Chapter 16 IKEA's Chinese woes: cut prices or be a brand?

September 2005, Beijing, autumn has come.IKEA Beijing Madian store, the heads of stores around IKEA in the North Third Ring Road Middle Road seem to have not noticed the change in the weather at all. They talked and speculated about one thing: whether the IKEA Madian store will be closed. There is a reason for this. In 1998, IKEA's first Chinese store opened in Madian, Beijing.In the European and American markets, the slogan has always been to provide "a wide variety of, beautiful and practical, and affordable household items" to the low- and middle-income class. The design is simple and bright, and the style is simple and natural. After catching people's eyes, people rushed to IKEA's optional exhibition mall with various mentalities.All of a sudden, there were crowds of spectators, and the former spacious North Third Ring Road became extremely lively, often causing traffic jams due to insufficient parking spaces. The average daily flow of people at IKEA also reached 13,000.In this way, the North Third Ring Middle Road around the commercial building where IKEA is located gradually changed from cold to lively, and then formed a mature business circle. Stores, shopping centers, supermarkets, catering, high-end hotels, home furnishing markets, and flower markets are not only available, but also rich in business formats.The great variety of commercial formats will bring convenience to the operators while making shopping easier.But just behind this prosperity and bustle, there is a news that IKEA, the founder of this bustling business world, will close the Madian store and move out of the commercial building.Uncertain news came one after another, and the owners of surrounding shops were still guessing. Finally, the answer came out. IKEA announced at the press conference of the company's fiscal year in 2005 that Beijing IKEA would move from Madian, where the land is very expensive. In the relatively remote and deserted Wangjing, next spring, the Beijing Wangjing store will officially open, and the Madian store will be closed.The news spread quickly through various channels, and soon Gome, Suning, Dazhong, Yongle, and even Best Buy, the global home appliance chain leader, joined the battle for the location of the IKEA Madian store. Concern also replaced the topic of IKEA relocation.

Regarding the reason for moving away from Madian, IKEA (China) public relations manager Xu Lide said: "The business area of ​​the Madian store is too small, and the supporting facilities such as parking are not up to the requirements. It does not meet the requirements of IKEA standard stores, so we decided to close it. This store.” The reality may not be that simple. When IKEA entered the Chinese market in 1998, IKEA won with a relatively low price in the European and American markets. However, due to the differences in economic development and consumption levels between European and American countries and China, IKEA products are very cheap in the European and American markets. Consumer prices are often unacceptable to ordinary consumers in the Chinese market.When it arrived in China, it turned into a symbol for the petty bourgeoisie to flaunt their status.You can buy a small sofa for the price of a small sofa in other home furnishing stores, but you can only buy a very simple wooden stool in IKEA.And this situation even lasted for quite a long time, which embarrassed IKEA, what to do?Continue to lower prices?But price reduction is not simple, behind it often means a fundamental adjustment of the strategy, and the corresponding tactical adjustment related to the strategy.

IKEA seems to be making strategic and tactical adjustments to adapt and grasp the Chinese market, but what is surprising is that this super home furnishing chain with 216 shopping malls in 33 countries and regions around the world entered China in 1998 , until the first half of 2005, there were only two stores in Beijing and Shanghai, and the expansion speed was far behind domestic counterparts.This inevitably makes people feel that IKEA's actions are slow, or even too slow. At one time, it was even considered unacceptable.With the development of the market, today's China has not allowed IKE to operate its own Chinese market at such a slow speed.Foreign brands such as B&Q, OBI, Furniture Warehouse, and Leroy Merlin have also set up camp in the Chinese market, and their tentacles have even begun to extend to second- and third-tier cities to compete for market share.Local companies such as Unexpectedly, Jimei, Jiahe Jiamei, Aijia Home Furnishing, and Dongfangjiayuan also fought back, enriching their own business formats, expanding the number of outlets, and defending their territories. Competition in the domestic home furnishing market is intensifying.According to the analysis of industry insiders, while the domestic home furnishing market is expanding rapidly, a fierce battle is inevitable, and the home furnishing industry will face a major reshuffle.What should IKEA do in the face of cakes that have been sliced ​​and eaten away?Ikea in the end there are those roads to go?Let's look at the following aspects:

IKEA has always used its price advantage to attack cities and lands, and has successfully planted its banner in the home furnishing market all over the world. So, what is IKEA's price journey in China like? In European and American countries, IKEA has successfully reduced the price of its own products to a minimum through large-scale procurement, establishing its own logistics network, adopting self-selection methods in stores, reducing store service personnel, disassembling furniture and using flat packaging to save transportation costs, etc. Lower than similar products, this low-price strategy allows IKEA to gain an absolute advantage in the market.In China, IKEA still adopts this method to try to lower its prices in the Chinese market, but at the beginning, most of IKEA China’s products were produced abroad, and the transportation costs and import tariffs were high. There have been only two stores in seven years It is also impossible for IKEA to form a scale advantage, and its logistics and management costs are relatively high.Not only that, because the stores opened by IKEA in China are all located in prime locations where every inch of land is expensive, while in the European and American markets they choose to be in the suburbs.This has also led to IKEA's high cost, which has led to its lack of competitive price.

The price advantage in China almost no longer exists, so it has caused the above-mentioned, when it first entered the Chinese market, IKEA, which has always relied on low-price strategies to obtain the mass market in foreign countries, has left consumers in China with high-end, The impression of fashion has been dubbed noble and petty bourgeoisie by domestic consumers. In order to make Chinese consumers truly believe in the slogan of "a wide range of beautiful and practical household items that ordinary people can afford", the embarrassing IKEA started from the beginning. Keep dropping prices. "For several years, IKEA has cut prices at an average annual rate of 10%," Xu Lide said.From 2000 to 2005, Shanghai IKEA's product price cuts even reached an average of 46%.According to Du Fuyan, who was promoted from the president of IKEA China to the president of IKEA Asia Pacific: "In recent years, we have continuously adjusted our price strategy and target customers. The price of IKEA's products has been falling, and the price reduction of some products has even reached 100%. I hope people The feeling of IKEA can change from a white-collar product when I first entered in 1998 to something that ordinary people can afford.”

So how to reduce the price?Is there room for price reduction?Why cut the price?Du Fuyan believes that IKEA's products still have some room for price cuts, "We strive to cut prices by more than 20%."IKEA President Anders Delwig pointed out that "increasing the purchase volume in China is the main effort we have taken to reduce prices." Therefore, in order to reduce costs, IKEA has continuously increased its procurement in China.According to IKEA, IKEA’s purchases in China accounted for 14% of its global purchases in 2001, 15% in 2002, 18% in 2003, and more than 20% in 2004. IKEA now has more than 370 suppliers in China , China has become IKEA's most important supplier of raw materials and semi-finished products.

Now, IKEA has set up seven procurement centers in Harbin, Qingdao, Xiamen, Shekou, Wuhan, Chengdu and Shanghai to conduct global centralized procurement.At the same time, increase the number of Chinese designers, and bring the products produced in Europe to China for local production. Coupled with the sharp drop in China's import tariffs, it provides possible preconditions for product price cuts.Moreover, IKEA is building a home logistics distribution center covering an area of ​​280,000 square meters in Songjiang, Shanghai, which is expected to be completed in October this year.Once completed, it will replace the current central warehouse in Malaysia to become IKEA's largest logistics center in the Asia-Pacific region, which will also help IKEA reduce costs in China.

Now that the subdivided market is intensifying, IKEA, which has adopted price cuts, seems to be going down this road. Xu Lide said: "Everything that can be reduced has been reduced. Our current prices in China are basically the same as in IKEA's global system. The lowest price." So in this case, in order to reduce prices, what should IKEA, which has always attached importance to its own brand, do? For the vast majority of retailers, the manufacturer's brand is still the mainstream, and the middleman's brand can only be a useful supplementary part, and must not "overwhelm the guests".This is true whether it is Wal-Mart or Carrefour.This actually means that only the channel of the brand is controlled, but the rights and interests of the brand cannot be controlled.However, IKEA is not satisfied with just controlling even the world's largest home furnishing product channel. It hopes that its own brand and its patented products can eventually cover the world.Based on this concept, IKEA has always insisted on designing all products by itself and owning its patents. Every year, more than 100 designers work frantically day and night to ensure "all products, all patents".Therefore, for IKEA, there will never be pressure from the so-called "upstream manufacturers", and no manufacturer can carry out the so-called "distribution chain management" on it.

And IKEA's research and development system is also very unique, able to combine low cost and high efficiency.IKEA invented the "modular" furniture design method, which not only reduces the cost of design (because basically every design is manufacturable, it will not waste costs inexplicably because a large number of design schemes are not practicable ), and the cost of the product can also be reduced (modularization means mass production and mass logistics). IKEA's design concept is "whose design cost is lower for products with the same price", so designers often focus on whether to use one less screw or whether to use an iron rod more economically in the design, so that not only can There are cost-cutting benefits and often lead to great ideas.

