Professional Documents
Culture Documents
1
The average income (GPD per capita) is given to be $US1000 which is equivalent to RMB 8223 per year or
RMB 685. The conversion rate of 8.22 RMB per USD is used as given in case (page 11)
But this constituted an only small percentage of the total population (2.7% corresponding RMB
5000 to RMB 8000 monthly income). Further, the actual customers who were purchasing from
IKEA store were with monthly income below RMB 3000.
Further, one of the core aspects of Ikea's furniture is its simplicity and trendy designs. It aligns
with the taste of segment of 28-35 years customers were more inclined towards western
concepts as they work with foreign invested enterprises and private firms. Ikea should continue
to hold on to this value proposition, as more and more Chinese are expected to accept and
appreciate these designs going forward with globalization and opening up of the Chinese
economy.
2. Market Positioning
Issue: There is a disconnect for IKEA between market-perceived quality with respect to the
market perceived price.
Recommendation: IKEA
should position itself as a
premium foreign brand with
high-quality offerings to
aspirational consumers and
affordable brand through
concepts like Do-it-yourself
(DIY) for mid-income
consumers without explicitly
branding itself as "low price".
Rationale: - There is a clear
disconnect between market
proposition of IKEA and what
customers expectation from the
brand of IKEA. Currently,
IKEA's unique proposition is Figure 2: - Difference in the perception of the IKEA vs.
low price, high-quality products potential customer segment of high and mid-range income groups
furniture product.
Such a positioning is misaligned for both its customer segment. For high-end customers, the
"low price" value proposition of IKEA dissuade them as they equate high price with high
quality. Further, being a foreign brand, they aspire to purchase it for brand image and not low
price. Secondly, for the middle-income customer, the "low price" of IKEA is not low enough,
and the products of IKEA stay unaffordable to them. They can purchase the same product from
the local manufacturer. Thus 70% of these people prefer local brands. So, with its existing price
IKEA does not have a value-gap advantage compared to local competitors.
3. Pricing
Issue: - IKEA's product are not price competitive compared to local Chinese furniture
players
Recommendation: IKEA
should continue its effort to
reduce its price by achieving
economies of scale within
China (through expansion)
and reduce importing of
goods from outside.
Rationale: IKEA enjoy a
cost advantage over
competitors in western
countries. The cost advantage
come due to sourcing from
developing countries. This
cost advantage is lost in
developing countries. Figure 3 :- Cost comparison for IKEA with respect to competition
in China and West
Especially in China, local players well selling the same quality product at a lower cost than
IKEA. The reason behind is that they dont have to bear a design cost. Since China didnt have
IP laws, local players simply copy the design from international players. Further, local players
were leveraging the local knowledge to lower their cost. They were providing transportation
and assembly services despite low pricing of the products. Due to this IKEA was at
disadvantage in China
Since China was a developing country, the per capita income is much lower than the western
countries. So, the majority of Chinese people viewed IKEA as a highly priced product. Due to
this limitation, IKEA was able to bring only the mid-range product to China thus limiting
variation in product availability in the stores. Moreover, IKEA had to lower the price of the
product which reduced the profit margin.
The Competition Analysis shows that IKEA competitors have greater customer touch points
with respect to IKEA, thus maybe allowing for a greater market reach. In light of low cost
offerings by competitors, the major customer segment might be concentrated among the local
Chinese players.