Influence: Cost based competition Flashcards
What is the Ikea case study?
IKEA’s mission is to produce products that are “at prices so low that as many people as possible will be able to afford them”. IKEA aims to price their products at a minimum 20% below competitors at all times. Their monitoring and controlling of their vertically- integrated operations contribute to cost- minimisation through operational efficiencies; which enables low-priced products; a competitive advantage competitors struggle to compete with. IKEA are therefore, cost-leaders within their market, which is why they are the largest home furnishing supplier in the
world.
the 5 main ways IKEA keeps its prices so low in the table below:
- Ikea designers work around the price
- layering sheets of wood over honey comb - cheaper
- ikea makes everything in bulk - able to get discounts on production
- doesn’t have a ton of associates at each store
- at home assembleg the flat packing design cuts costs down
What is cost based competition ?
Cost-based competition is derived from determining break even point and then applying strategies to create cost advantages over competitors. Cost-based competition recognises that prices cannot keep increasing; therefore, reducing costs is a way to maximise profits when revenues are fixed.
What is cost leadership?
In applying a cost leadership (from strategic role of operations management) approach to operations management, cost can be analysed from several different perspectives, including fixed and varied costs.