It is through these methods that IKEA develops its own brand and exercises brand control. The fact is that the IKEA brand is based on pre-priced reproduction, and expansion may be an inevitable choice for IKEA after entering the Chinese market seven years ago. Du Fuyan said that before 2010 IKEA plans to increase its total storefronts in China to 10.According to the schedule: the Guangzhou store opened in the fall of 2005, the Chengdu store opened in the fall of 2006, and the Shenzhen store opened in the fall of 2007... IKEA management said that this is based on IKEA's full confidence in the Chinese market. "We believe that although the Chinese market is very competitive, it is still very promising. IKEA will speed up its entry into the Chinese market, open more IKEA stores, and provide more Chinese consumers with high-quality services and satisfy them. household items.” IKEA’s unique business philosophy and product design have won it many loyal consumers around the world.Once it gets rid of the price fetters, the competitiveness of a popular IKEA in the Chinese market is undoubtedly very strong.The stable IKEA has begun to accelerate its expansion, which also heralds the coming of brutal competition in the home furnishing market.

One can imagine what it must have been like when IKEA's second largest store in the world opened in Wangjing, Beijing, with an area of ​​44,000 square meters, in April 2006.And whether this fashion brand, which was once talked about by Chinese petty bourgeoisie and required a certain ability to pay, and IKEA, which was once sought after like a star, can gradually become civilian and popular.Faced with the market being continuously subdivided and the market share being eroded bit by bit, should IKEA cut prices, build a brand, or scale?What should Ikea do? The time and location when foreign home furnishing materials companies entered China, the number of stores in the future, and the goal of opening stores in China in the future. IKEA of Sweden entered Shanghai in 1998 and opened 10 stores in 2010. B&Q entered Shanghai in June 1999 and opened 38 stores in 2009. The home depot of the United States reached 80 stores in 2005. Set up China headquarters in Shanghai, the first store will be located in Shenzhen, no plan to reach 40 stores within 3 years The development of IKEA in China has attracted my attention as early as a few years ago, and I have made some thoughts.Today, IKEA's problems have become clear with the passage of time, allowing us to see some hidden problems more clearly, that is-international brands need to reposition when entering the Chinese market, which is caused by the Chinese market environment determined by its particularity.If this understanding is confirmed, what IKEA needs to do is neither to adjust prices blindly, nor to stick to the standardized brand concept, but to rebuild brand positioning, that is, starting from the definition of target consumer groups in the Chinese market, reshape suitable brand concept. Foreign brands have experienced de facto repositioning when entering China, basically changing their low-end positioning to high-end positioning.For example, Budweiser is the "No. 1 sales" mass brand in the United States, but it obviously does not take the low-end route in China; KFC and McDonald's are fast food and hamburgers in the United States, but in the eyes of the Chinese, they also bring Joy and fun; Starbucks has become a symbol of identity in China.The consumer groups of these international brands have been "misplaced" in China. Of course, consumers' attitudes and behaviors towards them have also changed accordingly. As a result, a unique situational relationship has emerged between these international brands and Chinese consumers.Some of the formation of such relationships are the gradual results of letting nature take its course and "crossing the river by feeling the stones", and some are shock-style decision-making measures based on strategic judgments.In any case, these results are due to the huge contrast between the country of origin of international brands and China, which is still a developing country, in terms of brand consumption history and environment, brand consumption experience and demand.This makes international brands drive the market effect by virtue of this "gap" potential energy at the beginning of entering the Chinese market. When IKEA entered China in 1998, it also changed its image of a "home convenience store" in the local Swedish and North American markets, and instead focused on the high-end home furnishing market in China, and gradually established a high-end and fashionable brand image.According to reports, its strategy has been successful. However, the Chinese market environment has changed rapidly. The number of foreign brands of the same kind is increasing, and the experience and knowledge of consumers are becoming more and more abundant. The fierce competition makes IKEA have to enter the ranks of price cuts. affordable.However, this tactical repair seems to have conflicted with the original high-end positioning, which has brought adverse effects on brand equity, and it is fundamentally difficult to solve the dilemma of IKEA. Therefore, what I mean by rebuilding positioning—at the current stage when foreign brands and international brands are competing in the Chinese market, it is no longer a matter of simply changing from low-end to high-end, and high-end to low-end.This is due to the rapid changes in the nature of the Chinese market and the structure of competition, prompting those international brands to go through the initial stage of