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Home Business Today LBS Case Study July 21, 2013 Story
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Couching tiger tames the dragon
This case study analyses how IKEA adapted its strategies to expand and become profitable in
China. It also assesses some lessons the company learnt in China that might be useful in India.
Valerie Chu, Alka Girdhar and Rajal Sood
Edition:July 21, 2013
Executive Summary: IKEA is known globally for its low prices and
innovatively designed furniture. In China, however, it faced peculiar problems. Its
low-price strategy created confusion among aspirational Chinese consumers
while local competitors copied its designs. This case study analyses how IKEA
adapted its strategies to expand and become profitable in China. It also assesses
some lessons the company learnt in China that might be useful in India, where it
plans to open its first store by 2014 and 25 stores in 10 to 15 years.
Swedish furniture giant IKEA was founded by entrepreneur Ingvar Kamprad
in 1943. He began by selling pens, wallets and watches by going door to door to his
customers. When he started selling his low-priced furniture, his rivals did
everything to stop him. Local suppliers were banned from providing raw material
and furniture to IKEA, and the company was not allowed to showcase its furniture
in industry exhibitions. What did IKEA do? It innovated to stay in business. It
learnt how to design its own furniture, bought raw material from suppliers in
Poland, and created its own exhibitions. Today, IKEA is the world's largest
furniture retail chain and has more than 300 stores globally.
In 1998, IKEA started its retail operations in China. To meet local laws, it formed a
joint venture. The venture served as a good platform to test the market, understand
local needs, and adapt its strategies accordingly. It understood early on that
Chinese apartments were small and customers required functional, modular
solutions. The company made slight modifications to its furniture to meet local
needs. The store layouts reflected the typical sizes of apartments and also included
a balcony.
IKEA had faced similar problems previously when it entered the United
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States. The company initially tried to replicate its existing business model and
products in the US. But it had to customize its products based on local needs.
American customers, for instance, demanded bigger beds and bigger closets. IKEA
had to make a number of changes to its marketing strategy in the US. The
challenges it faced in China, however, were far bigger than the ones in the US.
As the company opened more stores from Beijing to Shanghai, the company's
revenue grew rapidly. In 2004, for instance, its China revenue jumped 40 per cent
from the year before. But there was a problem - its local stores were not profitable.
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IKEA identified the strategic challenges and made attempts to overcome them. One
of the main problems for IKEA was that its prices, considered low in Europe and
North America, were higher than the average in China. Prices of furniture made by
local stores were lower as they had access to cheaper labour and raw materials, and
because their design costs were usually nil.
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IKEA built a number of factories in China and increased local sourcing of materials.
While globally 30 per cent of IKEA's range comes from China, about 65 per cent of
the volume sales in the country come from local sourcing. These local factories
resolved the problem of high import taxes in China. The company also started
performing local quality inspections closer to manufacturing to save on repair costs.
Since 2000, IKEA has cut its prices by more than 60 per cent. For instance, the
price of its "Lack" table has dropped to 39 yuan (less than five euros at current
exchange rates) from 120 yuan when IKEA first came to the Chinese market. The
company plans to reduce prices further, helped by mass production and trimming
supply chain costs.
High prices were one of the biggest barriers in China for people to purchase IKEA
products. IKEA's global branding that promises low prices did not work in China
also because western products are seen as aspirational in Asian markets. In this
regard, IKEA's low-price strategy seemed to create confusion among Chinese
consumers.
The company realised this and started targeting the
young middle-class population. This category of
customers has relatively higher incomes, is better
educated and is more aware of western styles. Targeting
this segment helped IKEA project itself as an
aspirational western brand. This was a massive change
The main problem for IKEA
in strategy, as IKEA was targeting the mass market in
was that its prices,
considered low in Europe and other parts of the world.
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the US, were higher than the
average in China
IKEA also had to tweak its marketing strategy. In most
markets, the company uses its product catalogue as a major marketing tool. In
China, however, the catalogue provided opportunities for competitors to imitate the
company's products. Indeed, local competitors copied IKEA's designs and then
offered similar products at lower prices. IKEA decided not to react, as it realised
Chinese laws were not strong enough to deter such activities. Instead, the company
is using Chinese social media and micro-blogging website Weibo to target the urban
youth.
