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A standardised approach to the world? IKEA in China

Ulf Johansson
Department of Business Administration, Lund University, Lund, Sweden, and

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Asa Thelander
Department of Communication Studies, Lund University, Helsingborg, Sweden
Abstract
Purpose The purpose of this paper is to analyse the marketing strategy in China of the furnishing retailer IKEA in the context of standardisation and adaptation of marketing activities. IKEAs strategy in China is compared to its corporate strategy throughout the rest of the world. Design/methodology/approach The four P classications are used as a framework to compare the central marketing strategies of IKEA with marketing strategies used in China. The paper builds on both primary and secondary data. Interviews with senior managers at IKEA are conducted and studies on business and retailing in China are used. Findings The marketing strategies used by IKEA in China are found to be different from the standardised strategies it uses throughout the rest of the world. Several of the changed strategies are central to the business concept of IKEA. Research limitations/implications The present paper shows the challenges for a standardised marketing concept and its implications. Originality/value The paper provides, in the context of the standardisation and adaptation of marketing activities, a more nuanced and up-to-date picture of the strategies used by IKEA compared to previous studies. Keywords Retail management, Marketing strategy, Standardization, China Paper type Research paper

1. Introduction Retail internationalisation is not a new topic. Rather, it is one of the most discussed topics in retailing in the last ten to 20 years. The themes on these topics have varied. Much of the literature focuses on the direction of internationalisation where different international retailers have aimed their internationalisation efforts and their modes of internationalisation, e.g. organisational forms used to enter new markets such as strategic alliances, joint ventures, acquisition, greeneld development, etc. (Alexander, 1990, 1997; Brown and Burt, 1992; Burt, 1991; Dawson, 1994; Gielens and Dekimpe, 2001; Gripsrud and Benito, 2005; McGoldrick and Davies, 1995; Pellegrini, 1991, 1994; Salmon and Tordjman, 1989; Sternquist, 1998; Treadgold and Davis, 1988; Williams, 1992; Wrigley and Lowe, 2002; Vida, 2000). Some parts of this literature are fairly descriptive in their nature, trying to describe the patterns and modes of internationalisation following the more general literature on international business ( Johanson and Widersheim-Paul, 1975; Johanson and Vahlne, 1977, 1990). Another major theme has been the notion that retail internationalisation does not follow a linear success model but rather is a process of entry and withdrawal, denoting failures in internationalisation (Burt et al., 2002, 2005).

International Journal of Quality and Service Sciences Vol. 1 No. 2, 2009 pp. 199-219 q Emerald Group Publishing Limited 1756-669X DOI 10.1108/17566690910971454

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A theme that dominates the literature on international marketing is the question of standardisation and adaptation of marketing activities from a company point of view (Baek, 2004; Levitt, 1983; Lim et al., 2006; Theodosiou and Leonidou, 2003; Szymanski and Bharadway, 1993) or from a consumer point of view (de Mooij, 2004). This discussion has not really penetrated the eld of retailing. With a few exceptions that are mainly general discussions on the subject (Martensson, 1981; Salmon and Tordjman, 1989; Treadgold, 1991), there is not very much research in this area. This is a strange shortcoming because, to a large extent, the literature on retailing seems to follow that of international marketing. Despite the fact that research on failures in international retailing argues that the former patterns of internationalisation are no longer true (Burt et al., 2003), it seems clear that for European retailers, interest in Asian markets is not particularly developed and that some of these markets do not give the easy successes expected early on. Some argue that these markets are distant in several senses (Dupuis and Prime, 1996; Evans et al., 2000; Evans and Mavondo, 2002) compared to the origin of many of the retailers active there. This is something that seems especially true for the Chinese market the focus of this paper. IKEA, the Swedish home furnishing retailer, has been present in China since 1998. The company had three stores in 2006 but the plan is to build ten stores by 2012. Compared to expansion elsewhere in the world, expansion in China has been fairly slow, by IKEA standards three stores in eight years but the company views it as successful. This may be an indication of the challenge ahead. After a fairly slow start, IKEA has seen substantial growth in China; between 2004 and 2005 sales grew by 50 per cent. Still, with a turnover in China of approximately $120 million, the business did not make a prot. However, IKEA management insists that they would make a prot in the near future. Asia (including Australia), only accounts for 3 per cent of IKEAs turnover, while Europe has a share of 81 per cent and North America 16 per cent. Still, Asia and indeed, China, are a big sourcing market for IKEA. Asia accounts for 30 per cent of IKEAs sourcing with China being the biggest individual sourcing market for IKEA with 18 per cent of total sourcing. A characteristic that makes IKEA stand out among global retailers is the alleged standardised approach to every market it enters. It looks and operates the same in every market. Or does it? Existing analyses of IKEAs marketing strategy are either fairly old (Salmon and Tordjman, 1989) or examined from a very general perspective (Salzer, 1998; Martensson, 1981, 1987) with little emphasis on marketing activities in specic countries and also with a lack of understanding of what standardisation and adaptation might mean in a retail perspective. More recent studies (Edvardsson and Enquist, 2002; Edvardsson et al., 2006) have a distinct service-management perspective rather than an overall marketing-strategy perspective. In many ways, China is a culturally-different market and in that sense, it is a challenge. As already mentioned, price is one challenge for retailers who enter the Chinese market. For IKEA, with its emphasis on price, low prices in China are a big challenge. Past experience of entering different markets has not always been positive. During the 1970s and part of the 1980s, IKEA tried to enter Japan but at that point in time, the Japanese did not like the at packaging, which required do-it-yourself (DIY) skills.

