This document provides a case study on IKEA's opportunities and challenges in expanding into the markets of China and Japan. IKEA sees these Asian markets as emerging opportunities for future growth. In China, IKEA can tap into the large population but still struggles to convert visitors to sales. While Chinese consumers are becoming more individualistic, IKEA must still adapt to local tastes. In Japan, IKEA fits consumers' preference for simplicity but must convince them of the value of home decorating given small home sizes. IKEA researched both markets for years before entering and uses brand management to meet customers' needs and build credibility.

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STRATEGIC MARKETING
Case Study
Name:
KANGWA DANIEL
Course: Strategic Marketing
Professor: Shiferaw Mitiku
University: NICOSIA
City and State: NICOSIA CYPRUS
Date: 2nd
DECEMBER, 2017

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Strategic Marketing
IKEA’s Opportunities and Challenges in China and Japan
The Far Asia market for IKEA is perceived to be an emerging one whereby it is
considered to be in its infancy. Therefore, by opening stores in this region, IKEA hopes that they
will bring about more success in the near future, particularly in China and Japan as they are
essential players. The strategic expansion into the two countries reveals its desire to become a
dominating force in this emerging market. The entry into these Asian markets has been marked
by different external factors that have proven useful to the organization or demonstrated the
capacity to jeopardize its success. To start with, there are various challenges facing IKEA’s
operations in China. The nation has a vast population, which is an aspect that IKEA can tap into
to generate significant sales. For instance, in 2003, it opened its first store in Shanghai, and it
attracted about eighty thousand visitors on that day. Hence, people showed an interest, and it is
upon the multinational to convert this interest into sales. Still, a considerable number of Chinese
persons still visit the stores. The same year also saw the company showing its desire to open ten
more stores across the country by 2010 necessitating an investment of approximately 600 million
American dollars. Through this aggressive expansion, IKEA can tap into the consumer bases
situated in the different mid-sized cities it will have an outlet.
Another opportunity is that Chinese customers are progressively moving away from their
local tradition and adopting an individualistic value, which IKEA capitalizes on. In this way,
they are moving away from only buying Chinese goods to developing other tastes including an
inclination towards European styled furniture. IKEA has an advantage since its differentiation
strategy entails positioning itself as an international brand. Most of them find that visiting IKEA
allows them to experience another culture. Tapping into this desire will enable the company to

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generate more sales. Nevertheless, they have not entirely abandoned their culture thus the need
for IKEA to come up with offerings that coincide with their way of life. This strategy of adapting
its offerings to local tastes has already proven to be successful, and more efforts can be
instrumental in attracting more sales. Additionally, people are looking for a store that satisfies all
their decorating needs. Most stores only avail products for a particular segment of home
decoration, but IKEA has a complete solution in the way it chooses to provide not only well-
designed furniture, but also other necessities such as cooking appliances, bedding, and lighting
among many others.
However, there are many challenges that the IKEA faces in penetrating the Chinese
market. The company attracts a phenomenal number of visits owing to the experience of a new
culture it provides, but these numbers do not translate into sales. The company is still struggling
to break even thereby making them the only loss-making outlets for IKEA. About forty-five
percent of those that make purchases buy small decoration items that have low-profit margins. It
is thus illustrative that the company is yet to be appealing to many of the customers. It has
already tried to adapt its products to the local tastes. Nevertheless, its refusal to come up with
new brand designs for the Chinese market may be costing it. Additionally, many Chinese
consumers detest the DIY concept since their perception is that highly priced offerings should
come with personal services, delivery, and assembly. Moreover, IKEA’s pricing strategy tends to
work against the company. Even though it prides itself on having low prices, this aspect has not
been well received in China. The young consumers that like IKEA’s offerings find them too
expensive thus they prefer browsing then going to their local stores to make the purchase. The
reason is that they find them to be highly priced. Contrarily, those that can afford IKEA products

