Executive SummaryAs one of the biggest home product companies in theworld, IKEA’s performance in China is nowhere nearperfect. The 1.3 billion population market onlycontributes 1% of IKEA’s global revenue. So thisPowerPoint identifies IKEA’s problems in China.Analyses in this presentation shows that it is awkwardbrand positioning and lack of Chinese culture knowledgethat is too blame. However, this PowerPoint also givesthe suggestion for IKEA’s new brand positioning andtagline which will help adapt to the unique market ofChina.
The Company OverviewIkea has been in the Chinese Market for more than 10 years. Its first store was opened in Beijingin 1998. Currently, Ikea has stores in 8 main Chinese cities on their Central Business District(CBD)– Beijing, Chengdu, Dalian, Guangzhou, Nanjing, Shanghai (2), Shenzhen, Shenyang. Ikeais now planning to open 15 more stores across China by 2015.Basically, Ikea implemented its global strategy including its product, promotion, pricing and servicestrategy in China. However, these strategies did not fit the Chinese market because the lowpurchasing power of the majority of Chinese consumers, as well as cultural paradigms. Therefore,Ikea has been adjusting its pricing strategy and free home delivery service to fit consumer needsand culture paradigms. An example of this is when Ikea lowered the price of more than 500products in 2009 by 20 to 30%.The Ikea’s initial target audience was defined for low class to middle class. However, consideringthe “price sensitive” and “product quality” concerns by Chinese consumers, Ikea has moved itstarget audience to the “white collar” class; those who are professional, single, families withchildren, double income or couple with no children.In terms of revenue (as previouslymentioned), Ikea China justcontributes to only 1% of its globalrevenue.
The Company OverviewTaglines That Ikea Has Promoted in the Chinese Market.• Small changes, a refreshing new life• Ikea has a way of wonderful life• Affordable solutions for better living.• Low prices but not at any price.• Home is the most important place in the world
Why Ikea is in trouble in the China market? Ikea is “too expensive” for the majority of consumers, but is “too cheap” for real spenders.• Product: IKEA’s products have a relatively low quality, it has been common sense in China. For those who are of the “white collar” class, this is the main reason that they don’t buy big quantities from Ikea.• Price: Too high for the majority of consumers. On the other hand, this is a much too cheap brand for those who actually DO have the purchasing power (since the price has been reduced continually).• Promotion: Vague positioning and target audience. IKEA tries to over too much ground and spreads itself thin; they try to cater to cover the majority of consumers (which is low-end marke, who cannot afford it) and also the white collar (middle-end market, who do not want cheap things) at the same time.
Why Ikea is in trouble in the China market?• Distribution: Not enough stores. China is growing rapidly and IKEA did not following China’s pace. In some second tier cities such as Hangzhou, Chongqing, there are people dying for IKEA’s products but they have no IKEA store in their cities! As a result, some people buy big quantities from IKEA and sell them online, acting as re-distribution agents. And surprisingly, IKEA is banning these “unauthorised” agents.• Copy: Increasingly more companies copy Ikea’s products design from its online catalog, and sell those furniture with lower price in their stores. IKEA just doesn’t understand the Chinese culture• In Chinese culture, “Face” shows up in different ways, for real spenders who have purchase power, they would not buy if the brand positioned itself as the low price or affordable brand.• In China, traditionally, it is considered “not cool” to do the laboring of installing the furniture. Therefore, DIY assembling does not fit the China market. Again, this is a matter of “Face” that Chinese want to preserve• Most of Chinese, especially rich Chinese, they prefer that furniture are made by real wood (directly from the tree), and not Ikea style wood (made of compressed wood chips).
The Competitor analysis Main competitors of IKEA in China B&Q JSWB JYSKFrom UK China DenmarkTag line “Safe, Healthy, Environmental- “22 years -- trustworthy quality tested by “Spend less money on quality friendly” time” products”Target Market Middle end Middle to high end Middle endProducts Style No specific style Covers Italian, French, German, Nordic American, Spanish, British, Norwegian, Danish, Swedish and Japanese stylesDistribution 57 stores spread in 18 major 9 Stores in Shanghai, Guangzhou and 8 stores in Shanghai, 1850 cities in China Changchun, More than 900,000 square stores in 35 countries meters total store areastrength Low price, numerous stores Massive shopping malls, one-stop service Nordic style designers’ home for furniture and home improvement products products, quality productsWeakness No control of the design and Too expensive Low popularity production of the products, very low brand added value
The Competitor Analysis• B&Q has a great advantage on the price and distribution over IKEA• JSWB beats IKEA with its high quality products and the one-station shopping experiences which includes free home delivery.• JYSK doesn’t have the fame of IKEA, but its distribution in Shanghai is much stronger than IKEA.• However, IKEA’s design and the fabulous all-you-can-see shopping experience stand out in the market.
Who is the target market in China? We defined Ikea’s target market as •“XiaoZi” 小资 or •people who want to be “XiaoZi”. The definition of “XiaoZi” 小资 •“XiaoZi” is most directly translated as “petty” (Chinese) as in “petty bourgeoisie.” (Chinese) . •The term, has now been co-opted by popular culture to mean something entirely different and not entirely negative. •today’s “XiaoZi”are not defined about how they make money, but how they spend it.
Who is the target market in China? “Xiao Zi” 小资 – •XiaoZi are the growing Chinese upper class, between the ages 23 – 38 years old, who are well educated and have jobs in business buildings as “whitecollar” employees. • They live in big cities like Shanghai, Beijing, Shenzhen, Guangzhou, etc. •XiaoZi may cover a similar group composed of “white collar”, but XiaoZi pays more attention to a taste, a lifestyle, an imagination rather than a real class. •They are similar to “yuppies” in the sense of youthful materialism.
The behavior pattern of “XiaoZi”They enjoy “Quality of life” becomesfashion, brands, essential to XiaoZi’shobbies, and free conversation. Hate savingthinking that is money, which means theyinspired by spend all of salaries perWestern month.commercial andartistic culture.The XiaoZimembers have toreflect their ownidentity byconsuming certainbrands of foods, To lead a XiaoZi lifestyle isdrink, clothes even a necessary step to showfurniture. They also one’s own social and They tend to spend most on educational status andconsume certainbrands to such as their living rooms, which the distance themselves fromStarbucks and heart of the home where many the majority.Hagen Daz. people "show off" and entertain.