LCA Business School – Assignment Submission Form

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ARU Student Number: 0974127

LCA student Number: 306749/407731

Module Title: GLOBAL MARKETING AND MANAGEMENT

Assessment: Final

Lecturer: SNADIE DESHPA

Due Date: 12/01/1/2015

Statement of Authenticity

I hereby confirm that this assignment is an original piece of my own work which makes full use of appropriate style Harvard Referencing to acknowledge all sources of information used in its compilation.

I also confirm it has not been submitted to another Institution for academic purposes.

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I understand that assignments will not be accepted for marking without acompleted form.

Signature: sinjiniName: Syeda SinjiniDate: 12/01/2015

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Submitted to: Sandie Deshpa

Module code: MOD003470

12/01/2015

Global Marketing Management

Submitted by: Syeda Sinjini

Id number: 306749/407731

Word limit: 3950 (without appendix)

2015

Expansion of the IKEA brand

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Table of content

Companyoverview .................................................................................................................4

Macro environment analysis

i. Pestleanalysis ..........................................................................................................4

ii. Porter 5forces...........................................................................................................5

iii. Value chainanalysis ..................................................................................................5

5c analysis

i. 5canalysis ....................................................................................................................6

ii. Swotanalysis.................................................................................................................6

IKEA marketing mix:

i. Standardization verses adaptation.................................................................................8

ii. Price...............................................................................................................................8

iii. Place..............................................................................................................................8

iv. Promotion.....................................................................................................................8

v. Product ........................................................................................................................9

Business strategy of IKEA

i. Costleadership...........................................................................................................9

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ii. Differentiation............................................................................................................9

iii. Focus ........................................................................................................................9

Brandequity ...........................................................................................................................9

Business model strategy

i. Ansoffmatrix ...............................................................................................................10

ii. Business modelcanvas ..................................................................................................10

Recommendation......................................................................................................................11

Conclusion................................................................................................................................12

References ................................................................................................................................13

Appendix ............................................................................................................. ....................17

Company overview: “IKEA” the name represent the global furnitureretailer. The main concept of this Swedish brand retailer is producingwide range of ready to assemble furniture with quality but in low price.The brand has established themselves in furniture market with welldesign and modern architectural especially in appliances and homeaccessories. IKEA is operating now globally. The organisation isoperating in 43 countries and has 345 stores in worldwide. In fiscalyear 2010 the company sold nearly 1 billion goods amount of 23.1 billionUS Dollars which represent 7.7% increase in overall turnover for the

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year 20009. IKEA started their journey to china in 1998 and still nowthe company is running 16 branches. Though the brand is popular for itsproducts and low price as well its facing unusual problem. The law priceof products is making confused to aristocrat Chinese consumers.

Macro environment for IKEA in Chinese market:

Pestle analysis

Political factors: Chinese Government fiscal deficit rose 1.9% from 1.7%and they decide to increase it more, which is assuming to rise to 2.1%GDP during this year ( Scherrer 2003). Recent years total exports andimports volume was 2209.007m and 1949.992m and all these analysisinfluenced IKEA. The company entered in china with joint venture but nowthey established themselves own.

Legal factors: IKEA is getting support but in some cases its faces legalproblem because of legalisation differences between wests China to eastChina. There are others obstacle exits too such as corruption, copyrightand authority’s unwillingness. If the legal action goes with overseasinvestors they have problems with local authority and if they go withsupplier’s investors make noise. In that case IKEA is facing dilemmasometimes. ( Earnshaw Graham, 2005)

Economic factors and KPI: From past 25 years the annual GDP growth hasincreased by 8% in china and from command economic they transformed mixeconomic. Chinese economic growth did the net income rose by 4.3% .Percapita income rose from 343.4 Yuan in 19978 to 5160.3 in 1997 whichrepresent increasing 20 fold in less than 20 years. These reportsinfluence IKEA for internationalization in china. This is repressingthe gross domestic product increase from 1978 to 2003. (See appendix 1)

Technology: IKEA innovating in technology regularly helps the brand toget more profitability in both case internationalisation and innationalisation. Innovation of kiosk in china help customers to choicevarious fabrics available in different and same range (Rowley and Slack2003). Online update and upgrade also helps consumer for stock viewing,availability, online order and payment and customer services. Even itdose helps to communicate with distributors and suppliers as well.