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prefer to go for more expensive foreign brands. Hence, its low price strategy seems to have
elicited confusion in the Chinese market.
Secondly, there is the Japanese market. The country boasts of having one of the leading
established consumer markets worldwide. Also, it is home to one of the leading wealthiest
consumers across the world. As from the 1990s, it has also been increasingly becoming
accommodative of foreign competition. These are favorable external factors that IKEA has
capitalized on to attract more sales for its company. These factors have also enabled IKEA to
have four stores by 2008 situated in different cities. Additionally, Japanese consumers are almost
similar, and understanding their preferences is helpful in penetrating the market. They tend to
prefer simplicity in the way they live. IKEA is thus a good fit for this market since its furniture is
unlike that of other manufacturers since its prices are very competitive. Another opportunity
comprises the characteristics of one of its target groups. Those in their 30s make up their most
significant age segment besides being in households that have annual household incomes
between 40,000 and 45,000 Euros each year. Amplifying IKEA’s appeal to this segment will
generate more returns. Moreover, IKEA stores attract thousands of visitors every weekend, and it
just needs to convert these individuals into buyers.
However, it experiences many challenges in the Japanese market. The primary one is that
a home is not such an essential aspect of the lifestyle of this consumer base. Japanese homes are
customarily tiny with the average houses being 50 to 60 square meters. Such elements have
resulted in many not being concerned with making their homes beautiful since the little storage
space goes to storing their family belongings. In this way, many of them view their homes as
places for sleeping and storing their things. This character coincides with their culture. Home
furnishing is not that significant thus little time being utilized to do so. Many are not accustomed

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to inviting people to their homes as they tendency is usually to socialize outside. Therefore, their
money is usually spent on products and accessories. IKEA specializes in home decoration, and it
will have to come up with a way of convincing Japanese consumers on the need of decorating
the home. Another challenge is that the DIY model is not appreciated just like in China.
Market Entry Strategies that IKEA Used in China and Japan
IKEA adopted different approaches to penetrate the Chinese and Japanese markets. IKEA
is a dominant firm with it defining the industry in coming up with original product designs
whereby other businesses imitate their designs. Any increases in market share come at a cost and
from a high base. Attention is thus on new markets. IKEA realized this aspect through new
market development. It has set up shop in China and Japan, which will enable the company to
capitalize on the growing consumer base in this Asian region. Also, dominance does not exempt
the need for strategic focus. IKEA took five years in researching the Chinese market before
establishing its first full-scale standard. The same happened in Japan. It had previously tried in
1974 to enter the nation’s home furnishing market by franchising to a local trading company, but
after getting marginal returns for twelve years, it pulled out. Upon deciding to try the market
again, IKEA took another five years to figure out the consumer base well. It is clear that IKEA
did not allow its dominance in other regions to cloud the need for strategic focus in penetrating
the Asian market.
Brand management is one of the critical approaches that it used. To start with IKEA
fulfilled the product-based needs. It does this by being a complete solution when it comes to
satisfying the need of decorating one’s home by availing well-designed furniture, bedding,
cooking appliances, and lighting. Nevertheless, it is not the only aspect related to this brand since
IKEA would not manage to attract as many people as it does. The company also positioned itself

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by satisfying the different attributes that customers look for when making a purchase. The first
one it complies with is that of search attributes, which entail the features that can be identified in
an offering. It involves color and retail price among others that can be realized through online
searches, talking with others, and reading magazines. In the case of IKEA, the assurance of
getting furniture that is characterized by elegance and Western design. The offerings can also be
adapted to the Chinese culture. Customers can thus visit an IKEA store with high confidence of
finding these attributes.
The second category is that of experience attributes. It entails the experience one gets by
consuming a brand’s offerings. To start with, customers are assured of experiencing another
culture in visiting an IKEA store, which is different to the one they are used to. It acts as a good
tactic for attracting them to enter any outlet, which is the first step in converting them into
buyers. The reliability and durability of the product are also assured because the furniture is well-
designed. Other offerings are also of high quality. Lastly, there are credence attributes. A
customer may not personally identify them, but they are instrumental in brand management.
Having a high credibility lowers the perceived risk to the customer when making a purchase
from IKEA. Product production is facilitated by significant amounts of raw materials being
sourced and produced in nations where there is low cost of labor such as China. Knowing that an
item could have been created in China may augment the decision to make a purchase in knowing
that some of the retail prices goes into supporting the nation’s industries. The same applies to
consumers in Japan that may be proud to have items produced in their region. Consequently,
IKEA has also managed to render all these segments search attributes since they are known to
exist. All the identified characteristics in each category are well known from the consistency the
company has maintained.