Among academics there is an increasing argument that one key success factor in international retailing has been the adaptation of marketing strategies, rather than standardisation (Dawson and Mukoyama, 2006; Rundh, 2003; Samiee et al., 2004). The adaptation of marketing strategies seems to be especially true for internationalisation in Asia and in China. So where does that leave IKEA and its business model? Is it something that only works in Europe and the USA? Will IKEA, like other retailers, have to adjust its strategies to meet the very demanding and different Asian markets? The aim of this paper is to analyse IKEAs marketing strategy for China, in the context of the standardisation and adaptation of marketing activities. IKEAs strategy in China will be compared to its corporate strategy in the rest of the world. 2. Conceptual framework What is standardisation and adaptation really about? As Ryans et al. (2003) pointed out there is no consensus among researchers. However, this quotation sums up what standardisation (and adaptation) could be:
[. . .] the offering of identical product lines at identical prices through identical distribution systems, supported by identical promotional programs in several different countries (Buzzell, 1968, p. 103).

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This denition stresses, in accordance with much of the literature, the four P classications: product, price, place and promotion. Standardisation and adaptation thus refer to how and if marketing activities are adapted (in reference to the four Ps), or not, across countries in which a certain company operates. Other researchers have dealt with standardisation and adaptation based on the appropriateness of each strategy. One of the more well-known advocates of standardisation of strategies, Levitt (1983, p. 65) argues:
The modern global corporation contrasts powerfully with the aging multinational corporation. Instead of adapting to supercial and even entrenched differences withering and between nations, it will seek sensibly to force suitably standardized products and practices on the entire globe.

Levitt argues in a general sense and mentions no products and no markets as exceptions from his vision of the globalisation of markets. It would be the same vision for sectors that mix product and service (like retailing) and also for very different markets across the globe. Levitt sees factors, like technology and converging consumer demands, as driving forces. Although he was inuential and after much debate, it is suggested that the weakness of the Levitt article lies just in his general perspective. From a very general perspective, it can be argued that everything looks the same. Opposing views in the standardisation and adaptation debate are those who argue from a national, cultural perspective (Hofstede, 2001; de Mooij, 2004). Without much statistical evidence, two other advocates suggest that the world is spiky (Florida, 2005), rather than at (Friedman, 2006): the business landscape is not homogenous but instead heterogeneous making adaptations necessary, at least when the view is international and working in culturally-diverse markets. Levitt and his fellow globalists argue that the world is becoming more homogenous, paced by technology and converging tastes. The author, de Mooij (2004) and others, argue that yes, the world is changing and that consumers, all over world, are having more of the same

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opportunities like increasing incomes but it does not mean converging consumer behaviour. He argues that consumer behaviour is not rational and the mirror effect is that companies marketing strategies cannot be standardised all over the world. Examples from soft drinks, clothing and automobiles are used by de Mooij to show that consumer behaviour is diverging rather than converging and that companies adapt their marketing strategies to national tastes and preferences. While the debate on the appropriateness of standardisation or adaptation of marketing activities has generated a lot of research in other areas, there is not much research on the topic in international retail, despite the centrality of this theme in international marketing. We nd some discussions of this related to specic areas in retailing, for example, image research (Burt and Carralero-Encinas, 2000; Burt and Mavromatis, 2006; McGoldrick, 1998; McGoldrick and Ali, 1994; McGoldrick and Ho, 1992) but very little research of a more general nature, relating to the overall marketing activities of retailers. Image mainly concerns itself with the effects of retailer marketing strategies (what type of image has been created in the consumers mind by contact with the retail company). Seldom are the particular strategies used to create the consumer image discussed in the literature. Some authors (Sternquist, 1997) discuss global retailers standardised expansion strategies but on a very general level, mentioning mostly private labels and formats. Martenssons study, focused on IKEA from 1981, where IKEA is used as an example of diffusion of innovation in the area of international retailing. Martensson gives a detailed picture of a rather centralised retailer. A few years later Salmon and Tordjman (1989) published their classical article where the issue of standardisation for global retailers is discussed. Here, C&A, Benetton/Laura Ashley, IKEA/Conran and Marks & Spencer are analysed and IKEA is found to have centralised management but adjusted marketing (in dimensions like assortment, pricing and promotion). Both studies are rather old. Salmon and Tordjmans study is 20 years old, building on an expansion that included 74 outlets between 1974 and 1987. Recently IKEA has 208 stores and has moved into markets that are outside Europe and the USA, the traditional stronghold for IKEA. Hence, it follows a company that was essentially a European company at the time of the study. Treadgold (1991) discusses international retailers in the context of local responsiveness and benets from integration. Global retailers such as IKEA are argued to achieve high benets from integration and display low-local responsiveness. The discussion of marketing activities is on this general level and very little knowledge is focused on different marketing activities. Also, as is the case with Salmon and Tordjman (1989) and Martenssons (1981, 1987) studies, the material covers the infancy of international retailing and does focus on IKEA. With the exception of Martenssons (1981), now-quite-dated study, there is a general lack of empirically-based studies of retailer international marketing strategies. Much of the discussions in the existing literature are very general and can only be expected to have captured strategies in the sense of policy, i.e. how strategies should be implemented. The actual implementation and tactics on for example, the local level of a centrally-planned marketing strategy, can be expected to differ to a certain degree. Thus, we argue that one of the things that the international retail strategy literature suffers from is a lack of empirical research, which means that policy is seen as actual implementation and tactics.

