IKEA started its retail operations in China in 1998, and to meet local laws, formed a joint venture, which served as a good platform to test the market, understand local needs, and adapt its strategies accordingly. The furniture giant understood early on that Chinese apartments were small and customers required functional, modular solutions and thus made slight modifications to its furniture to meet local needs. The store layouts also reflected the typical sizes of apartments and also included a balcony.
But the challenge facing IKEA in China was much greater than Europe and America, for its prices, considered low in Europe and the US, were higher than the average in China
Steps to Success
IKEA identified the strategic challenges and made attempts to overcome them. One of the main problems for IKEA was that its prices, considered low in Europe and North America, were higher than the average in China. The company realised this and started targeting the young middle-class population.
This category of customers has relatively higher incomes, is better educated and is more aware of western styles. Targeting this segment helped IKEA project itself as an aspirational western brand. This was a massive change in strategy, as IKEA was targeting the mass market in other parts of the world. IKEA also had to tweak its marketing strategy.
In most markets, the company uses its product catalogue as a major marketing tool. In China, however, the catalogue provided opportunities for competitors to imitate the company’s products. Indeed, local competitors copied IKEA’s designs and then offered similar products at lower prices. IKEA decided not to react, as it realised Chinese laws were not strong enough to deter such activities. Instead, the company is using Chinese social media and micro-blogging website Weibo to target the urban youth.
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IKEA also built a number of factories in China and increased local sourcing of materials. While globally 30 %of IKEA’s range comes from China, about 65% of the volume sales in the country come from local sourcing. These local factories resolved the problem of high import taxes in China.
The company also started performing local quality inspections closer to manufacturing to save on repair costs. Since 2000, IKEA has cut its prices by more than 60%. For instance, the price of its “Lack” table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 The company also started performing local quality inspections closer to manufacturing to save on repair costs. Since 2000, IKEA has cut its prices by more than 60%. For instance, the price of its “Lack” table has dropped to 39 yuan (less than five euros at current exchange rates) from 120 yuan when IKEA first came to the Chinese market. The company plans to reduce prices further, helped by mass production and trimming supply chain costs.