Extended Essay in Business & Management

The Balance Between Standardization and Localization of

IKEA’s Marketing Strategies

To what extent did IKEA change its standardized marketing strategies in successfully
increasing sales in the Chinese furniture market?

Name: Wilmore Julio

Supervisor: Mr. John Michael Cuepo

Word Count: 3307

1. INTRODUCTION

1.1. IKEA IN CHINA

Since its founding in 1947 by Ingvar Kamprad, IKEA has transformed into one of the largest
multinational companies today, and is currently the world's largest furniture retailer. Following their
vision "to create a better everyday life for the many people" by offering low-priced high quality home
furnishing products, IKEA currently has successfully expanded to over 340 stores in 28 countries.

During its entry into the Chinese furniture market in 1998, Swedish furniture giant IKEA
struggled to achieve positive financial results. An inadequate understanding of the local Chinese
furniture market and an ineffective marketing strategy that proved to be effective in Europe but not in
China prevented the company in gaining a strong competitive position in the China. (Prange, 2016)

For much of its marketing operations, IKEA is a company that is well-known for its
standardized marketing strategies throughout all their markets around the globe. "One of the things
that make IKEA stand out among global retailers is the alleged standardized approach to every market
it enters. It looks and operates the same in every market." (Burt, 2011). IKEA is able to effectively
apply the same set of marketing strategies in different European markets as there are relatively little
differences in the culture, lifestyle, and preference in these markets. Whereas compared to an asian
market such as that of China, the differences in culture and preferences are relatively more distant to
say the least.

This initial failure prompted the company to reposition itself in the market and gain a
competitive advantage, but the company could only achieve this by rethinking its standardized
marketing strategies. As a result, IKEA adopted a so called “glocal” marketing approach in which pre-
existing standardized marketing strategies were at least modified or, more specifically, localized to the
local Chinese market. Thanks to the company’s “glocal” marketing approach, IKEA’s sales in China
rose by 35% in 2003, followed by a rise of 50% of sales in the first three months of 2004. This
inevitably raises the question concerning the extent to which IKEA modified its standardized marketing
strategies in this “glocal” marketing approach. Therefore, the research question of this extended essay
will be: “To what extent did IKEA change its standardized marketing strategies in successfully
increasing sales in the Chinese furniture market?”
1.2. Significance of the Study

2. METHODOLOGY

To specifically respond to the research question, which is to answer the extent to which the
marketing strategies of IKEA changed from the standard used in Europe and to those used in China,
the analysis was broken down into two main parts:

1. Discussion on the standardized marketing strategies of IKEA that are effective in European
markets

2. Assessing the condition of the Chinese furniture market and the market position of IKEA

3. Evaluating the marketing mix and strategies used to fix the market position of IKEA in the Chinese
furniture market.

After having discussed these parts, the marketing strategies used in China will then be
compared and contrasted to the standardized marketing strategies used in Europe to show the extent
to which IKEA changed its marketing strategies.

To examine the the specific adjustments and changes in IKEA's marketing strategies and mix, the
topic was first researched from secondary sources such as case studies, company website pages,
Business and Management (IB) textbooks, and online statistics databases.

Source Information to Obtain

Case studies For the specific historical details regarding

IKEA's marketing and re-positioning strategies in
entering the Chinese market
IKEA company website For IKEA's company statistics

Business and Management (IB) textbooks For theories, concepts, and models that I can
then apply to the analysis of marketing strategies
Online databases For relevant statistics and information concerning
the external PESTLE factors that affected IKEA

All of my resources will be from secondary sources as there are numerous factors in IKEA’s
marketing strategies that may have contributed in its successful entry into the Chinese furniture
market. These sources gave much information regarding IKEA's marketing strategies and mix in
operating within the Chinese market, and to demonstrate how and to what extent that the company
adjusted them from previous ones, the marketing strategies and mix used in the Chinese market were
compared and contrasted to those used in European markets to which the company is more
accustomed and familiar with compared with other foreign markets such as China.