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A majority of consumers are also concerned with the price of an item when making the
purchase. In a situation characterized by stable financial resources, it is likely that consumers
will have strategic responses to prices. In this way, they have an identification of the different
product categories in which they fit in, which results in having an acceptable price for the items.
Nevertheless, this strategic response is not as much when dealing with less often bought
products. IKEA deals with furniture among other things, which are not purchased on a regular
occasion. However, the company’s pricing mechanism seems to have worked against it in the
Chinese market whereby the price has been dealt with strategically by different consumer
segments, which has resulted in their decision not to buy from IKEA. The young consumer base
that like the furniture at IKEA eventually look for the design at their local stores owing to the
prices being high for them. Contrarily, the customers with high incomes prefer going to other
expensive foreign brands when looking for Western designs. It shows that the low price strategy
has been ineffective in penetrating the Chinese furniture market. Additionally, it has also not
been as effective in Japan. Even with the low prices, many people are staying away owing to
continuing with the practice of having their homes for just sleeping and storing things. The low
rates have not convinced them otherwise.
Finally, a challenger strategy was employed in entering these Asian markets. IKEA is
entering the Chinese and Japanese markets to challenge the local and other foreign firms that
already provide quality furniture to the consumer bases. Its intention entails acquiring significant
market share and dominating the Asian market. The seriousness of this aspect is illustrated by the
huge investment that was set aside for opening ten more stores in addition to the already
established Shanghai store in China even when the Chinese segment was not yet profitable. In
Japan, IKEA had four outlets by 2008. This expansion is meant to help it secure a considerable

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market share, which it will have to snatch from other entities in the furniture retail business.
Having a large number of stores will also help it to dominate the Asian market if the company is
successful in attracting huge sales. Engaging in such provocative approaches necessitates being
ready for competitor responses. Nevertheless, IKEA has a more significant hunger for share thus
having more zeal in comparison with the dominant entities, which is proving instrumental in
establishing itself in the Asian market.
IKEA’s Marketing Mix
There are several operating decisions that a firm has to realize and maintain target
consumers in addition to pushing its differential advantage. The first aspect is that of product,
which entails the tangible offer that a business makes. IKEA has brought its distinct way of
doing things to the Chinese and Japanese markets. Their offerings can thus be called global
products since they are designed to be availed in any market at any IKEA outlet across the world.
The company promises a complete solution when it comes to home decoration by availing
modern furniture that adopts a stylish and western design in addition to availing other items to be
used at home including bedding, cooking appliances, and lighting. The company also has a do it
yourself policy, which has been adopted in all its global stores. The usual shopping experience
entails a showroom that allows for people to observe and test the different products. When they
reach a decision, they identify the necessary details, and they can find their chosen item in a flat-
pack in the warehouse. Upon payment, one then decides if they are to transport it or they would
like it delivered with a surcharge necessary for this added service.
Nevertheless, the company has had to come up with some local products to generate
more sales. Rather than come up with new designs, IKEA modified some of its offerings to
satisfy the local demands and tastes. The Chinese New Year is the most significant festival for

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the Chinese, and a series of products had to be adapted to these celebrations. 2006 also saw many
IKEA products in China bearing a red rooster, which was meant to symbolize welcoming the
year of the Rooster. Also, it came up with the FANBY range, which featured red pigs in
anticipation of the forthcoming year of the Pig. The color red has also been extensively adapted
since it is a symbol of good luck. Furthermore, in its Swedish kitchen section, IKEA has added
onto its Swedish setting by incorporating the Chinese cooking and eating styles whereby there
are three meat cleavers and types of chopsticks. It has resulted in the company having about five
percent of its offerings being local products only. Such moves have won the company many
customers.
Regarding Japan, some adaptation to their way of life has had to be done. Most of the
furniture that was availed was the Scandinavian furniture owing to its characteristics of not only
being well-designed buts also having light colors. The reason for this is that such furniture would
fit into the simple culture that is observed in Japan. Also, in the IKEA stores, the company has
Japanese-sized apartments that have a sofa that can be turned into a bed, kitchen, bathroom, and
numerous storage areas. They are used to demonstrate how small spaces can also be furnished.
To bring about more practicality, the multinational utilizes tatami measures, which originate
from Japanese tradition, for these display rooms. All kitchen appliances must comply with the
requirements necessitated by Japanese law. They include taps, sinks, fridges, and dishwashers
among many others. Cabinets are also required to be earthquake-safe. Additionally, the company
has had to adjust its DIY concept. In Japan, people are used to significant levels of customer
service, which contradicts with the ideology of self-service, self-assembly, and self-delivery.
More staff members have thus had to be hired in its stores to comply with this culture.