Environmental: IKEA is using Chinese local resources and maintain GREENissue as well. GREEN issue represent carbon emission, disposal of

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hazardous, manufacturing waste in the environment, recycling andsupplier behaviour.

Social factors: Social factors consider as family, age, income etc, andthey affected in business strategies also. For example we can say oldergeneration are not very interested to buying furniture in other handyoung generation are more likely spending money on furniture and theirpurchases added value to company. (Mintel Oxygen, 2010)

Porter 5 forces: (see appendix 2and 3)

Thereat of new Entrants: Since IKEA entered in Chinese market 1998 theyhad the support from joint venture and procurement activitiesestablished its root (Burkitt, 2012). But IKEA is facing severalthereat of new entrants in china. IKEA is facing competition with HomeDepot, B&Q and so on. Though for the rules and regulation threat of newentrant is low.

Bargaining power of supplier: Comparatively in China IKEA is facing lowbargaining with suppliers as in Chinese market supplier’s availability.If one supplier cannot fulfil their requirement others always stand bydoors. Therefore IKEA does have always option to pressurised suppliersfor high quality but in low price (CCTV, 2013). Overall in 53 countriesIKEA has more than 1300 suppliers in Europe (64%), in Asia (33%) whereonly China occupied (21%) and North America 3% (IKEA 2009) (see appendix2)

Bargaining power of buyer: Chinese consumers demand high quality but atthe same times want to pay lowest price (Tian 2007). The bargainingpowers of buyers are that’s why very high in China. Chinese consumershas the opportunities to buy from others and alternative option togreater choice.

Threat of substitute product: threat of substitute product is highespecially in Chinese market because any of local manufacturers can copyIKEA’s product notionally and IKEA is affected by bad impression. Suchas Kunming, a Chinese retailer was founded to be copying of IKEA’s

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version. To avoid this clash IKEA need to be get concepts for trend,updated, and following new style.

Threat of rivalry: The furniture industry is highly competitive such asGaliform of England, Wal-Mart from USA and local competitors. Thoughsome foreign companies already in China such as B&Q, Metro, Decathlonand so on sometimes creating dilemma for IKEA’s consumers. IKEA is alsofacing online competition from multiple retailer such as Taobao.

Value chain analysis: (see appendix 4)

Primary activities

Inbound logistic: IKEA develops a well structured in inbound logistic whichis helping them to maintain more than 10000 products manufacturing bymore than 2000 suppliers. These products are distributing from 32distribution centres and located in 16 countries (Annual Report 2013).In China for home furnishing the IKEA group has 146 suppliers. Thelogistic option is giving 25% job opportunities in each store.

Operation: In China IKEA operate16 stores the recent store opened in 2014in Chongqing. In 2003, sales rose up by 35% and in 2004 first threemonth sales were up by 50%. In Asia manufacturing covers by 33% whereby31% capture by Chinese market.

Outbound logistic: customers pay the transportation cost and manufacturerspay the shipment cost and that’s why as much product IKEA can load tryto shipment for reducing cost but in China IKEA offer home delivery.

Marketing and sales: The main target for IKEA in China is young mid agedpeople such as 20 to 35 years old. Every time Chinese consumers arevisiting the store they are spending around 300 yen ($36). Thougharticle shows IKEA’s customers are earning a little bit more thanaverage income of the country.

Services: IKEA adapt layout of the store, well decorated and goodpresentation of products level for customers. Home solution offeredprice fixing according to national income and Chinese culturecombination all these facts IKEA considers as their servicing. (Elsner.S. 2013)

Support activities:

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Infrastructure: the organisational structured is hierarchy and its operatingin a large sized store.

Human resources management: For human resources IKEA is highly committedand they are well focussed in staff training and development. IKEA isopening minded about women staff and nearly 47% women leader givingleadership to the group.

Technology: IKEA constantly innovating their technology and theycontinuously investing on their research and development but all thesefactors always they considers in low price (IKEA, 2012). They implyaround 550000 solar panels for reducing cost and negative impact ofenvironment.

