Marketing strategies of IKEA in the Chinese Market

Introduction

IKEA was established back in 1943 in Sweden. This report will analyse the marketing strategies of IKEA in the Chinese market. It is specialized in designing, producing and selling innovative furniture, home appliances and toys, and kitchen appliances all around the world. The vision of the company is to be home a better place to live in for many people and to do that it adopts innovative and cost-efficient products and home appliances so that many people can avail the world-class products. The company has operations in 46 countries, as part of its international expansion, it entered China in 1998 (China Business Review, 2004). The company did not make a foreign direct investment rather that was on a franchisee basis where the operation was started on the basis of the joint venture under Inter IKEA System BV.

Situation Analysis for IKEA

IKEA’s China Market KPI

This is the world’s largest retailer in designing, making and selling furniture and home appliances. In the financial year 2013, the company made sales of £ 23.7 billion (BBC News, 2013) which is 3.1 per cent of the total sales of the last year. The Chinese market generated more than 55.85 billion sales by August 2012 (Olivier, April 2013). In the beginning, the Chinese market didn’t do well, but the company changed the pricing policy, it reduced the prices only by 10%, but sales increased by 35% only in the Chinese market. In the country, the company currently uses more than 362 suppliers and employees several thousand employees in the Chinese market. Most of IKEA’s customers’ ages range from 20 to 35 years and 70% of the customers are women (Chinese Business Review, 2004).

IKEA’s performance in the Chinese market at present

The started its operation in the Chinese market in 1998 and since then it has established 16 outlets in the Chinese market. Currently, the company provides completely customized products and services to its customers. The decoration, pricing, the product features all are customized on the basis of the culture of the Chinese customers to make the product more attractive to the price-sensitive customers, it has reduced the prices by making the supply chain more efficient by sourcing the products from China (Olivier, 2013). The company is facing problems in terms of copying of designs by the competitors. As the company knows that Chinese law is not strong to deter these competitors, they used the Chinese website to reach the customers.

IKEA’s product is perceived to be very aspirational and special to the Chinese market and most the people in the country cannot afford the high prices of the products (Valerie et al., 2013). Therefore, the company has adopted a strategy, not it targets the young class-higher income family who has good incomes and are eager to follow the western culture life.

You may also like to read below blog posts:
PESTLE analysis of Vodafone
Ansoff Matrix for Vodafone
Porter’s Five Forces model of Vodafone
Stakeholder analysis for Vodafone
Strategic Planning for Vodafone
Strategic Planning for Kellogg’s
A sustainability and strategic report on Sainsbury’s

IKEA’s few products that currently sell in China market

Some of the products that are sold at IKEA are discussed below:

Living room: Vilasund Sofa Bed: This is a sofa space in the living room, it has storage space too. The decoration of the product is nice to show the Chinese people. The price range for the product is $926.

Kitchen (Boholmen Sink): This is a stainless sink to apply in the kitchen and this product has 25 years of guarantee. The price for the product is $154. The product was designed at IKEA, Sweden.

Appliances (Cookware Set): This is a set of 7-piece cookware pieces to cook in the kitchen. This set can be used on all types of cooktops and the price range for this set is $130.

Bedding Bedframe: This is a bedroom appliance that is used while reading or watching television. It was designed in IKEA, Sweden. The price for the product is $171. The cover of the bed frame can be washed by machines.

Children (Sound Wardrobe): This is basically a storage for the children and the storage capacity makes it easy for the children to use. It was designed in Ebba Strandmark and the price of the product is $212.

Chinese Furniture Market

China is one of the most populated countries in the world with a total population of 1.39 billion as of December 2014 (World o Meters Live, 2014). China is a major market player in the world with a labour force of 787.6 million; the country is a global hub for international production (World Bank, 2014). It is a member of the World Trade Organization, APEC and G-20. The nominal GDP of the country is $10.355 trillion and the nominal GDP per capita is $6,959 (IMF, 2014).

The gradually increasing income and the trends toward the high-end products explain the future of the country. As the people of the country are moving toward the production of high-end products and as they are inclined to use quality products, the market is moving towards a new level. Therefore, expansion and concentration in the Chinese market would be a good decision for IKEA as this brand is perceived to be of high quality not only in China but also around the world.

China has the fastest growing economy with a nominal growth rate of 9.5% (Economist, 2014) and it has the highest the labour force in the world with 786.6 million working people (World Bank, 2014). The company uses highly efficient production technology, business-friendly political situation and it appreciates international investment in the country. It has very insignificant restrictions in conducting and starting a new venture, except for some restrictions in the online gaming business (Maurice and Wang, 2013).

At present, the country demands different types of furniture which are given below:

Home furniture: These refer to the items of furniture that are used in the home such as chairs, tables, shelves etc. Generally, these products are positioned to attract people of higher income and middle-income people living in a family. Price ranges from $32 to $1000 (IKEA, 2014).

