Page 5: Weaknesses and threats
IKEA has to acknowledge its weaknesses in order to improve and manage them. This can play a key role in helping it to set objectives and develop new strategies. IKEA's weaknesses may include:
- The size and scale of its global business. This could make it hard to control standards and quality. Some countries where IKEA products are made do not implement the legislation to control working conditions. This could represent a weak link in IKEA's supply chain, affecting consumer views of IKEA's products. The IWAY code is backed up by training and inspectors visiting factories to make sure that suppliers meet its requirements.
- The need for low cost products. This needs to be balanced against producing good quality. IKEA also needs to differentiate itself and its products from competitors. IKEA believes there is no compromise between being able to offer good quality products and low prices.
- IKEA needs to keep good communication with its consumers and other stakeholders about its environmental activities. The scale of the business makes this a difficult task. IKEA produces publications in print and online (for example 'People and the Environment') and carries out major TV and radio campaigns to enable the business to communicate with different target audiences.
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.