Procurement: IKEA always make sure about the contractor that they aregetting long term contract, leased equipments and technical support. Thegroup maintain subcontract with nearly 1300 manufactures.

Micro analysis:

5c analysis:

Competitors: In China, IKEA made their position; in the year of 2014 thegroup generate its profit in China over $540 billion RMB of sales whichis increased by 21%. But still IKEA is facing strong competitors inchina. HOLA, Taiwan Company, TMall, Jiayimei, past OEM partner considersas a strongest competitors of IKEA. HOLA focused on new product update,accelerating the speed of design to support sales on special event andfestival.

Culture: Sweden vs China vs UK

IKEA is based on Swedish culture (IKEA, 2009). Hofstede define culturein both circumstance in prospect of China and Sweden. Hofstede’s view ofpoint (1980) about Swedish culture relies on beliefs and sets of value,high social concerns and the quality of relationships. On the otherhand Chinese culture based on predominately Confucianism according toHofstede ( Melkman. A. 2005). Hofstede define Chinese culture as highcontext and Swedish culture as low context. The communication in Chinais a bit implicit and in Sweden explicit (Thomas, 2008). As IKEA failedto adapt Chinese culture the group bared losses in revenue by 4% in 2008

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(IKEA, 2009). IKEA may need to changes their mind and set to “ thinkglobally _ act locally” ( Black and Gregersen’ 2012) with that they needto change their Swedish idea “one design-suits-all”. For aninternational expansion ikea needs a strong corporate culture. (Seeappendix 5)

  Swot analysis:

Strengths:

Low cost conception: IKEA is known as cost leaders in furniture industry. Infamily package ikea is giving nearly 65% discounts than its competitorsand other furniture stores. This concept dose works same in China marketand thus IKEA is able to capture Chinese market.

Optimise material: IKEA’s key strength consider to optimising material andreducing manufacturer cost. In China IKEA got lots of option forsuppliers So the group is pressurising suppliers for quality product butin less expense.

Research and development and creative design: IKEA has best research anddevelopment team around the global whose are continuously working toprovide company better design and unique creativities and maximisingproduction and minimising cost.

Global brand: From Sweden to Germany, Switzerland, UK, then have turn toAsia in China, Japan and Russia and all the way across the Atlantic toUSA and Canada IKEA is everywhere Globally. IKEA won the customersreliability and became a global brand in furniture world. It is a brandfor Chinese aristocrat families whose are fond of western style andquality.

Weakness:

Cultural problem: IKEA cannot cope with Chinese culture and they are gettingloss on that issue. As a globalization company they need to actinternationally now.

Sub contracted manufacturer: IKEA doesn’t produce furniture by themselves inthat case the company need to much more relied on sub contractedmanufacturer.

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Easy to replicate: IKEA’s products are so easy to replicate and that’s whyit’s facing a big problem in Chinese market as local suppliers areduplicating their design

Low price vs aristocrats: Chinese aristocrats are fond of IKEA’s western designbut its creating confusion among them because of its too low price andin the same time IKEA cannot raise its price for capturing ordinaryconsumers.

Opportunity:

High tech product: IKEA always focusing on cost to keep it down for middleclass and lower middle class customer. But they can focus now for hightechnology product

Decentralization: IKEA in china is all about the main cities which isindicating their centralizing. But in this time they should focus moreon decentralized and for that they need to move to the middle sizecities.

Interior design and crockery product: IKEA in China more about furniture productbut as they are expanding their services s in UK and USA with crockeryitems they can do those items in China as well.

Online shopping: IKEA needs to be more developed in the case of onlineshopping for Chinese customers. As the world is moving first to keeppace with it they can improve their online sectors.

Product customization: IKEA can adapt an idea which is taking proposal fromits customers about the product and it will be definitely new idea andcan provide customer more customized products and bring some extrachanges for IKEA.

Threat

Changing social trend: IKEA is providing products cheaper than itscompetitors but it can change in customer mind and become a questingabout IKEA’s quality.

