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Horses for Courses: Are Adaptive Marketing Strategies Going to Work for IKEA in India?*

CASE STUDY, MARKETING MANAGEMENT
ET Cases - FLAME, 24 Pages
AUTHOR(S) : Shaunak Roy, Assistant Professor, Faculty of Management, Department of Commerce and Business Administration, St. Xavier’s College (Autonomous), Kolkata

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Horses for Courses: Are Adaptive Marketing Strategies Going to Work for IKEA in India?

"India is a vibrant, multi-cultural, multi-faceted and a really exciting market for IKEA. People are warm, hospitable and ready to experiment with their home and surroundings. They want to have a good lifestyle and that is evident from the passion they display in the way they work and live."

– Peter Betzel, CEO, IKEA India

There was a zephyr of excitement and eagerness in Silpa Gram Craft Village of Diamond Hills, located in Telangana’s capital city of Hyderabad. Widely dubbed as ‘HITEC City’, Hyderabad’s state-of-the-art IT, Engineering, Health Informatics and Bioinformatics hub, is located around 15 kilometres to the north of the old city. It also became home to the newly established retail store of IKEA, the Sweden-based global home-furnishing giant, whose opening has long been a much-awaited event for consumers in India. IKEA had also proclaimed its ambitious plan to launch 25 stores across multiple cities in India, such as Pune, Surat, Ahmedabad, Chennai and Kolkata by 2025.

To this end, the Swedish behemoth had pumped in a massive investment of INR10,500 crore ($1.54 billion).As last-minute construction and finishing touches were being applied round the clock, IKEA was geared up to formally inaugurate its first store in HITEC City on August 9th 2018. This Hyderabad store, expected to house over 7,000 unique offerings, had already borne testimony to a massive investment of INR1,000 crore ($146.51 million). Spread over a sprawling 13-acre expanse, IKEA has already begun scouting for prospective smaller-format stores across the country.

Interestingly, the store will also house a titanic 1,000-seater restaurant6, which will serve not only popular Indian dishes like Hyderabadi Biryani, Dal Makhani, Indian bread and samosa, but shall give masses a taste of iconic Swedish dishes, such as Swedish Meatballs and Lingonberry Mousse. It shall be IKEA’s largest restaurant across its global range of 400 stores. At a local conference in 2017, Henrik Osterstrom, the country food head for IKEA India expressed, “We intend to serve global as well as a local range of food that is sustainably sourced, of good quality and at affordable prices. We will not serve red meat, will have low sugar in beverages, and source certified organic produce. There will be something for everyone and the focus is on healthy and sustainable food and beverages......

The Journey of IKEA

The IKEA store has entered into one of the most acclaimed annals of national culture in the global marketplace, necessitating a critical appreciation of its rich history. The distinctive retail stores manifested in vibrant yellow and blue colours of the Swedish national flag attest the unyielding ‘Swedophile’ in IKEA. This was reflected through their global network of 418 stores, which nostalgically boasts of contemporary, avant-garde products epitomizing their country’s agrarian heritage. Ingvar Feodor Kamprad, the enigmatic billionaire founder of IKEA, envisioned his company to operate as an archive of Swedish national culture, and not as an orthodox exporter of quality low-cost furniture. IKEA, an alphabetism that encompasses the initials of the founder’s name (Ingvar Kamprad), the small family farm where he was raised (Elmtaryd) and the bordering village in the Swedish province of Småland (Agunnaryd), was pillared on the realization that furniture could also be ‘flatpacked’. Kamprad, who was 17 at the time, received a small cash reward from his father for securing good grades in school, despite being dyslexic. He used this money to register IKEA as a crude mail-order business. He realized that the massive cost of manufacturing furniture at the time was not attributed to the superior quality of materials used; in fact, substantial costs of shipping and transportation posed as one of the crucial cost-drivers....

The IKEA Experience

“Ikea is the biggest playground in the world. So people will come, they will absolutely come.”

– Juvencio Maeztu, Former Country Head, IKEA India

For years, IKEA has been the darling of a global community of ‘do-it-yourself’-ers, who sport a voguish charm, yet are frugal in their purchases. In fact, very few companies have been able to create such a profound and exquisite impact on the minds of consumers. This was primarily because IKEA was one of the forerunners in fostering an immersive experience for customers in their stores. Customers do not just saunter into an IKEA store to purchase four bizarrely named microwave lids (PRICKIG, which means ‘spotted’ in English). Shopping in one of the stores was an all-day affair, as customers spend hours snacking, frolicking, shopping and more importantly, relaxing. Customers have even been caught snogging and napping inside the stores. Funnily, in April 2015, an IKEA store at Beijing forbade customers from sleeping on furniture displays. To cut a long story short, the larger-than-life IKEA big-boxes are aesthetically designed to ensure that their customers have a delightful visit in their all-day event.......

