Ikea
Ikea Case Study- Porter’s Generic Strategies
Michael Porter identified three generic strategies, cost leadership, product differentiation, and narrow market focus, for having above-average profits in any industry. He suggested that by only focusing on one of these strategies, a company can have a competitive advantage over its competition. He believed that by focusing on more than one strategy will make companies try to be everything at once and end up being “stuck in the middle”, or, basically, not achieve any of the strategies well enough to have a sustainable competitive advantage.
In the case of Ikea, they have adopted both the cost leadership and the product differentiation strategy to their business model, going against Porter’s recommendation to only focus on one, to great success in their industry.
Ikea achieves cost leadership by using very innovative manufacturing concepts and by making the customer a part of the manufacturing process. Ikea subcontract manufacturers in inexpensive countries that are close to raw material sources, thereby reducing the costs of operating and maintaining a plant and the cost of transportation of raw materials to the manufacturer. The customer was also made part of the manufacturing and transportation process, the furniture is assembled at home by the customer and they transport it from the store to their homes in their own vehicles. This saves the cost associated with the final distribution of the product to the customer’s home and the final assemble of the furniture. Another saving that came about from customers assembling the furniture themselves was the transportation cost of the furniture from the manufacturers to the stores. Since the furniture is not complete, it can be shipped in flat, cardboard boxes, reducing the space a single piece of furniture took up in shipping containers and trucks and reducing the number of furniture that is damaged in transport, because...
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