1. OPPORTUNITIES AND CHALLENGES FACING IKEA IN CHINA AND JAPAN
CHINA
OPPORTUNITIES
IKEA has the following opportunities in the china market:
It took its time to get to know the Chinese customers. This prudent approach to market entry
took IKEA 5 years before it opened its first full-scale standard IKEA store in Shanghai in 2003.
This prior knowledge of the market is an opportunity to produce products that suit the tastes,
preferences and culture of the Chinese people.
It has a large capacity. Its store in shanghai occupies 33,000 square meters and retails more than
7,000 products. Its signature Småland children’s playground is 170 square meters and the free
parking area holds 800 cars. This capacity is also an opportunity to stock its products in large
scale and thus provide a variety for customer choice and to enable display so that customers can
move around freely while selecting their items of choice.
The large parking space is also an opportunity to attract car owning customers who in most cases
are rich folk and have the ability to make a purchase. The children’s playground attracts families.
When customers come as families, they tend to make more purchases since the are attracted to a
variety of products at different levels whereby, the children would prefer a certain range of
products quite different from those their parents will prefer to purchase.
IKEA’s display strategy is another opportunity. Customers walk through the showrooms where
they can see and try the products. After making up their minds, customers make notes of the
details for collecting the products. They then find the products in flat-pack in the warehouse on
the ground floor according to the correspondent aisle and shelf numbers. This strategy reduces
labor costs and increases general order in the operations of the business which attracts customers.
IKEA was probably the only store in China that offers such a wide range of products for home
decoration and a 'do it yourself' furnishing concept. This ability to offer a range of products to
customers basing on their preferences and living standards and also promoting a ‘complete
solution’ to decorating a home offers a chance to get all the customers. At least every one has a
home and wants it beautiful, thus this variety and cost effective opportunity to market and sale its
products as the only firm was a great one.
CHALLENGES
Challenges facing IKEA in China included the following:
‘Individualistic’ value is in contrast to the local tradition. Chinese customers are used to being
served. Thus, the strategy of customers serving themselves was new and against their culture.
There is a large gap between customers who visit the stores and those who make a purchase.
Those who make purchases tend to be small decoration products with low profit margins (which
make up 45% of total sales)
Another major challenge is its strategy of brand new designs for each single market which may
be very effective in terms of delivering customer value for a specific market, but expensive.
Thus, it doesn’t chime well with the IKEA way of being cost conscientious at every step.
Product pricing in China is another major challenge. Whereby, for consumers who are able and
willing to pay a high premium for foreign produces, foreign brands like IKEA which prides itself
as a low price retailer make little sense. For those seeking low prices, they find IKEA products
more expensive in comparison to the local brands. Therefore, given the ‘low price’ image that
IKEA associated itself with and the relatively high actual prices, it is difficult for the Chinese
consumers to recognize IKEA’s value and accept its prices at the same time.
Lastly, IKEA’s efforts to establish an efficient and economic network of logistics and
distribution have been met with significant challenges. Distribution systems in China are still
relatively underdeveloped and also due to relatively low private car ownership, the locations of
most IKEA store in China have to be situated in the city, which is traditionally considered ‘nonIKEA’ when IKEA’s retail strategy is concerned.
JAPAN
OPPORTUNITIES
In Japan, IKEA has the following opportunities:
Japan has one of the most established consumer markets in the world. This implies a large
market for IKEA’s products. IKEA also conducted a research on more than 100 Japanese homes
in order to understand their way of living and their needs in everyday life, and develop products
which would fit well with the Japanese consumer perception.
Just like in china, IKEA has a large capacity to accommodate a large number of customers.
IKEA has the largest store design in the world occupying 40,000 squared meters with an in-store
restaurant of over 700 seats. This large capacity is an opportunity to attract and serve many
customers.