2.1 Conceptualising marketing activities by retailers When analysing different marketing strategies, there is a need for a classication of different marketing activities. That is the next step in our conceptual framework. Marketing activities by companies in general, can be and have been, described in the literature in many different ways. The most common one, the marketing mix (containing the four Ps of marketing; product, price, place and promotion) is not without competition. In the area of industrial marketing, relationships have been seen as the main marketing vehicle rather than manipulation of price, etc. (Ford et al., 2003). Service marketing takes a similar stance, focusing more on the role of personnel in the marketing process (Gronroos, 2000). Generally, marketing activities can be seen as ways for the seller in this case the retailer to adjust their offer to the market. That is how marketing activities are seen and used below. In the retail sector, the retail marketing mix is the most-used classication (Davies and Ward, 2001; Fernie et al., 2003; Freathy, 2003; Kent and Omar, 2003; McGoldrick, 2002; Varley and Raq, 2004). However, as retailing is quite different from manufacturing (which is the original base of the marketing mix), it needs modications to make it t with conditions in the retail sector. Aside from the products merchandise the conceptualisation needs to contain areas that deal with one of the different aspects of retailing, i.e. the store and what happens there. Location, store formats as well as selling environment within the store, are relevant areas, which are often used in the retail literature referenced above. As retail organisations are increasingly active in the traditional marketing category of advertising and promotion, the conceptual framework also needs to include this. Accordingly, the conceptual framework that we use here is generated from the traditional ways of thinking about marketing and how to adjust the market offering, but it has been adapted to t into the subject area of retailing. Merchandise is a broad marketing activity and is related to putting together an attractive assortment of products for the consumer to buy in the store. The dimension includes the question of national and retailer brands, pricing and pricing strategy, as well size of assortment and local variations in the assortment (compared to standard assortment for a certain chain). Location and store formats refer mainly to where retailers establish their outlets or stores. As we will not make a detailed location-analysis in this paper, location is seen mainly as a dimension, which varies in relation to where, say, a city-centre store is located. In this study, store format relates to the general set up of a store, i.e. the overall lay-out of the store in terms of number of levels, placing of different departments and how space is distributed. Advertising, which includes different types of advertising such as, print and outdoor, as well as different types of promotional activities, are both relevant and tools used by retailers. In addition, the type of media used and the content of the messages are also relevant issues. The fourth dimension is the selling environment and service of the store. It involves several issues (and is often called the in-store environment) and includes the overall design of the store, atmospherics and signage. Service and service levels are also included here, in terms of the number of personnel; as are social dimensions such as, other customers in the store environment. 3. Methods This paper is based on both primary and secondary data. Previous studies, where IKEAs strategy is analysed, were used as background information. As already mentioned,

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some data were old and dated and a range of different aspects of data were analysed. To update some of the information, various documents were analysed, like IKEAs publically-available web site. We also collected and analysed different advertisements used by IKEA. Second, internal documents were used, which interviewees shared with us though they were not available to the general public. In order to gain information on current strategies, IKEA managers were interviewed. We selected top-level, senior managers, who dene the strategies on country level and on store level, in order to cover different perspectives of the strategies and to get an insight into IKEAs marketing strategies and tactics. In total, ten interviews were conducted including managers responsible for the Chinese market as well as lower-level store managers based in China. Issues covered in the interviews paralleled and followed the classication of marketing activities mentioned above. In order to get rst-hand experience of marketing strategies related to real stores, observations were made specically about the Shanghai store. 4. IKEAs general marketing strategy IKEA is the worlds largest furniture retailer. It was founded in 1943 by Ingvar Kamprad who used his initials I and K together with E the name of his parents farm and A, which stands for Agunnaryd, his hometown. He opened the rst store in Almhult, Sweden in 1958 and since then the expansion has been exceptional. Today, IKEA itself owns 216 stores in 24 countries. The IKEA group owns 258 IKEA stores in 24 countries and during FY08, planned to open about 22 new stores (IKEA corporate webpage, 12 January 2009). If stores run by franchisees outside the IKEA group are also counted, there are a total of 292 IKEA stores in 36 countries/territories. Hence, it is an international retailer operating in many parts of the world. China is one of its latest expansions and Japan is the latest (2006). To describe IKEAs marketing (IKEA corporate webpage, 12 January 2009) strategy it is necessary to start with its business concept as formulated in IKEAs business mission:
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.

The key words in the business mission, address several marketing aspects and the marketing strategy can be seen to emanate from it. One central theme is the alleged standardised approach of IKEA: IKEAs guiding principle is to work in the same way in every country within which it operates. The main reason is that it gives operational advantages and makes it possible it is argued to keep the prices low and attractive for as many people as possible. Another reason is that they want to create the same image everywhere. Hence, standardisation is part of their business concept and below we have described and analysed what it means. According to the business mission, the target group is many people which is all customers, no matter their age, sex, social class or income. This might be achieved in their domestic market, like in Sweden but not in other countries. The basis of the marketing strategy is the merchandise, i.e. the product range and the prices of the products. These are supposed to be the same all over the world. The total product range covers more than 10,000 items. Very small adaptations for all countries and all stores are made. The product brand used in the store, IKEA, is the