IKEA also adjusted its store location strategy. In Europe and the US, where most
customers use personal vehicles, IKEA stores are usually located in the suburbs. In
China, however, most customers use public transportation. So the company set up
its outlets on the outskirts of cities which are connected by rail and metro networks.
The China expansion came at a cost. Since 1999, IKEA has been working on
becoming more eco-friendly. It has been charging for plastic bags, asking suppliers
for green products, and increasing the use of renewable energy in its stores. All this
proved difficult to implement in China. Price-sensitive Chinese consumers seem to
be annoyed when asked to pay extra for plastic bags and they did not want to bring
their own shopping bags. Also, a majority of suppliers in China did not have the
necessary technologies to provide green products that met IKEA's standards.
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Helping them adopt new technologies meant higher cost, which would hurt
business. IKEA decided to stick with low prices to remain in business.
As IKEA prepares to enter India, its China experiences will come in handy. It
understood that in emerging markets, global brands may not replicate their success
using a low-price strategy. There always will be local manufacturers who will have a
lower cost structure.
It is more important what customers think about the
company rather than the other way around.
IKEA wanted to be known as a low-price provider of
durable furniture, while Chinese consumers looked
at IKEA as an aspirational brand. It is likely that
Indian consumers will also look at IKEA in a similar
way.
Chinese competitors copied
IKEA's designs from its catalogue
and then offered similar products
at lower prices
The company also learnt that emerging economies are not ready for environmentfriendly practices, especially if they result in higher prices.
IKEA, famous for its flat-pack furniture which consumers have to assemble
themselves, realised that understanding the local culture is important - Chinese
people hate the do-it-yourself concept and Indians likely do so even more.
IKEA may face some India-specific challenges such as varying laws in different
states ruled by different political parties. This could make its operations, especially
distribution and logistics, a bit challenging. IKEA already has had to wait a long
time to get permission to open stores in India. The delay in policy-making at the
state level could be even longer.
Indian customer preferences and economic environment are similar to the Chinese
market.
IKEA will likely have hopes of attracting India's urban middle-class buyers who are
keen on decorating their homes with stylish international brands. The company has
learnt that doing business in emerging markets is a different ball game for a
multinational company. IKEA did well to adapt in China, although it took
numerous changes to its strategies and more than 12 years for the company to
become profitable in the Asian nation.
Ikea's India rollout will be slow: Prof Nirmalya
Kumar
FDI in retail in India
has been a non-
The success of IKEA in China is an interesting adaptation
example by a global retailer. Yet, it may not be much of a
predictor of IKEA's fortunes in India. This may have less to
do with IKEA and more to do with the economic policies of
India.
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Nirmalya Kumar
A well-designed foreign direct investment (FDI) policy
should have resulted in a rush of much-needed foreign
investment to India, upgrading of the supply chain, modernisation of the retail
sector, as well as more choices for consumers with lower prices. Instead, FDI in
retail, like in higher education, has been a non-starter, hopelessly mired in
special-interest politics. The rules are so onerous that a mass retailer such as
IKEA will find it hard to meet them without penalising customers with higher
prices and lower choice.
Also, it will be difficult for IKEA to find the type of location (size, off a highway,
with great links to a major metropolis) that is crucial to the success of its
business model. This will mean the first store will take much longer to open
than Indians expect and the rollout will be painfully slow. Fortunately, as a
privately held company with a longterm orientation, IKEA will persevere where
more impatient publicly held firms may have given up.
For India to kick its economy back to the growth rates necessary for meeting the
aspirations of its citizens, we need to roll out the red carpet for foreign investors
instead of red tape. Competition law and trade policies are supposed to ensure
that a free competitive marketplace exists, with easy entry and exit, not protect
existing competitors from new entrants.
Capitalism without failure is like religion without sin.