For a nation which values simplicity in many aspects of living, the Japanese consumers were
expected to appreciate IKEA's well-designed, light-colored Scandinavian furniture. Thus, it
provided a responsive market for its products.
Lastly, compared to other European or Scandinavian furniture manufacturers, IKEA products are
priced very competitively making them very accessible for most Japanese consumers.
CHALLENGES
IKEA’s biggest challenge in Japan is to make the home a more important aspect in the Japanese
lifestyle. By any measure, Japanese homes are tiny with approximately only 50 to 60 squared
meters making it very hard for household owners to make their homes beautiful while having to
considered storage space for all of the family’s belongings. Most Japanese consumers see their
home as a place to sleep and store their personal belongings and nothing more.
Another challenge is that, in China, home furnishing is not regarded as important .It is also not in
their nature to invite guests over to their homes. As Japanese people have a tendency to socialize
outside their homes, they spend more time and money on products and accessories such as Prada
or Louis Vuitton handbags, mobile phones and cars that they can show off in society. Hence,
little time is spent on decorating the home.
Lastly, As in China, the Japanese consumers do not appreciate the DIY concept of self-service,
self-delivery and self-assembly. This aspect has generated some confusion and discussion since a
high level of customer service is something that Japanese consumers are culturally accustomed
to from every retailer in the country.
2. MARKET ENTRY STRATEGIES
CHINA
IKEA took its time to get to know the Chinese customers. This prudent approach to market entry
took IKEA the following 5 years before it opened its first full-scale operations. This strategy of
first knowing the market is an important strategy, especially when entering a new market in a
foreign culture.
Another strategy to enter the market is the large scale entry. Its entry into Mainland China started
in 1998 when it opened its first store in Shanghai, occupies 33,000 square meters and retails
more than 7,000 products. Its signature Småland children’s playground is 170 square meters
and the free parking area holds 800 cars. This large start is a competitive strategy that aims to
achieve a dynamic customer attraction.
The next strategy is the record of visitors on the opening day. The store in Shanghai attracted a
record of 80,000 visitors on the opening day. This powerful launching is an entry strategy meant
to enable customer education, demonstration when necessary and confidence creation among
customer’s in the company’s products.
Substantial financial investment is the next strategy that IKEA uses in its market entry in China.
Take for instance, the president of IKEA China, Ian Duffy, unveiled a long-term plan to open ten
more stores in mid-sized cities, such as Dalian and Qingdao, by the end of 2010. This plan would
require a US$600 million investment. Though an expensive investment, but it’s worth the money
and risk basing on the high returns involved and the dominance it achieved in the china market.
In China, IKEA successfully differentiates itself as an international brand that provided modern
furniture with elegant, western design. This creates a uniqueness in its operations that is
uncommon in the market and is internationally recognized. This includes brand names such as
the local furniture brand that promotes a ‘complete solution’ to decorating the home. This is
coupled with its ability to sale a variety of necessities for the home including cooking appliances,
lighting, and bedding. Through this, the company has achieved to create a name for itself in the
international market.
Lastly, low pricing is another market entry strategy. When entering the market, it ensures the
products are offered at a ‘cheaper’ cost. IKEA derives its competitive advantage in developed
countries from the low cost production in developing countries supported by aggressive control
over the supply chain. Large amounts of raw materials are sourced in the developing countries
and production outsourced to factories in countries with low cost labor such as Malaysia, India
and China. The gap in the raw material and the production costs between developing countries
and western countries is the main source of IKEA’s low prices. A highly efficient distribution
and logistics system plays a fundamental role in enabling IKEA to keep its prices competitive
and contributes to every percentage of its profit margins. Under pressure to cut costs and deliver
lower prices, IKEA needs to increase sourcing its products locally by collaborating with local
manufacturers.
