19 Sep 2011

Ikea in China

Executive Summary

As one of the biggest home product companies in the

world, IKEA’s performance in China is nowhere near

perfect. The 1.3 billion population market only

contributes 1% of IKEA’s global revenue. So this

PowerPoint identifies IKEA’s problems in China.

Analyses in this presentation shows that it is awkward

brand positioning and lack of Chinese culture knowledge

that is too blame. However, this PowerPoint also gives

the suggestion for IKEA’s new brand positioning and

tagline which will help adapt to the unique market of

China.

The Company Overview

Ikea has been in the Chinese Market for more than 10 years. Its first store was opened in Beijing

in 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. Ikea

is now planning to open 15 more stores across China by 2015.

Basically, Ikea implemented its global strategy including its product, promotion, pricing and service

strategy in China. However, these strategies did not fit the Chinese market because the low

purchasing 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 needs

and culture paradigms. An example of this is when Ikea lowered the price of more than 500

products in 2009 by 20 to 30%.

The Ikea’s initial target audience was defined for low class to middle class. However, considering

the “price sensitive” and “product quality” concerns by Chinese consumers, Ikea has moved its

target audience to the “white collar” class; those who are professional, single, families with

children, double income or couple with no children.

In terms of revenue (as previously

mentioned), Ikea China just

contributes to only 1% of its global

revenue.

The Company Overview

Taglines 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

B&Q JSWB JYSK

From UK China Denmark

Tag line “Safe, Healthy, Environmental-

friendly”

“22 years -- trustworthy quality tested by

time”

“Spend less money on quality

products”

Target Market Middle end Middle to high end Middle end

Products Style No specific style Covers Italian, French, German,

American, Spanish, British, Norwegian,

Danish, Swedish and Japanese styles

Nordic

Distribution 57 stores spread in 18 major

cities in China

9 Stores in Shanghai, Guangzhou and

Changchun, More than 900,000 square

meters total store area

8 stores in Shanghai, 1850

stores in 35 countries

strength Low price, numerous stores Massive shopping malls, one-stop service

for furniture and home improvement

products, quality products

Nordic style designers’ home

products

Weakness No control of the design and

production of the products, very

low brand added value

Too expensive Low popularity

Main competitors of IKEA in China

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.

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?

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.

They enjoy

fashion, brands,

hobbies, and free

thinking that is

inspired by

Western

commercial and

artistic culture.

They tend to spend most on

their living rooms, which the

heart of the home where many

people "show off" and entertain.

The behavior pattern of “XiaoZi”

“Quality of life” becomes

essential to XiaoZi’s

conversation. Hate saving

money, which means they

spend all of salaries per

month.

The XiaoZi

members have to

reflect their own

identity by

consuming certain

brands of foods,

drink, clothes even

furniture. They also

consume certain

brands to such as

Starbucks and

Hagen Daz.

To lead a XiaoZi lifestyle is

a necessary step to show

one’s own social and

educational status and

distance themselves from

the majority.

3C’s Model

Positioning

Stylish Inspirational Refreshing

Consumer Competitor Capability

The new tagline

Ikea, For Those Who Value the

Quality Life.

Thanks

Qianru Chen (Martino): 3295091

Huang Shushu (Joanna): 3267508

YIN HANG (Steven): 3255999

Fu YuJing (Qiqi): 3264543