Question

1. What are the tailored choices that are in IKEA’s value chain? How are they different from rivals’ choices?
2. Why trade-offs? Trade-offs in activities?
3. Define and give examples.
4. What are some sources of trade-offs? Give examples.
5. How do trade-offs prevent imitators?
6. What happened to McDonald’s Made for You campaign? Why did they do this?
7. What is straddling? Give examples.
8. What is Cost/Quality trade-offs?
9. What is Home Depot’s value proposition vs Lowe’s?
10. What are the trade-offs each company employs?
11. What are trade-offs that involve what NOT to do vs what to do?

Answer 1

1.

IKEA value-chain analysis is an analytical framework that assists in identifying business activities that can create value and competitive advantage to the global furniture retailer.

The tailored choices in IKEA value Chain are:

IKEA Inbound logistics

Inbound logistics for IKEA is associated with purchasing raw materials from 1002 suppliers located in 51 countries globally[2] and relationships with supplier are maintained via 42 trading offices around the world.

IKEA Operations

IKEA operations are divided into three divisions – Franchise, Property and Finance divisions, with Franchise Division being the core of the business. IKEA follows de-centralization business strategy in running its global operations. According to this strategy, regional managers are granted decision-making autonomy taking into account unique aspects of their markets, local culture, patterns of local consumer behaviour and other region-specific factors.

IKEA Outbound logistics

IKEA Group operates stores in 28 markets around the world.[7] Along with 340 stores in 28 markets worldwide, IKEA has 22 Pick-up and Order Points in 11 countries, 41 Shopping Centres in 15 countries and 38 Distribution sites in 18 countries

IKEA Marketing and Sales

The home improvement and furnishing chain uses print and media advertising, sales promotion, events and experiences, public relations and direct marketing techniques in an integrated manner. IKEA is a multichannel retailer and integrates selling through stores, catalogs, website and app.  The furniture giant relies in its catalogues extensively for marketing and sales and more than 200 million catalogues are printed each year globally.

IKEA Service

Customer service as one of the primary activities in the value chain is addressed by IKEA via a standard set of techniques and practices such as the provision of online and telephone customer services, offering refunds and exchanges of goods whenever relevant and encouraging customers to provide feedback.

This is different from its rivals in the following ways:

• If that were not the case, every competitor could meet those same needs, and there would be nothing unique or valuable about the positioning.
• Insight into customers’ needs is important, but it’s not enough. The essence of strategy and competitive advantage lies in the activities, in choosing to perform activities differently or to perform different activities from those of rivals.

2.

In economics, the term trade-off is often expressed as an opportunity cost, which is the most preferred possible alternative. A trade-off involves a sacrifice that must be made to get a certain product or experience.

3.

Consider IKEA, the Swedish home furnishings giant. IKEA’s value proposition is to provide good design and function at a low price. Its target customer is what IKEA calls the person “with a thin wallet.” In choosing its particular kind of value and the activities needed to deliver it, IKEA has accepted a set of limits: it does not meet all the needs of all customers. In every major value-adding step in the process of creating and selling home furnishing, IKEA has made different choices from the “traditional” home furnishings retailer.

4.

Sources of trade offs and examples

• Trade-offs arise for a number of reasons. Porter highlights three.
• First, product features may be incompatible. That is, the product that best meets one set of needs performs poorly in addressing others. Second, there may be trade-offs in activities themselves. In other words, the configuration of activities that best delivers one kind of value cannot equally well deliver another. Another source of trade-offs is inconsistencies in image or reputation.
• Trade-offs are pervasive in competition and essential to strategy. They create the need for choice and protect against repositioners and straddlers