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IKEAcasequestions - Mid Term Assessment for Ikea Case Studies - all answers
International Marketing (7SSMM 104)
King's College London
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Ikea Case Questions
- What is IKEA’s approach to International Marketing?
IKEA is a Sweden-based furnishing manufacturer and retailer. With regards to the firm expanding its operations and its approach to international marketing, we can focus on the EPRG framework (Katsikea, 2019). IKEA had an ethnocentric approach to international marketing, meaning that they had standardised products and did little to no adaptation of their goods to the needs and wants of other countries where they expanded to (Sahu and Purkayastha, 2018). This meant that vast majority of their strategies, for instance design, transporting, selling and assembling products remained the same, in line with the IKEA concept and they stuck to this approach when opening stores and operating in new markets (Sahu and Purkayastha, 2018). In this sense IKEA upheld the idea of their local schemes and people being superior to foreign ones. By taking on a prevailing ethnocentric approach IKEA was able to achieve brand consistency across countries (Sahu and Purkayastha, 2018), “ to offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them ,” (). They utilised their competitive advantage, obtained through having developed optimisation within all elements of the value chain. This enabled an achievement of low costs which maintained their business idea of good quality, affordable home furnishings. (Sahu and Purkayastha, 2018).
- Did it follow the same approach in China?
IKEA opened its first store in Shanghai, China in 1998 and its second store in Beijing in 1999 (Sahu and Purkayastha, 2018). Its initial approach to internationalising in China adhered to expansion in line with IKEA standards. Having applied their unique business strategy and organisational culture, embedded within Chinese stores were its core concepts of company showrooms, flat-packed products, and Do-It- Yourself (DIY) assembly, since the firm applied its unique business strategy. (Sahu and Purkayastha, 2018). However, upon keeping its ethnocentric approach to internationalising, the company found that profits were not being made despite an increase in visitors, and actual store purchases were not being made. Ultimately, despite successful global expansion elsewhere, it was recognised that the issues in marketing the company internationally in China were increasingly difficult. Therefore, the Swedish furniture manufacturer found that it had to orientate itself more towards the needs of Chinese consumers and take on a more polycentric approach, where emphasis was placed on the host country’s domestic market (Sahu and Purkayastha, 2018). In the aspects of its strategy where complications were faced, IKEA needed to tailor itself to Chinese traditions, culture and customer preferences. For example, despite IKEA’s unique selling point being ‘affordable’ and ‘low prices’, this was a challenge in China due to the low purchasing power of Chinese consumers (Sahu and Purkayastha, 2018). In addition to price, location and store format was adapted, as well as advertising and promotion used in China, with reduced catalogue reinforcement. The service provided and store environment was also modified in order to suit Chinese consumers (Johansson and Thelander, 2009). In essence, the company made numerous changes in its marketing strategies and did transmit the much more standardised approach as done so in other countries. A balance between an ethnocentric and polycentric approach had to be determined for its profitable success, which took IKEA more than 12 years to in China. (Chu, Girdhar and Sood, 2019).
- How did IKEA adapt its strategy to suit China?
In order to expand successfully in China, IKEA had to adapt itself to the Chinese market, which meant moving from an ethnocentric approach to a polycentric approach and placing emphasis on China’s domestic market. The company adapted to the name ‘Yi Jia’ to suit the language used in china. Red colours were used in store to enable the brand to become more applicable to Chinese consumers all which had positive connotations. IKEA decided to adjust its audience to urban professionals (aged 25-35), in addition to females as the main target audience. The products offered were treated as innovative and fashionable by the middle class. The DIY concept was not accepted in China, since labour in less expensive. The younger generation preferred diversified brands, hence they decided to offer assembly services at a low price. Within the store the displays of rooms were adjusted to those typical to China and fitting to tastes of Chinese consumers (Johansson and Thelander, 2009). A basic principle embedded within IKEA was a centralised source and supply chain (Johansson and Thelander, 2009). However, an issue was that despite prices being low elsewhere, in the Chinese market they were deemed higher due to lower purchasing power of consumers there. For instance, as of 2019, the Big Mac index in Sweden is $5, whereas in China it is $3 (statista), illustrating the country’s low individual purchasing power. In order to keep prices low, IKEA had to partner with local suppliers and locally source its products and raw materials. This was essentially dropping their core principle so that it could enable a low price for Chinese consumers that was still profitable for the firm. In addition to this, the firm did not reinforce its eco-friendly practices (e. charging for plastic bags) which involved charges, as Chinese consumers were not ready for such implementation as a result of being highly price sensitive (Sahu and Purkayastha, 2018). Moreover, with regards to advertising and promotion in China, there was less reliance on catalogues and a focus on digital marketing. IKEA took advantage of Chinese social media and microblogging, known as Sina Weibo, to target the urban youth who are much more technologically sophisticated (Sahu and Purkayastha, 2018). Contrastingly, in their expansion elsewhere catalogues would form the base of advertisement. When it came to the location of the stores, it was found that most consumers in China used public transport. Therefore, unlike in other countries where IKEA is located in the suburbs, IKEA adjusted in China and set up on outskirts of cities which were linked via public transport (Katsikea, 2019).