same everywhere in the world. The Swedish product names are also used all over the world. The Swedish names can be seen in any catalogue and store. Referring to the business mission, prices on products are supposed to be considered low in comparison to what consumers nd in competing stores as the aim is to deliver high value at low price. It means that price is relative and compared to the market in each country, which results in different prices on the same product in different countries. Sometimes prices vary considerably between two countries; it results in Swedes buying IKEA kitchens in Poland. The business mission does not address store locale, the selling environment or service levels but it does have well-developed and standardised strategies, which deal with these factors. IKEA stores are mainly located on the outskirts of major cities making access by car the preferred mode of transportation for customers. Store formats are standardised and come in three different sizes with different assortment sizes: 7,500-10,000 articles; and assortment differs little between the same store formats across countries. So far, the stores have two levels: the second oor with room settings, displayed furniture and childrens department, the restaurant and cafeteria are also placed on the second oor; the rst oor is called the market hall and the product range covers home decoration, accessories, etc. The layout of the store and the different departments are generally the same in every store. The customer is guided through the store by a path with arrows. The selling environment in the stores is designed to encourage interaction with the customer. The customer can see the products in a room setting, touch them and even try them. The store environment is supposed to look the same in relation to: store layout and design, signage, display and colours, service level, etc. This aims to give the same shopping experience regardless of where the store is located. However, this does not mean that adaptation is not made in individual stores. For example, in different stores the room-settings are adjusted to t in with the local housing and living conditions, rather than using a centralised formula. This might mean for example, that there are smaller rooms in some countries and more replaces in British room settings. Service levels are supposed to be the same around the world with stafng about the same also. IKEAs concept of the customers role in relation to the low prices have important implications for the level of service: to have such low prices the consumer pays the price they have to pick things up in the store, carry them to their car, take them home and assemble them (even though home delivery and an assembling service, at a cost, is now widely available). IKEAs advertising and promotion is dominated by the catalogue; a marketing instrument that is unusual for an international retailer but at the core of the marketing strategy of IKEA. It is the most important marketing tool as can be seen by the fact that 70 per cent of the annual marketing budget is spent on the catalogue. It is produced in 38 different editions, in 17 languages for 28 countries. It is produced in-house with a standardised layout, with the same products and same overall information; adjustments for editions in different countries or regions are fairly minor. To some extent, the covers of the catalogues differ; the models that are used differ and extra information may be added, for instance in countries or regions where low familiarity with the concept is expected, information about the shopping procedures is added. Some of the advertising is produced in-house while some is produced locally. This conforms to a section of the overall marketing strategy, which says that although

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it is an international organisation with central guidelines on required market position it can adjust messages and offers to t local tastes and local competition. IKEA believes its strength is to be able to adapt to local customs and culture. However, the central guidelines must be followed and in several countries, IKEAs uniqueness and innovativeness related to the local context, is emphasised. In Britain, campaigns have been launched based on the guidelines and one of the best known is the chuck-out the chintz campaign, where British consumers were urged to break with tradition. Chintz was used as a symbol for the traditional-style home. Naresh Ramchadani, who is the creative partner for IKEAs UK advertising said:
We showed IKEA tables to women who make 90 per cent of the decisions about home decor and realised that there was a difference between consumers taste and IKEAs taste. Thats how we reached the chuck out the chinz tagline (Aitken, 2004).

In German and Austrian campaigns, IKEA celebrates Kurt was used to urge customers to renew their homes (Zentes et al., 2007). Both campaigns received a lot of media attention, as they were provocative. It should be noted that local or regional store-based promotions or advertisements are the responsibility of the local store manager. IKEA also uses image events in order to get attention. For instance, IKEA furniture was displayed in bus stops in Copenhagen. The activity gained a lot of coverage in the press. Those activities and product placements are planned and produced on a national level by local managers as they believed attitudes to furniture varied. The store manager may produce press releases concerning the store. However, a recent study on the representation of IKEA in the Swedish and British press ( Johansson et al., 2008) indicates that news related to the store is rare except for new store openings. Most news is about products and the company, which means that they concern issues organised by the national ofce. More interesting is that the representation of IKEA in the press varies considerably between Sweden and Britain. The strategic work with the press seems to differ in different countries. A growing part of IKEA promotion is the IKEA family, IKEAs loyalty programme. It consists of a loyalty card, a magazine with several issues a year and a special assortment of products in the store. In some cases, IKEA family card holders also get discounts on other products in the store. Unlike other loyalty programmes, the customer does not earn any points on their purchases. While it has been used for several years in Sweden, it is only in recent years that it has been introduced in other countries. The broader launch of the card is partly a belief that a loyalty programme for IKEA (which has worked very well in Sweden) could work well and be a relevant part of marketing strategies in other countries. From the description above, it is possible to discern that the control over the different marketing aspects for IKEA varies. It can be illustrated in a triangle. Figure 1 shows that marketing aspects in the lower part of the triangle the basics such as, range and products, store and the catalogue, are controlled by IKEA in Sweden. These are also the aspects that are standardised and are supposed to be the same all over the world. Only small adjustments are made. At the top of the triangle are the IKEA family concept and advertising, promotion, etc. which are controlled locally or from at a country level. Those aspects are less standardised and more adjusted to local or regional contexts.

Advertising IKEA family The catalogue

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The store

Global

Products and product range

Figure 1. Responsibility for IKEAs different marketing aspects

Looking at IKEAs marketing strategy, a conclusion must be dawn that it is standardised using the same marketing instruments in the same way around the world giving individual countries and stores a minimal opportunity to respond to, what is perceived as, national and local market needs. From IKEAs point of view, the strategy of standardisation is logical as it provides a product with a low price for as many people as possible in a way that an adapting strategy would not. 4.1 IKEA in China Recently, there are three stores in China, in Beijing, Shanghai and Guanzhou. While the rst two stores are joint ventures (to comply with regulations in place until 2004 and the inclusion of China in the World Trade Organization, the new store in Guangzhou is wholly owned by IKEA, which is how IKEA will operate in China in the future. Entering into the Chinese market was a big step for IKEA, maybe as big as their rst step abroad when they opened the store in Spreitenbac, Switzerland in 1973 (Torekull, 1998). China is potentially a huge consumer market but it is quite a different market to what they have faced before. First, the language is different and IKEA uses a Chinese name alongside the name of IKEA. It is pronounced Yi Jia, similar to the English pronunciation of IKEA. The meaning of IKEA, in Chinese, is positive and very appropriate: IKEA translated in Chinese means desirable for home living/comfortable home, which is regarded as a very good translation in China. According to IKEA, IKEA is a well-known brand. In Shanghai, 96 per cent of people living in the catchment area of the store know of IKEA. Fortune Cookies (Dagens Industri, 2006) the rst market and opinion poll in China, showed that among people with a monthly income of no-less than RMB 2,500, living in urban areas and aged 15-55, as many as 75 per cent knew of IKEA (Cui and Liu, 2001). In a country with a huge population like China, IKEA does not target as many people as it does in other countries. The main target group is female, as they are believed to be the ones that take decisions about the home. About 65 per cent of all customers are women in China. Women in China, according to IKEA, stand for change

