INDIAN INSTITUTE OF FOREIGN TRADE

EPGDIB 2011-2013 (Semester 2)

International Marketing Management

A Research on brand positioning of IKEA in China and suggestions on the same for its Indian entry

SUBMITTED BY: GROUP 10

AJAY GUPTA (ROLL NO 05), HARSH GOEL (ROLL NO 30)

KUNAL VERMA (ROLL NO 37), SURESH MEHRA (ROLL NO

69)

IKEA is the world's largest furniture retailer founded in Sweden in 1943 by 17 year-old Ingvar Kamprad. The company's name is an acronym comprising the initials of the founder's name (Ingvar Kamprad), the farm where he grew up (Elmtaryd), and his hometown (Agunnaryd, in Småland, South Sweden). The company is known for its modern architectural designs on various types of appliance and furniture, often associated with a simplified eco-friendly interior design.

In addition, the firm is known for the attention it gives to cost control, operational details and continuous product development, allowing it to lower its prices over the years, while continuing its global expansion.

The IKEA Concept guides the way IKEA products are designed, manufactured, transported, sold and assembled. All of these factors contribute to transforming the IKEA Concept into a reality. Low price is a prerequisite for the IKEA Concept to realize the IKEA vision - "to create a better everyday life for the many people". As the IKEA Concept aims to serve "the many people", the IKEA product range needs extremely low price levels. IKEA designers do their part to keep prices low by using production capabilities from other areas in unique and previously unimagined ways - like having shirt factory produce furniture upholstery or using leftover materials from the production of one product to create an entirely new one.

IKEA customers also contribute to keeping prices low. They select and pick up the products themselves, transport them home and then assemble them themselves.

Home is the most important place in the world!The IKEA Concept is founded on a low-price offer in home furnishing.

The IKEA product range is unique. The range is built on knowledge gained about life at home from the many people on all markets. It is developed, designed and manufactured by talented and skilled people who know material and production techniques and understand that careful use of materials and resources keeps prices low.

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About IKEAThe decentralized structure

Inter IKEA Holding SA is the parent company in Inter IKEA Group. The operations within Inter IKEA are decentralized and the divisions have far-reaching responsibility for its operations and business.

The Franchise Division includes Inter IKEA Systems B.V., who is the owner and franchisor of the IKEA Concept, as well as a number of service and distribution companies.

The Franchise Division with Inter IKEA Systems B.V., the owner of the IKEA Concept, franchises the systems, methods and solutions to franchisees worldwide for marketing and sale of IKEA products under the IKEA trademarks. Inter IKEA Systems B.V. ensures that IKEA Concept know-how is continuously developed, transferred, and made available to all IKEA franchisees.

Right to franchise the IKEA Concept is only granted in new countries with no IKEA operations present.

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When selecting franchisees, Inter IKEA Systems B.V., among other things, evaluates the following:

• Thorough retail experience

• Extensive local market knowledge and presence

• Corporate culture and values

• Financial strength and ability to carry through the investment penetrating a  country in full and in a large-scale retail environment format

Any franchisee must demonstrate its ability to establish and operate IKEA stores nationally

All IKEA franchisees pay a fee of three per cent of gross sales to Inter IKEA, amounting to euro 789 million in 2011

The Retail Centre Division – Inter IKEA Centre Group – develops, owns and manages shopping centers anchored by IKEA stores. The division strives to create unique retail and entertainment destinations in which both the IKEA store and the shopping centre benefit from the synergy created by their shared location.

The Property Division and the Finance Division ensure financial stability and stable returns over time. 

The overall purpose of Inter IKEA Group is to secure independence and longevity, and through the Franchise Division control, safeguard and develop the IKEA Concept.

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Brand positioning of IKEA in ChinaUnderstanding Key Nuances

Presenting a strong brand in the Chinese language can be considered a necessity for an international firm entering the Chinese market. The literary nature of Chinese language forces firms to carefully consider the character combinations of their brand names before launching their products and services in China. For many firms, this strategy has worked. IKEA’s Chinese name is Yi Jia (宜家), meaning something along the lines of “a suitable or comfortable home”.

Apart from adopting a local Chinese name, IKEA’s Global model is more or less replicated in China. IKEA’s furniture concept, from its minimalist furniture aesthetic, specific furniture designs, mock-up rooms, signage font, and even the blue and yellow Swedish flag color scheme are replicated and have found their way in China.