relying on extensive positioning to win.A new repositioning strategy should be based on the brand's unique relationship with consumers. So my opinion is that IKEA's "gap potential" when it first entered China has been exhausted, and there is an urgent need to launch a new brand campaign to rebuild the relationship between the brand and Chinese consumers, and integrate the brand's original international concept with the local market. The value elements are properly reconciled, and a brand positioning with a new meaning is introduced.In terms of marketing strategy, re-evaluate and define the target market, and develop new localized products.Of course, market positioning needs to be based on research data, and the determination of brand connotation requires consumer insight.As far as my personal intuition is concerned, the consumption value of Chinese people's home furnishing is not only fashion, taste and other elements, but also classic elements such as stability, style and practicality.This is determined by the Chinese concept of home. In short, price reduction is not the first major event of IKEA, or not the fundamental event.Appropriate localized brand value positioning is fundamental.If the current brand equity of IKEA is only in its Nordic feel, then there may still be a market for some blind new consumers who simply need to enjoy the symbol and pay a high price for it.But more and more urbanites have become sophisticated and no longer blindly worship the symbolic value of foreign products as they did in the early days of reform and opening up. They began to pursue their own value.This is the basic judgment needed to open up the Chinese urban market—a large emerging market in transition. IKEA's first 7 years in China was undoubtedly a failure!This can be seen from the small proportion of the number of stores and market share in the global market.While widely promoting IKEA's advanced marketing experience, some financial media who dare to reflect have already questioned IKEA's marketing strategy in China. The core point is that the Chinese and foreign markets are very different, and successful experience cannot be copied.Competitors are flocking to the Chinese market, and the time is no longer waiting for us.If we regard the past 7 years as IKEA's testing period in China, then from 2005 IKEA must go deep into the sea in China. what to do?price reduction?brand?scale?In fact, these three options are not contradictory.Expanding the scale is indeed a top priority for IKEA, because it may be the best way to significantly reduce costs, but the premise is that the IKEA brand is established in China.What is the brand?A brand is the reason a customer buys.If you don't provide customers with a reason to buy, the more stores you open, the more you will lose money. In fact, the original question that IKEA needs to think about is: Why do customers buy IKEA products?Analyzing customer transfer value can help us answer this question.In terms of value, IKEA's product value, personnel value, and image value can get high marks, which is beyond doubt, but the service value is not satisfactory.For example, the DIY service model that is popular abroad will not work in China, because Chinese consumers are accustomed to enjoying free home delivery and installation services, and believe that this is the most basic service that manufacturers of large-scale commodities should provide.For a high-end home furnishing company like IKEA, such a basic service should be inevitable.But IKEA's approach is just the opposite. The above-mentioned services can only be provided for a separate fee. This inevitably makes Chinese people feel that IKEA is stingy and not the work of a big company.Disputes over service charges have greatly increased customer dissatisfaction with IKEA.From the perspective of cost, none of IKEA seems to be successful in the four aspects of monetary cost, time cost, physical cost, and energy cost.The high cost of currency has become the biggest problem hindering the growth of IKEA, and the DIY service model has increased the time cost, physical cost and energy cost of customers.From this point of view, the strategy of improving IKEA's customer transfer value can be attributed to two aspects: reducing costs and increasing services.Under the premise of ensuring the existing fashion design style, sophisticated product manufacturing, and human experience marketing, it is very necessary to make adjustments to adapt to the Chinese market.It should be noted that reducing costs in the Chinese market is not the European way of sacrificing services, but to ensure that the two tasks of reducing costs and increasing services are carried out simultaneously.It's not impossible. Home furnishing companies that are not as strong as IKEA can do it. Why can't IKEA?It seems that when necessary, IKEA needs to let go of the airs of multinational companies and learn from some excellent home furnishing brands in China how to control costs while improving services. In addition, from the perspective of selling points, while emphasizing "fashion", the IKEA brand also needs to increase the promotion of "environmental protection" appeals.Because, in the field of home improvement in China at this stage, health is always the topic that people care about most, and its importance exceeds fashion.This may be an important reason for B&Q's rapid expansion in China. In October 2005, Guangzhou IKEA will open soon.IKEA China should take this opportunity to comprehensively adjust its strategy in China, and build its strong position in the Chinese market by increasing customer transfer