How does IKEA succeed?
In the article "Blue Ocean Strategy", W.Chan Kim and Renee Mauborgne put forward a new concept that companies should create “blue oceans” rather than stick with “red oceans” in order for surviving and prospering in an increasingly competitive market environment. Specifically speaking, companies should create uncontested market space and realize differentiation together with low cost.
As the flagship in the furniture industry, the root cause of IKEA’s success is in its implementation of a set of sustainable “blue ocean strategy”. That is to say, IKEA breaks the shackles of the industry regulations, and meets customer needs by differentiating its products as well as services while minimizing the cost.
In order to build customer loyalty, IKEA tries to satisfy customers both functionally as well as emotionally. Compared to focusing on providing functional products by the vast majority of the rivals, IKEA strives to give customers a warm and pleasant shopping environment. On the one hand, the tasty and inexpensive food provided by IKEA also attracts potential customers. The annual Swedish Crayfish Party, for instance, even becomes a festival for people around the world. On the other hand, the self-service shopping pattern together with its exhibition-style layout differentiates IKEA from any other companies and finally holds the market attention.
To maximize its profit, IKEA pays attention to low cost as it practices the differentiation strategy. From one perspective, IKEA takes full account of price endurance by customers. Contrary to traditional cost-oriented pricing principle, IKEA considers the sale price before determining the target cost. In addition to that, IKEA establishes long-term relationships with 135 suppliers around the world, and encourages competitions among suppliers to provide products with lower price.
As an active practitioner of the Blue Ocean Strategy, IKEA adheres to its unique philosophy, trying its best to meet the needs of customers both functionally as well as emotionally. In the meanwhile, IKEA perfects the logistics system continuously, controlling production cost within the expected range. Ultimately, its value innovation helps its success in the fierce competition.