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what are IKEA’s sources of competitive advantage

IKEA’s sustainable competitive advantage comes from several sources including but not limited to operational efficiency, brand image, strong supplier network, large product line, and cost leadership. As a home furnishing brand, IKEA has grown into the world’s most famous company which has sincerely focused on providing a superior customer experience through a differentiated franchise-based business model at whose core are the customers and their preferences.

The main target market of the brand is the millennial generation and therefore the company works to design and develop home furnishing products according to the choice of the modern customers. However, its pricing strategy and how the company markets itself both have helped set the company apart from the competition. IKEA’s pricing strategy is the core element of its business strategy apart from product design. Here, we are discussing the leading sources of IKEA’s competitive advantage.

IKEA’s Main Sources of Competitive Advantage :

Lower Prices:

Lower prices are the leading source of competitive advantage for IKEA. Just like Walmart, IKEA’s pricing strategy also works great. The company has been able to secure its leadership position through its pricing strategy. However, it is also why customers love IKEA around the world. Lower prices, however, do not mean that the company offers low-quality products.

On the other hand, the products made by IKEA are of good quality. The pricing strategy of IKEA is targeted at the middle-class segment of consumers who form the largest part of its customer base globally. Its pricing strategy is also what differentiates the brand from its competitors. The company offers a large range of home furnishing solutions at quite affordable prices.

IKEA democratic design.

Brand image:

IKEA has maintained a customer-friendly brand image which is also a key source of competitive advantage for the brand. By focusing on superior customer experience and higher customer satisfaction, the company has achieved a distinct position for itself in the global home furnishing market. Apart from being a customer-friendly and ethical brand, IKEA is also known as an innovative business.

The company has focused on innovation for higher efficiency in all aspects of its business from supply chain and production to marketing and sales. Whether it is the online sales channels or the company store network, the focus of IKEA is on offering superior service and maximizing customer satisfaction. This is also a key factor that differentiates IKEA from the rival brands and has helped its establish itself as a leader.

Apart from its pricing strategy and wonderful design of home furnishing solutions, the company’s focus on customer service has led to a stronger reputation in the market. Since competition is heavy in the industry, maintaining a strong reputation and brand image becomes all the more crucial for the home furnishing brands. IKEA’s marketing strategy has also helped it build a distinct identity and achieve a competitive edge over the other brands.

Cost efficiency:

Cost efficiency is also a key source of competitive advantage for IKEA. Despite its low-cost pricing strategy, the company has a highly profitable business model. Apart from the operating model of IKEA, its supply chain also plays a key role in ensuring the cost-effectiveness of its business model. However, it does not mean that the company sources low-quality raw materials. The quality of its products is still good.

The company has managed a great supply chain network and also adopted cost-cutting measures in its supply chain, production and sales network. All these factors combined with innovative design have together helped it create a highly efficient, sustainable, profitable and cost-efficient business model which offers it a competitive edge over the rival brands. Cost efficiency is one of the core sources of sustainable competitive advantage for IKEA which benefits worldwide from the high demand for its affordable home furnishing products. Apart from supply chain and production, the company also saves money in the area of logistics.

Marketing:

IKEA’s marketing strategy is also a  source of competitive advantage for the brand of home furnishing products which has established itself as a consumer-friendly brand that sells products at affordable prices. Just as in the other aspects of its business like supply chain, manufacturing, and design, the company has adopted innovative practices in the area of marketing as well. The company mixes digital marketing with instore branding and advertising to achieve the best results.  The promotional techniques used by IKEA include promotional catalogs as well as digital marketing and social media marketing.

Using social media, the company has been able to grow customer engagement rates. Apart from that the company also uses AI and virtual reality to engage customers and offer them a differentiated in-store experience. IKEA stores also act as marketing channels for the brand where it promotes its new products. By mixing its online and offline sales channels with other marketing channels, the company has been able to achieve great results. Its website includes a large range of products and apart from ordering online, it also offers customization options for its customers.

Supply chain:

IKEA’s success can also be attributed to a large extent to its successful supply chain management. A strong supply chain and distribution network is like the backbone of a brand and in this area, IKEA is highly effective.  An efficient supply chain is essential not just to gain a competitive advantage and to maintain your competitive edge but also to retain your leadership position in the industry.

IKEA’s supply chain plays a key role in ensuring the cost-effectiveness of the brand and that the company is able to continuously bring good quality products at affordable prices to the market for its customers. The company has focused on managing strong and long term relationships with its suppliers. It sources from around 1800 suppliers and has established 42 Trade Service Offices to manage supplier relationships. 

International Presence:

IKEA has also managed its international presence successfully through an optimized distribution network which includes both online and offline sales channels. In 2019, the total number of IKEA stores around the world grew to 433 with the opening of 12 new stores. Apart from that, the company is reaching customers through e-commerce in 50 markets.

By 2025, IKEA aims to reach and interact with 3 billion people. In 2018, the 422 stores of IKEA welcomed more than 957 million visitors. IKEA is continuously expanding its reach through both e-commerce and physical channels. Its international presence enables the brand to grow its customer base continuously. Strengthening international presence continues to drive the profitable growth of IKEA.

Design, quality, and range of products:

What really differentiates the IKEA brand from the others in the market is its large range of great quality products, modern and impeccable design of products and its ability to awe its customers by continuously replenishing the wardrobe with home furnishing solutions that the modern generation loves. When it comes to design, IKEA is nearly unequaled and has a great team dedicated to the design of new products and furnishing solutions.

IKEA calls its design process democratic design which is a combo of form, function, quality, design, value, and sustainability at affordable prices. It has brought a large range of furnishing solutions for all rooms in your home. There are around 9500 products in the IKEA range and it is continuously growing. However, the customer is always at the center of everything that IKEA does including product design, product quality, pricing, and in-store customer service.

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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