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IKEA - THE BEST COST PROVIDER

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Yi Eei Tham

on 2 October 2015

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Transcript of IKEA - THE BEST COST PROVIDER

Characteristic
Strategies Used
Combination of low-cost and differentiation strategies
Target Customer
Value Conscious Buyer
Competitive Advantage
Based on its capability to include upscale product attributes at a lower cost than rivals’ comparable products
Comes from matching close competitors on key product attributes and beating them on price
Have skills to simultaneously manage costs down and product quality up
A best-cost provider can often beat an overall low-cost strategy and a broad differentiation strategy where
Customer diversity makes product differentiation the norm
Many customers are price and value sensitive
A best-cost provider cannot be the industry’s absolute low-cost leader because of
The added costs of incorporating the additional upscale features and attributes.
Product Line
Items with appealing attributes, assorted features, better quality but not best
Production Emphasis
Build in appealing features and better quality at lower cost than rivals
Marketing Emphasis
Delivering best value
Either deliver comparable features at a lower price than rivals or else match rivals on prices and provide better features
Keys to maintaining the strategy
Unique expertise in simultaneously managing costs down while incorporating upscale features and attributes.
IKEA - THE BEST COST PROVIDER

OBJECTIVES
Value Chain Analysis
Company Background
VISION
"To create a better everyday life for many people"

MISSION
"To offer a wide range of well designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them"
Advantages
Disadvantages
Inbound logistic
Operations
Outbound logistics
Sales and Marketing
Service
GROUP 5
THAM YI EEI [PBS1411480]
NOR AZIANI [PBS141161]
CHEAH KOK MUN [PBS1411664]
KOH WAI MEI [PBS1331359]
CHONG CHAI YUN [PBS1331390]
Firms Infrastructure
Human Resources
Technology Development
Procurement
A best-cost provider’s competitive advantage comes from matching close rivals on key product attributes and beating them on price
Success depends on having the skills and capabilities to provide attractive performance and features at a lower cost than rivals
Many buyers are price and value sensitive
Standardized features/attributeswon’t meet diverse needs of buyers
A best-cost producer can often out-compete botha low-cost provider and a differentiator when

A best-cost provider may get squeezed between strategies of firms using low-cost and differentiation strategies
Low-cost leaders may be able to siphon customers away with a lower price
High-end differentiators may be able to steal customers away with better product attributes

To produce cheap & affordable product for the public / customers.
Better life for those who can`t afford expensive products
Ensure the consumer finds what they are looking for in store
low prices


Targeted at lower income families
Students and single individual
Focus on low prices
Reach public through printed catalog,radio,TV & internet
Create family-friendly store environment
Self-help service
Low number of sales assistants in store
Supportive activities such as demo for DIY items & customers services
Provide products information through catalogs and displays set in store
Around 550,000 solar panels installed in IKEA buildings

Ikea's 3D furniture app - virtually place items from catalog
Bring in innovation to take out costs-Eg. production based on density, make holes in material where you need strength
No need for raw materials as IKEA does not produce own brand products
Long-term strategic relationships with suppliers
strong bargaining power with suppliers - able to find suppliers that can deliver high quality items at low cost perunit
Hierarchical organisational structure
IKEA stores are large in scale
effective staff training & development
Loyalty program "Tack!" (pension plans for workers work > 5 years
Diversity leaderships (IKEA Women Open Network - IWON)
IKEA products are manufactured by 2000 suppliers and transported to the IKEA 32 distribution centers.

The products will be delivered in bulk to outlets by distribution center.

Retail stores and outlets have their own warehouses which use power systems like real-time devices that help to measure load flow situation.

Generally all IKEA distribution centers are situated near the seaports and this way help to reduces transportation costs.

Jobs in logistics account for about 20 -25% of each store’s co-workers hence, this allows to utilized manpower and productivity effectively.


IKEA has 10,000 products and does not manufactures its own products and they are all outsource to save cost.

Outsourcing provide IKEA to gain benefit such as keeping focus on its core business because it allow management employees to direct their resources and energy on their performance and therefore bring up efficiently those activities which created competitive advantage.

IKEA has Test Lab, were 22 laboratory technicians carrying out 50,000 experiments a year to test for the durability, strength and lifespan of the new and current products.

Operations are supported by high-flow facilities warehouses which employs automatic storage and low-flow warehouses that are more manual storage.

On the first floor, the products comprise of smaller item and frequently purchase items which are picked off by customers at floor pallet location racking as high as the typical person could reach.

Best Cost Provider
Combination of cost leadership and differentiation.
Giving customers more value for the money by emphasizing both low cost and upscale difference, the goal being to keep costs and prices lower than those of other providers of comparable quality and features.

By applying VCA
VCA is a strategy tool used to analyze internal firm activities.
It views the organization as a sequential process of value creating activities.
Recognizes which process could be improved to provide competitive advantage.

HOW?

Three Generic Strategies
Full transcript