3. MODELS AND THEORIES USED

Most of the theories used in this extended essay comes from Unit 4 of the Business and
Management syllabus: Marketing. I will specifically look into the 4 P's of marketing, namely the
aspects of place, price, promotion, and product in order to make sense of the marketing strategies that
were utilized by IKEA used in China. I will also be using models in marketing such as the SOSTAC
Model of Marketing, the market map, and the SWOT analysis to pinpoint and analyze the changes
IKEA made in its marketing strategies in relation to the changes in relevant external factors that rose
when expanding into the Chinese market from European markets.

4. BODY

4.1. Background

This significant difference in market and cultural conditions was a major concern to the
company when deciding whether the company should expand to China or not. In a staff meeting
concerning the underwhelming performance of IKEA’s expansion to China, former IKEA China
president Ian Duffy stated:

“IKEA’s concept has proved successful in every market we have entered. Delivering low prices
and high quality products to the many seemed to be a universal formula to achieve success globally.
However, our poor performance in China has proved that this formula is not always right. It is therefore
time to rethink about our strategy and find a new path to follow if we are to become successful in the
booming Chinese market and realize our mission to become a market- leader worldwide.”
 An executive officer added: “China is not just another country in Europe. The Chinese market
presents peculiarities and dynamics totally different from all the other markets we entered so far.
Customers are very price sensitive and, as far as I know, they are not used to furniture solutions like
the one provided by IKEA (…) In addition, entering the Chinese market will be faced by the
competition of local enterprises.” (Prange, 2016)

Ultimately, IKEA initiated its very first retail operations in Shanghai China in 1998.
Unsurprisingly, unprecedented conflicts with cultural differences in its expansion prompted the
company to deviate away from such standardization and, rather, adjust its marketing strategies and
marketing mix in relation to the market conditions of China that ultimately lead to its successful entry
into the Chinese furniture market and the successive sales growth experienced by the company in the
following years. The specific changes in marketing strategies that lead to this success and the specific
market conditions will be discussed later in the essay.

4.2. IKEA’s Standardized Marketing Mix & Strategies in Europe

The marketing mix is a set of factors that can be manipulated by a business to influence
consumers to buy the business’ products or services. It can be broken down into the 4P’s of marketing
namely, the product, place, price, and promotion. To understand the extent to which IKEA changed its
marketing mix from European markets to that of China, a background of the company’s standardized
marketing mix and strategies in European markets would be required. While operating in European
markets, IKEA adopted the following standard in its marketing strategies and mix. (citation)

• Wide range of furniture products (product)

One of IKEA’s unique selling points is the wide range of products that each store provides. In
all countries, a single IKEA store provides a range from 8,000 to 10,000 products depending on the
size of the store (citation).

• Accessibility to customers (place)

In a usual European market such as those in Sweden, United Kingdom, etc., stores or
distribution channels are strategically situated in the suburbs where customers can easily access
using personal vehicles as most customers in Europe have their own cars (citation). Furthermore, this
strategy allows for reduced expenses on land and rent. (citation)
• Low and affordable prices (price)

To achieve their mission "to create a better everyday life for the many people” and to capitalize
on market size, IKEA offers low-priced and affordable products that are usually targeted towards the
middle class majority.

• Emphasis on store catalogues (promotion)

Although IKEA also utilizes marketing tools such as e-marketing online, TV, and newspaper,
the main advertising tool utilized by IKEA is its famous catalogue showing the annual product offerings
with their prices (Prange, 2016). On average, a total of 217,000,000 IKEA catalogs are shipped around
globally. (statisticbrain, 2017)

• Experiential marketing (promotion)

A characteristic of IKEA stores, showrooms display and are fitted with home furnishings and
products to create a simulation of reality that customers are allowed to physically engage and interact
with. This allows customers to experience the products firsthand and to visualize the products in the
context of daily life.

4.3. Analysis of IKEA’s Situation in China

PR Smith’s SOSTAC Model is a planning tool in marketing that allows a business to carefully
assess the market conditions and the business’ market position to make marketing plan and strategies
in an organized manner. SOSTAC is an acronym that is broken down into six stages: Situation
Analysis, Objectives, Strategy, Tactics, Actions, and Control.
 To assess and analyze the marketing strategies that IKEA utilized in response to the market
conditions and external factors of China at the time, the SOSTAC Model was used to outline the
planning, execution, and efficacy of the company’s marketing strategies. Following the sequence of
the model’s stages will allow for a more comprehensive understanding and analysis of the changes in
the marketing strategies implemented by IKEA. Although the model is intended for planning purposes,
in this paper it was utilized in outlining why and how IKEA executed its marketing strategies in China.

