The Case Study of IKEA
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To what extent do you think that IKEA’s entry strategy for Russia is based on adaptation and on standardization?
International marketing is concerned with planning and conducting of transactions across national borders in order to satisfy the objectives of individuals and organizations. Standardization involves offering of identical product lines at the same prices through the same distribution channels and using the same promotional program in many different countries. Adaptation deals with a completely “localized” marketing strategy which contains no common elements with other countries.
IKEA’s entry strategy is based on both standardization and adaptation in that when they decided to open up a store in Russia they had to start the company’s culture from scratch. When they decided to set up a store in Moscow, they had to replicate the store design and layout in accordance with the latest version and had to use the extensive research done about Russia’s culture into practice. IKEA being a Swedish company had the different styles and traditions from those of the Russian people and hence they took it upon themselves to learn about Russia’s culture by conducting home visits to see how the people lived and used their homes to see whether they could find what the locals needed so as to provide it for them. IKEA considered the local preferences in developing room settings to reflect local conditions in terms of the sizes of the apartments. IKEA’s strategy is neither to adjust their products to the local needs nor imitate their competitors so as to preserve their concept and image. This is standardization since they tend to maintain the same products in Russia as in other countries. In Russia, IKEA has maintained its styles in their products: Scandinavian, Country, Modern, and Young Swede. In Russia, IKEA mostly emphasized on the modern style, hence the adaptation to suit the Russians. Since it was different from what they had before, it yet signified a change they needed and therefore became a great success. The company studied their priorities. As it turned out, the decent living costs were their first priority, then the car or TV ownership, and also a trip abroad. IKEA took the opportunity to show them that they could afford a beautiful home that did not cost much. It is evident from the above that IKEA’s marketing strategy is based on both adaptation and standardization. All these strategies combined give an international company a competitive advantage over their competitors since they attract more customers and satisfy them, as well as maintain their own identity (Niraj 2000).
Q3. In what respects do you think that IKEA’S marketing behavior in Russia has been different due to the fact that Russia is an emerging marketing?
Russia’s business activities are believed to be in rapid growth and industrialization, that is why they are termed as an emerging market. For IKEA to seek out new customers in Russia, it has to employ good marketing strategies and the marketing program that ensures market penetration, high market shares and profitability. Russia being an emerging market is characterized by low income, variability in consumers and infrastructure, and the relative cheapness of labor. Most of the emerging markets are characterized by low incomes and therefore market segmentation in these markets is not an option, as customers in these markets are not able to afford specialized products. Most customers in this market just buy what they need and what is essential. IKEA bore this in mind by creating products for the Russian market that could fit in small space, since most Russians live in rather small homes and prefer buying cheap and nice accessories for their homes. Storage solutions were a good invention from IKEA; it helped the families who lived in crowded apartments store their items. Most customers in this market want long lasting products and not the products that rapidly change and become obsolete. That is why IKEA’s home furnishings have been successful in Russia because of their long lasting characteristics and a good value for the money that they offer. On the other hand, IKEA has to create a working team which will conduct a marketing research, identify customer preferences, test and develop a unique innovation to attract both current and targeted customers. Since many people in Moscow are low-income earners, a proper and cheap storage facility should be created so that these Russians gain the opportunity to store their products.
Russia’s mass market is characterized by low-income earners; hence, IKEA had to come up with products that were of good quality, but at the same time the products of low price that the low-income earners could afford. To get the customer’s attention, IKEA had to use the different methods to attract the customers as opposed to the methods they use in developed markets. They had an open and friendly approach towards the Russian media, which was quite the opposite of what was done in the developed markets. This way, they received positive coverage by the media in Russia and this boosted their confidence in customers.
Additionally, an effective way of spreading good word around in Russia is the buzz network, also known as the word of mouth communication. IKEA used this method to attract its customers, which in the long end was very successful in bringing more customers to IKEA stores. For an international business company to be successful in the emerging markets, it has to use a different approach as opposed to what they normally use in the developed market. This is because the emerging market is of low income variability in infrastructure. IKEA understood that mass markets in emerging economies, such as that of Russia, are not the same as the ones IKEA traditionally serves; hence, a different approach altogether had to be employed.
