Porters 5 Forces Analysis of Ikea

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Provide an analysis of an organisation explaining the relative importance of each of Porter’s Five Forces for the organisations strategic position. You should support your arguments with evidence from the company and/or the relevant literature. This report examines IKEA’s strategic position which is influenced by Porters Five Forces, namely through targeting low income furniture buyers through “needs based positioning.” (Porter 1996 as cited in Segal-Horn, 1998, p79) Introduction IKEA’s vision is to “to create a better everyday life for the many people” (Company Website.) To do this, they produce stylish, quality home furnishings at the lowest possible prices through strategically planned activities. I will dissect IKEA’s strategic position through Porter’s Five Forces model. By looking at company reports and products and services, I will investigate the activities IKEA carry out to create their unique strategic position. Rivalry Among Existing Competitors Rivalry is the most influential force, since intensity of rivalry in the home furnishing industry is strong, with several competitors roughly the same size (Barney and Hesterley, 2006, p48.) IKEA thus uses “needs based positioning” (Porter 1996 as cited in Segal-Horn, 1998, p79) to target low income furniture buyers. It performs actions differently to rivals (e.g. Dreams.) Whilst they focus on customization, IKEA uses a self service model whereby customers choose, transport and assemble products themselves. This keeps prices low, “You do your part. We do our part. Together we save money” (Company website.) So IKEA targets customers who are willing to “trade off” service for cost (Porter 1996 as cited in Segal-Horn, 1998, p78). These activities could also lead to “positive-sum competition” (Porter, 1979, p7) as they serve a different customer segment than rivals (e.g. John Lewis) who serve a higher income

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