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IKEA in China: Cheap for Chinese?

IKEA in China: Cheap for Chinese?. Business idea: IKEA offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them Low prices are the cornerstone of the IKEA vision, business idea and concept .

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IKEA in China: Cheap for Chinese?

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  1. IKEA in China: Cheap for Chinese? LYDIA LIU CCS 2008 SPRING

  2. Business idea: IKEA offers a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible can afford them • Low prices are the cornerstone of the IKEA vision, business idea and concept . Source: IKEA group´s website (http://www.ikea-group.ikea.com/?ID=5) LYDIA LIU CCS 2008 SPRING

  3. IKEA stores in China • Beijing 2006 42,000 • Chengdu 2006 26,000 • Guangzhou 2005 16,000 • Shanghai 2003 32,000 (1998, 8000) • Shenzhen 2008 34,000 Source: IKEA group´s website (http://www.ikea-group.ikea.com/?ID=96 ) LYDIA LIU CCS 2008 SPRING

  4. Problem IKEA seems to be a big success in China, but how does the Swedish company fit with the cultural dimensions and customer appeal in China? • Ikea became a luxury brand for Chinese when IKEA entered into the Chinese market, which was far from what IKEA stands for and their slogan “affordable solutions for better living”. • IKEA’s target group is “middle class” not low income young people. IKEA furniture is becoming cheaper and cheaper in China, but the mass in China still don’t have the purchasing power to consume IKEA products. LYDIA LIU CCS 2008 SPRING

  5. Challenges • An important challenge for IKEA is the need to understand the different environments the company needs to operate in. • Understanding different cultural, economic, and political environments becomes necessary for success. LYDIA LIU CCS 2008 SPRING

  6. Price- Cheap for Chinese? China in 2007 stood as the second-largest economy in the world after the US measured on a purchasing power parity (PPP) basis, although in per capita terms the country is still lower middle-income. China in 2007 stood as the second-largest economy in the world after the US measured on a purchasing power parity (PPP) basis, although in per capita terms the country is still lower middle-income. Textiles 39RMB in China and 39SEK in Sweden http://www.ikea.com/cn/zh/catalog/products/40098127 a Swedish designed chair named Stockholm sells 2495 RMB in China[1] and 2295SEK in Sweden.[2] [1] http://www.ikea.com/cn/zh/catalog/products/30103172 [2] http://www.ikea.com/se/sv/catalog/categories/rooms/living_room/10687/ LYDIA LIU CCS 2008 SPRING

  7. Income RMB of Urban Households Figure: 2003-2007 Income RMB of Urban Households[1] Source: National Bureau of Statistic of China [1]http://news.xinhuanet.com/newscenter/2008-02/28/content_7687416.htm LYDIA LIU CCS 2008 SPRING

  8. Hofstede’s cultural dimensions PDI Power Distance Index IDV Individualism MAS Masculinity UAI Uncertainty Avoidance Index LTO Long-Term Orientation Source: http://www.geert-hofstede.com/hofstede_china.shtml LYDIA LIU CCS 2008 SPRING

  9. The Chinese Culture • Confucianism and Taoism. • China is a culture with high power distance, there is a large difference between people’s social status, status symbols are important . • Being a collectivistic culture, family is very important in China. • Long-term orientation. This indicates that consumers are very concerned with the price of products, because they want to save money . LYDIA LIU CCS 2008 SPRING

  10. DIY in China • IKEA’s main argument for the flat packaging and DIY is that they can provide low prices for the customers. • DIY did not suit its exclusive image. • The middle class “white color” who buy IKEA products, they prefer to buy assuming service . LYDIA LIU CCS 2008 SPRING

  11. Low price remains • Being able to lower the prices during the past years has increased the purchasing power of the IKEA customers. Lowering the prices even more would create a larger market potential. • The development and expansion of the Chinese economy and raised income levels of the Chinese people will make IKEA products become affordable for potential consumers in the future. LYDIA LIU CCS 2008 SPRING

  12. IKEA in China • IKEA did some changes to fit the Chinese culture but IKEA has not given up any of the core concepts or changed the style of their products to accommodate local preferences. • Low price is the most important reason for IKEA’s success, but it’s still not cheap for the Chinese. • IKEA has to continue lower the price in the Chinese market while make more adaptations to meet the Chinese customers needs. LYDIA LIU CCS 2008 SPRING

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