On the other hand, IKEA needs to produce cheap products,which are easily identified by low income people. This will make many Russians increase the demand for the product, since their interest is well taken care of. Finally, Russian communication system is very important. Through a proper research, IKEA came up with the best communication channel to reach its customer in an effective way. Through this, the level of relationship among all stakeholders will increase and act as a projector for a long-term relationship with its customers.
Q4. IKEA has a vision of building up a global brand. Can IKEA be regarded as a global brand? How does IKEA’s marketing strategy in Russia influence/contribute to the company’s brand vision
The main IKEA co-owner’s vision was to provide long-term investment activities in Russia, although many foreign countries had exited Russian market due to economic instability. It was from this company vision that IKEA developed a vision for global brand so that it could provide its services to the Russian market efficiently and effectively despite any other product brand challenges it would face in the future. IKEA’s global vision is to develop better lives for its customer. This brand vision has enabled the company to establish strong foundation in ensuring that its customers are able to afford the company’s product. The brand vision has also helped the company introduce some marketing strategies based on the characteristics of the vision stated. IKEA’s vision is mainly characterized by the stated value of the company, such as the culture that explains what the company does and how. In other words, it explains how the company participates in the market, shapes its distribution channels or mode, the management practice, the product range, and the relation with the Russian government and other international organizations (DAFT 2000).
This vision values also enable the company to create good relationship with its customer both internally and externally. The brand vision helps IKEA Company formulate the product structure, design, organization setting structure, consumer relationship structure, and external and internal working relationship. The value stipulated in the brand vision enables IKEA to formulate, evaluate, and implement all marketing strategies for better decision making. Some of these decisions include the price/cost of production of its product, which should be in line with the company’s set objectives. The values in IKEA act as general guide in enabling customers, especially the Russian ones, to buy goods which are cheap and attractive in relation to their traditional settings. Another important strategy is having customers provide feedback about the usefulness of the product they purchase from the company. This, in return, will enable the company to improve on its product development to better suit the needs of the customers.
This brand vision played a vital role in the success of IKEA’s business in Russia, since the company had gathered enough information about the needs of its customers and started producing attractive products. IKEA has been recognized as a global brand in the sense that its strategies have been effective in Russia despite the lack of any market research before taking any business activity in the Russian market. The market strategies established by the company reflect 100% of what is stipulated in the company’s vision in the sense that it acts as a global vision brand in such a manner that customers, suppliers, government, international organizations, and other stakeholders’ needs are taken care of. This stipulates that the company provides the best brand vision, which will also ensure that the company expands and improves its relations with other competitors.
A company vision is very important for any enterprise that wants to start its business activities in a foreign country. This vision provides a base line where companies make decisions on what to undertake and the ways to achieve it. IKEA’s vision is very important in making both present and future decision about the company. Since the company undertakes international business, it should provide a strong vision which will enable it to break through, even if the country of business activity is faced with both economic and social instability. As stated above, it has developed a strong vision, such as a global product brand, which will keep moving the company ahead to achieve its long-term investment objective.
Finally, IKEA will achieve the desired objective only if it will stick to its vision and make sure that it establishes and implements policies that will enable it to create good relationship among its workers, suppliers, the government, and other stakeholders.
Q6. Discuss IKEA’s opportunities to achieve long-term success in the Russian market? What are the main challenges that IKEA faces? How can they be managed?
IKEA's opportunities to achieve long-term success
IKEA is geared towards achieving a long-term success in the Russian market. This is evident through its investment that has shown signs of light at end of the tunnel. Through investments such as the expansion of rooms, creating positive attitudes with local people, and taking time to learn the trends in the Russian market give hope for realizing profits in the near future. The company plans to make more expansions as soon as it makes the profits to meet the demand of local customers and also increases its efficiency. However, the profits intended to be used in the company's development in other countries is expected in 15 years’ time. The company holds hope of success in the future through the plans and strategy foundations that are being implemented in the Russian market.
