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IKEA – The Total Solution

Sometime after the opening of the first IKEA store in China, in Shanghai in 1998, the IKEA staff there noticed something unusual. Store visitors were taking photographs and making notes.

At first, IKEA thought it might be the rather clumsy espionage of local competition-IKEA is famously unafraid of competition and is known to use effective ways of seeing off any threat to its business; when it discovers a copy of its product range on the market, it puts out a cut-price version that immediately outstrips the competition-but later it didn't seem so. Whenever visitors were asked to stop, they would. But they would simply return and try again. After a while, it wasn't uncommon to see customers sketching or using measuring tape or even bringing carpenters with them to size up the furniture on display.

IKEA came to understand that their high prices were forcing Chinese consumers to try and make copies of IKEA products; copying was simply a way to get the IKEA product they clearly wanted at a price they could afford. IKEA got the message. In the eight years that followed, IKEA reduced its prices by 46 percent and made itself a household name throughout China.

A long way from its country of origin but not far from its conceptual roots, IKEA has held onto its local market in China since those early days and has turned it into annual sales worth 1 billion yuan (US$124.025 million in 2004). 

But, being a household name has not meant IKEA is well understood. One of the most high profile corporate global entities, IKEA is a famously cagey organisation. You will never hear IKEA executives bragging about country turnover figures, dropping annotated highlights from company financial reports, or hinting at profits or anything remotely strategic. A business structure of renowned complexity, the emphasis of secrecy over financial matters acts as a diversionary tactic to keep the media and customer focused on a value driven, people-not-profit organisation (there is no denying IKEA must make a healthy profit).

What you will hear is that IKEA is a family-owned business with one million visitors a day to 229 stores in 33 countries or regions; that success is built on mammoth sales of ordinary, inexpensive, yet stylish household products and furniture, products such as shower curtains, storage units, tea lights and sofas; that the style is mostly Scandinavian and that the product is a clean, practical "total solution" to global customer needs.

Cheap, plentiful and self-assembled, the IKEA product, largely made of natural materials like linen, cotton and timber, gives the IKEA brand universal utilitarian appeal (it has never fully become a target of anti-globalisation activists) and it is the IKEA brand that gives IKEA its real power over the consumer.

"IKEA is Swedish. Its brand is built on values of straightforwardness and difference but not necessarily uniqueness. The company structure is the same: simple, non-hierarchical, flat. We communicate directly by using humour and being real. IKEA co-workers [staff] are educated about our values and they, in turn, promote them to our customers," said Ulf Smedberg, head of marketing for IKEA in China at the company's headquarters in Shanghai.

What you will also hear is that IKEA produces 130 million copies of its catalogue annually-it began life as a mail order company-and that IKEA's worldwide annual turnover figures jumped 1.9 billion euros (18.8 billion yuan) from 11.3 billion euros (111.86 billion yuan) in 2003 to 13.2 billion euros (130.65 billion yuan) in 2004.

How it achieves these results, IKEA won't say. But global analysts (who "crunch" numbers IKEA will not give them) report IKEA's success is built on a global marketing strategy where product standards are maintained and combined with locally based advertising and promotional activities, a fact notable in the success of IKEA in China.

"When we opened in China, we did not have a lot of experience. We have learned to be competitive with pricing and adapting to fit the market. Being relevant is what continues to matter to IKEA," said Smedberg.

"Promotion is easier in China than other countries because the market is so fresh." 

After more than two decades with annual economic growth averaging 9 percent annually, millions of Chinese, including IKEA's target market of working mothers, aged 25-45, have begun developing a strong taste for consumer goods.

"Our target works, is educated and has a higher disposable income than before. She has bigger needs and more money to spend," said Smedberg.

The average household income of IKEA's target market, in top-tier urban centres in China, is between 5,000 yuan-8,000 yuan per month, and it had an annual per capita disposable household income averaging 15,638 yuan (US$1,939) in 2004 increasing yearly.

"We discovered the Chinese have much in common with IKEA customers the world over. Their value system and sense of humour are not so different to the rest of the world. Our research involves getting IKEA customers to record their needs and wants. It shows us that the differences between cultures, from the consumer point of view, are not so huge," said Smedberg.

IKEA uses a variety of methods to obtain market data on Chinese customer know-how.

"Focus groups, home visits, city visits, telephone surveys, in-store promotions and customer surveys identify what knowledge the customer has, how much money they have to spend, and what their needs are, be they for storage or decoration, be they simple or complicated," said Linda Xu, head of communications for IKEA in China.

With sales in China composed of 50 percent furniture and 50 percent decoration, the focus for IKEA has been to concentrate on a concept they call "store and organise" that provides a "total solution" for furnishing Chinese homes.

"IKEA came to China as home-furniture experts. It is integral to our brand identity that we are also educators,"said Xu.

As home furnishing consumers tend to buy by function rather than by style, IKEA shows Chinese consumers how to make the most of their living space, gives them hints on how to mix and match colours, designs and concepts and make choices.

Continuing to research and develop the market, IKEA is ready to expand in China. It will soon offer the full range of IKEA's 10,000 products, taking advantage of an increase in disposable incomes and the expansion of the average housing area of China's urban population.

In April, IKEA will open the second largest IKEA store in the world in Beijing.

Expanding has been an obvious choice for IKEA in China since the early days and over the next five years it plans to open ten more stores. This includes a store that opened in Guangzhou in October 2005 and one in Chengdu that will open in November 2006. A new distribution centre scheduled to open in Shanghai in 2007 will add to existing services provided by its outlet in Harbin in Northeast China. IKEA Chief Executive Anders Dahlvig came to China in December 2005 and announced the building of a new IKEA logistics centre in Guangzhou, set to open in 2007.

When the new IKEA store opens in the Wangjing, Chaoyang District in northeastern Beijing in April, the IKEA store in Madian, which celebrated seven years in operation in January 2006 and attracted 90,000 customers and visitors over the three day New Year Holiday celebrations, will close.

The interest in IKEA's flagship store, when it opened in Shanghai in 2003, marked a phenomenal beginning for IKEA in China, with 80,000 Chinese visiting it on the first day. The same excitement is expected in Chaoyang. The new 44,000-square-metre store will have four levels, 78 room settings, 100 square metres of "real home" settings and underground parking.

But new markets do not faze IKEA. They display confidence by stubbornly promoting what works for them, protecting brand identity as they go. The opening of the Guangzhou store in 2005 is a good example. Guangzhou IKEA is a start up store with a fresh market, meaning there's little or no competition there. Typical of their exploration tactics, IKEA has picked a great location for the store, taken a lease on a rented property for five years and is happy to wait and see what happens. 

This maverick style began with IKEA's founder, Ingvar Kamprad, 79, doing business from of a shed in southern Sweden in 1947 and opening the first IKEA store in Amhult in 1958. In 1976 Kamprad-known as the "flat-pack philosopher"-wrote The Testament of a Furniture Dealer, a now famous philosophical tract, turned company manifesto.

"As a company, our vision is to create a better everyday life for the many people. We know it is our co-workers who make our vision a reality," said Kamprad.

With a fortune worth an estimated 32 billion euros, Kamprad is reputed to be the world's richest man. He lives in semi-retirement in Switzerland, where he has lived since 1978.

Although IKEA is sometimes severely criticised for poor customer service, difficult to assemble products and way too many people in the stores at any one time, nothing seems to deter devoted followers.

And it is telling that in its stores in China, IKEA no longer stops customers from taking photographs or measuring dimensions.