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and they welcome change. It suits IKEA as they see themselves as providing the tools for change in at least one aspect of life: home decoration and furniture. Men are also targeted but more indirectly, because women have home-furnishing interests and actually make the decisions. IKEA also targets young customers attracting people aged 25-35. The core customer is around 30 years old. Many from IKEAs target group, are what in China are known as the little emperors and in literature they are also tte labelled the me-generation or the lifestyle generation (Schu and Ciarlante, 1999, p. 139). This is the generation born during the One Child Policy and today they are between 15 and 27 years old. One of the characteristics of this group of consumers is that they are believed to be impulsive, easy to inuence, very social and committed to leading foreign consumer brands (Gunnarsson, 1997). They are seen as the future generation that will soon be furnishing their own homes. This segment of the population includes some 30 million people. IKEA customers in China are different in other ways. They are well-educated and live in the big cities in China. As the salaries of the target group increase every year, so do the numbers in the target group. The typical customer in China, buys less when they visit the store than the average IKEA customer elsewhere. But in Shanghai for example, the core customers visit IKEA more often than anywhere in the world: 33 per cent come every month. This means among other things that there is a need for many changes in the store. The Shanghai store rearranges its room settings at least seven times a year, for new products or just for different holidays and campaigns, etc. IKEAs offer in China is to supply affordable solutions to Chinese customers, but the overall image is different (see below), forcing IKEA to offer other values to their Chinese customers. The primary market of the Shanghai store is the core customers monthly household income, which is RMB 6,000. This is high by Chinese standards but compared to other markets, where IKEA is present, it is not so high. IKEAs criteria for comparing different countries is by comparing how much work is needed in different countries to buy a certain set of products. The Swiss work only two months to buy the product set, while the Chinese work one year and six months to buy the same set of products. The following sections will describe and analyse the four marketing elements: merchandise; location; store formats and advertising and promotion. 4.1.1 Merchandise. Everything in an IKEA store, in China as everywhere else in the world, is sold under the private brand IKEA. In the Swedish IKEA stores there are exceptions as it holds famous Swedish food and drink brands, but in home furnishing it is only the IKEA brand. All products, as everywhere else in the world, have Swedish names and the assortment in a Chinese IKEA store is very similar to one in for example, the USA. In 1998, three products were added in China chopsticks, a wok with a lid and a cleaver but they are now in almost every store around the world. The Chinese IKEA stores have a special set of teacups for the Chinese New Year. Also, 500,000 plastic placemats are produced to commemorate the year of the rooster (Business Week, 2005). At the moment, in mainland China as well as in Hong Kong, the beds sold are shorter, 190 centimeter compared to standard-sized beds of 200 centimeter. This is currently being reviewed but so far constitutes another adjustment in the assortment of products to t local/regional demand. Many Chinese people live in apartments with balconies, which is very important to them. IKEA has added model sets and special balcony sections in the stores, which show how you can furnish your balcony (Lewis, 2005).

However, there are some major challenges for IKEA in China that the citation featuring IKEAs Asia boss sums up:
When Ian Duffy was rst put in charge of IKEAs China stores four years ago, he spent hours at the checkout-line observing customers. He did not see many. Instead, he saw plenty of people crowding the Beijing store for freebies air conditioning, clean toilets and even decorating ideas. Adding insult to injury: shops right outside were offering copies of IKEAs designs at a fraction of the cost. So, to lure shoppers, the Englishman launched what could be the cheapest IKEA non-sale items in the world: a scoop of vanilla ice cream in a cone for 12 cents. Thus, began IKEAs strategy to beguile the nicky Chinese consumer by slashing prices in China to the lowest in the world the opposite approach of many Western retailers (The Wall Street Journal, 3 March 2006).

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In most countries, the image of IKEA is that they have low prices, which is one of the competitive cornerstones of its business mission (see above). But it is not the case in China where it is rather the opposite that is the perception: that IKEA is a fairly exclusive, western retailer and the store is for the higher-middle class (Lewis, 2005). For example, Billy the bookcase, which elsewhere is inexpensive and high selling, was perceived as a luxury (Jungbluth, 2006). While the customers different perception of price has been accepted, the main strategy has been to cut prices. In order to do so, IKEA in China has been allowed to break unbreakable codes and rules in the IKEA organisation. They have been given the authority to ignore sourcing guidelines that are legio for the rest of the company. The basic step in the pyramid. China is a big sourcing country for IKEA, for example, providing products to Poland. In China it has meant that imported products were subject to import taxes (about 22 per cent) and an initial lead-time of 12 weeks, though it has now been reduced to ve weeks. To be able to continue cutting prices in the Chinese market, IKEA China has been allowed to exceed and expand its sourcing of products in China, while the rest of IKEA still sources the same products from somewhere else in the world. The actual gures differ a little on how many of the products in a Chinese IKEA store are sourced in China. Some say that half of the products in a Chinese IKEA store are made in China, compared to 23 per cent in other countries IKEA stores (The Wall Street Journal, 2006). IKEA representatives claim that 30 per cent of the assortment is made in China and in addition, the local trading ofce is now looking for Chinese suppliers for 500 more articles. According to IKEA, this has resulted in lower prices as they have dropped by at least 30 per cent since 2003; on some products the price has dropped as much as 90 per cent. IKEAs single-seat Ektorp armchair retails for US$112 in China, which is 67 per cent lower than the same chair sold in the USA (The Wall Street Journal, 3 March 2006). IKEA, like many other companies doing business in China, is subject to copying. One observer noticed that many Chinese shoppers in IKEA were drawing pictures of the furniture and scribbling down descriptions of the products but not necessarily buying them (Lewis, 2005). Copying IKEA furniture and style is to some extent easy. The catalogue and the store even provide measurements of the furniture. An IKEA-style home furnishing has, in some areas, become a concept of its own, outside the control of IKEA. If you search the baidu.com, a local Shanghai web site, for IKEA style you will get more than 39,000 hits. By providing a focus on giving help on home decoration rather than on selling individual products, it is easier to achieve a position that is not taken over by competitors that copy individual products: the Karlanda sofa

