Entering a new market is an admittedly challenging task, especially when the need to address the needs of customers belonging to a different culture emerges. In this scenario, an organization is highly likely to face misunderstanding and even mistrust unless a detailed analysis of the market is performed.
Since IKEA failed to carry out a thorough study of the demands of Chinese customers and did not represent its products as luxury ones, it will have to bend its marketing strategy and introduce a new brand image to attract the attention of the aforementioned public (Clifton, 2010).
Internal and External Issues
In order to assess the internal issues, which the company may face when entering the markets of emerging economies, one might consider the SWOT tool. The specified analytical instrument offers opportunities for identifying the assets of an organization and determining the problems in it, therefore, summarizing the chances for the firm to integrate into the global economy.
Table 1. SWOT Analysis of IKEA
The SWOT analysis of the organization shows that IKEA has very good chances of integrating into a new market due to the sustainability principles that it is guided by. However, the expansion into new markets is fraught with numerous challenges, the need to meet the requirements of the target audience and cater to their demands in a unique manner being the most complicated one.
IKEA needs to act fast in order to take the leading position in the designated market and, therefore, become the local leader before any other corporation could take over it; however, the goal in question can only be attained after a detailed market research and an elaborate plan to cater to the needs of the target denizens of the Indian population (Ganesman, 2012).
It is crucial that IKEA should not make the same mistake in the aforementioned market as it did in the Chinese one, pointing to the fact that its products are unreasonably cheap when the customers wanted luxury items:
In China’s huge market size, large segments of customers do not necessarily require JIT type of production methods. Rather, upon making purchase decision in the dealership, Chinese customers would like to pick up their car and go home right away. (Park, 2014, p. 2290)
Therefore, it is imperative that a detailed study of the target market could be carried out. Particularly, IKEA should pay special attention to the factors such as the comparatively large number of customers with a low-income background. Moreover, IKEA managers should bear in mind that the Indian market has been experiencing significant shrinkage since 2007 (Mathur, 2015).
As far as the current Chinese situation is concerned, IKEA needs to redesign its branding approach and alter its marketing strategy so that Chinese population could give credit to the products provided by the organization (Gross, 2014). To be more exact, the enterprise should remove any mentioning of the fact that the products are offered at a lower price; additionally, the emphasis should be placed on the prestige of IKEA’s brands, as well as on their world recognition.
Table 2. PESTLE Analysis of IKEA
As the points listed above show, IKEA may face certain social and environmental issues when attempting at targeting customers in third-world countries, such as India. As the company’s experience in China has shown, customers may fail to recognize the need to support a sustainable approach to the use of products and resources.
Seeing that IKEA supports the green movement and does everything possible to enhance sustainability in the communities that it caters to, persuading people to recycle or support the environmentalist movement in any other way may become a problem. Therefore, the firm will have to choose between the clients’ loyalty and the support of the sustainable economy.
Likewise, the organization has rather high chances of encountering the obstacles related to the social specifics of the target environment. As the previous experience with China has shown, the concept of luxury as the desired tool for upgrading one’s social status affected IKEA’s policy regarding the promotion of cheap products of high quality: “Over 70% of the middle income groups buy well-known international brands, with the progressive affluent spenders having the highest demand (84%) and conservative spenders at least 53%” (China-Britain Business Council, 2011, p. 11).
In other words, it is essential for Chinese customers to feel privileged when buying services and products, and IKEA must respect this characteristic feature of the target population by shaping its promotion campaign the appropriate way.
In India, however, the specified policy of the organization is unlikely to be an issue; instead, IKEA should keep its focus on emphasizing the product quality in its promotion campaign.
As a recent study shows, the so-called new Indian customers are much more materialistic than their predecessors, and they are mostly obsessed with the practical aspect of the purchase, i.e., the efficacy of the product (Mathur, 2015). In addition, the marketers at IKEA should bear in mind that the Indian population leans towards Indian products and, therefore, may overlook the foreign ones unless a very efficient marketing strategy is used, and a very strong brand presence is established (Mathur, 2015).