Intense Competitors: IKEA has too many competitions in Chinese market. So ifthey want to stay in market continues innovation, quality and welldesigned and creativity need to be invented.

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Chinese cultural different: There is variation in culture from east to westChina. so before expansion a reliable market research will beappropriate and IKEA need to understand the trend and different culture.

IKEA marketing mix:

Standardization verses adaptation: IKEA is known as very much standardizeretailer. They keep their product more or less same in everywhere. Butthere is an argument as specialist suggests IKEA need to applyadaptation because of different culture and country prospect forinternationalization. Below the table represent which strategy IKEAfollows for internationalization prospect of different countries. (Seeappendix 6)

Price:

Sweden: IKEA’s origin from Sweden and from its beginning keep pricelow was a main strategy of IKEA.

UK: accordance with law IKEA keep fixed their price in UK and theycannot make it lower than market price. Accordance with lawenforcement IKEA dose Price agreement with other competitors,suppliers and distributors.

China: In Shanghai, reducing price was a very effective idea forIKEA. The first target of IKEA was top tier urban income which is5000-8000 RMB, when they entered first in China (Moller 2006). IKEAis planning to reduce its cost more to increase its sales by 27%because they are able to reduce its production cost by 30%. .

Place:

Sweden: in Sweden IKEA normally opens store outside city centres.Most of Swedish customers have their own cars to travel to IKEA andafter shopping do their own transportation. (Usunier, 2000).

UK: In 1987 IKEA entered into UK market and since from them IKEAhave 17 stores and planning to have 7 more store for expansion. InUK IKEA prefer to choose their location nearby city centre butnormally they use to have a big parking lot and encourage customerto bring their own car.

China: In China IKEA follow the same strategy. They choose bigcities, monthly or yearly income of that cities, prefer young and

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couples customer, average earning. In china IKEA has 16 stores andmostly IKEA’s customers are young and earning more than averageChinese people.

Promotion:

Sweden: IKEA provide catalogue, family card, loyalty cardsand clubs and so many options in the case of promoting theirproducts. 1.7 million People are using IKEA’s loyalty cards andmembers of clubs and these services considers as a very importantbusiness of IKEA in Sweden.

UK: In UK IKEA do their promotion by campaigning and socialmedia considers as a very important factors while promoting product.Google, Facebook, twitter, pinterest are all plays very importantrole for promoting IKEA’s product to its UK customer. Apart fromthese IKEA offers digital catalogue and online options.

China: In China IKEA’s promotion is a bit different from othercountries around the world. Here more than catalogue IKEA focus onbrochures which is send to customers house several times during theyear. Apart from this discounts, vouchers, IKEA family, internet andmedia advertisement works together for promoting IKEA’s product.

Product: This strategy indicates organisations product and services thatthe company wants to provide between local consumers. IKEA has a widerange of product from furniture to crockery items. IKEA’s CEO of Asianpacific once said that IKEA’s localization in china to appeal to knowChinese consumers taste. IKEA need to adapt Chinese style such asChinese product policies, store design and arrangement (Armstrong andKotler 2006). Chinese customers like darker and carving design but IKEAintroduce light colour and simple design in China. (Ministry of Culture,P. R. China).

Business strategy of IKEA:

Cost leadership:. As IKEA is known globally because of its low cost, stillit was high in China comparatively with local similar products. So IKEAneeded to adapt Chinese strategy to keep price low ( Kotler P,2003). Soif they want to stay in Chinese market they need to adapt cost

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leadership. IKEA is making plan to reduce their cost by 27% and in thesame time they are reducing their manufacturing cost by 30% that mighthelp IKEA for cost leadership.

Differentiations: For differentiation in China IKEA is focusing in targetcustomers, research and development, and constant innovation. In Chinayoung people are targeted customer and wants higher Tec product butcannot afford them for expensive. In research and development IKEA isoffering family pack and then modern kitchen facilities, different modeland DIY “DO IT YOURSELF” strategy. Applying differentiation IKEA cannotignore cost otherwise competitive advantages cannot be gained. (Pearce &Robinson 2005 p 15-36)

Focus: If IKEA enable to gain cost leadership and differentiation inchina then they can gain competitive advantage and give a better serviceto Chinese customer. Focus in Chinese market for IKEA is growthexpansion and increasing revenue. (Byars.L. 1991) Byars, L. (1991)Strategic Management, Formulation and Implementation – Concepts andCases, New York: HarperCollins. During this year IKEA rose theirrevenue by 35%.