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is easy to copy but not the home decorating skills provided by the company in the store, on the web site or in the catalogue. If price will not always be IKEAs main attraction in China, what will be the attraction? IKEA tries to position itself as a company with a unique competence in relation to interior design. Helping customers with interior design is the basic message, rather than selling individual products at low prices. Focus here has also been on selected design elements, like storage. Many Chinese people live in small apartments and IKEA can help with smart solutions for storage that make life easier (at least that is IKEAs argument). The argument is very much about function while this contrasts with the traditional furniture manufacturers in China where everything is about tradition. From experience, IKEA knows that markets run through a life-cycle: when stores open in a new country, most customers buy, what IKEA calls, market-hall products, i.e. everything but furniture. In established countries, the proportion is said to be: 65 per cent buy furniture and 35 per cent buy market-hall products. It varies across IKEA stores in China but China has matured relatively fast with proportions between furniture and market-hall products are fast approaching those in more mature markets like those of Sweden and Germany. 4.1.2 Location and store formats. IKEA stores in China are located closer to the city centre than stores in other parts of the world, which are usually located well outside city centres. A location a long way from the city would not be ideal in China, as consumers do not have access to cars like they do in Europe and the USA. In China, the stores have to be where public transportation can take people and where there is some kind of hub through which many people pass. A good example is the Shanghai store, which is very close to several bus lines and one of the citys metro lines. However, IKEA has still built 700 parking places under the Shanghai store, so there is obviously an expectation that Chinese shopping patterns will change in the future, with more customers coming by private car. Public transport to the store is a contributing factor to the service level: home delivery services are more common and used more frequently in China (which is also available in other countries). Another, very overt difference, between the stores in China and in other countries, is the array of entrepreneurs that have set-up home-transport services for IKEA customers along with home assistance in assembling the IKEA furniture. In the new Beijing store the largest IKEA store outside Sweden, interesting adjustments have been made to the store format. The store has wider aisles to cater for the high volume of shoppers China has up to three times more visitors than any other IKEA store elsewhere in the world (The Wall Street Journal, 2006). The big-box format, which IKEA uses, is unusual in China where traditionally, shopping is done locally and at specialist stores. Hence, shops are smaller and locally oriented. 4.1.3 Advertising and promotion. In China, one of the big differences with the rest of the world is in relation to communication with the consumer and reliance on the catalogue. In China, it is impossible to distribute the catalogue in the same way as it is distributed in other countries at a similar cost or reaching the same audience numbers. In China, the catalogue is only distributed in the store and in some of the primary market areas. The stores rely on smaller brochures that are sent out several times during the year. Staff at the entrance of the stores also hand them out. These brochures are produced in-house and by the same printer in Almhult, Sweden that

produces the larger catalogue, in order that they have the same IKEA layout and design. IKEA has run many different advertisements in China, on television, in newspapers and in print. Themes in the campaigns are the same as everywhere in the world but with a Chinese twist (be different and break tradition). It is suggested that maybe the Chinese advertising line is a little softer than in other countries, like in the UK; its promotions have a more humble feel to them, they do not shock, they provide friendly, home furnishing solutions, which can educate the consumer, offering home-furnishing partnership solutions for the future. The advertisement featured below is typical (Plate 1). The message of the advertisement is Small changes, a refreshing new life suggests that life can be made better, easier and nicer with small improvements and at little cost. Small changes are the key words in IKEAs in-store marketing. Another advertisement, which IKEA ran, had the theme of do not be like your parents, a theme that seems to speak directly to IKEAs target group of young women 25-35 years olds (Lewis, 2005). It can be argued that the websites of the different stores in China are important: the Internet is a common source of information for the target group, the younger middle-class. Also, this source is used as a way to educate customers about the IKEA concept and to prepare them for the shopping experience before coming to the IKEA stores (see below). IKEA is known for its out-of-the-box thinking when it comes to creating interest in its brand and products. IKEA in China is no exception. IKEA is supposed to have started or sponsored a television show where the viewers are offered lessons in home decorating. Another example of public relations (PR) activity is when, a couple of years ago, IKEA furnished the interior of 20 elevators in less afuent, residential districts in Beijing, using IKEA products alone. They wanted to convey the idea of a nice environment in a dull place, so reaching untapped markets, creating the idea: change is easy. PR activities are also important to IKEA; the company took Chinese journalists to Sweden and taught them about Sweden, IKEA and the roots of the company.