Prof Nirmalya Kumar, Professor of Marketing and Director of the Aditya
Birla India Centre at London Business School
The main challenge is to adapt: Yelena Zubareva
There is no formula for success that fits all marketing
strategies when a global brand decides to try a new market,
except perhaps unconditional acceptance and
responsiveness to changes. The greatest challenge is to
adapt constantly. It's essential for successful marketing
It's essential for
successful marketing campaigns to take into consideration the local approach
campaigns to take
versus the global/regional desire for standardisation. A
into consideration the
onesize-fits-all approach is a rare reality. A consistent
local approach:
Yelena Zubareva
global brand promise is a desirable asset but what makes a
real difference is to be brave and ready to change the target audience and build
a differentiating promise.
IKEA made all necessary adjustments to make sure there was no mismatch in
its growth ambitions and brand promise. Becoming an aspirational brand which
is blogging with the Chinese middle-class youth is an unexpected twist in its
brand proposition. IKEA demonstrated courage to get the most relevant
changes. By courage I mean all big corporations are ready to shift production,
work with local sources, overcome legal requirements but not too many of them
are ready to adapt a brand proposition that suits the level of development the
market and consumer perception require.
IKEA is a strong brand that understands that growing globally requires
sacrifices and innovation from global teams, and they are ready to listen,
respect and learn from the local environment. The European headquarters'
excitement to enter new markets with proven best practices is something of the
past, proving that the real shift in the global mindset is to recognise that local
versus global can bring optimum results.
Yelena Zubareva, Regional Marketing Manager, FWS/OEM SHELL
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Posted by: Vaibhav Annam
July 25, 2013
IKEA is a sturdy, innovative and adaptable brand. This is evident from the fact that the
furniture maker survived through early years of its existence when its rivals did everything
possible under the sun to stop it. Its brand proposition across the globe for years has been
offering the lowest priced furniture. Many brands would be carried away by this school of
thought of sticking to their brand proposition which often leads to a dangerous
phenomenon better known as core rigidity.
Markets around the world cannot be painted with same brush. Though consistency in
offerings is quintessential for a brand, relevancy in a market comes first. Had IKEA even
attempted to compete for offering the lowest priced products in Chinese market, it would
have miserably burnt all its five fingers. It is well-known that China's innovation is in reengineering and not at conceptual level. This is the reason why IKEA chose not to be
bothered by Chinese competitors imitating its catalog of offerings and rather concentrated
on establishing a strong presence among the urban youth. IKEA was not shy of rebranding and thus has survived in a fiercely competitive Chinese environment. Change, as
they say, is the only constant.
Entering India would be an entirely different ball game for IKEA. While some similarities
can be drawn from the Chinese experience, uncertain government policies and cryptic
customers will make it awfully challenging for IKEA to establish itself in this land of
Maharajas. But the elephant in the room is finding a location for its first store, which
would be a long process as IKEA is patient enough to wait till the best place is found. With
increasing wealth and changing habits of the Indian customer, it would be interesting to
see if IKEA will position itself as a low-cost furniture brand or an aspiration for the vast
youth population of the country.
1
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Posted by: Sabyasachi Mitra
July 24, 2013
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As Ikea prepares to enter India it could definitely learn from its experience in China. There
is bound to be some similarities in both the markets ( of the two countries) but there will
be dissimilarities as well, specially because of the time gap. Ikea entered China in 1998 ,
more than 15 years ago so Ikea cannot blindly follow the strategy (or strategies) of China
while setting up its operations in India. First lets talk about the similarities that is likely
Pricing: Ikea in all probability would not be able to price its products below the price of
local retailers in India. So it cannot position itself as a low-cost furniture., it will be better
to position itself as an affordable priced product . Ikea will not be able to compete with
local local manufacturers in the low cost segment, specially , with the falling value of the
rupee most Indians will perceive the price as affordable ( or even high ) although it may be
low-priced compared to Europe standards, prices which can be considered low in Europe
can be perceived high in India . Aspiration brand for the middle class and high-incomemiddle-class: Western brands in India will find it difficult to position itself as a low-priced
brand . AirAsia, an airline company of south-east Asia could successfully position itself as a
low-cost airlines but that would not have been possible for a western airline. South-east
Asian company could easily position itself in that segment with aggressive pricing, schemes
and offers. Indians will require modular , functional and adjustable solutions like the
Chinese.
