Threats
If a company is aware of possible external threats, it can plan to counteract them. By generating new ideas, IKEA can use a particular strength to defend against threats in the market. Threats to IKEA may stem from:
• social trends – such as the slowdown in first time buyers entering the housing market. This
is a core market segment for IKEA products
• market forces – more competitors entering the low price household and furnishings
markets. IKEA needs to reinforce its unique qualities to compete with these
• economic factors –the recession slows down consumer spending and disposable
income reduces.
IKEA addresses these issues in many ways. It manages weaknesses and threats to create a
positive outcome.
Social trends: IKEA is building online help to guide customers to a more sustainable life. Here it can focus on home improvement in the slowing housing market. It supports customers with tips and ideas on its website to reduce their impact on the environment. This will also save them money. Staff are trained on sustainability, both on what IKEA is doing and how they can take responsibility to become sustainable for themselves.
Market forces: IKEA is large enough to enjoy economies of scale. This lowers average costs in the long run through, for example, better use of technology or employing specialized managers. Economies of scale also give a business a competitive edge if cost savings are then passed on to customers in the form of lower prices. This puts up high barriers to entry for smaller companies entering the market.
Economic factors: IKEA’s low prices create appeal amongst its customers in tough financial times. It is vital to keep prices as low as possible when the retail sector is depressed. IKEA’s pricing strategy targets consumers with limited financial resources. Its products will also appeal to those with higher budgets through good quality and design. The company must ensure that it is always recognised as having the lowest prices on the market in the future. Communication plays an important role here.
Conclusion
IKEA is a well-known global brand with hundreds of stores across the world. In order to improve performance, it must assess its external and competitive environment. This will reveal the key opportunities it can take advantage of and the threats it must deal with. IKEA responds to both internal and external issues in a proactive and dynamic manner by using its strengths and reducing its weaknesses. Through this, IKEA is able to generate the strong growth it needs to retain a strong identity in the market.
IKEA’s passion combines design, low prices, economical use of resources, and responsibility for people and the environment. The company’s products, processes and systems all demonstrate its environmental stance. For example, clever use of packaging and design means more items can fit into a crate, which means fewer delivery journeys. This in turn reduces IKEA’s carbon footprint.
IKEA believes that there is no compromise between doing good business and being a good business. It aims to go beyond profitability and reputation. IKEA is intent on becoming a leading example in developing a sustainable business. This will create a better everyday life for its customers. IKEA has discovered a business truth – being sustainable and responsible is not just good for customers and the planet, it is also good for business!
Questions
1. Describe what is meant by a SWOT analysis.
2. Explain the difference between internal and external factors.
3. Analyse ways in which IKEA has managed to minimise threats to its business. 4. Discuss the contribution of SWOT analysis to IKEA’s business growth.