4.3.1 Situation Analysis

PESTLE Analysis

Of all the external factors in PESTLE, the most prevalent ones that influenced the success and
failure of IKEA in China were the Economic, Social, Technological, and Legal factors. Therefore, for
the purposes of this essay, only these external factors were considered in the analysis.

Factor

Economic - It is estimated that China currently has approximately 30 million middle- class
consumers with annual incomes ranging from $10,000 to $50,000. (Cao, 2004)

- The healthy economy coupled with rising income and a booming estate market provided
impetus to the growth in Chinese furniture market. After the housing reform in the
Chinese mainland, demand for privately owned homes has been constantly increasing
in both urban and rural areas, leading to a consequent surge in furniture sales. (Cao,
2004)

Social - Due to the increased purchase power of Chinese consumers and the growing popularity
of Western values, demand for high-end Western products soared. (Atsmon, 2012)

Technological - Websites that allow for microblogging such as Weibo and other social media websites
have been increasingly popular for marketing operations of companies in China.

Legal - China’s low labor cost, growing consumer market and sharply declining import tariff
rates attracted a number of foreign furniture companies. China became not only a
world-class location for setting up furniture factories and an important export base but
also a promising market for global furnishing companies.

Competition & Perception Map

In the Chinese furniture market, IKEA had to compete with a host of competitors which
included both local and International furniture businesses (Prange, 2016). Because marketing
strategies are inevitable influenced by competition, the competitors present in the Chinese furniture
market are worth analyzing and assessing.
 According to a study conducted B&Q and OBI appeared to be the most prominent and
strongest international competitors while Markor Furniture International and Qumei Group were the
most competitive local furniture brands in China (Prange, 2016). Using descriptions of these
companies in the study (as shown in the formulated table below), a perception map of these
companies in China alongside the perception of IKEA by Chinese locals was made in order to make
sense of the marketing strategies IKEA undertook in response to its low competitiveness it had in its
initial entry in China.

Company Country Brand Perception

B&Q Great High quality, stylish, low-priced

Britain
“The key to B&Q success depends also on wide range of stylish products in
line with Chinese preferences for furnish- ing solutions with low price, good
quality and innovative style.”

OBI Germany High quality, fully assembled, high-priced

“OBI sells furniture as well as decorating materials with high quality and
reasonable [high] prices (…) It in fact purchased ready-made products only
and is not involved in products’ design or manufacturing.”

Qumei China High quality, medium to high-priced

Group
“In China, Qumei is popular, especially among upper- and middle-income
consumers thanks to its high quality products.”

Markor China High quality, low to medium-priced

Furniture
International “Thanks to its products’ exclusive design, stylish shopping area and high-
quality services, Markor is becoming extremely popular among the middle
class in large and medium-sized cities.”

IKEA Sweden High-quality, DIY assemble, high-priced (extreme)

“IKEA’s prices were not considered low by the middle-class Chinese

customers, IKEA’s main target segment. Chinese customers’ purchase power
was in fact significant lower than that of their counterparts in developed
countries. (…) Even if a significant portion of Chinese customers (…) were
attracted by IKEA’s innovative solutions, symbols of Western lifestyles, they
were simply not able to buy them."
 Perception Map of IKEA & Competitors in China

From the perception map, it becomes apparent that relative to other large furniture businesses
in China, IKEA has not been living up to its desired position in the market as the provider of low-priced
high quality furniture. Even worse, IKEA’s prices were much higher than that of competitors’ prices and
most Chinese locals had low purchasing power. “Chinese customers’ purchase power was in fact
significant lower than that of their counterparts in developed countries” (Prange, 2016). As a result,
many Chinese consumers were discouraged from buying from IKEA, ultimately hurting the company’s
image and sales.

Problems with Standardized Marketing Strategies in IKEA

In this section, the failure of the application of the standardized marketing strategies IKEA in
China will be assessed and the causes pinpointed.