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Plate 1. IKEA print advertisement in China

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4.1.4 The selling environment and service levels. While the products available in the Chinese stores are basically the same as in any IKEA store in the world, the stores do not look the same inside. What IKEA tries to do is to build the room settings not like in the USA, not like in the UK or Sweden but in a way that feels relevant to Chinese customers, with sizes of rooms and kitchens that are realistic by Chinese standards. So even with the same products, the aim is to make the store in Shanghai look very different from the one in Malmo by using the set-up of the rooms. Thus, there is still the same product range but adapted in each store through the presentation of goods and home solutions offered. In China the store layouts reect the layout of many Chinese apartments an example being the balconies, as mentioned earlier. In China, the overall the shopping experience is different. Chinese consumers not only use a shop to purchase needed products, but also they use it as a social venue, which is a slightly different experience from shopping in Europe or the USA. Initially, Chinese people did not go to IKEA to shop but instead they went to socialise in a pleasant environment (which is unlike other furnishing shops in China, where you are not allowed to feel and touch the merchandise). This is still true people in the Shanghai store can be seen apparently sleeping in the beds and on the sofas and reading a book with their feet on the tables but IKEA tries to ignore this, hoping that the same people will later return as customers. The Beijing store is expected to take 20,000 visitors a day and at weekends, crowds are so big that staff need to use megaphones to keep control. The 20,000 visitors a day adds up to some six million visitors each year. This is to be compared with two million visitors, which is the average number of visitors to a non-Chinese IKEA store per year. As the stafng level is the same as at other IKEA stores around the world, there are, of course, consequences to this service level. After identifying the large number of people that visit the stores in China, it is no wonder satisfaction levels were down. In 2007/2008, overall satisfaction in China was argued to be equal to satisfaction levels in the rest of the world, despite a lower score in relation to some aspects for example, inspiration, waiting times and helpfulness of staff. The big-box format that IKEA uses is unusual in China, where traditionally, shopping is done locally and at specialist stores. Hence, the IKEA shops are smaller and have a friendly, local atmosphere. However, the self-service concept is not so comfortable for Chinese shoppers, where customers have to visit a warehouse to pick up their purchases and then assemble them at home. China does not have a DIY culture. To try to explain and justify the DIY concept which is at the heart of the IKEA concept is thus hard work in China. IKEA provides home delivery long and short distances as well as an assembly service, for a small fee (home delivery short haul for RMB 50 and assembly of one piece RMB 40). IKEA has also unintentionally created an industry around itself of delivery drivers that help assemble the IKEA furniture. These pick-up trucks with drivers are lined up outside the stores. IKEA tries to acknowledge these issues and provides information in the stores, on the web site and in the catalogue, to prepare the Chinese consumer for the IKEA experience. They even have shopping hostesses walking around the store explaining to customers how the concept works; and IKEA representatives argue that it is slowly progressing. Studies by Edvardsson and Enquist (2002) and Edvardsson et al. (2006) have shown how important the service culture of IKEA is to drive service strategy and to achieve

market and business success. Here, service culture is related to developing a culture around the interactive parts of marketing (service encounters). Thus, implementation of the service culture of IKEA is important to full the IKEA concept. And how does this work at IKEA in China? As indicated above, consumers in China are demanding when it comes to service. They are used to a high-quality service, where there are people to help with all kinds of tasks. The self service and DIY concepts of IKEA are hard for Chinese people to accept. So, are there other service-level issues that are difcult to accept? In China, IKEA tries to implement a staff strategy that makes everybody co-workers rather than traditional employees. However, it might be contrary to what is more common in China, where workplaces have a stricter and more formal hierarchical work structure with supervisors telling employees what to do. IKEA argues that focusing on creating co-workers creates more responsibility, which in turn should create a more service-oriented environment. There is little valid data available on whether this actually happens (IKEA uses mystery shoppers but this more-general data cannot be appropriately used here). IKEA has another challenge that affects service and that is the fact that many products despite increased sourcing in China have huge lead times, in terms of shipping from Europe and other sourcing markets, to China. This has historically made it necessary for Chinese stores to promote and sell what they have currently got in the store rather than promote products that are advertised in the catalogue. Owing to much effort to improve this situation, like increasing domestic production and building a new warehouse in China, availability in China is almost the same as for the rest of the IKEA group. 4.2 Standardisation or adaptation? In Table I, we attempt to compare IKEA China to IKEA elsewhere in the world in relation to the four different dimensions of retailer marketing strategies that we have investigated. As the comparison is done on a general level China versus the rest of the world it lacks detail but is, even so, considered to give a good overall picture of how marketing strategies in China differ to the general IKEA marketing guidelines. Table I shows that IKEA has made changes in its marketing activities in relation to the Chinese market. Prices of merchandise have been cut, based on a new supply chain just for China. Location is different and store format is also different, to some extent. Advertising and promotion is quite different with much less emphasis on the catalogue. Selling environment and service are aspects of the strategy where less adjustment has been made. Compared to Figure 1 (the triangle), adjustments are made on each level, from the top to the bottom. Compared to their own ideal, IKEAs strategies in China are different from elsewhere in the world. It is argued that from the consumers point of view, the IKEA experience must be different from IKEA in, say, Sweden. Prior to a store visit, customers in China can only experience IKEA via advertisements and not via the catalogue. The visit to the store is also different; there are more customers, a lower level of service and a slightly different environment. In relation to culture and other competitors, it is proposed that IKEAs consumer image must be quite different because it is based on other product sources and adapted strategies and, in turn, the customer responds to all the adaptations.