JAPAN
In Japan, IKEA market entry strategies include:
IKEA analyses the market before entry. After the dismal performance after its first entry in
Japan, it took IKEA another 5 years to establish a much deeper understanding of the
Japanese consumers before deciding to re-enter the country. During this period, IKEA
conducted research on more than 100 Japanese homes in order to understand their way of
living and their needs in everyday life, and develop products which would fit well with the
Japanese consumer perception. This went a long way in assisting them to understand the market
well before making its second entry.
IKEA’s large scale entry is the second strategy. Instead of using a franchised arrangement, it
opened two IKEA-owned retail outlets: one in Funabashi (Tokyo) and one in Kohoku. It has
opened two more stores in 2008: one in Kobe and one in Osaka. All the stores have IKEA’s
largest store design in the world occupying 40,000 squared meters with an in-store restaurant of
over 700 seats. This large scale entry shows the ambitions of the company to dominate the
market despite its challenges and well, it has worked for it.
The third strategy, are the many visitors on its opening day. On the opening day of IKEA
Funabashi, the store attracted 35,000 visitors. Since then, the store generally maintains 30,000 to
40,000 visitors at every weekend. These shows how important that strategy was to attract the
many visitors on the opening day who eventually would make up the customer base for the
company. This strategy worked for them basing on the level of consistent visitors who remained
to be customers after the launching day.
The fourth strategy is the targeted group. IKEA targets a certain group of individuals as their
potential consumers and upon entry, goes for them. In this case, Not unlike other markets, the
most important target group for IKEA in Japan is families with children. Their customers tend to
be relatively young with those in their 30s being the largest age segment. The average household
size among this group of customers is three people per household. This provides a good customer
base for the company. It also targets the individuals who can afford to make a purchase after
studying their purchasing power. Like in Japan, the annual household income is 40,000 to 45,000
Euros per year. Thus targeting these households was a grand plan. It also sets the right facilities
to get hold of their targeted groups. For example, when targeting the children with families, it
sets up a children’s playground. And obviously, children come with their parents.
Lastly, low pricing has managed to make their entry into the new market relatively smooth.
Compared to other European or Scandinavian furniture manufacturers, IKEA products are
priced very competitively making them very accessible for most Japanese consumers.
3. a) IKEA’S PRODUCT, PRICING, MARKETING COMMUNICATION &
DISTRIBUTION DECISIONS IN:-
CHINA
Under Product decision, IKEA deals mainly in house decoration but with time it has
decided to diversify its products ranging from cooking and lighting appliances to
beddings. This diversification of the market has helped to increase sales and meet
different customer needs. It promotes its philosophy of 'how it is not wrong to be
different' by offering its customers a range of options to suit the customer’s preferences
and living requirements
In china, IKEA has also tailored its products to appeal to its Chinese customers, IKEA
has made a lot of efforts to adapt its products to the local tastes and demands. For
instance, IKEA would release a series of products to celebrate the Chinese New Year,
which is the most important festival for the Chinese people. Though expensive, but this
has managed to create customer confidence and increased sales.
When making pricing decisions, it has proven to be a challenge in China which has a
lower GDP as a country compared with other developing countries in Asia. For
consumers who are able and willing to pay a high premium for foreign produces, foreign
brands like IKEA which prides itself as a low price retailer make little sense. For those
seeking low prices, they find IKEA products more expensive in comparison to the local
brands. Therefore, given the ‘low price’ image that IKEA associated itself with and the
relatively high actual prices, it is difficult for the Chinese consumers to recognize IKEA’s
value and accept its prices at the same time.
Marketing decisions in china have been done mainly through show rooms where the
products are placed on display and the customer can easily see and choose from the
shelves whatever suits them. The company also has a logo hung high outside the
building. Its low pricing also markets them in a way.
Distribution decisions in China have been done through building two logistics centers in
Shanghai. After finishing the first logistics centre in Song Jiang District in December
2005, IKEA is building the second one in another district, Feng Xian. The latter is
IKEA’s first logistics centre with a quality control centre attached to it. Once it is finished
in 2010, both logistics centres can hold 300,000 cubic metres of products. Before these
products are distributed to the IKEA shops in the Asia-Pacific region, they will undergo a
series of quality control tests (Chen, 2006). These logistics centres are meant to ensure
high quality products are distributed.
