Understanding Consumer Choices And Behaviors Essay

1914 words - 8 pages

The IKEA brand is associated with simple, low cost, stylish products. The concept was furnishing products and house-wares that had wide appeal to a variety of markets and segments, both consumer and the business market exclusively. Both markets were looking for well styled, high quality furniture that reasonably priced and readily available. Initially, IKEA did not customize its products to local markets, but kept to standardized products and operations worldwide. This standardized strategy of internationalizing minimized costs. IKEA developed a model for the business, where it was able to keep costs low. From the customer point of view, they were able to buy low cost furniture, however they had to assemble and collect the flat-packed furniture from stores. IKEA to was able to reduce costs, as this costly part of the value chain was carried out by the customer. IKEA had excellent international procurement. Thirty buying offices were created to source from over 1,400 suppliers worldwide, IKEA negotiated prices that were between 20-40% lower than competitors for comparable goods. IKEA was successful at i) identifying worldwide suppliers and ii) managing quality and iii) prices with suppliers, to keep margins low. It had excellent supply chain management and utilized the latest IT infrastructure. Due to the sheer number of orders and components required by the company - IKEA developed an efficient system for ordering from suppliers, integrating them into products and delivering them to stores. This was achieved by a world network of 14 warehouses. Inventory was stored - and the IT system managed supply and demand to stores, keeping inventory costs low. Anticipating the needs and wants of customers. IKEA was successful in product design and ensuring ranges were modern and of good quality. Challenges and outlook for IKEA: Its expansion into the US market. It adopted an ethnocentric strategy for going international - where it had standardized products and standardized operations. This helped to keep costs low, but ignored the different tastes and preferences of the US market and the way they purchased furniture. IKEA had to change the model of operating, giving greater ownership to its US subsidiary, to become polycentric - stores in the US had the ability to adapt furniture and customize to suit the local market. Costs increased as a result, but this localization approach was necessary for sales. Considering the current economic climate and the degree of uncertainty regarding jobs and new construction, do you think this will help or hinder IKEA and other companies like them?

IKEA has an advantage because they are able to keep production cost low through local offices and pass those savings onto customers. IKEA was successful in recognizing world suppliers when it looked to expand its offices and has developed a strong supply chain. This global standardization permitted them to make quality furniture for very little when compared to other...

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