1. Brand overview
IKEA is ranked 28th in the
list of top 100 Global brands (Interbrand, 2013). The company is a manufacturer
and retailer of affordable furniture and homecare products (IKEA, 2013). This
image is projected globally with the company exploiting its internal design
capabilities to provide a wide range of fashionable furniture which are then
sold at prices that are below the market average for comparable products. The
company operates more than 349 stores in over 43 countries around the world
(IKEA, 2013). This exposes it to the
dilemmas of standardisation of marketing strategies as well as choice of
internationalisation approach. These are as is discussed in the section
below.
2. Extent of standardisation of
marketing strategy
The choice on whether to localise or
standardise a marketing strategy is dependent on the characteristics of the
local market. Organisations tend to prefer to standardise for as long as it is
possible and be competitive (Ozsomer and Prussia, 2000). This is because
standardisation helps in entrenching a global brand image while also
eliminating the costs associated with implementing varied marketing strategies
in the different markets (Ghauri and Cateora, 2010). Support for a localisation
approach is based on the assertion that marketing strategies are only effective
when they conform to the market characteristics (Zou, Andrus and Norvell, 1997).
This prompts the need to analyse this conformity by separately considering each
of the elements of the marketing mix: product, promotion, price and place.
IKEA can be said to pursue a
standardisation approach as far as the overall brand identity and core message
is concerned. In all markets in which it operates, the company focuses on
providing a wide range of products which conform to the Scandinavian style of
furniture design (IKEA, 2012). It focuses on quality as well as promoting of
creative and emerging styles through an internal design system that sees
furniture designers compete in the presentation of proposed designs. The
pricing model also appears standardised with the approach being the
minimisation of production cost and subsequent low pricing (Selling IKEA
Abroad, 2013). Despite these approaches to standardisation, observations are
that different aspects of the marketing strategy vary from market to market.
2.1 Product
Product refers to elements such as the
number of products offered and their designs. In determining the product range
to offer in a market, it is important for the organisation to take
consideration of the market preferences as well as the overall organisational
strategy (Ghauri and Cateora, 2010). In reference to IKEA, the overall strategy
appears to market the same product range as is done in Europe with an aim to
attract customers that would like to consume European furniture. This approach
would appear targeted to ensure that the organisation’s image as the provider
of Scandinavian furniture is not lost (IKEA, 2012). In principal, this would
appear to be a strategy that leans away from the product orientation, save for
the fact that slight modifications are done to accommodate the tastes and
preferences that are unique to customers in specific countries.
The company’s focus is to promote
variety and present the market with a wide range of quality, affordable and
stylish furniture. The basic designs are European in general appearance. However,
there are certain modifications made to suit the customer demands in different
markets. In China, the products are made a little smaller (Chu, Girdhar and
Sood, 2013). This is because the houses of the average Chinese customers are
relatively small. The furniture is therefore made slightly smaller in order to
create internal space within the houses. This modification is however slight
and the general design outlook and product range remain similar across the
countries in which the global retailer operates (Chu, Girdhar and Sood, 2013).
The modifications are not unique to China. In the USA markets, the customers
are said to prefer larger furniture, especially the wall units and beds (IKEA,
2013). The company therefore modifies its designs slightly to accommodate this
variation. The overall product element can therefore be said to be
standardised.
2.2 Price
The overall pricing strategy is to maintain
a price range that makes IKEA’s furniture affordable by most people within the
target markets. However, the pricing is more relative than absolute. Absolute
pricing would mean that a price of an item is fixed irrespective of the market
where the only variation is the currency usable as calculated using a market
rate (Johansson et al., 2012). In an empirical study conducted in UK, China and
Sweden, it was established that IKEA’s product prices varied even after
adjustment was made for exchange rates and transportation costs (Burt,
Johansson and Thelander, 2008). This means that pricing is varied depending on
a number of factors such as purchasing power parity, the income levels, and
other metrics.
The relative pricing also influences the
type of customers targeted. In Europe where the income levels are relatively
higher, the pricing is done to target low income earners who’d want to acquire
stylish luxury furniture without incurring heavy costs (Burt, Johansson and
Thelander, 2008). However, in China, the income levels are relatively lower and
the company is forced to target the middle income group that is enchanted by
the prospect of acquiring affordable European style of furniture. The overall
level of standardisation is therefore low when the absolute product prices are
considered.
2.3 Place
Place refers to the distribution channel
design that is embraced by organisations to make products available to the
customers (Martin, 2009). Under normal circumstances, this would be determined
by the choice of target market. It is also determined by the goal of the
organisation in terms of the kind of shopping experience that it intends to
provide its customers with. In the context of an international company, the
choice is on whether to settle for specific types of location or to modify the
same depending on the lifestyles of the target markets. IKEA provides similar
stores across different countries with interior design and display organised to
make the shopping experience exciting (IKEA, 2013). The organisation of the
stores is however modified slightly to suit the specific preferences of the
customers. For instance, the internal store layout is rearranged to show how a
set of furniture can be fitted into the relatively small Chinese homes.