Hotel and guest furniture: These are furniture that is used in hotels and guest houses. The demand for tourism and hotel business in the country is still rising; there is a substantial need for furniture in the hotels. Hotels and resorts are the target customer for this range of products $50 to $650 (IKEA, 2014).

Office furniture: This furniture is used in offices, the demand for these products is also on rising. Offices are the target customers of these products. The price range for these products ranges from $3 to $ 804 (IKEA, 2014).

The market will soon boom again because the people will be very much interested to replace their old furniture with the newer ones and there are more than 438.93 million households. Therefore, the demand for new furniture will be extensive in the country.

Customer Segmentation in the Chinese Furniture Market

Demographic Segmentation (Income-based): On the basis of demographics, the customers can mainly be divided into two types: low-end customers and high-end customers; the first group demand cheap prices with reasonable quality, second group demands Hi-quality products with premium prices. IKEA should facilitate these two types of products for the Chinese market. Prices can be reduced through collaboration in low-cost countries and higher quality products should be made by European suppliers.

Geographic segmentation: The Company can also segment the market on the basis of the geographical positions of the outlets. The segmentation will be conducted on the basis of convenience from the suppliers’ position.

Industry-wise segmentation: IKEA can segment the market on the basis of different sectors such as households, hotels and restaurants, government offices etc.

IKEA’s competitors in the Chinese Furniture Market

Every business has its competitors, so is the case with IKEA in China. The company has three major competitors in China, they are JSWB with 9 stores, B&Q with 57 stores and JYSK with 8 stores (IKEA China, 2012). JSWB targets middle to high-end customers, B&Q targets middle-end customers and JYSK targets middle-end customers. The strength and weaknesses of these companies are discussed below:

	JSWB	B&Q	JYSK
Strength	Relatively bigger shopping mall with extensive areas. A higher number of varieties. Good quality of the products.	A higher number of stores around the country. Reasonable prices.	The products and services are appreciated by some customers.
Weakness	The products are too expensive. Covers only 3 cities in China.	Lack of control in production, design and product quality. Inferior to IKEA in terms of quality.	The low popularity of products. Fewer stores in China.

Suppliers of IKEA

The company outsources the products from different countries. For the European and US markets the company outsources most of the products from European suppliers. In the case of the Chinese market, it outsources the products from the local market but the Chinese manufacturers cannot follow all the regulations of the company, as a result, they are facing a crisis. Chinese suppliers for IKEA have halted their business due to low prices to the contract and they are selling their products under the company’s name. 

One of the main principles of IKEA is to keep as less inventory as possible to keep the prices lower for the customers. The suppliers need to company with the direction and to do that the company forecast exactly so that the produced products match the demand of the customers (IKEA Supplier Portal, 2014).

Distributors: The Company has its own distribution process. To distribute the products to the outlets, it employs several people in the distribution process who accomplish the distribution activities of the company by promptly taking actions to avoid excess inventory in the warehouse.

Marketing Analysis of IKEA

Hofstede culture analysis – Sweden VS China

Sweden versus China: There are substantial differences in Hofstede’s cultural dimension between Sweden and China. Chinese boss keeps a distance from their subordinates than those in Sweden, moreover, Chinese people like to stay in a group but Swedish people like to stay alone. Chinese people are more interested in hard work and establishment, but Swedish people value quality and peace in life. China’s high score in pragmatism illustrates that they are influenced by past experiences. Chinese people are more affected by the views of their friends than those in Sweden (the Hofstede Centre, 2014). A high score in indulgence by the Swedish people illustrates that they are more inclined to their own decision than those the Chinese people. Marketing mix and adaptation strategy should be made in such a way that will remember Chinese people of good experience and marketing campaigns should be made in such a way that will create a social acceptance and will make social acceptance so that people are affected to purchase the products.

IKEA adapts and standardizes the marketing mix on the basis of the demand and environment of the business. For example, a sofa is adapted and standardized differently. The company standardize the main features of the sofa when the indigenous features are accepted by the customers; otherwise, it adapts the offering. The product is almost adopted in Sweden, but in the case of China, the sofa is standardized for customer demand. Pricing is also standardized in the Chinese market as Chinese customers are price sensitive. The decoration of stores for sofas in China is incompletely standardized as in Chinese culture. Product approaches ad processes are also standardized in the Chinese market.

Marketing Mix of IKEA in the Chinese Furniture Market

A marketing mix aims to combine the elements such as product, prices, place etc. to approach the customers (Kotler, 2012). This aims to make the product offering as attractive as possible so that it can outstand from the competition.

Product: Innovation of newer products should be the main focus of the company. Products offered in china should be customized on the basis of the culture of the country. For example, Chinese customers want bigger sofas for the living rooms therefore, Chinese stalls should be provided with bigger sofas. On the other hand, other products should be priced less in the country because Chinese customers are not ready to pay higher for kitchen appliances compared to those in the European market.