Like in China the apartments in India are small and require space-saving technology and
solutions to save space, instead of king-size beds , large closets , huge cupboard and
wardrobes, Indians will require tailormade solutions for themselves. In fact an Indian may
like personalized products to suit their tastes and apartment sizes. Coming to the
dissimilarity that is likely 1.) When Ikea entered china in 1998 it faced the problems of high
import tax , if it were to enter in China in 2013 it would have found that the taxes have
reduced. Most countries around the world have reduced taxation to encourage
globalization and open market policy . Trade agreements and treaty have also played a role
in taxes coming down even in china which is one of the countries that protected its local
manufacturers from external competition even though the Chinese government has
fiercely supported local production still the taxes now have been reduced considerably
from the 1998 levels. When Ikea enters India in 2013 it will find far friendly taxes which
will allow it to import products which it cannot produce locally in India . To start with Ikea
can have a 80: 20 proportion of imported items, it should gradually try to increase the
share of locally manufactured products from 2% to 70% in the next four years . 2.)
Although India a vast country like China the difference is that of varying cultures and
languages in India . In India Ikea would find different culture and traditions in each and
every state . In china Ikea did not have to adapt to so many varying cultures.
Challenges that are likely to be faced by Ikea in India Ikea will find a cosmopolitan culture
in the cities and metros where it is likely to open its stores first. My neighbour's apartment
may have a completely different layout than mine , my neighbour may be in a nuclear
family while I may be living in a joint family so though we are neighbors we may have
varying needs and tastes it is for this customized solution that in India customers go to the
nearby carpenter to make furniture as per their need and choice people prefer personlised
products rather than a readymade product so Ikea will find it difficult to follow a one-sizefits-all policy in India, alternatively Ikea may try to change consumer behavioral patterns
of customers so companies like Kellogs have patiently tried to invest in changing consumer
behaviour . Kellog for years have tried to educate customers to include cereals in their
breakfast after considerable investment Kellogs has been successful in changing the diet
habits of Indian consumers to include cereal as a breakfast option . 1.) Apart from
unorganized furniture manufacturers, Ikea is going to get some stiff competition from
some organized retailers in the furniture space ., . some of these retailers are backed by
large industry houses and company with deep pockets like Godrej ( Godrej Interio ) and
Future Group ( home town Big Bazaar) because of the relative late entry of Ikea in India it
will find quite a number of competitor in the organized retailing segment, in fact furniture
is one of the sectors where of late there has been a number of entrants in the organized
retailer space, some of these players are established in their business of modular furniture,
some of the names who have entered the furniture retailing space in the last 5 years are:
Godrej Interio , Hometown ( BigBazaar) , Durian, Zuari, Modfurn, StyleSpa , Gautier,
Heritage , Damro , Featherlite , Mobel Furniture , Irony , Neelkamal, Giani, Supreme,
Swagath Moulded, Steelco, Hettich, Featherlite , Estillo , Elegant , etc. to name a few ., . out
of these Neelkamal , Swagath Supreme are essentially producers of plastic furniture which
gives the customer cheap alternative to wooden furniture ., . while irony and steelco are
essentially iron and wrought iron furniture manufacturers .,. featherlite also is in the
category of mould furniture which uses a combination of different material ,. Godrej offers
customers both the options of steel furniture ( for office mainly ) and wooden furniture (
mainly for home use ) ., . some furniture stores like Gautier ( France ) and Fettich (
Germany ) are foreign brands that have started operating in India during the last decade .,
. when a big player like Ikea enters the market there is generally a shake out with takeover ,
merger and acquisitions ., . as a strategy Ikea could acquire some of these brands and use
its network of retail chains to start its operations in India. Ikea could also go into some tie-
ups with few of these retail chain stores as they already have an established footprint in the
country Suggestions ( strategy in India , going forward ) :
SUGGESTION : One of the challenges that Ikea will face in India is regarding the
distribution channels which channel or channels should it adopt? For setting up retail
stores it will face some tough questions ., . should it locate its store in the suburbs or on the
outskirts of the city or within the city ., . if Ikea establishes the stores within the city then
the real estate cost ( rentals etc. ) will drive the price of its products to higher levels ., . on
the other hand if the store location is on the suburbs few customers will visit the stores
because of the transportation problems in the country ., . most cities in India does not have
good connectivity through public transport ., . the road congestions and narrow roads
prevents the customers from using their own vehicles unless otherwise absolutely required.