JAPAN
Product decisions have been done after IKEA conducted research on more than 100
Japanese homes in order to understand their way of living and their needs in everyday
life, and develop products which would fit well with the Japanese consumer perception.
The main challenge has been the Japanese culture that sees a home as a place to sleep and
keep personal belongings. This has forced the company to design products that suit their
needs. For instance, IKEA demonstrates this by displaying Japanese-sized apartments
in their stores that incorporate a kitchen, a bathroom, a sofa that turns into a bed, and
several storage areas. This has been in an effort to make it more realistic in relation to
Japanese style homes.
IKEA products are priced very competitively making them very accessible for most
Japanese consumers.
Marketing in Japan has been done mainly on the launching day when it attracts a record
of visitors and also through showrooms. IKEA also has employed more staff members
are now employed in their Japanese stores to adapt to this culture
Distribution channels in Japan has been achieved through establishing a series of
stores. It opened two IKEA-owned retail outlets: one in Funabashi (Tokyo) and one in
Kohoku. It has opened two more stores in 2008: one in Kobe and one in Osaka.
b) ADAPTATION OF THE ABOVE MARKET MIXES TO MARKET PREFERENCES
AND NEEDS
CHINA
In china, IKEA has tailored its products to appeal to its Chinese customers, IKEA has
made a lot of efforts to adapt its products to the local tastes and demands. For instance,
IKEA would release a series of products to celebrate the Chinese New Year, which is the
most important festival for the Chinese people
Product pricing in China has been a challenge but IKEA prides itself as a low price
retailer to suit the Chinese market which has a low per capita income compared to other
developing countries in Asia.
In China, IKEA has successfully marketed itself by differentiating itself as an
international brand that provided modern furniture with elegant, western design. Unlike
the local furniture brands, IKEA promotes a ‘complete solution’ to decorating the home
IKEA has also managed to market itself in China by having showrooms for display and
during launching. It has also targeted Chinese festivals. In 2006, a red rooster appeared
on many IKEA products, greeting the year of the Rooster. This move won IKEA many
customers.
The company has improved its distribution systems by building 2 logistics centres in
Shanghai whereby before these products are distributed to the IKEA shops in the AsiaPacific region, they will undergo a series of quality control tests.
JAPAN
The Japanese tend to treat a home as a place to sleep and keep their personal belongings. This
has made it hard for IKEA which deals in home decorations to have a hard time getting
customers. To overcome this cultural apathy towards home furnishing, IKEA conducted
research on more than 100 Japanese homes in order to understand their lifestyle and needs in
order to develop products which would fit well with their consumer perception IKEA
demonstrated this by displaying Japanese-sized apartments in their stores that incorporate a
kitchen, a bathroom, a sofa that turns into a bed, and several storage areas. Since Japan is an
active earthquake zone, all kitchen appliances such as sinks, taps, dishwashers, fridges and
cabinets were made to be earthquake-safe.
The annual household income in Japan is 40,000 to 45,000 Euros per year. Due to this, IKEA’s
products are priced very competitively making them very accessible for most Japanese
consumers.
The company has also many Japanese employees in order to make them adapt to their culture.
4. STRATEGY ON INCREASING MARKET SHARE AND PROFITABILITY IN :CHINA
Offering after sales services;
One of the main challenges facing IKEA is the individualistic value which is in contrast to the
local Chinese tradition. Many Chinese consumers do not like IKEA’s DIY concept to home
furnishing especially in the light of having to accept the highly priced products without the
accompanying personal services, assembly and home delivery. Thus ,l would advise IKEA to
start offering personal services to its customers if it wants to increase its sales.