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Secondly, there is pricing, which is the amount of money that one has to part with to get
the product. The low prices that IKEA offers markets from developed nations come from the
low-cost production that it is achieved through developing countries in addition to having
aggressive control over the supply chain. It sources its raw materials from developing nations
besides outsourcing its production to locations where labor is cheap. IKEA’s low prices thereby
come from the gap in the raw materials and production expenses between developing states and
western nations, which cannot be translated to the Chinese market. Nonetheless, the prices are
still considered to be low. On the other hand, the competition from local stores is very high
mainly because they avail low-priced furniture. These costs are usually driven down by not
investing in original designs, having access to cheap labor and materials, and enjoying less
expensive transportation means. There are also competitors in the high-end market that have
higher priced furniture. By positioning themselves in this way, they manage to grab Chinese
consumers that have significant incomes. In Japan, IKEA prices its products competitively to
position itself as the ideal place to acquire items for beautifying a home.
Thirdly, there is promotion, which encompasses all the efforts meant to communicate and
advertise the product. One marketing means that has remained for long is that of printing a
catalogue. It helps in promoting the offerings that one can find at any IKEA store. Secondly, the
way its stores are built, they manage to induce visits from customers. They occupy significant
spaces thus assuring its customers that the likelihood of getting something they like is very high.
They also have children’s playground within them thus convincing parents that they can enjoy
shopping while their kids are having fun. The parking area is also usually free thus augmenting
the number of visits. Additionally, people are sure of experiencing a new culture. Furthermore,
communication about the availability of celebration-themed products helps in attracting many

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customers. In Japan, IKEA has Japanese-sized apartments in its showrooms to aid in
demonstrating the need for decorating one’s home.
Lastly, there is the distribution aspect, which entails making the product available to the
consumer base. IKEA has different outlets in some of the cities in China and Japan. People can
thus be assured that by just visiting one of these stores, their home decorating needs can be
satisfied. The idea of franchising is not yet accommodated in the Asian market owing to the
failure IKEA experienced in the Japanese market for twelve years. Additionally, to allow the
company to maintain competitive prices, IKEA has acknowledged the need of having an efficient
distribution and logistics system. The company is looking into ways of sourcing its products
locally. Also, IKEA is building logistics centers within the region, which will ease distribution
besides ensuring that only high-quality products are made available for sale.
Recommendations
IKEA has made some inroads into the Chinese and Japanese furniture markets, but there
still are a lot of opportunities to be exploited and challenges to be overcome to bring about more
market share and profitability for the company. To start with, the company must augment its
marketing communication. IKEA will have to engage in a more comprehensive research on its
target bases and focus marketing efforts on each of these segments (Belch and Belch 2004, p. 6).
In this way, it raises the chances of converting them into buyers. It could involve having
advertisements on television, radio, newspapers, and magazines. Understanding the customer
better will be instrumental in knowing what platform to use, and the best time for airing these
promotions. Also, there is a growing utilization of mobile phones across the world, and these
Asian markets are no exception to this trend. This growth can be capitalized on for the benefit of
IKEA. The company can employ direct response in addition to interactive ads, primarily through