It is also important to keep in mind that the use of information technology and the latest technological advances, such as social networking, may help significantly in the course of the company’s development and its further promotion in the specified environment.
The use of information technology, such as social networks, will affect the process of promotion significantly; in addition, by creating mobile applications aimed at attracting the target population and based on the latter’s culture, IKEA will appeal to its potential clients in a more efficient manner.
The political issues mentioned above also serve as major impediments to the progress of the company in China. It should be noted, though, that in India, no major obstacles are expected is far as the political situation is concerned. Moreover, the recently emerging yet steadily developing middle class, whose progress is enhanced by the latest changes in the political landscape of the state, is bound to make the basis for IKEA’s target audience.
Risks in Emerging Economies
Despite the above-mentioned opportunities, one must also admit that entering the emerging economies is fraught with big risks, the financial ones being the reason for the greatest concern. First and most obvious, the issue regarding the lack of stability deserves to be mentioned. Because of the unevenness of the foreign exchange rates may lead to significant losses when converting the currency from the one accepted in the target country to the home currency of the company in question, Sweden being the state in point.
While the Sweden Krona can be deemed as a fairly stable currency, the same cannot be said about either the Chinese Yuan or the Indian rupee. Hence, the lack of financial stability in the specified countries may pose major threats to IKEA and its overall success in the designated markets.
The possibility of carrying out a surface market research and, therefore, failing to either satisfy customers or at the very least make them feel excited about the product can be viewed as another possible risk. As IKEA’s experience in China shows, the specifics of customers’ behaviour are very easy to misinterpret; as a result, a huge drop in the company’s popularity is expected.
Thus, it is highly advisable that the company should focus on the aspect of its operations such as research and development (R&D) along with the redesign of its marketing tools.
While the reconsideration of the design of the products that IKEA has to offer to its target population does not seem a necessity at the moment, a more thorough analysis of the supply and demand rates in the designated market, the requirements that the local population has as far as the products in the market are concerned, and the unique characteristics of the local culture should be performed.
IKEA: Current Strategies Assessment
Despite a generally strong strategy and a rather positive vision, IKEA’s forecast in China seems very negative. The inability of the organization to pinpoint the needs of the target customers and, therefore, failing to satisfy their requirements is likely to affect the sales rates directly. However, even though the forecast seems rather gloomy, a strategy for managing the problem can be designed with the help of an appropriate branding approach, which will trick the target audience into paying attention and appreciating IKEA’s efforts.
Evaluation of IKEA’s Strategy in China
The marketing and branding strategies, which IKEA current uses as the tools for attracting Chinese customers, do not hold any criticism, as they fail to recognize the local population’s need for luxury and the non-acceptance of cheap products. In other words, the firm will have to redesign its branding approach completely, trying to put as little emphasis on the pricing issue as possible, and at the same time pointing to the fact that it has gained global recognition as a company with fashionable and even luxurious items.
Consequently, a new brand image, which stresses the specified characteristics IKEA, needs to be created for its further advertisement in China. The process of the new brand image promotion can be carried out with the help of social networks; thus, the message will be transferred to the target audience in a manner as efficient and expeditious as possible. Moreover, the use of social media and networks will allow IKEA to target an increasingly large number of clients belonging to different age groups, social strata, gender, culture, etc.
Apart from changing its marketing policies, the company should also put more efforts into creating a very strong brand image. As soon as KEA gets rid of the staple of an organization producing cheap substitutes for the luxurious products of more influential organizations, which it currently has in China, a more exquisite and refined brand image needs to be created to appeal to the target denizens of the population.
Particularly, it would be a good idea to focus on promoting the characteristics of the product such as its reputation, especially in the American and European markets. The popularity of the product and the reputation that it has with the aforementioned customers will make its products more valuable for the Chinese clientele.