Even, the cafeteria-style restaurants serve IKEA's Swedish meatballs and salmon!

IKEA offers the same product range in all countries around 8000 to 10000 products depending on the store's size. However there are certain nuances which differ in China than the west.

IKEA adapts the layout of the store, presentation of the goods, home solutions offered, and prices according to national economic and cultural conditions. In China, the store layouts reflect the layout of many Chinese apartments, and since many Chinese apartments have balconies, the stores even include a balcony section.

IKEA alters products to suit the needs of Chinese consumers. For example, when IKEA first began operations in China, it sold Hong Kong-sized beds, which are

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shorter than standard-sized beds. But they quickly realized the beds were too short for mainland China and switched to selling standard beds.

Many Chinese consumers follow an 'all or nothing' approach to interior design. If they want to redesign their living room they will either completely redo everything or do nothing. IKEA tried to convey to the Chinese customers that change can be easy, and that it is okay to make small changes, step-by-step. In this regard "Small changes, a refreshing new life" advertisements helped to convey this message. One advertisement shows an old man sitting on his balcony in his shorts

and undershirt, while holding a bird cage and whistling to his bird. The balcony looks like a typical cement-and-tile balcony in China with plants, drying laundry, and a newspaper. But the man is sitting in a red, modern, upholstered IKEA chair--one that is currently on sale.

IKEA states in the above

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advertisement: Mix accessories and solitaires that pop for a striking look full of contrasts and tradition. Adding decorations made from natural materials display craftsmanship and create a room that's eclectic, folky and a bit bold. It's easy to get started with a cushion, throw or rug.

Difference between IKEA stores in China and IKEA stores in the West

Stores in China have to have light-rail or metro links and won't be situated as far away from cities as is the case in the west. Although car ownership is growing in China, the majority of people still need to access stores by public transport.

IKEA Shanghai

The building has Scandinavian design aesthetics with blue and yellow colors which are identifiable with IKEA. Both the original name and Chinese name stand tall in huge letters which is also the case in other IKEA stores.

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IKEA Store JAPAN

IKEA Store in UK

As seen from the above pictures the IKEA Stores are designed in the same fashion across the globe.

IKEA had to adapt its location and do-it-yourself (DIY) assembly concept to China. IKEA has built its stores near public transportation lines, offers local home delivery and long-distance delivery to major cities in China for a fee, maintains taxi lanes, and offers fee-based assembly services. Usually IKEA stores open relatively far out in the suburbs, but IKEA knew China had to be different since, for example, only 20 percent of visitors in Shanghai have cars. But the stores also need ample parking so that people can visit with their own cars in the future. The Shanghai store has almost 1,000 parking places. IKEA's DIY products are appreciated in the West, because customers know they save money by assembling products themselves and because many customers actually enjoy assembling the furniture. But in China, where labor is cheap, the DIY notion has not taken hold, so Chinese customers use IKEA's assembly services more than customers in other countries.

IKEA’s Focus Area in China

IKEA continue to strengthen their presence in tier-one cities, but also expand into tier-two cities to get a balanced portfolio. So IKEA focus on "the many people" in China's growing urban population. IKEA’s core customers are people between 25 and 35 who have relatively higher incomes than the average and a higher education than the average. They are often more open to a Westernized lifestyle, and in most instances, these are also the persons who buy homes.

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IKEA, dressed up for the Chinese new year!

And as China's growing middle class competes for living space in the mega-cities, IKEA is well-suited to serve their living needs with IKEA’s smart solutions!

Living space is tighter on average in China than in the West. An average family lives on between 70 and 90 square meters, mostly in a high-rise block. And often there will be multigenerational family members living together. So, people have more and more stuff at home to store. This is where IKEA come in and poistion them selves as experts!

When IKEA first entered China, the store was considered too expensive for its target consumers--young, professional couples--and the company lowered its prices. The store's prices are now considered mid-range in Shanghai. A typical IKEA customer earns about Yen3,300 ($399) per month--the national average is Yen1,000 ($121)--and buys Yen300 ($36) of merchandise per visit.