Brand equity: IKEA is focusing on Aaker David’s branding strategy andimplying that strategy for their expansion in China.

Brand loyalty: For establishing brand loyalty IKEA reduce theirmarketing cost nearly 60% during recent years. IKEA has stablerevenue comes from loyal customers and aristocrat families bydistributing trade.

Brand awareness: IKEA always advertising their product and most of thetime this advertisement anchoring by campaigning, 3d picture on thebill board and so on. To attach with regular customer IKEA first useLCD screen on the bus and metro station in china. (Boone, L, 2011)

Perceived quality: IKEA’s product quality is same in everywhere becauseIKEA manufacture their product in China. Uniqueness is not onlyrepresenting IKEA but it’s also presenting IKEA as the leader ofindoor furniture in globally. (See appendix 12)

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Brand association: Brand association mainly triggered for extendingbrand name, differentiation and finding opportunity for extension inmarket. IKEA supports DIY project, kitchenware’s and appliances,family package and so on for branding association in China. (Acker,J, 2003)

By analysing ansoff, we will show IKEA’s market position and expansion.(See appendix 10)

Market penetration: It’s been 16 years IKEA entered in China. To keeppace with competitors IKEA focusing on advertisement, sales andmarket promotion and merger and acquisition. In recent past yearsthis giant furniture retailer group invested $1.2 billion in chinafor strong establishment. (Wilkinson, J, 2014)

Product development: IKEA try to maintain quality product, relatedproduct and improvement while doing product development. In nextyear IKEA is planning to do global campaign that will targetcomplete bed room as Chinese customers focus more on leaving room.That will be a real challenge for IKEA.

Market development: If they want to stay in Chinese market they needto opens more stores and need to develop new market anddecentralize. For developing market IKEA need to target market,increase sales and distribution channel, and a good communicationwith suppliers.

Diversification: IKEA being proved themselves diversified by becomingtake step for internationalization and entering china. Though therisk is on this strategy is super high but if the strategy doeswork, the organization can gain competitive advantages throughrevenue expansion. (Bresser, R, 1998. )

Bmc analysis: IKEA is maintaining an effectual business model for theirexpansion in china (Kaye, J, 2010)

Infrastructure: IKEA is expanding in China through collaboration andpartnership. With the help of joint venture IKEA entered in China.They have strategic alliance and partners for kitchen distributors,electronics products, materials and food production companies. InChina IKEA has collaboration with Inter IKEA Centre Group (IICG),Goodman Group, Jiepang, Sina Weibo, hanergy cooperation. These

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partners help IKEA with new innovation, product development, costreduction such as solar panel idea and investment. In Chengdu IKEAis taking project to open a store (expecting time 2015) whereGoodman Group is investing $65 million. Hanergy cooperation issupporting to reduce energy cost by 10% to 15 % by implying solarpanel in all new stores.

The partners help IKEA with resources such as human resources,financial resources, physical resources and intellectual properties.

Value proposition: (Meyer,M, 2014)

Target customer and customization: IKEA providing an excellent value toits target customer by serving them unique design and costleadership and different range of products. Even customers getoption to design their own furniture and online tools are availablefor customization.

Industry trend: IKEA understand the need of customers and they know thecurrent trend. In China people confer more focus for leaving roomkeep up with this trend IKEA is trying to do duel things. Such asIKEA is making sofa with bed which can be folding as a sofa and byunfolding can make as a bed. Purpose of this duel servicesdistinction of room disappearing and saving space.

Competition: To keep pace with current market IKEA constantly focusingcost leadership, certain market segmentation and differentiation indesign. The image shows IKEA’s and few of its competitor’s marketprice position.

Risk reduction: by giving long time warranty and guaranty like 10 to 20years IKEA reduce their risk in China.