value.The Chinese market continues to grow. In the future, the most valuable brands in the world must first be brands with excellent performance in the Chinese market.This will be a trend. I remember that when I was sent from the United States to work in the UK, the first thing I did when I settled down was to go to IKEA to buy household items.IKEA's items are cheap and practical, simple and well-designed. If you only live there for one year, it's not a pity to throw them away when you leave.In Europe and North America, IKEA has a reputation of being cheap and high-quality, and it is popular among apartment families, including many high-paying and tasteful white-collar workers. Whenever it comes to Nordic style, IKEA will be mentioned first. When I returned to work in China a few years ago, I saw many friends buying a full set of IKEA products for their new homes. Some friends from Hangzhou even made a special trip to Shanghai to purchase a few IKEA items.I was secretly surprised that with only two stores in Beijing and Shanghai, it has achieved such a reputation and fashion in China, which shows its distinctive style. Many multinational companies or chain stores that are very successful in Europe and the United States have to face fierce low-price competition when they come to China.Is IKEA also facing the same distress?I wanted to find out the price reduction data of IKEA in China, but I was surprised after comparing the prices on the Internet. I also made a special trip to Shanghai IKEA to check on the spot. Not only did IKEA’s mainstream products in China not reduce prices compared with foreign countries, but some The price also exceeds the European and American markets.For example, ANEBODA two-door cabinet is ￥899 in China and $79 in the United States, and ENETRI multi-purpose rack is ￥595 in China and $59 in the United States. Even the promotion in Shanghai store is reduced from ￥79 to ￥39 Another product, the Glenor Table Lamp, is only $4.99 in the US.It is not difficult to see that IKEA China has no real intention of substantially lowering prices. On the contrary, IKEA is unswervingly adopting a unified global price strategy. You know, IKEA is one of the top 50 unlisted companies in the world, still owned by private funds.Since its establishment in 1943, it has maintained a healthy growth momentum. The sales volume in 2004 was as high as 15.4 billion US dollars. It should not be a problem to open a few more stores in China.The German market (20%), which accounts for the largest sales of IKEA, opened 35 stores in 30 years, and the US market (11%), which accounts for the third sales, opened 25 stores in 20 years.Although IKEA only adds 1-2 stores every year in a region, it spares no effort to ensure the long-term development of each store. It would rather abandon old stores and build new ones to ensure its shopping environment that is in sync with the times and the Nordic style that is deeply rooted in the hearts of the people.The new IKEA store in Shanghai is not only pleasing to the eye, but also easy to park. The Beijing store, which will reopen soon, will once again become a hotspot for DIYers who drive there. Facing the turbulent Chinese market, IKEA takes its unusually calm steps to make a living every step of the way.In the first step, in Beijing and Shanghai, the two most avant-garde cities, successfully established the first brand of Nordic modern and practical home furnishing hypermarkets.The second step is to purchase a large number of low-cost products in China to supply its global market. China has become the world's largest purchasing country for IKEA, accounting for more than 20%.If purchasing in China saves IKEA 20% of the cost, then China will bring 4% profit margin to all IKEA global stores.The third step is that as Chinese cities become increasingly internationalized, China's market potential will far exceed IKEA's global sales share today.IKEA takes a long-term view. First-class cities like Beijing and Shanghai must have the most first-class scale and shopping environment so as not to be forgotten.IKEA's plan to open ten stores in 2010 also shows its long-term strategy for the Chinese market.IKEA maintains its consistent rhythm and has a reasonable growth expectation for each region, so that each store can fully exert its lasting influence in a region instead of blind expansion. It can be said that in the next five years, ten years or even longer, IKEA will continue to be welcomed by urbanites who like the simple Nordic style in China. When it comes to Nordic style, IKEA will definitely be mentioned first.In the near future, when ￥899 is as cheap to Chinese consumers as $79 to American consumers, and it is not a pity to throw it away, there may be 20, 30 or more IKEA stores in China. shop. As I write this, I believe that IKEA has gained more than it has troubled in China. Its position as the No. 1 home furnishing brand has not been shaken. Cheap procurement has made it profitable globally. The improvement of China’s consumption power and the rise of many international cities have provided IKEA with In order to provide a long-term growth point, IKEA has its own long-term strategy in China. The signing of the "non-competition" agreement between the company and its employees is only a technical means to solve the problem. The key is for the company to establish a system of joint operations under the illumination of its own brand, so that every process, every link, and every Each employee becomes a "point" in the system that cannot work independently, making enterprise resources an inseparable and detachable whole.