The location of the stores is very
important. In Europe, IKEA locates its stores on the outskirts of main cities
to facilitate customers driving in to shop on their way home (Chu, Girdhar and
Sood, 2013). This is done to facilitate the provision of parking space and for
general customer convenience. It is also done in consideration of the fact that
most of the target customers drive. In markets such as China, the location
approach is changed to suit the fact that most target customers use the public
transportation system through trains (Chu, Girdhar and Sood, 2013). This makes
it necessary to have the stores in close proximity of rail stations. The level
of standardisation in terms of location of stores is therefore low.
2.4 Promotion
Promotion refers to the communication
approaches adopted by organisations in order to have customers buy their
products (Ghauri and Cateora, 2010). It can either be standardised with a
uniform choice of marketing message and communication channel design across the
world, or it can be differed depending on the specific market characteristics.
In IKEA’s case, a significant level of variation is observable which differs
depending on the nature of the market and the challenges being faced at the
time. In the UK, the problem faced was the fact that the customers were so much
into British styles that they’d not try Scandinavian design (Baker, 2012). This
prompted the use of the campaign ‘Stop being so English’ while in the US, the
problem faced was that Americans tended to prefer to keep their old furniture
which were mostly old fashioned (Baker, 2012). This prompted the need to use
the campaign ‘Unboring’ to encourage them to embrace more exciting furniture
designs and discard their old furniture (Moon, 2004).
The choice of marketing channels is also
varied. In Europe, the company mostly uses its catalogues as the main marketing
tool (Chu, Girdhar and Sood, 2013). This is different from China where internet
marketing is the predominant channel used by the company. The message is
however consistent with the element of the products being of high quality and
also affordable being evident in most of its promotions. Overall
standardisation of the promotion element is moderate.
2.5 Summary on standardisation
level
From the discussions above, the overall
level of standardisation for the marketing strategy is low as summarised in the
table below:
Element
|
Standardisation level
|
Product
|
High
|
Place
|
Low
|
Price
|
Low
|
Promotion
|
Moderate
|
OVERALL
|
MODERATE
|
3. The internationalisation process
One of the most common models applied in
the internationalisation process theories is the Uppsala model. This model
advocates for an incremental approach to internationalisation which it weighs
between level of resource commitment and the level of knowledge about a market
(Carneiro, da Rocha and da Silva, 2008). Where an organisation has little
information about a market, it is recommended that internationalisation
approach be based on an approach that requires less resource commitment and
therefore a lower risk to the organisation. The Uppsala model details entry
approaches in order of the level of commitment required of the organisation.
These can be listed as follows: Occasional exports, export via agents, joint
ventures, sales subsidiary, fully owned subsidiary (Ghauri and Cateora, 2010).
Where an entry approach involves higher resource commitment than the level of
knowledge and experience in the market, the exercise often leads to the
organisation incurring heavy losses.
At IKEA, most of the international
expansion is don’t through franchising (IKEA, 2013). On the Uppsala model
outlined above, this would fall under the category of joint ventures. This
model enables the company to reduce its risks by exploiting the knowledge and
experience of its strategic partners. This helps in keeping the organisation
successful across the world. IKEA’s internationalisation strategy has however
not always been successful. Its bid to enter Japan in the 1970s is a good
example where it had by-passed the preliminary entry levels and set up fully
owned stores in Japan (Johanson and Vahlne, 2009). This would later fail after
it became difficult to get customers accustomed to the company’s approach
assembling the furniture pieces. IKEA would later re-enter Japan using a
franchise arrangement in 2001. However, it had established fully owned stores
by 2008 (Jonsson and Foss, 2011). This approach follows the incremental
approach to foreign market entry while also demonstrating the hazards of
engaging in higher risks than the organisation is able to take judging by their
knowledge and experience in the market.
In China, IKEA entered the market as a
joint venture partly because the legal framework demanded it (Jonsson, 2008).
This was in addition to its approach to exploit franchise to reduce its risks
by working with local partners that already have the experience needed to
succeed in the market. Such partners also serve the purpose of advising on the
appropriate marketing mix strategy to adopt. It is only after the company has
gained sufficient experience and knowledge of the market that the franchises
are either replaced or fully owned subsidiaries opened to complement them
(Johanson and Vahlne, 2009). This is demonstrable in the entry approach to the
Japanese market. The incremental approach to investment is done to prevent the
organisation from being exposed to the disadvantage of franchise where the
franchise partner could break off and become a direct competitor. Nevertheless,
IKEA still appears determined to run franchises as opposed to fully owning the
subsidiaries.
In spite of the deviations from the norm
of the theory, the Uppsala model is applicable to the company. In line with the
recommendations of the theory, IKEA’s failure in Japan in the 1970s and failure
in USA in 1985 demonstrates the fact that a higher level of resource commitment
is risky where an organisation is yet to acquire the knowledge and experience
needed in the market (Chaletanone, 2008). Even though there is little adherence
in terms of using the lower forms of entry such as occasional exports and the
use of agents before engaging in joint ventures, the company conducts extensive
research before it enters into the joint ventures. The marketing research
focuses both on the market characteristics as well as the capabilities of the
targeted partners. This approach demonstrates the fact that knowledge about the
market is the main driving force behind its decisions to invest in the
different markets. It is also this engagement that enables IKEA to gather
information on market preferences and determine how to modify the marketing mix
in order to be more effective in the market.
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