailing market conditions.
Analysis of IKEA’s Competitive Environment
Traditionally, markets present companies with numerous opportunities and challenges. Businesses that are able to successfully deal with the challenges and explore the availed opportunities will always manage to sustain their operations indefinitely. One of the challenges that all businesses face is adjusting to the competitive market environment. Many firms have ceased their operations in the market due to their inability to deal with market competition. Like other companies, IKEA faces competition from the existing businesses and new entrants. Nevertheless, its business and corporate levels strategies have helped it to gain a competitive edge over the competitors (Sandybayev, 2017) . The major competitor of IKEA in the market is DWR. DWR manufactures the same products as IKEA. However, the prices that IKEA’s products fetch from the market are lower compared to that of DWR.
Comparing the Business-level strategy of DWR and IKEA
The business-level strategy of IKEA provides it with a competitive advantage from a cost perspective. As such, many customers prefer IKEA’s furniture since they are cheap and high quality. DWR furniture products are quite expensive compared to that IKEA. Actually, the prices of DWR products are almost double that of IKEA furniture products. Although DWR products are expensive, the company has managed to gain significant market share in this industry. It sells its products in many fashions such as European designs. The strategy adopted by DWR has many elements that seek to enhance market penetration and profitability. These include improving consumer product knowledge, reinforcing brand awareness and improving consumer convenience by having integrated channels of sales (Dwr, 2017). Notably, this strategy is the best for those customers who are not priced sensitive. Besides, DWR’s products are highly differentiated to provide customers with many options (Dwr, 2017). Apparently, these two strategies are able to sustain a company’s activities. Nevertheless, the strategy of IKEA is superior since it provides the same products at affordable prices. The company has the potential to manufacture the European design furniture and sell them at relatively lower price. Consequentially, this provides IKEA with a competitive advantage in this industry.
Comparing the Corporate strategy of DWR and IKEA
The corporate strategy of both DWR and IKEA share some similarities. As indicated earlier, the corporate strategy of IKEA is inclined towards value creation. DWR’s corporate strategy also shares the same concept. While IKEA knows exactly what value creation entails, DWR strives to provide modernized furniture products to middle-class customers. On the contrary, the corporate strategy for IKEA is not biased. It targets all individuals irrespective of their social class. As such, the company’s products appeal to a wide range of customers thereby increasing the market share of the firm.
Impact in Slow-Cycle and Fast-Cycle Markets
Traditionally, markets will always subject businesses to competition. Companies that will develop and implement sound strategies will manage to overcome competition challenges in the market successfully. A market can either be said to be a slow-cycle, fast-cycle or standard depending on the protection of the competitive advantage. A market is often referred to a slow-cycle market if the competitive edge of a firm is shielded from imitation for quite a long term. In such markets, it will take longer periods before a new product is presented in the market. On the other hand, a fast-cycle market is a market in which information exchange takes place at a faster rate hence allowing high rates of innovations (Udin & Akhter, 2011) . Consequentially, new products are availed in the market within short spells.
In a slow-cycle market, the decision the decision about DWR will change. In this type of market, the no new product is expected soon. Therefore, the consumers will continue with their purchasing trends. They will stick to the products they feel they prefer. In other words, the consumers will not intend to buy new products. As aforementioned, DWR aims at producing modern furniture for middle-class people who wish to shift to premium furniture products (Dwr.com, 2017). It should be noted that DWR is characterized by high innovative abilities. Nevertheless, due to the nature of the market, the company is unlikely to be successful in the long term. On the contrary, IKEA will remain to be successful because it will face little competition from companies. The flexible nature of the company’s strategy offers it a chance to customize its products based on consumer needs at a particular time. As such, the customers who still wish purchase their traditional product would have a chance to do so. On the other hand, those who want to get modernized furniture can also have an opportunity to access them at affordable prices.
However, the trend would change significantly in a fast-cycle market. As mentioned above a fast-cycle market is characterized by high innovations. In that regards, the market will always be presented with new products. In most cases, market trends are often reflective of customers buying behaviors. It then follows that in a fast-cycle market, the customers will be more than willing to change their traditional preferences to update their furniture. In that case, DWR would pose a significant threat to IKEA since they both have similar innovative abilities. The market, in this case, requires a firm to be innovative and develop novel products for the customers (Udin & Akhter, 2011) . A firm that fails to meet that demand is would be irrelevant in the market. Most markets in today’s world are fast-cycle markets. Both DWR and IKEA are doing considerable work to ensure that they remain relevant. They both produce furniture products that are customizable and address immediate needs of their customers. The only difference is that IKEA furniture products are cheap and are not confined to a particular social class like those of DWR. That has given IKEA a competitive advantage in the market.
Conclusion
Business and corporate levels strategies directly help in determining organizational success. Business-level strategies are the decisions that a firm makes in an attempt to develop, sustain and explore on its competitive edge. On the other hand, corporate strategies provide a business with an opportunity to grow and attain stability. A company such as IKEA has been successful in its operations due to strong business and corporate strategies. Its business strategy, for instance, has enabled the company to create and explore its competitive edge. Moreover, IKEA’s corporate strategy has played a pivotal role in achieving consumer satisfaction. Despite facing stiff competition from other established brands such as DWR, these strategies have allowed IKEA to sustain its activities in the market. Besides, it makes the company remain relevant in both slow-cycle and fast-cycle markets.
References
Bowman, E. H., & Helfat, C. E. (2001). Does corporate strategy matter? Strategic Management Journal , 22(1):1-23.
Dwr.com (2017). Design Within Reach . Retrieved on 1 st August 2017 from http://www.dwr.com/.
Ikea.com (2017). IKEA . Retrieved on 1 st August 2017 from http://www.ikea.com/hk/en/.
Machulskyi, I., & Bogomyagkov, Y. (2012). Corporate and business strategy at MNEs: A managerial practice view . Retrieved on 1 st August 2017 from http://www.diva-portal.org/smash/get/diva2:563234/FULLTEXT01.pdf.
Sandybayev, A. (2017). Strategic Supply Chain Management Implementation: Case Study of IKEA. Noble International Journal of Business and Management Research , 1 (1):5-9.
Uddin, M. B., & Akhter, B. (2011). Strategic alliance and competitiveness: theoretical framework. Researchers World , 2 (1):43-54.