• Wide range of furniture products (product)

With regards to the product range of IKEA, the company could afford to standardize their
product range in European markets given the similarity in lifestyle and preferences of customers in
those markets. “[A] characteristic feature of IKEA is its standardized product range which changes only
10% in different countries, in other words 90% of its product range is almost the same all over the
world" (maakentingu., 2011). In China, however, the same product range could not be applied as the
living spaces in China were drastically different from the typical spaces found in Europe. For example,
when IKEA opened its first store in Shanghai in 1998, it realized that the standard-sized beds that
were sold in most of its European markets were not suitable to the cramped apartment living spaces
that most of Shanghai’s population were accustomed to. These finer details with regards to the
specific market peculiarities were not considered by IKEA and thus losing the marketability of certain
product lines.

• Accessibility to customers (place)

In China, IKEA recognized the popular use of public transportation by Chinese customers, as
opposed to the frequent usage of personal vehicles in European and US markets that allowed IKEA to
strategically place stores outside city centers to reduce expenses on land (Chu, 2013). Recognizing
this overarching behavior among the Chinese population of its widespread use of public transport,
IKEA decided that repeating the same marketing strategy was risky and that changes regarding the
distribution channels were required for Chinese consumers to conveniently access stores and improve
marketability of products.

• Low and affordable prices (price)

Whereas in European markets where low prices increased customers’ interest in buying IKEA
products, in China this low price strategy discouraged both the middle and upper classes of the
Chinese market.

For IKEA’s targeted market segment, which was China’s middle class majority, the “low” prices
that IKEA marketed was actually much higher than that of other competing furniture brands.
Furthermore, IKEA failed to realize that the purchasing power of the middle class of China was much
lower than the purchasing power of middle class societies in European markets. “Chinese customers’
purchase power was in fact significantly lower than that of their counterparts in developed
countries” (Prange, 2016).

IKEA had hoped that the upper class of the Chinese population would at least be contributing
to sales, but unfortunately the upper class minority also shared the same distaste for the marketed
“low” prices that IKEA emphasized in their marketing campaigns and tools. The reason behind this
distaste is the embedded cultural belief among the rich of China that price of products is greatly
attributed to the quality of that produced, so for IKEA to market their products as having low prices
only lead to the image that IKEA products had low quality. “As the Chinese proverb 好货不不便便宜便便宜没

好货 haohuobupianyipianyimeihaohuo (high quality goods are not cheap, and the cheap goods are not
high quality) suggests, in the Chinese consumers’ view, low prices are often associated to low quality.
This cultural aspect caused resistance to IKEA products mainly among older generations” 


• Emphasis on store catalogues (promotion)

In most markets such as those in Europe, IKEA utilizes its product catalogue as a motor
marketing tool. However, in China the product catalogues only gave competitors the chance to steal
product ideas and make similar ones. They then sold these similar products at lower prices that could
easily outcompete IKEA’s own products.

Ulf Smedberg, an IKEA marketing manager stated: “IKEA’s online catalogue also makes
products easy to view and copy. Some furniture stores keep IKEA catalogues in their store and tell
customers that they can reproduce the furniture at a lower price. Stores try to copy the IKEA concept
and products, slightly change the name, slightly lower the price, and suddenly, home furnishing stores
in China are blue and yellow as well.”

5. Conclusion

The cultural gap and drastic differences in lifestyles and preferences between consumers of
the European market and to those of the Chinese market required the localization and adaptation of
IKEA’s marketing strategies to suit the needs of the local market. However, the company seems to
stand by its goal of standardization as these adjustments only involved the manipulation of the
marketing mix. In other words, although there might have been manipulations to the marketing mix of
the company, the modified marketing mix used in China still worked towards the same marketing
strategies that the marketing mix used in Europe strived for.

Especially in the aspects of price and promotion of the marketing mix, the changes IKEA made
in suiting its marketing strategies to the local market were palpable; however, as shown through this
paper, the same marketing strategies were met as previously done with the price and promotions done
in the European markets that IKEA is more familiar with. Thus, to answer the research question, IKEA
only changed its marketing strategies only to the extent of the marketing mix that were hinged on the
market conditions of the local furniture market that the company operated in, but in the end working
towards the same marketing goals and standardization that the company holds as part of its corporate
identity. IKEA, through its success in improving sales growth in China, has proven that a balance
between standardization and localization of marketing strategies is truly possible and worth striving for.
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