Globalization of Ikea

Topics: IKEA Catalogue, IKEA, Price Pages: 6 (2138 words) Published: April 25, 2011
Going Global: Assignment

When we talk about globalization, you can easily call up the definition in the textbook, or you may look at those elegant decoration around you and found most of them are not locally made. Globalization benefits everyone’s daily life. And our report is about a company, which operate globally and generate sale revenue from its more than 300 stores worldwide. IKEA--the biggest furniture retail store in the world. Its product is well known by its good design and low price. In our report, we will talk about the factors obstacles and good to IKEA in global market. Also the effect and benefit globalization brought to this company. Price

Globally, IKEA has been viewed as a low price, high quality alternative to other furniture stores. However, when IKEA entered the Chinese market, their prices were considerably higher than those of their 100,000 some competitors in the country. This means that Chinese citizens would not likely choose IKEA over its competitors as price plays a significant role when choosing where to shop. In order to be able to compete and to gain customers, it was necessary for IKEA to lower its prices. It was decided that IKEA would lower prices enough to “fit a family income of US$5000”, which is still considered quite well-off in China (Capdevielle, 2007). When they entered the Chinese market, they had low cost pressures, however after some time, they realized there was a lot of cost pressures. In addition to high pricing, Chinese citizens were used to getting their furniture delivered to them free of charge. IKEA does not work in this way in other countries as it charges a fee for delivery. To alleviate the negative feelings about this fee, IKEA ran a ten day promotion in which any purchase over a certain dollar amount would receive free delivery to the home of the customer. Some Chinese stores started keeping IKEA catalogues and telling their customers they could reproduce the product for a lower cost. When IKEA lowered their prices, Chinese customers started buying from the original more often.

IKEA has several different methods that they use to give customers the lowest price possible. For example, they sell mugs in only white and blue as these are the cheapest pigments.1 Aswell, the customer is responsible for assembly of their purchase, giving packaging a flatter form which reduces cost of transportation as products do not take up as much space.1

Controversy hit Canada as Canadians began realizing that they were being charged up to twice as much as their American neighbours for the same furniture from IKEA. This became a bigger problem as the Canadian and American dollars came close to being equal. A couch could cost $1,400 in Canada and retail for $900 in the States. IKEA Canada had to do something about its prices to keep customers buying from Canadian stores instead of those in the US. On November 1st, 2007, the following statement was released by the company, “... IKEA Canada has taken the decision to [also] lower the prices on over 1,000 products (IKEA 2007).” The price cut was put into effect January 1st, 2008 and they continue to lower Canadian prices as the Canadian dollar strengthens against the American. IKEA prides itself on its low prices, so making this change was very important to them. Lower prices allow Canadians to view IKEA in a different way and to believe that IKEA is the furniture store that gives them the most value for their dollar. The areas in which IKEA operates are well defined: the company sells relatively inexpensive, contemporary, Scandinavian-style furniture and home decoration. IKEA's target market is young, primarily white-collar customers. The geographic scope is worldwide, or at least all countries where socioeconomic and infrastructure conditions support the concept. IKEA is not only a retailer, but also maintains control of product design to ensure the integrity of its unique image and to accumulate unrivalled expertise...
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