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online services such as social media and search engines among other online activities. Mobile
communication platforms could also help in the realization of this objective. Telephone
solicitation is a proven way of communicating to the audience. It can be done either through
mass messaging of people or even through voice calls. Another strategy that is helpful in
eliciting a conversation regarding IKEA is that of place advertisement. It can be done through
billboards and transit advertisement. Additionally, cinema advertisement can be used, which will
aid in reaching out to the young middle-class segment that enjoys cinema.
IKEA stores in both Asian countries experience a phenomenal number of visits since they
were opened. The only challenge has been to convert these visits into sales. The company could
utilize store signage in addition to employing point of sale advertisement. Other ads can be
placed on the shopping carts or the in-store televisions or radio. In so doing, purchases are likely
to increase. These promotional techniques would be instrumental in influencing a good number
of visitors to become actual buyers. Also, advertising signs could be erected outside the store,
which are appealing to those passing by. Attracting them to enter and observe will be the first
step, and then when once inside, in-store promotional activities can be used. Other external
promotional means such as publicity can be used. The company will have to be engaged in
sponsorship of events, promotional games, and take part in trade shows. These activities are
deemed to be frequented by potential consumers, which could help propel them into visiting the
IKEA store near them.
Also, the company must amplify its innovation efforts by coming up with new products
and adapt the current ones to incorporate different functionalities that are consistent with the
Chinese and Japanese markets. Adjusting the products at IKEA to fit either the Chinese or
Japanese culture has already proven to be successful in generating sales. In this way, IKEA will

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manage to maintain the current consumers and be appealing to new ones thus helping it secure a
more significant market share. Moreover, there is the challenge of its designs being copied by
local stores who then sell the items at cheaper rates. For instance, IKEA could begin
safeguarding its copyright and averting any sale of its imitation by rallying different stakeholders
to lobby the Chinese government to impose copyright policies and guard intellectual properties.
In so doing, the company will retain its customers and potential ones who love the designs
available at its stores and not lose them to local stores that are availing counterfeit products.
Moreover, particularly in China, IKEA experiences consumers that like its designs but
find its prices to be too high. It needs to justify these costs to such buyers via strategic
communication regarding the quality, value proposition, the durability and reliability, originality,
innovation, the comfort, satisfaction, easy to assemble, and the homey nature of all items at
IKEA. The company must also continue with its differentiation strategy as an international brand
that sells furniture that is modern, stylish, and western. This approach should also incorporate
productive relationship marketing. It entails evoking an emotional or personal connection to a
particular brand (Hennig-Thurau and Hansen 2000, p. 3). This association emerges from a
consistent delivery of an offering that gratifies the needs of the consumer base. Through ensuring
that customers have positive experiences, a brand will get satisfied customers that soon become
loyal customers thus enhancing IKEA’s profitability over time. Hence, by engaging in better
communication, the right mental picture will be instilled in the minds of Chinese and Japanese
consumers whereby they have home decorating needs, they will think of IKEA. When the
customers are the ones thinking of IKEA instead of the other way around then the company has
realized the relevance it needs to begin its dominance journey in the Asian market.

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Growth is an essential aspect of realizing more market share and profitability. An
important strategy that would further this objective is a horizontal acquisition, which entails
combining its operations with that of another firm. IKEA could buy out some of the ventures in
the furniture retailing business that are already established in China or Japan. In so doing,
IKEA’s marketing power will be amplified. It will not only reduce competition but also it will
avail a different network of distribution that will be instrumental in getting IKEA offerings to a
larger local market (Luo and Tung 2007, p. 483). The loyal customers of such entities will also
translate into the company’s customer base. It will also gain the knowledge that the firm has
acquired over the years in ways of dealing with customers in this region. By becoming bigger,
IKEA will gain a competitive advantage in the home decoration sector. It could also engage in
vertical acquisitions. IKEA could acquire a firm in its supply chain, which will help it refine the
value chain. Reduced costs of production will enable the company to reduce its costs thereby
attracting more customers.

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References
Belch, G.E. and Belch, M.A., 2004. Advertising and Promotion: An Integrated Marketing
Communications Perspective,(6 Th. New York: NY: McGraw-Hill.
Hennig-Thurau, T. and Hansen, U., 2000. Relationship marketing—some reflections on the
state-of-the-art of the relational concept. In Relationship Marketing (pp. 3-27). Springer
Berlin Heidelberg.
Luo, Y. and Tung, R.L., 2007. International expansion of emerging market enterprises: A
springboard perspective. Journal of international business studies, 38(4), pp.481-498.