Even IKEA can Fall Flat

“The prize of getting access to the wallets of the growing middle classes in places such as India and China is a big one for IKEA. However, it needs to ensure its southern Swedish values are not compromised to get there.”

– Richard Milne, Nordic Correspondent, Financial Times

Experts opined that IKEA’s radical business strategy had helped it become the premier furniture manufacturer and seller across the world. Award-winning analyst for the retailing and home furnishings industry, Warren Shoulberg affirms, “IKEA has changed retail forever. There is perhaps no other retailer on the planet that has moved its basic model into so many places with so much success."

Yet, as the saying goes, There is no success without failure and losses. IKEA too experienced its own share of failure, during their international expansion into the Japanese market in 1974. Japan was IKEA’s first entry into an Asian country. The blatant error that IKEA committed was paralleling Japanese culture to European culture. The Swedish furniture behemoth failed to appreciate the distinctions in culture, lifestyle and consumer behaviour, upon their entry into Japan.............

Probing into the Indian Home Furnishings Market

“Expansion and developments in real estate industry, have supplemented the growth of world home décor market. Globalisation facilitates easier and wider availability of home décor products and designs for consumers.”

– Retesh Sharma, Owner and Principal Designer, Zynna

The increased desire for a residential real estate in India over the past few decades, coupled with a finer taste for chic interiors among homeowners has catalysed the expansion of the home décor market. The home-furnishing market in India is represented by a concoction of three interwoven categories, namely home furnishings, furniture and décor. Furniture has always been an integral constituent of the Indian home and this segment makes the greatest contribution in the overall market with a collection of slight furniture such as chairs, tables, cabinets or desks generating the lion’s share of business for the category. Outsized furniture products such as beds, sofa sets, dining furniture sets, large wardrobes and cupboards are high-value objects, which warrant elevated investments.......

IKEA’s ‘Unique’ Marketing Strategy for India

“The IKEA stores will have something for everyone. We work with democratic design, one that will combine form, functionality, quality, sustainability and low price. Every IKEA product will have these five components. This is a part of the company’s DNA as we remain obsessed with low price and this will stand true for India stores as well.”

– Patrik Antoni, Deputy Country Manager, IKEA India

It is relevant that we first clarify and underline IKEA’s Unique Perceived Benefit (UPB) and Point of Difference (POD). This would aid in understanding the unique strategy that it seeks to adopt in India.

IKEA has carved a highly successful business by offering reasonably priced aesthetic furniture to consumers around the world. Every year, they release over 2,000 new designs. This is indeed the output of a robust marketing strategy, marked by the erudite customer as well as market research. Marcus Engman, the Head of Design at IKEA explained, “We go and work together with designers from all over the world, but also when we do design we do it on the factory floor. We work in a very different way to how everyone else is working. We always – and this is not a cliché – start the product development in people’s homes. I always try to go on home visits to real people, to find out what are the real needs.”..............

Will IKEA’s Strategy Pay-off?

“It remains to be seen how many Indian customers take to IKEA’s do-it-yourself model.”

– Rishikesh T. Krishnan, Director, Indian Institute of Management, Indore (IIM-I)

Indeed, some of IKEA’s key strengths across the world could prove to be a major impediment in its India foray. In their go-getting efforts to come to terms with the essence of a colossal Indian market, which they aspire to win around, IKEA must be careful not to lose sight of the factors that define them and give them a competitive advantage.

When entering a new market, the firm must agree on its approach strategy and to which degree it must adapt their strategy to the predominant local conditions. IKEA has used a relatively standardized approach in India. IKEA’s unique business concept of ‘democratic design’, coupled with their penchant for following an unorthodox route to conducting business operations and cherishing the benefits of their Scandinavian heritage, IKEA established its USP in the Indian market, thereby differentiating it from the local competition....................

Assignment Questions

I. IKEA has been present in India for the past 30 years, sourcing many different products for IKEA stores worldwide. What were the fundamental causes behind its delay in establishing its inaugural store in the country?

II. What are the major reasons facilitating the seamless expansion of IKEA in major international markets?

III..........

Exhibits

Exhibit I: List of IKEA Stores Across the World

Exhibit II: List of IKEA Categories and Corresponding Product Items

Exhibit III: Growth of Organized Furniture in India from FY2010 to FY2022 (Projected)

Exhibit IV: Reasons for Use of E-Commerce for Furniture Shopping

Teaching Note Preview

Horses for Courses: Are Adaptive Marketing Strategies Going to Work for IKEA in India?