1.) One of the options of distributing can be the one which has already been discussed
above , Ikea could acquire some established store or enter into a distribution agreement ., .
using the distribution channels of established stores will keep a check on the costs and help
Ikea to keep its price affordable ., . 2.) The second option through which Ikea could retail is
through online retailing ., . apart from its own website , Ikea can use some established
online players in the online retailer segment ., . some online stores like Flipkart ,
Homeshop 1 8 ( Home Shop 18 ) , Snapdeal ( Snap Deal ) , O L X ( Olx.Com ) , Myntra ,
Jabong , Yebhi , Rediff Shopping , Indiatimes ( Times Group ) etc. can be used by Ikea as
its online platform ., . online sales will get increasing important and Ikea should have a
substantial presence in this area ., . 3.) Ikea can go for something completely new ., . a
distribution channel which has not yet been tried by any company ( any furniture retailer )
., . Ikea can go into an agreement with developers in displaying their products in the
apartments which are yet to be sold ., . this type of tie-up will be mutually beneficial for
both Ikea and the developers ., . the developers can attract customers by showing a model
home which is fully furnished ., . customers who purchase the apartment will have the
option to choose from a fully furnished apartment or an unfurnished apartment ., .
furnished apartment is still an alien concept in India ., . here builders hand over an
unfurnished apartment for which the customer has to take the hassles of furnishing it from
scratch ., . to furnish it properly the customer spends another about 1 5 % - 20% of the
property price ( in addition to the price of the apartment ) ., . in addition it is a time taking
process for the customer ., . if the customer finds that it saves time and money to take a
furnished apartment that too from a reputed brand of furniture , the customer would be
interested in that option ., . as of now the customer is put off by furnished apartments as
the furniture is generally from some un-reliable ( or unknown ) manufacturer ., . if the
customer gets product warranty and other services which is reliable then he would be
definitely interested in buying a furnished apartment ., . Ikea can enter into such tie-ups
with top developers of India having presence in more than one state ., . real estate
companies like - Unitech , Dlf ( D L F ) , Parsvanath , Raheja , Hiranandani , Ansal ,
Purvankara , Tata Housing , Godrej Properties , Indiabulls , Merlin Group , Ideal Group
etc. are some of the top most developers in India ., . Ikea can reach its target customers ( a
customer who is buying a new house ) using this way of tie-up with developers ., . it will
cost much more for Ikea to rent retail spaces as distribution channels and display areas ., .
tie-ups with builders ( developers ) will allow Ikea to minimize costs and keep the prices
affordable ., . builders will also be interested if Ikea pass on a percentage of the products
sold ( furnished apartments sold ) ., . Opportunity ( target market ) : As per Merrill lynch
data there are 210000 Indians whose worth is more than a million dollar ., . there are 35
million tax payers in India ., . this is just 3 % of the total population ., . while the scope is
huge in terms of numbers the challenge is to effectively reach the targeted 3% of the
population ., . this 3% is scattered and is not homogeneous ( not homogeneously
distributed ) ., .