Pricing strategy;
Many young customers, who like the design of IKEA’s furniture and decorations, turn to other
local stores to buy after wandering around the IKEA store due to the high prices of IKEA’s
products. IKEA brands itself as a low price entity and yet in real sense it sells at higher prices
compared to the local stores. IKEA should set a price for its products which are realistic. The
incoherence between the branding and the actual price should be dealt with since its part of the
reason that is costing the company its important customers.
Price discrimination;
Basing on the fact that IKEA’s low price strategy seems to create confusion among Chinese
consumers whereby consumers who are able and willing to pay a high premium for foreign
produces, foreign brands like IKEA which prides itself as a low price retailer make little sense
while for those seeking low prices, they find IKEA products more expensive in comparison to
the local brands., IKEA can categorize its customers into classes and sell to them products at the
best prices which suits their level of income and status. This would attract customers from all
classes and eliminate the dilemma associated with its low price branding.
Proper target group;
There is a perceived incoherence between the consumer groups who understand the IKEA
concept and the groups who can afford the product. This incoherence is due to the fact that
IKEA’s marketing targets the wrong group of people. By targeting the wrong group, IKEA has
incurred unnecessary cost. To correct this, the marketing group should carry out a fresh analysis
of the China market and identify the right group to market its products. It should spent more
funds on those who can afford.
Redistribution;
By redistribution, the company should consider placing some of its products in the local stores.
Basing on the fact that most Chinese low and middle –income earners tend to shop in the local
stores, then it would be advantageous for the company to have an agreement with the local stores
to allow them sale their products there. This ‘an enemy within’ situation is an attempt to create
customer confidence and slowly lure them.
International branding;
IKEA should have a brand of products that cuts across cultures. The brand should be recognized
internationally. This is to avoid building new designs for each market which is quite expensive
and the products lack international demand. By building ‘china only’ products, it locks out
potential customers from other cultures who may be china residents or not.
Hiring more sales personnel;
The company should establish a workforce and distribute them in the stores. Some should be
placed strategically in the store to convince those who enter the premises to at least make a
purchase. This would correct the situation whereby, there is a large gap between customers who
visit the stores and those who make a purchase. Those who make purchases tend to be small
decoration products with low profit margins (which make up 45% of total sales). The company
should position the sales people at strategic points near high value products with high profit
margin to try and convince the buyers to make a purchase.
JAPAN
Consumer education;
IKEA can conduct customer education to the Japanese informing them the importance of treating
a home as more than a place to sleep and keep personal belongings. For instance, the company
can print leaflets with remarkable homes and distribute to its customers. They can also hold
television shows during which they can teach the customers the difference between a home and a
house. They can also distribute brochures with remarkable information about the products.
Service diversification;
The company can also decide to diversify its decoration services. Other than decorating houses,
they should also target the cars and restaurants. These are the places which the Japanese love
spending their time. Thus, going for them where they are would be better than them coming for
you as a company. They can also start a new store catering specifically for their needs.
Work force training;
IKEA should consider taking its workers through a multi cultural training. This is meant t enable
them work in any environment and culture rather than hiring Japanese workers which is a costly
investment with no visible benefits. During training, the employees should be taught on how to
serve all customers with utmost care. This will go a long way in attracting customers to the
stores. Since the Japanese consumers do not appreciate the DIY concept of self-service, selfdelivery and self-assembly, the work force should facilitate the above services remarkably well.
Creating a customer care desk;
This would go a long way in helping the company identify weaknesses in the company and
correct on time. It would also help to identify opportunities in the market and exploit them. The
customer care resource would not only provide consumer education about the products but
would also be a feedback system.
Technology incorporation;
The company should consider going global through online marketing. This it would achieve by
first hiring IT experts who would then establish a website where all information about the range
of products, orders and follow up services would be provided. This would help cut down on
promotion costs and also increase the customer network all over the world. Not forgetting the
social media which is also another great avenue for the company to market its products.