Most of IKEA's China customers are 20 to 35 years old, but the stores now attract an increasing number of customers closer to age 45, most likely a result of the store's market repositioning. Many customers are families with children or are double-income, well-educated couples with no children. IKEA's customers are generally better educated, earn higher incomes, and travel more than the average Chinese. And, as is true in IKEA shops around the world, roughly 70 percent of IKEA customers are women.

Customer Reach

The Chinese media landscape is different from the West, so IKEA tries new ways of working. And in China social media is very important. Microblogs are used by a huge amount of the population and there is a lot more interaction. So IKEA has begun communicating with customers on Weibo, a Chinese micro blogging site. IKEA post announcements and post pictures and ask for tips and advice, and also reply immediately.

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The Chinese treat their IKEA's a little different than the west. They don't just buy the furniture; they make their IKEA experience a social event. They meet friends for coffee, seek shelter from the heat to take naps, and even organize speed dating rounds. Managers at the Swedish furniture retailer don't mind. They figure that the more customers choose to relax in its Western-style showrooms or grab a cheap snack at the in-store restaurants, the more likely they'll be to make a purchase once their incomes catch up with their aspirations.

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Pricing

IKEA is broadening its customer base and are sticking to tried-and-true method of cutting prices. The "Chinese middle class" has incomes that are considerably lower than that of the middle class in the West. That means, even though the middle class is growing, the big challenge for IKEA going ahead will be the affordability of IKEA products. Price is still one of the biggest barriers in China from purchasing from IKEA

IKEA has continually lowered its prices in the last 12 years. This is a core part of IKEA's business model, to keep trimming prices. IKEA has cut prices by more than 60% since 2000. IKEA's "Lack" table cost 120 Yuan (around €14) when IKEA first came to the Chinese market. Now they sell it for 39 Yuan. And IKEA plans to reduce prices further. IKEA does this partly by trimming supply chain costs and mainly by securing supply in China. While globally 30% of IKEA's range comes from China, about 65% of the volume sales in China come from Chinese sourcing.

Summary

Ulf Johansson, Åsa Thelander have also done a good research in this regard. Below is a summary that can be found in International Journal of Quality and Service Sciences.

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Suggestions for Entry into India

There’s an argument that IKEA could appeal to the upscale Indian market – relatively rich homes that might want to show off a Western brand. But IKEA could just as well aim for the middle and lower end of the market, riffing on the strategy it has pursued with success in developed markets like the U.S. That would mean developing products that make sense in a country where 42% of the population lives on less than $1.25 per day

India’s rapid economic growth has set the stage for fundamental change among the country’s consumers. The same energy that has lifted hundreds of millions of Indians out of desperate poverty is creating a massive middle class centered in the cities. The new urban houses are modern in design and small in space. Hence IKEA’s smart solution will go down well with the “middle class” especially the working professionals. IKEA’s modern styling will go well with the new urban houses

The rapidly growing middle class in India, higher discretionary spending power, migration and urbanization as well as changing family structures and consumer tastes including growing enthusiasm for western brands are all major growth drivers

IKEA’s big stores will be a big hit in India; this is also seen with acceptance of shopping malls in recent years. Everything under one roof concept is well liked in India.

To be successful IKEA requires cutting down on the prices as they did in China otherwise IKEA will see potential customers asking local carpenters to make similar products or copy products. Many middle-class households have their furniture custom-made.

Like China, India also has cheap labor, the DIY notion might not take hold, so Indian customers would like to have IKEA's assembly services as an option

Indians have never had a problem with foreign names such as IKEA. However it is possible to Indianize the name by using it with hindi words such as “Aaya Ikea!”. However IKEA should not loose its brand Image of offering premier, high design products at cheap cost.

Ikea is a familiar brandname in India. IKEA can capitalize on its brand, as they have been constantly in the news because of their constantly changing plans to enter into India.

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ReferencesThe Wall Street Journal (2006), “IKEA hits home in China”, The Wall Street Journal, 3 March, pp. 15-27.

Ulf Johansson, Åsa Thelander, (2009),"A standardised approach to the world? IKEA in China", International Journal of Quality and Service Sciences, Vol. 1 Iss: 2 pp. 199 – 219

Amol Sharma (January 11, 2012),”Will IKEA be a hit in India”

IKEA homepage: http://www.ikea.com/

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