Also as per the income tax data there are 42800 Indians who have declared that their
annual income is Rs. 1,00,00,000 /- ( 10 million I N R ) or more ., . These 42800 people
whose annual income is in excess of INR 10 MILLIONS , consist of the wealthy category (
super rich ) ., . Ikea can have a special range of super premium products to target this
category of customers ., . What these figures state undoubtedly is that there is a huge
opportunity and market lying for Ikea in India ., and the market is largely untapped with
only a miniscule of population using branded furniture ( from organized retailers ) ., there
is no short cut to success and no ready made prescription for becoming successful in the
Indian market ., . but we can prescribe a few suggestions which Ikea may find useful while
operating in India : 1.) Innovative approach ( like innovative distribution channel as
discussed above ) ., . 2.) Flexibility ( flexible approach ) ., . 3.) Quick adaptability ( adapt to
the Indian culture and adopt the Indian values ) ., . 4.) Personalised and customised
solutions .,. customised products to suit one's individual needs .,. personalized product to
cater to one's individual requirement ., Hope these approaches will help Ikea to garner a
sizable market share in India and gather momentum in its business operations after
entering India ., . gaining momentum from the beginning is important in a robust market.
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Posted by: Prasanna V
July 23, 2013
IKEA's experience in China shows that its low-pricing strategy confused the consumers as
they looked upon IKEA as an aspirational brand and did not see it as a mass-market
retailer. This gap in communication can be avoided in the Indian market if IKEA plans to
have a strong promotion strategy that targets the middle class people and explain them the
value proposition and the pricing of their offerings (flat pack furniture, lighting, rugs,
plastics and so on).
Apart from their pricing and promotional strategies, the product offering also plays a
crucial role in India. It is advisable that they set liaison offices in India and understand the
Indian consumers first before foraying into the market. Here, the stress is on the massmarket retailing aspect considering two major factors:
1. They can leverage the local sourcing that will result in reduction of cost.
2. For a global brand entering India, it augurs well if they are "Globally consistent, but
locally relevant".
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Posted by: Shugato Banerjee
July 22, 2013
The case is an excellent example of a global corporation adapting and adopting to suit local
preferences. The fact that IKEA has always had to innovate through its history has helped
it to survive in difficult markets. Flexibility in what IKEA offers to its customers in terms of
customization has become the DNA of the brand. Its success in China and the lessons
learnt may not be very relevant in India because of the present political scenario and FDI
regulations. However, the greatest challenge for IKEA in India, which is seldom
highlighted in discussions is the fact that we are not comfortable with the 'Do-It-Yourself'
style when it comes to furniture. IKEA needs to invest a lot of resources into educating
Indian consumers about this if it intends to convert footfalls into robust sales.
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Posted by: Akanksha Singh
July 21, 2013
In a developing economy like China, where global organizations have to face a lot of
challenge in terms of prices from the local merchants, IKEA has really shown its potential
to tame Asian markets. Ikea's low cost mass production strategy worked wonders in China.
The upper-middle class people wanted branded furniture at affordable prices and Ikea
provided that. It also used social media to make the youth aware of its products and
designs and remained ignorant to the fact that the local vendors were trying to copy their
designs. These experiences will be definitely useful when Ikea plans to enter into the
Indian markets but the strict FDI norms in the country, the rules and restriction offered by
the different state Governments will be a hard task for the organization. The company has
to cater to the local market and provide furniture at affordable prices and actively use
social media sites for promotional campaigns. Also it's clear that the South Asian markets
are not very conscious of the environment and do not like to pay for the polythene bags.
This implies for Indian markets also. In order to be successful in Asian markets, Ikea is
adopting numerous strategies, Will it lose its original positioning?
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Posted by: Harshal Thakare
July 19, 2013
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This entire case study helped us to understand importance of local customer needs and
their perception toward your brand.This case study also shown us how the IKEA kept
flexibility in their marketing strategy as per costumer zone making little changes to their
already established product.
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Posted by: Ashna Garg
July 19, 2013
IKEA is an exemplar of a dynamic business which adopted itself according to its
environment rather than giving up and closing down because of the external environment.
