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IKEA in China: Low-price for Chinese?

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IKEA in China: Cheap for
Chinese?
2008-06-02
LYDIA LIU
CCS 2008 SPRING
1
• Business idea: IKEA offers a wide range of
well-designed, functional home furnishing
products at prices so low that as many
people as possible can afford them
• Low prices are the cornerstone of the
IKEA vision, business idea and concept .
Source: IKEA groupВґs website
(http://www.ikea-group.ikea.com/?ID=5)
2008-06-02
LYDIA LIU
CCS 2008 SPRING
2
IKEA stores in China
•
•
•
•
•
Beijing
Chengdu
Guangzhou
Shanghai
Shenzhen
2006
2006
2005
2003
2008
42,000
26,000
16,000
32,000 (1998, 8000)
34,000
Source: IKEA groupВґs website
(http://www.ikea-group.ikea.com/?ID=96 )
2008-06-02
LYDIA LIU
CCS 2008 SPRING
3
Problem
IKEA seems to be a big success in China, but how does the
Swedish company fit with the cultural dimensions
and customer appeal in China?
• Ikea became a luxury brand for Chinese when
IKEA entered into the Chinese market, which was
far from what IKEA stands for and their slogan
“affordable solutions for better living”.
• IKEA’s target group is “middle class” not low
income young people. IKEA furniture is becoming
cheaper and cheaper in China, but the mass in
China still don’t have the purchasing power to
consume IKEA products.
2008-06-02
LYDIA LIU
CCS 2008 SPRING
4
Challenges
• An important challenge for IKEA is the
need to understand the different
environments the company needs to
operate in.
• Understanding different cultural, economic,
and political environments becomes
necessary for success.
2008-06-02
LYDIA LIU
CCS 2008 SPRING
5
Price- Cheap for Chinese?
Chinainin2007
2007stood
stoodas
asthe
thesecond-largest
second-largesteconomy
economyininthe
theworld
world
China
afterthe
theUS
USmeasured
measuredon
onaapurchasing
purchasingpower
powerparity
parity(PPP)
(PPP)basis,
basis,
after
althoughininper
percapita
capitaterms
termsthe
thecountry
countryisisstill
stilllower
lowermiddle-income.
middle-income.
although
Textiles 39RMB in China and
39SEK in Sweden
http://www.ikea.com/cn/zh/catalog/products/4009812
7
[1] http://www.ikea.com/cn/zh/catalog/products/30103172
[2] http://www.ikea.com/se/sv/catalog/categories/rooms/living_room/10687/
2008-06-02
LYDIA LIU
CCS 2008 SPRING
a Swedish designed chair
named Stockholm sells 2495
RMB in China[1]
and 2295SEK in Sweden.[2]
6
Income RMB of Urban
Households
Figure: 2003-2007 Income RMB of Urban Households[1]
Source: National Bureau of Statistic of China
[1] http://news.xinhuanet.com/newscenter/2008-02/28/content_7687416.htm
2008-06-02
LYDIA LIU
CCS 2008 SPRING
7
Hofstede’s cultural dimensions
•
PDI
IDV
MAS
UAI
LTO
Power Distance Index
Individualism
Masculinity
Uncertainty Avoidance Index
Long-Term Orientation
Source: http://www.geert-hofstede.com/hofstede_china.shtml
2008-06-02
LYDIA LIU
CCS 2008 SPRING
8
The Chinese Culture
• Confucianism and Taoism.
• China is a culture with high power distance,
there is a large difference between people’s
social status, status symbols are important .
• Being a collectivistic culture, family is very
important in China.
• Long-term orientation. This indicates that
consumers are very concerned with the price of
products, because they want to save money .
2008-06-02
LYDIA LIU
CCS 2008 SPRING
9
DIY in China
• IKEA’s main argument for the flat
packaging and DIY is that they can
provide low prices for the customers.
• DIY did not suit its exclusive image.
• The middle class “white color” who buy
IKEA products, they prefer to buy
assuming service .
2008-06-02
LYDIA LIU
CCS 2008 SPRING
10
Low price remains
• Being able to lower the prices during the past
years has increased the purchasing power of the
IKEA customers. Lowering the prices even more
would create a larger market potential.
• The development and expansion of the Chinese
economy and raised income levels of the
Chinese people will make IKEA products
become affordable for potential consumers in
the future.
2008-06-02
LYDIA LIU
CCS 2008 SPRING
11
IKEA in China
• IKEA did some changes to fit the Chinese
culture but IKEA has not given up any of the
core concepts or changed the style of their
products to accommodate local preferences.
• Low price is the most important reason for
IKEA’s success, but it’s still not cheap for the
Chinese.
• IKEA has to continue lower the price in the
Chinese market while make more adaptations to
meet the Chinese customers needs.
2008-06-02
LYDIA LIU
CCS 2008 SPRING
12
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