- How macro-environmental factors guided IKEA’s operations in China?
Political, economic, social and technological are the macro-environmental factors that aid a foreign market entry operation. In Shanghai and Beijing, the entry mode used by China was a joint venture (Sahu and Purkayastha, 2018), and upon this procedure IKEA would have looked at how stable the economy was and the associated rules and regulations. This method is advantageous as through pairing with other companies IKEA could replace its strict licensing model and help educate themselves with the cultural market of China and understanding how it works. This was highly important for the firm as they needed to adjust their marketing strategies in line with Chinese consumers. Furthermore, joint ventures with other companies can aid the company to build strong relationships with local suppliers and
In china the stores are located in places where there is accessibility via public transport. In order to further accommodate for its tech-savvy consumers, they have a multichannel retailing strategy, which is able to allow products to arrive to customers who are far from the stores, with the further option of pick up points for collection of goods. This enables a better interaction with consumers and hence increasing purchases made by consumers (Sahu and Purkayastha, 2018). Promotional platforms incorporate social media, in-store catalogues and smaller brochures which are given out several times within the year. The internet is an important way to reach out to younger, middle-class tech-savvy audience, as it helps to prepare them for their IKEA store experience before they make purchases (Johansson and Thelander, 2009). Public relations are also an important feature of IKEA’s promotional strategy in China. For instance, they taught Chinese journalists about Sweden, IKEA and the foundations of the business by organising a trip to Sweden (Johansson and Thelander, 2009).
- How can IKEA strike a balance between global and local in designing an effective marketing strategy?
When it comes to internationalising and expanding operations of a company abroad it is important to be able to adapt to the traditions, cultures and customer preferences, as a local marketing strategy may not accommodate for global consumers in these aspects. In order to create the same image of IKEA that is held by consumers of Europe and USA in China, standardised local marketing strategies will not be apt. A standardised global strategy is one that encompasses the IKEA concept but the strategies and marketing activities to educate global consumers of this concept are adjusted to market cultures. (Johansson and Thelander, 2009). In its global expansion to China, IKEA adjusted its store location to outskirts of towns accessible via public transportation, as well as home delivery and assembly services at a low price. The difference between global and local consumers can be seen in Chinese stores which are regarded as social venues for Chinese consumers. Evident from this is IKEA’s attempt of thinking globally and acting locally in order to build long-term relationships with customers and capture customer value, since it is accommodating for customers who are keen on napping than shopping, with hope held by the firm that they return later as customers. (Katsikea, 2019) In all their stores displays of rooms are prominent where the customer is able to interact with and view the settings of furniture, in an attempt to give the same shopping experience regardless of location. To balance this feature globally and accommodate Chinese traditions, in their China stores are special balcony sections to demonstrate how Chinese consumers can furnish their balcony in their places (Sahu and Purkayastha, 2018). To accommodate to Chinese online interface users, IKEA adjusted to Chinese social media (Weibo) to promote its services and products, in addition to in-store catalogues (also used locally) and smaller brochures that are distributed several times per year. This evidently is another instance in which IKEA has found a balance between an ethnocentric and polycentric approach to marketing its global expansion to China.
References
Chu, V., Girdhar, A. and Sood, R. (2019). Yahoo is now a part of Verizon Media. [online] In.finance.yahoo. Available at: in.finance.yahoo/news/couching-tiger- tames-dragon-183700918? guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=A QAAAG0RdFtKI0woCqtegpPxj4YEA6SAGPXs9Iri- 8ofwV6aUg3fDF7TeUsL7LEXC9uw7a8KuRi8Nj39ajojqdjUrfhtBE1u0rsNH3jSlxGgGsb59OB_Wb Tmhh-RFCfCwW5lP-zM2X_MDdW-CcYB3aJpFQoNUI0-xeKPlXMUw-p6KD4k [Accessed 27 Oct. 2019].
Johansson, U. and Thelander, Å. (2009). A standardised approach to the world? IKEA in China. International Journal of Quality and Service Sciences, 1(2), pp-219.
Katsikea, E. (2019). IKEA’s International Marketing Strategy in China.
Npr. (2019). NPR Choice page. [online] Available at: npr/2011/11/02/141904803/at-ikea-in-shanghai-do-it-yourself- matchmaking?t=1572210451901 [Accessed 27 Oct. 2019].
Sahu, B. and Purkayastha, D. (2018). IKEA’s International Marketing Strategy in China. IBS Center for Management Research.
IKEAcasequestions - Mid Term Assessment for Ikea Case Studies - all answers
Module: International Marketing (7SSMM 104)
University: King's College London
