What is the scope issue?
Are their sources of value and the low cost operation sustainable hand in hand and how does that translate to the new age digital environment?
Background and Future!
IKEA is and has been the low cost leader primarily because of a tool called the Product Price Matrix. They leverage 1800 suppliers in 50 countries and designers compete to have their designs chosen internally once manfacturing destinations have been chosen and material are selected. IKEA’s brand is synonymous wiht the scandanavian design and this is their endowment.
IKEA has built a reputation around design picking. In their brochure they set the tone for what they are offering the customer. Their showroom experience is a kind of value added itself. However their biggest scope issue is addressing millenials. Digitalization and Urbanization is one of the challenges that IKEA faces. Online retail is growing while the shape of cities is changing as well. Both these will adversely affect how IKEA needs to operate. Traditionally they have operated by setting up shop in low cost locations.
Millenial consumers are primarly urban dwellers who use different modes of transport. IKEA on top of that also has a weak digital strategy. A quick google search elaborates where IKEA stands in their digital strategy. IKEA is also struggling to offer lower cost models as compared to Amazon and Wayfair. Wayfair further offers 3D visualizations on their application on mobile phones.
So what does IKEA need to do?
IKEA is looking at stores with lower footprints in urban spaces. They have also increased the number of their warehouses to support their e-commerce strategy. IKEA has further developed an online presence which incorporates an AR/ VR experience. IKEA aims to have 20% of revenue by the online channel.
In 2017 IKEA purchased TaskRabbit which enables consumers to assemble and ship product that they have purchased. IKEA needs to increase the willingess to pay by investing into their online experience. IKEA now appropriates more value to the consumer because the opportunity cost has increased. In order to appropritate more value they need to pie bigger by increasing the reach of their customer.
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