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IKEA in China Merchandise Brand name is IKEA Basically same products (95 per cent) Increasingly local sourcing for all products in the assortment Cutting prices dramatically

IKEA elsewhere in the world Brand name is IKEA Basically same products (95 per cent) Increasing local sourcing on few markets (Russia), otherwise centralised sourcing and supply Cutting prices in all countries Location in most cases well out of city centre, out of town location (adjusted for car use) Two oors, parking outside store, restaurant, Sweden shop Catalogue is the base, advertising to t the IKEA concept to local tastes, culture and position, promotion increasingly run from stores, IKEA family is rolled out across countries, web is a tool that increasingly is used on new markets as information tool to increase knowledge of IKEA concept to new IKEA customers The room settings are adjusted to t with local tastes, size of rooms, etc. of customers in countries where IKEA works DIY, etc. concept of IKEA is increasingly accepted the DIY, etc. is the price you pay for low prices

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Location and store format

Table I. Comparing IKEA in China to IKEA elsewhere in the world

Location closer to city centre, closer to public transport, etc. Two oors, underground parking, restaurant, Sweden shop, wider aisles in store Advertising and Catalogue is minor part, adjusted promotion (smaller) brochures are the concept, advertising to t the IKEA concept to local tastes, culture and position; promotion increasingly run from stores, IKEA family is rolled out 2008 in China, web is a tool that provides opportunity to increase knowledge of IKEA concept to new IKEA customers The selling environment The room settings are adjusted to t and service with local tastes, size of rooms, etc. of Chinese customers More visitors than in other IKEA stores in the world with the same staff level DIY, etc. concept is alien in a country were labour is less expensive with prices that are not perceived as generally low.

5. Summary and conclusions IKEA has often been seen as a model of standardisation among retailers. It is argued that the company implements a standardised concept of home furnishing retailing around the world with the same type of stores, which are located in similar places; and the same assortment of products with a focus on price and DIY. IKEAs success around the world is phenomenal, however, until 1998, most of that success came from markets in Western Europe and the USA, i.e. from markets similar to the home market of Sweden where the concept was developed. Markets in Asia are new challenges, different in many respects from the markets where IKEA has enjoyed so much success. So, does implementing a standardised business concept on an alien market work? It is clear that IKEA has had to adjust and work harder in China than in other markets with some of its basic principles. Keeping the price low is one of the cornerstones of the IKEA concept. IKEA prices, compared to alternatives for Chinese consumers, are not low but high, offering their products to fewer rather than to more people. IKEA China has had to drop some of its basic principles a centralised source and supply chain to be able to develop its business and reduce prices in order to compete. Adjustments in IKEAs marketing strategies can also be seen in relation to

location and communication (advertising and promotion) to respond to the characteristics of the Chinese market. The adjustments are indeed more substantial compared to other markets. The selling environment and service levels have not been substantially changed compared to other places. Rather, changes have been made to other aspects of the marketing strategy, i.e. offering a home delivery and assembly service. But it is clear that the perception of the IKEA store and service is different. Some aspects of what IKEA offers in China are alien to many Chinese people due to the high prices, the DIY element and the low-service levels. However, the IKEA brand and products are unique and give Chinese consumers a product offering that is unlike anything else on the market. It is clear that to IKEA in China, it has not been enough to only be attractive to a small, fairly well off-target group. Adjustments have been made with the aim of being able to attract more consumers to the stores and not just those with higher incomes; and this new consumer group is not the traditional IKEA customer. From an IKEA perspective, China has been a practical trial for its business concept. To some extent the jury is still out as to whether or not it has been a success; but IKEA argues that the worst part of the China experience is over. IKEA has learnt many things in China and many of these lessons will be useful in other markets around the world. One lesson for IKEA according to senior managers at IKEA, is the fact that in order to succeed in the Chinese market, it has not been able to rigidly cling to its conventionally-successful business concept and marketing strategies. While keeping some areas unchanged assortment, brand name, overall communication, store concept, etc. IKEA has been able and forced to adjust some other elements of its service to be relevant to this new market. Without radically adjusting prices and changing sourcing and communication, it might have been another story. From an IKEA point of view, another lesson learnt is that a business cannot achieve the same results with the same tools on all markets. Adjustments have to be made with special markets. In light of all the adjustments being made in China, is IKEA still true to its business concept? IKEA argues that it is, except it has to change the ways of implementing its business concept. In terms of consumer image it is doubtful, because there is still a long way to go to attracting the many potential consumers in China and in getting them to understand the DIY concept that doing work yourself can save money (especially when the price is still perceived as high). From a general retail standardisation and adaptation perspective, the IKEA case is one of implementing a standardised concept on a new and very different market. IKEA seems to have made fewer adaptations than some other retailers from Europe (Carrefour, B&Q, etc.). But is the marketing strategy of IKEA standardised or adapted? The actual implementation of the IKEA concept in China has meant changes in a standardised approach in almost all areas. Some of these changes are what international marketing literature would predict, for example, concerning advertising and promotion (Usunier and Lee, 2005). In other research, this is the part of the marketing mix that any company that is going international would adopt the most. For IKEA China, the major marketing tool the catalogue was dropped in order to adapt to national conditions. It conrms what earlier literature has shown, i.e. that there are limits to how far a business can go in standardisation. It may also show that a high level of standardisation is possible on markets similar to the domestic one but in markets with different conditions, even standardised concepts must be changed in order to be attractive.

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Compared with earlier studies of retail internationalisation and the issue of standardisation versus adaptation, this study involved more detailed and up-to-date data concerning a true international retailer. This information provided a more detailed picture of the standardised retailer, IKEA. Another interesting aspect about IKEA in China concerns consumer image. This study conrms some of the results from other studies (Burt and Carralero-Encinas, 2000; Burt and Mavromatis, 2006) that the consumer image is relative to context. As for implementing Marks & Spencer unchanged to the Spanish market the image of Spanish customers is not the same as those of UK customers. In order to create the same image of IKEA in China as in the USA or Europe, standardised marketing activities will not be enough. Accordingly, the focus for marketing activities in China will focus on culture-specic aspects. This means that the IKEA concept is a standardised one but the strategies and the marketing activities to realise the standardised concept may indeed have to be adjusted to local marketing conditions. Even with this in mind, the creation of a similar image around the world may be an unrealistic ambition. Many impressions, which stem from a variety of sources, shape the consumer image and only a few of them can be controlled by the retail company and even if they are controlled and standardised, they are interpreted by consumers in ways that are difcult to control and foresee.
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