Price: In the Chinese market, IKEA must carefully consider the pricing strategy, price should be less in this market. Chinese customers are very much pricing sensitive and thus IKEA should make the pricing decision carefully. According to China Business Review (2004), the average income of an IKEA customer is $5000 per month (Adjusted for inflation), on the contrary, the nominal GDP per capita of Chinese people is $6,959 (IMF, 2014). So, it is seen that the nominal per capita of Chinese people is still higher, moreover, the economy and GDP growth says that this figure will increase more rapidly in the future. But, Chinese customers should really be taken carefully and everything should be done to make the price competitive.

Promotion: IKEA should take a proper promotional strategy to properly position the product. Different products are promoted in China differently. As Chinese people like to show off, they want bigger sofas in the living room and thus they are ready to pay higher for sofas in the living room, thus IKEA positioned the expensive sofa in the Chinese market and these are priced higher. The company already has a good contract with the young generation of the market, now it should strive to reach the aged customers of the country because longstanding and sustainable success depends on relationships with all levels of customers of the market. Therefore, IKEA should take such initiatives that will make a unique experience in the market and that will attract a maximum number of customers in the market.

Place: The products should be properly placed and should be customized. Chinese people generally use spacious places; therefore, the stalls should also be spacious. Chinese people move by public buses, therefore, IKEA should make their stalls near the public transportation station so that customers can easily reach the company. Moreover, as most of the customers do not have a private pick-up, the company should have a strategy to ensure home delivery.

People: People should be trained so that they can accomplish the jobs of the company. Higher managers and policymakers of IKEA should be directly appointed by IKEA but lower-level managers and workers can be appointed from the local sources of China. Employee sourcing in the local market illustrates the level of dedication of a company to a market. If the company sources more from the local market, people will perceive that IKEA is dedicated to the development of the country too.

Business Model Canvas for IKEA

Effectiveness of IKEA business model

The profitability measures at the KPIs explain that the company is doing well, thus the business model is working well. Total revenues increased from $2,660 million to $2,856 in 2013 and the net profit also increases in the same year to $516 million from $446 million (Inter IKEA group, 2014). An increase in the number of stores means that the business of growing and expanding, in 2012 it had 340 stores, but in 2013 it got 349 stores. But the number of co-workers is the same which means that the employees have become efficient in managing the stores.

Inter IKEA Group, 2013

The above financial measures show that the company has been doing well since 2001 and the revenue stream grew gradually which means that it was persistent in keeping the business growth.

Next destination in China with suggested adaptions:

IKEA can open new stores in the country due to the growth of the country and industrial development. It can open stores in three new cities: Jinan, Xi’an and Quanzhou of China. Jinan has a total area of 8,177 square kilometres and population of 6,813,800 (Jinan, 2014) and a GDP of £4.813 billion in 2012 (The tech perspective, 2013). The reason for selecting this country is a number of population and because JSWB and JSYK have no operation in those cities.

Xi’an is another important market as it has a population of 8,467,837 in the region (Xa, 2014), the GDP of this city is £2.724 billion in 2012 (The People’s Gov of Shaanxi, 2012). Moreover, JSWB and JSYK do not have an operation in this city.

The third suggested the city is Quanzhou with a population of 8,128,530 and the GDP of this city is £5.21 billion in 2013 (China Knowlwdge, 2013). Another reason for selecting this city is that JSWB and JYSK do not have an operation in this city. The average income in three of these cities is increasing and thus IKEA would get the first-mover advantage as a reputed brand. The company should adopt the products and offer in the Chinese market and as the Chinese customers are price-sensitive, IKEA should produce the product in low-cost countries with an efficient supply chain.

The people of these cities like bigger and more expensive sofas and tables, chairs and other home appliances at reasonable prices.

Improvement Scheme:

Innovation in the supply chain: The supply chain of the company should be more efficient to make sure that there are as fewer inventories as possible to reduce the stocking costs.

Efficient production: IKEA should outsource from efficient sources that offer reduced prices but reasonable prices.

More customization and adaptation: The Company should be more careful and active in customizing the products with the culture.

Expanding the segmentation base: It targets only the higher-ups of the country, but expanding the base to the middle level of the country will make higher growth as these middle class are very likely to grow to the higher middle class.

Conclusion

Marketing management is very much vital for any company. Marketing management explores the competitive and external environment of the company and it helps to make a judgemental view so that the company can excel in the business. This is very much vital to understand the external and competitive environment of china, because PESTEL analysis, and SWOT analysis analyse the factors of the business and it helps the company to make a strategic decisions on the basis of the company’s internal strengths, weaknesses and external opportunities and threat. Chinese market demonstrated higher potential for IKEA as the per capita income of the people is increasing and the customers of this country are moving towards high-ending products. Although the customers of the company have a tendency to view the IKEA products to be expensive, this will soon be solved as the Chinese people are rapidly moving towards the developed ones. Thus, this will be very logical for the company to open new outlets in the three discussed cities soon so that the company can utilize the potential of the market growth. Moreover, it should emphasize more customization of products and places.