Image taken from http://inhabitat.com/wp-content/blogs.dir/1/files/2013/07/ikea-sign.jpg

One of my classmates, Ravikarn, analyses Ikea’s success in one of his blog posts.

It is interesting to understand Ikea’s business model, and how it differs in each target region.

In a sense, I definitely agree that this is an effective strategy. In each country, the customer segment differ in demographic. People of different countries generally have a differing taste in furniture, and have different factors they value. By altering its business model depending on where they are targeting, it allows Ikea to capture the customer loyalty – while maintaining the key overall value proposition – of providing a low cost and high quality furniture.

However, we must still acknowledge that there are some flaws with this business plan. The main flaw that results from this business plan is the increased product-line. Although, it is true that this creates a wider variety of products, it goes against the fundamental strategy that Ikea seeks to achieve – the low-cost industry-wide strategy (as described in Porter’s four competitive strategies). From a financial point of view, having a wider range of product-line will create burden to the cost structure. Different products have different methods of production, and requires different materials. By having a variety of product, Ikea fails to maximize its economies of scale which is key in reducing the cost of production.

This strategy can be effective in the sense that it directly targets its customer segment, and benefits the customer relationship – from a financial point of view, it is a burden to its cost structure and contradicts its key value proposition as it increases costs.