It has truly followed 'The Law of Survival of the Fittest' by Charles Darwin. It is interesting
to know and learn how IKEA developed its roots in Sweden inspite of facing hostile
competitors and not only Sweden but the whole globe. Many learnings can be taken from
IKEA's brand adaptation in China. China is like the father of manufacturing cheap
consumer goods and is one of the biggest exporter of these goods around the globe. Entry
into the market might have been easy, but sustaining in it is commendable. Surviving and
getting success by a foreign company in a country like China erases the myth that only
designer and high end brands can do well everywhere. It can be seen from the case study
that IKEA found an innovative way every time it went to expand in another country as in
the United States and China. It takes a huge effort and resources to find a new idea every
time an organisation plans to expand. In the US, it had to make furniture according to the
needs of American customers, who demanded bigger beds and bigger closets, which was
very different from what IKEA manufactured originally, compact and foldable furniture.
Whereas in China, it had to decide its focus market unlike other countries where it covered
mass market. Not only this, it had to bring about changes in its marketing strategies, its
production strategies. So it was a complete topsy-turvy of what IKEA does originally. IKEA
is planning to open its store in India in 2014 and in just over 10 months, the Swedish
furniture major got the approval to set up stores across India with a phased investment of
Rs.10,500 crore. What could be a better explanation than this to tell about a company's
growth and success !
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Posted by: Rama Gurubaran V
July 18, 2013
IKEA is an excellent example of the prevailing marketing paradigm - "Marketing Concept",
which has been evolved through Production, Product and Selling concept. Furnitures in
India, is a highly unorganized segment and a potential opportunity for the company. IKEA,
through its success in China, has proven its expertise in experience marketing and constant
innovation to adapt to the change. The learnings we can get from the case: 1.Target the
right segment - It targets middle class population in China. From the success of
McDonald's and KFC, we can conclude that Urban middle class is the right segment in
India. 2. Understand local consumer needs - True to every market and should be employed
in India too. Similar to Chinese market, a typical Indian middle class customer don't prefer
larger beds due to space constraings. 3. Low prices - When IKEA is planning to cater to a
mass segment, price should be at the low end as in China 4. Environment friendly Retailers like Big Bazaar charge for plastic bags due to Govt regulation and IKEA won't
find difficulty in doing the same 5. 'Do-it-Yourself' - This model would work in India as
Indians are fond of getting attracted to new things. 6. Promotion: Social marketing is the
best to target urban middle class.
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Posted by: Seemanchal Mohanty
July 16, 2013
Low cost in a developed market environment is not necessarily low cost in an emerging
market ,this is what most companies fail to understand .costs are cut ,discount offered etc
but these methods sometime reduce the perceptible quality of the product.IKEA even had
to face street smart local manufacturers who were quick to create similar product at
fraction of the low cost the IKEA provided.the way IKEA observed the local consumers and
targeted audience by projecting itself as a aspirational brand (increase in social presence)
and developing stores at strategic location(to crack the transportation problem) helped
them to win in china without compromising profits.
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Posted by: Pavitra
July 15, 2013
IKEA's brand adaptation in China has many lessons for global companies looking to
expand into new markets or countries. Lesson 1 : It is imperative for the company to have a
thorough understanding of the local culture, people's habits and preferences(as is also seen
from the Kellog's case in India wherein Indians do not prefer cold milk with their cereal).
Lesson 2 : The company may have a stellar product/service, but if the pricing is not right, it
will never translate into profits. Here, low prices triggered confusion of the brand
positioning and high prices invited rivalry. The solution here was to cater to a niche of
westernized, urban youth. When we analyse this case using Porter's 5 forces, we can see
that : Bargaining power of suppliers is medium, as IKEA needed suppliers as much as the
suppliers needed Forex. Bargaining power of buyers is high as new markets, new rules,as
consequently power is with the buyer. Threat of new entrants is low as few are unique to
IKEA's positioning as a DIY global furniture manufacturer Threat of substitutes is low, as,
well, one does need furniture (unless one can make do with carpets) Inter-firm rivalry is
quite high, with local manufacturers coming out with similar designs at lower prices and
lastly, complementors play a big role here in the form of a. Chinese culture - Here people
are not very happy with the do-it-yourself concept b. Infrastructure - The fact that most
people use the public transportation also affects the sale of IKEA.
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