IKEA has given its expansion needs the priority as the primary aim of landing at future success. For instance, IKEA has laid down plans of building 13 more storees in the Russian market. It is determined to build two new stores every year. Hence, by the end of the 7th year, the 13 store project would have been build. To ensure that this plan succeeds, IKEA has chosen a project team, which will be responsible for the entire expansion exercise. The team will be responsible for seeking permission in new cities, building these new stores, recruiting and educating workers. In order for this team to succeed, it must take into consideration of the authorities' attitudes in the new cities, have knowledge of the local people's attitudes and the market in the new city.
To meet these vast plans, the IKEA management has kept a keen eye on the cultural differences. The careful observation of culture in Sweden and Russia by IKEA managers is an important tool of inviting future success. Like any company investing in the foreign country, where a culture gap is evident, IKEA has drawn its attention toward culture. In such a situation, it has considered religions of new cities and that of the West, keeping in mind that there is a huge cultural difference when compared with cities such as St. Petersburg and Moscow. When dealing with cultural difference, it is ideal for the company to ensure that employers are familiar with foreign culture through training, workshops, and tours. Such training enables workers to be confident in giving quality services to Russian customers. It also helps the company meet the requirements of its customers. The religion aspect will also be considered for it to be successful (Johansson 2009).
For it to succeed, IKEA has improved its communications with customers. This is important in creating company's image and market itself. This is achieved through putting adverts in glossary magazines, advertising through mass media, such as TV and radio, as well as by the use of word of mouth. These strategies are the perfect tactics of creating a personal touch with customers. Communication through word of mouth has made the company friendlier with the Russian people and local journalists. It creates positive attitude with the Russian people. Most large organizations have failed to make word of mouth as a useful tool.
Challenges IKEA faces on its way to meet long term success.
Like any other company geared towards meeting the set goals, IKEA must meet obstacles that may hinder the future success. The company faces challenges from the authorities in every new city. It is very rare to find the government body that easily accepts establishment of a new company. The project team has to constantly seek permission from authorities. This may consume a lot time, as the authority concerned may require a lengthy procedure for the company to be accepted. It also becomes difficult for a new company to enter a new city with the different religion (UNGSON 2007)
Seeking right workers sometimes becomes a challenge. The project team, which is responsible for recruiting co-workers, faces the challenge of finding active employees with the adequate knowledge of the company's operation. The criteria of selecting new workers will only depend on the work history and relevant experience. It also consumes a lot of time to train new workers. It requires tours, workshops, and seminars, which is expensive in terms of preparations. However, training workers will generally improve their skills and therefore increase company’s efficiency.
The vast plans of IKEA depend on the buying and production progress. This implies that the trends of local production and purchases by Russian people may have an impact on the company's plans. For instance, increased production and purchases allow the company to operate at low costs and low prices, hence moving it forward to success. Its main challenge is prices that are very high for ordinary Russians. It is evident in the second largest city St. Petersburg that people’s purchasing power is between 30%-50% lower than that of Moscow. In this situation, it implies that demand will be lower and profits will not be realized as expected.
The cultural difference becomes a challenge when the company enters new cities. Russian culture differs from that of the other new cities where IKEA intends to establish large stores. Market trends of new cities differ and therefore the project team selected by the company should take time to study and familiarize themselves with the new culture in order to succeed in this new place. In addition, culture goes hand-in-hand with religion: they both carry weight when it comes to company's operation. This is a problem as some cultures become difficult to understand and work with. The company has no other choice but educate itself in cultural matters.
How to manage these challenges
The company must represent itself in such a way that it is easily accepted by the authorities in the new cities. It should be able to show its importance to people who are in power. In this situation, the company has to give a clear detailed plan on how it will operate, benefit the local people, and even improve the city. The authorities will more easily welcome any company that shows signs of improving local environment in future (Monika 2008).
For the company to meet increased production and purchasing volumes, it has to attract the attention of local people. This implies that when demand goes high, the company will increase its production and hence operate at low costs. It will allow the company to export its products to other countries.
Prior training is required for workers, because trained workers have confidence in giving services and therefore improving company's performance. In addition, learning about new culture and religion demands in the new environment is a tool for perfectly fitting into the new environment. Managers should ensure that workers are familiar with the new culture that they are in (Welch 2007).
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