Accessibility: almost in all the big cities IKEA open their branches.But in china privet car owner number is less then Europeancountries. That’s why regular customers most often need to usepublic transport. And bare this in mind IKEA make theiraccessibility easy in china. (See appendix 6)

Cost structure: IKEA is able to shrink its cost of product by 60% inchina because of cheap labour and low material costs. IKEA builtnumerous factories and investing on suppliers so they can pressurisesupplier to reduce operation cost as well. For patent, R&D and

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intellectual property IKEA is expending more in China because of thecopyright and piracy. Just for intellectual property the group invest40% of its revenue in China. IKEA follow two characteristics “Economicof scale” producing vast production and reduce single item cost and“Economic of scope” reducing cost by same marketing activities anddistribution channel. (See appendix 7)

Revenue stream: IKEA generate only 6% its revenue from Asia and Chinacontribute half of it. Report shows IKEA’s sales rise by 35% in China.In China potential major growth helps IKEA to get boosted sales. InFY13 revenue raised $28.7 billion from $27.9 billion in same periodlast year. IKEA generates its most revenue from flat pack furniturekit sales in China. Currently economic growth of China is increased byGDB 10%. (Bloomberg, 2011)

Customer segmentation and relation: The targeted customers of IKEA in Chinaare young professional couples, students and middle class (whitecolor) earring people. In general IKEA’s customers are earring morethan normal Chinese people. Typical IKEA’s customer are earning nearabout 3300 yen per month where the national income is about 1000 yen.And per visit merchandise spends around 350 yen. In general 70% ofIKEA’s customers are women.

Distribution channel: IKEA creates its own distribution channel through itsown website and catalogue and don’t rely on third parties. But inChina IKEA cannot meet up Chinese customers demand because of less andselective stores in selective cities. Hangzhou, Chongqing second tiercities people are dying for IKEA’s product but cannot get them. SoIKEA need to rebuild their distribution channel and online salesoption. (See appendix 9)

 RecommendationCurrently IKEA is operating 16 stores in China but if they want toextend in China they need to focus more on opening new stores (seeappendix 11). Second tire Cities like Hangzhou and Chongqing are dyingfor IKEA but cannot get them. So considering cities popularities andconsumer demand they need to open stores. In 2015 IKEA is planning toopen 3 more stores in

GuangzhouChongqing northBeijingAnd Jiangsu province

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IKEA is doing market research to open their stores soon inXi’an, Shannxiprovince and Zhejiang provience  

Conclusion: China has been ranked in number 1 as top purchasing countryfor IKEA (see appendix 10). So there is lots of scope for IKEA and theyshould take opportunity to expand in west china as well. The life styleis different over there and multigenerational families lives there. Soit will be wise decision for them to expand on that market as IKEAexpert to presenting stylish ways of living. In near future Chinesecustomers interest will derive IKEA to doing more expansion.  

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Appendix

1. Economic condition of China

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2. Supplier bargaining power

3. Porter five forces Bargaining

power ofsupplier

Bargainingpower ofbuyer

Threat ofrivalry

HIGH

Threat ofsubstituteproduct:

Thereat ofnewEntrants

WEAK STRONG STORNG WEAK

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4. Value chain analysis

5.Hofstede Cultural dimension

6. Marketing mix

Country Sweden % UK % China %

10

Promotion(100%)

Adaptation 100

Adaptation 100

Adaptation 100

Product (100%) Standardization Adaptation

8020

Standardisation Adaptation

6040

Adaptation Standardisation

7030

Price (100%) Standardisation

100

AdaptationStandardisation

7030

Adaptation 100

Places (100%) Standardisation

100

Standardisation

100

Standardisation

100

7. Value proposition

8. Cost structure

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9. Distribution channel

10.Ansoff matrix

11. TOP FIVE SLAES AND PURCHASEING COUNTRIES

Top five sales countries Top five purchasing countries

GERMANY 19% CHINA 22%

USA11% POLAND 18%

UNITED KINGDOM 11% SWEDEN 9%

FRANCE 9% ITALY 8%

SWEDEN 8% GERMANY 6%

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12. Perceptual map on IKEA’s side table for China, UK and Sweden