IKEA a Case Study

8/11/2019 IKEA a Case Study

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Customisation

IKEA managers visit thousands of homes round every store in the world every year. They sit down in

the kitchen and talk to home owners and try to learn and understand. They pose questions like -

'What are you annoyed with? What are your frustrations? What would you like to have? How much

can you afford? What are your alternatives? - to find answers to IKEAs focus areas going forward.

IKEA is also good at making necessary adjustments to reflect local market tastes. One lesson learned

in the American division was adjusting the size of the beds and sheets to conform to American

standards. The company has also developed a strong loyalty program called IKEA family. It enables

members to enjoy special discounts plus they receive a private newsletter on a quarterly basis.

Without a willingness to lug cheap flat-pack wardrobes home and wrestle with self-assembly, there

would be no IKEA, but in Asia, where the locals have other ideas, the Swedish furniture giant thinks it

still has a bright future. Local entrepreneurs have capitalized on home transport services for IKEA

customers along with home assistance in assembling the furniture especially since China does not

have a Do-It-Yourself culture. In addition, promotions and marketing are often internal, due to thecosts and distances involved in distributing catalogues

One size doesn't fit all. In regions where apartments have smaller rooms, its showrooms have to be

smaller. A sample balcony exhibit will be kitted out differently in northern China, where balconies

are widely used for food storage, than in the south, where they often double as laundries. In Japan

too IKEAs customizedshowrooms (small scale apartments) display fitted IKEA furnishings (thereby

changing consumer buying patterns). IKEA is developing a service where old furniture is transported

away, to make way for new IKEA furniture.

Moreover, IKEA customizes showrooms according to Chinese living patterns and standards. For

example, many Chinese people live in small apartments with balconies, therefore, IKEA has added

model sets and special balcony sections in the stores to show how to furnish your balcony.

Even though IKEA had entered Japan and failed 30 years earlier, in 2002, the IKEA Group established

IKEA Japan KK. Immediately, IKEA faced challenges in differentiating against local competitors

Mujirushi Ryohin (Muji) and Nitori who were well-entrenched (numerous national stores),

inexpensive (due to low-cost imports from developing Asian countries) and popular local brands

(especially among IKEAs youngergeneration target market). This mature and saturated market

created difficulties in attracting IKEAs target customers. Japanese consumers were veryqualityoriented and traditionally viewed high priced products as being of high quality. However, many

Japanese customers are in the process of embracing the concept of value. In addition, IKEA has

localized its modern designs to include richer and darker wood products packaged in aesthetically

pleasing boxes, which are preferred by their Japanese clients.

Another issue for China has been the sheer volume of visitors, with 28,000 on an average Saturday in

Beijing - roughly what a European store has in a strong week. That means IKEA is building larger

stores in China. It also builds them closer to customers, as fewer people have cars, and is likely to

aim for the same in India.


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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.

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. Helping them adopt

new technologies meant higher cost, which would hurt business. IKEA decided to stick with low

prices to remain in business.

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.

Target segmentation

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 in strategy, as IKEA was targeting the mass market in other parts of the worldIKEAsmain target segmentation are Chinese females around 30 years old (since they often make decisions

around home furnishings). Some research has indicated that this generation was born during Chinas

One Child Policy and are believed to be impulsive, easy to influence, very social, and committed to

leading foreign consumer brands . In fact, Chinese consumers often use IKEA stores as a social venue

or weekend family outing (often browsing or taking naps on some of IKEAs products).


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Shoppers sit on sofas in the furniture department of Ikea's first store in Beijing

Easy Finance

In developed markets, IKEA is positioned as a low-priced mass-market brand, but in emerging

markets where low prices are the norm, it targets a growing middle class that aspires to

international lifestyle products. For these customers, design and a comprehensive range under one

roof are the attraction. The implication is that price is a less important part of the marketing mix for

Ikea in China than it is, for example, in the US or UK. 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.

IKEA offers flexible payment options from as low as RM500 in Malaysia to make it easy & affordable

for the customers to make purchases. It has tied up with Alliance Bank, Citibank, Maybank and

Maybank American Express for the purpose. Similar provision also exists in Thailand and will be

provided in India too.

Location

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, the company set

up its outlets on the outskirts of cities which are connected by rail and metro networks. These stores

are close to the city (compared to IKEA outlets in other parts of the world), because the majority of

Chinese consumers use public transportation. Nevertheless, IKEA still built 700 parking places under

the Shanghai store, with expectations that shopping patterns will change in the future.

Local relationships

In Poland, IKEA built its relationships with suppliers on a very personal level, with IKEA

representatives becoming actively involved in different issues of factories production, supply and
http://www.bloomberg.com/photo/ikea-s-ohlsson-targets-fourfold-increase-in-china-stores-by-2020-/-iAkazFt5wpmI.html


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sometimes even human resource management (HR). These relationships were always based on the

principle of the Code of Conduct and reflected an overall status of a local supplier as regards his

compliance with its requirements. In relationships with them the company followed the principle to

develop those who want to be developed while letting go those, which were either too small

and/or were not interested in the long-term cooperation.

The requirements from suppliers in Poland were reported to be higher than in other developing

markets such as Russia and China due to their high level of development. One of the key issues with

Polish suppliers was helping them to switch to a direct (to the stores) delivery system. Supporting

suppliers in these new challenges, IKEA managers offered them different kinds of help including

efficiency training and access to the companys electronic data bases. At the same time, managers

limited their involvement to recommendations since the ultimate decision was always left to a

supplier. A strong focus was also on training of IKEAs own business developers who would, in their

turn, develop local suppliers. This was due to the high pace of industry development in Poland and

the demands that IKEA organisation placed on local suppliers.

IKEA has built a number of factories in China and increased local sourcing of materials. While globally30 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 has also started performing local quality inspections closer to manufacturing to save

on repair costs.

IKEA has realized the need to adapt its organizational structure and competencies to fit with

strategic partners within their networks. For example, the organizational structure in China was

developed differently than the standard IKEA organizational set-up, mainly due to Chinese cultural

tenets (e.g. Confucianist hierarchical values).


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IKEA a Case Study

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