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IKEA: Successful business model in China?

v2
by

arianna zuffada

on 28 April 2014

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Transcript of IKEA: Successful business model in China?

...did you know?? IKEA Marketing Mix Product Price Place Promotion What is IKEA? Profile FOUNDER: Ingvar Kamprad

FOUNDED: Älmhult, Sweden(1943)

TYPE: Privately held company

INDUSTRY: Furniture retailer Porter's 5 Forces [LOW]

Different product and service with quality and low price
Low profit margin Intensity of Existing Rivalry [INTENSE]

Leader in the low- priced furniture industry Threat of Substitutes Bargain Power of Customers [WEAK]

Low price strategy
Customer-oriented
IKEA Family card Threat of New Competitors [LOW]

Economy of scale
High learning curve
Wide range of furniture,
kitchen and accessories Bargain Power of Suppliers [LOW - INDEPENDENT]

Strategy of long-term relationship with its suppliers 1943 Timeline Foundation 1953 First showroom
Flat packaging 1958 1960s First step of the Internationalization process: Norway 1973 1980s First Asian Store: Hong Kong 1990s IKEA Enters the Chinese Market: Shanghai 2000s Shop online 2012 First disclosure of IKEA's Financial Statement 288 Stores in 38 countries 11 stores in China

Stores belong to IKEA group but operate as Joint Ventures

The world's 2nd and 4th largest store are located in Shanghai and Tianjin Global Strategy Vision: "To create a better everyday life for people" Business Idea: to offer a wide range of well-designed, functional home furnishing products at low price that as many people can
afford them. What's Going On In China? Furniture Chain Stores
Sales Market Size in China Furniture Market Share in China IKEA’s stores development in China Slow development phase Acceleration stage of development IKEA’s current plan : 17 stores across the country by the end of 2014 ... and what about other foreign competitors penetration strategy? IKEA’s adopted a cautious approach by opening less stores than its competitors : the priority was to establish a solid customer base and a broad recognition What was IKEA’s
Penetration Strategy
in China? IKEA used few tactics to adjust to the Chinese market, still carrying out the core concepts and strategy : IKEA’s marketing strategy in China and western countries
are relatively similar. Over 10,000 design products for home Few differences between Western and Chinese products Over 7,900 design products for home

Few products only for Chinese market Standard set price: compared to competitors, IKEA is lower in price Initially IKEA adopted the same western price strategy: Chinese perceived it as too expensive Quality, Price, Shopping Experience
Post-sale Service, Quality, Customization In 2002, IKEA lowered its price but still wasn't enough... IKEA is located in suburbs but
customers travel by car

IKEA provide a complete shopping experience: home atmosphere, children area, restaurants, parking area Located in the heart of the city, in booming residential and commercial hubs close to highway and railway line "YIJIA" - Comfortable home
Flat packaging strategy
Some products names
21% produced in China
IKEA food IKEA's Positioning Map IMPROVE THE MARKET SHARE
IN CHINA! SHORT TERM LONG TERM Short & Long-Term Strategies Adjust Strategy To Meet
Chinese Culture Lower Price (Economy of Scale)
Expand to 2nd & 3rd Tier Province Reposition
IKEA Brand and Expand [LOW]

Strategy of long term relationship with its suppliers At a First Glance, IKEA Seems to be Successful... 2010 2011 2012 Revenue in China ($ mln.) 622 777 950 Reference: Financial summary reports of IKEA: FY2010, FY2011, 2012 IKEA: Successful Business Model in China? ...but in comparison Furniture Market Annual Growth Rate
(2007-2012) ~22% 2010 2011 2012 22% 24% The annual growth of IKEA in China is boosted from the new opening of the stores but is almost aligned to the growth of the furniture market. Reference: Annual growth of the market (2007-2012) & Remarks about the demand of furniture: Furniture Stores in China Market Research Report | Apr 2012 IKEA is doing well by taking advantage of the growing furniture market in China. But the figures show there is still room for improvement. Our Survey: WWM | World Wide Marketing | Team 2 Presented By: Competitive Advantage:
90% of the production is outsourced
Economy of scale
Flat packaging strategy
Own warehouse to stock products Target Market WESTERN
TARGET CHINESE
TARGET (367 ¥) -Δ 18 ¥ 25 to 35 years-old
Appreciate design and modern furniture
Low-middle income 28 to 35 years-old
Inclined toward western products
Middle income AIM:
to understand the consumer buying behavior
METHOD:
2 different surveys for the Westerners and Mainland Chinese via online & hard copy
RESULTS:
98 Western, 79 Chinese LOWER CLASSES MIDDLE CLASS
&
WHITE COLLARS WEALTHY
CLASS Furniture
Purchase Behavior Western design, High Prices, Luxury Products Low-Medium Prices, Middle Level Quality Chinese Low Priced Products Annual Income:


>400,000 RMB



36,000-400,000 RMB




>36,000 RMB Reference: CN reviews (2010) IKEA's business strategy has to adopt to the Chinese Cultural features Does China Really love IKEA? KEY FINDINGS FROM THE SURVEY Product: Most important attributes when purchasing furniture: Post sale services, quality, ability to customize the products.

92% of Chinese consumers consider furniture as a “long run product” and looks for quality. Although IKEA products are perceived as higher quality than the westerners, Chinese consumers do not think it's enough for the price.

The design of IKEA products are considered nice but Chinese are not interested in this attribute.

70% of the Chinese Consumers consider IKEA products are not aligned with Chinese Cultural values. Price: Chinese consumers consider IKEA's price to be high compared to the Westerners. Place: Location of the stores are considered good for convenience, but only 64% of people goes in to buy something. Promotion: 93% of Chinese consumers know of IKEA, meaning high brand awareness & recognition. Product. MAIN PROBLEMS: IKEA products offer few products to satisfy Chinese consumer's needs
&
IKEA does not effectively communicate the post-sales services, the quality and the variety of the products offered Price. Low-price strategy did not penetrate compared compared to other Chinese players Place. Chinese consumers love go shopping during their spare time but many do not convert to make a purchase Promotion. Chinese are not aware of the western furniture culture & design Move from LOW PRICE Strategy to DIFFERENTIATION Strategy Q&A Thank You! KEY FINDINGS FROM THE SURVEY FAMILY CENTRIC: New TV ads on SMG and promote "Family Day" GROWTH OF INDIVIDUALISM: Introduce in-store assistance (i.e. interior designer) to help customers to mix and customize their purchases HIGH RESPECT OF TRADITION: Introduce Chinese products and promote on Chinese festivals UNDERSTAND NEEDS: Chinese testimonials in the catalog, and provide demonstration in the shops & promote post-sales service Leaving the price the same

Focus on the growing middle class FINAL AIM: 22% 24% Expand IKEA in high growth and high potential cities

Promote the social media ad, Chinese Designers, Chinese own Interior Design to create a 'furniture culture'

Promote high level of service MAIN PROBLEMS
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