To attain this goal, IKEA may need to consider the power of the social media as a marketing tool. By keeping its customers updated and allowing them to share interesting information about the firm with their friends and co-workers, IKEA is likely to gain popularity among the designated population.
IKEA’s Strategies and Its Mission
As it has been stressed above, the organization is aimed at providing its customers with the products of a rather good or at the very least satisfactory quality at the lowest price possible. In other words, IKEA makes the products that customers would find otherwise very expensive quite affordable, improving the quality of life for the people belonging to both middle and lower classes of the society.
The strategies that the organization adopts to fulfil its obligations and provide its customers with the necessary products at reasonable prices can be deemed as fairly adequate. The idea of reducing the price charged for the products in order to attract more clients and prove their willingness to meet the expectations that their clients set for them is rather fortunate.
However, it may fail as the means of proving that the firm recognizes the specifics of the customers’ culture; as a result, a conflict similar to the one that can be currently observed in China regarding the lack of IKEA’s products popularity may emerge.
In other words, it is imperative that the strategies adopted by the organization should include the tools required for a detailed and elaborate marker analysis. Unless IKEA leaders know exactly what their clients want and how they would like the organization to represent its products to them, IKEA is highly unlikely to attain any success in either China or India (Choi & Cheng, 2015).
It should be noted, though, that a shift from the strategy based on reasonable pricing to the one that would emphasize the luxury of IKEA’s products may conflict with the mission of entrepreneurship. The above-mentioned conflict, in its turn, may lead to drastic results, such as a drop in IKEA’s productivity, a drop in motivation rates among the staff, the refusal of the latter to comply with the ethical standards and values established in the organization, etc.
Consequently, it is required that a proper leadership strategy, which would help IKEA leaders and managers keep the firm together, should be incorporated in the entrepreneurships’ design. Specifically, the transformative leadership approach should be viewed as a tool for managing the key corporate processes and at the same time making sure that the company’s’ ethical principles are followed closely.
The need to reinforce corporate ethics also pursues the goal of reducing the possibility of a corporate fraud. With a consistent focus on the marketing aspects of IKEA’s operations, the managers may overlook the threat of corporate fraud. Therefore, the leadership approach, which will shape the staff’s organizational behaviour and make the employees focus on the company’s values and ethics, the threat of a corporate fraud will be reduced significantly.
The same can be said about the integration into the Indian market. Although the latter has its unique characteristics, which need to be taken into account so that IKEA could become successful among Indian consumers, a uniform leadership approach will have to be used to promote the required values and trigger a significant drop in the instances of corporate fraud.
Although IKEA has been facing great obstacles in promoting its products to the Asian markets, in general, and the Chinese one, in particular, slight changes in its branding approach will help the organization improve the current state of affairs.
As soon as a new brand image for IKEA’s products is created, the entrepreneurship will receive a second chance of integrating into the Chinese market. More importantly, the analysis of the mistakes made in the Chinese market will help the enterprise enter other markets, such as the Indian one, with a unique branding strategy based on an original market research.
Reference List
China-Britain Business Council. (2011). China’s middle income consumers, Ann Arbor, Michigan: ProQuest.
Choi, T.-M., & Cheng, T. C. E. (2015). Sustainable fashion supply chain management: From sourcing to retailing. New York City, New York: Springer.
Clifton, R. (2010). The economist: brands and branding. London, UK: Profile Books.
Ganesman, S. (2012). Handbook of marketing and finance. Northampton, Massachusetts: Edward Elgar Publishing.
Gross, P. (2014). Growing brands through sponsorship: an empirical investigation of brand image transfer in a sponsorship alliance. New York City, New York: Springer.
Mathur, N. (2015). An analysis of price contemplation: Outlook and approach of Indian customers towards online shopping. International Journal of Applied Research, 1(9), 299–302.
Park, C. M. (2010). South Korean nation branding: U.S. newspaper media content analysis of South Korea’s image and reputation. Web.