Case1 Synopsis

IKEA, the largest home-furnishing retailer in the world, is globally acclaimed for its prowess in offering innovatively designed durable furniture at low prices. The Swedish furniture behemoth is all set to launch its first 13-acre big box in Hyderabad in mid-2018. To this end, it has reportedly invested a whopping INR1,000 crore ($146.51 million) since 2016 for the establishment of infrastructure, together with land and distribution hubs. IKEA is predominantly positioned as a cost-leader in global markets, while concurrently adopting a differentiation strategy. However, in emerging markets such as China, Russia and now India, where ‘affordability’ is the key to survival, it must capitalize on a burgeoning middle class that aspires to international lifestyle brands. Unlike their foreign peers, Indian consumers would be much likely to prefer an all-inclusive variety and design choices under a single roof. Recent trends have also suggested that there has been a phenomenal growth in demand for the online  purchase of furniture. In an otherwise unorganized Indian furniture market, IKEA’s entry in India would undoubtedly prompt a metamorphosis in the Indian furniture market and would challenge value retailers such as Furniture Bazaar, Pepperfry and UrbanLadder among other brands. To achieve this, the company must jettison its earlier ‘one-size-fits-all’ mantra and accept the premise ‘horses for courses’, which implies that all markets are different and unique. IKEA has experienced prior failures in Japan, the US, France and Russia and they need to be extra careful when dealing with a tricky Indian market. IKEA is not merely a seller of furniture and home décor accessories, but a carrier of Swedish culture. Renowned for its unique concept of ‘flat packing’, IKEA will have to be cautious when promoting the ‘Do-It-Yourself ’ (DIY) concept among Indian consumers. The case is thus an attempt to analyse the company’s holistic plan to expand its footprint in India. Will its adaptive strategies give them a unique competitive advantage in the long term? ...............................

Exhibits

Exhibit (TN)-I: Ansoff’s Matrix (1985)

Exhibit (TN)-II: Michael Porter’s Generic Strategies (1985)

Exhibit (TN)-III: Kim and Mauborgne’s Blue Ocean Strategy (2005)


1 Nature of the Case: This is a real-life case study and does not contain any disguised information. Information has been derived mostly from newspaper sources and journals. There have been a few interviews with customers of IKEA in the US as well, which has given a closer look at the functioning of IKEA. IKEA executives did not wish to be interviewed for the case, but a few middle-level Talent managers have helped in the development of the case. Further interviews with Sampson Lee, the
inventor of the PIG strategy has facilitated a deep-rooted understanding of the pain points for customers in IKEA stores. It is a ‘decision-making’ case, where a challenge has been poised to students. Students shall be required to arrive at a decision by placing themselves in the shoes of the IKEA management. The case study has been written in May 2018, before IKEA has opened its first store in Hyderabad. Hence, the case is prescriptive in parts, which voice the opinion of many experts.

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Abstract

IKEA, the largest home-furnishing retailer in the world, is globally acclaimed for its prowess in offering innovatively designed durable furniture at low prices. The Swedish furniture giant is all set to launch its first store in Hyderabad in mid-2018 and has reportedly invested a whopping 1,000 crore (US$ 150 million) in India since 2016 for the establishment of infrastructure, together with land and distribution hubs. In developed markets such as USA, Sweden or South Korea, IKEA is predominantly positioned as a low-priced brand targeted at the masses. However, in emerging markets such as China, Russia and now India, where 'affordability' is the key to survival, it must capitalize on a burgeoning middle class that aspires to international lifestyle brands. Unlike their foreign counterparts, Indian consumers would be much likely to prefer an all-inclusive variety and design choices under a single roof. Mahesh Shah, the CEO of Home Centre asserts that IKEA's entry in India would prompt a metamorphosis in the Indian furniture market and would challenge value retailers such as Furniture Bazaar. To achieve this, the company must jettison its earlier "one-size-fits-all" mantra and accept the premise "horses for courses", which implies that all markets are different and unique.

Objectives of the Case: This case seeks to probe into IKEA's sui generis marketing strategy, which has garnered immense appreciation from global consumers over the breath of time. More importantly, the case seeks to explore the company's holistic plan to expand its footprint in India. The principal question that is investigated is "Would IKEA's adaptive and polycentric marketing approaches in the Indian market yield a unique competitive advantage in the long-run?" IKEA's marketing strategies are critically scrutinized, in addition to the dynamics of consumer behaviour towards 'furniture' in India.

Pedagogical Objectives

It is envisioned that students, after having studied the case, shall develop a better understanding of the rudiments of an ‘adaptive’ marketing strategy and ‘polycentric’ market orientation, including how such approaches can give a competitive advantage to global companies. Furthermore, students are expected to acquire a robust comprehension of the Indian furniture market coupled with the versatility in consumer behaviour towards furniture purchases.

Case Positioning and Setting

  • Appropriate Course/Programme (Level of Study): Undergraduate Level (BBA) and Post-Graduate (MBA and M.Com.)
  • Functional Subject Area: International Marketing; Consumer Behaviour; Marketing Management, Entrepreneurship and Strategy


* 4th FLAME International Conference on Research and Teaching Cases, June 21st 2018 & June 22nd 2018



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