MARKETING ACROSS CULTURES: A case study of IKEA Shanghai

Lund University
Centre for East and South-East Asian Studies
Masters Programme in Asian Studies
East and South-East Asian Track
Fall semester, 2005







MARKETING ACROSS CULTURES:
A case study of IKEA Shanghai











Author: Ying Pan (Penny)
Supervisor:Stefan Brehm

ii

---

Abstract

The past century saw rapid growth of multinational companies around the globe.
Along with the tide of globalization, these companies are compelled to deal with
customers cultivated in different cultures. China, boosting a remarkable economic
growth in the past two decades, stands out under the spotlight of international
business. Being amazed by the huge business potential posed by a population of 1.3
billion, many multinational companies have joined the competition to attract Chinese
customers. There have been losers and winners. IKEA is now on the right track.

IKEA entered the Chinese market in 1998 by first opening a shop in Shanghai,
the financial centre of the country and are now ready to expand further. The thesis
presents a case study of IKEA Shanghai’s marketing performances from a cultural
perspective, following the model of the marketing mix (the 4Ps). The findings convey
an important message in terms of international marketing—the company must think
globally and act locally in hope of building long-term customer relationships and
capturing customer value. In marketing decisions, culture does not hold an ultimate
status but still calls for due attention as much as other factors, such as the marketing
environment and the company’s strategic plan.

Key words: IKEA, marketing strategy, culture, cultural studies

iii

---

Contents


1. Introduction







1
1.1 Research question and aim of the research


1
1.2 Structure of the thesis





2
1.3 Previous research






3

2. Methods and Selection






3

3. Key Theoretical Concepts





5
3.1 Marketing and marketing process



6
3.1.1 Designing marketing strategy



7
3.1.2 Marketing mix (the 4Ps)




9
3.2 Culture and cultural studies




11
3.2.1 The concept of culture and Chinese culture

11
3.2.2 Cultural studies





13

4. Marketing Across Cultures: IKEA Shanghai


15
4.1 The IKEA saga






15
4.2 Cross-cultural marketing: case study of IKEA Shanghai
17
4.2.1 Product







19
4.2.2 Price







23
4.2.3 Place







25
4.2.4 Promotion






26

5. Conclusion: The IKEA Saga Continues



29

Bibliography







31
Appendix: Chinese Culture Values




34

iv

---

Foreword

Sincere acknowledgements to my teachers of the Masters Programme of East and
Southeast Asian Studies, Lund University, for their enlightening lectures and
supervision.

Heartfelt thanks to my classmates from Lund University and all my friends for their
support and help.

Last but not least, I would like to thank my family here in Sweden and back home in
China for their love and confidence in me.

I am sure there exist faults in this paper. All suggestions and discussions are warmly
welcomed.





1

---

1. Introduction

China’s reform and opening-up policy since 1978 has brought profound changes of
the country’s economic landscape. Boasting an average Gross Domestic Product
(GDP) growth rate of 9.4% per year in the past 26 years, China’s annual per capital
GDP growth rate has still reached 8.1% even with a large population of 1.3 billion
(China Development Research Foundation and UNDP 2005). In addition, after 15
years of negotiations, China’s entry into the World Trade Organization (WTO) was
officially approved on 11th November 2001. China has committed to further integrate
into the world’s multilateral trading system by opening up its wide market. Hence,
multinational corporations suddenly found themselves standing at the doorstep to a
new arena—the Chinese market. Due to globalization, some Western companies
tended to assume Asian consumers have similar tastes and preferences, but reality
might have shown a different picture. The world might have become a “global
village” but the impacts of various languages and cultures should always be taken into
consideration, especially when multinational companies design their marketing
strategies for different markets.

1.1 Research question and aim of the research

Usunier (2000) points out that in today’s increasingly interdependent world, barriers
to trade and international exchanges are constantly diminishing. However, the
dimension of culture remains the single most enduring feature that is necessary to be
integrated in marketing strategies and in their implementation, especially when they
focus on international markets. Inspired by the above notion, this thesis presents a
case study of IKEA Shanghai in China with reference to IKEA Malmö in Sweden,
examining how IKEA conducts its marketing strategies to appeal to customers
cultivated in a different culture from the country of its origin and how the company
combines its global marketing strategy with local culture-based marketing activities.

Originating from a small village in the south of Sweden in 1943, IKEA has
grown into the biggest furniture retailer with 253 stores in 37 countries and territories
around world. The company’s attempts in the Chinese market started from Shanghai

2

---

in 1998, when its first store in Mainland China was opened. During the next 9 years,
IKEA took its time, getting to know the Chinese customers. A series of prudent
experiments have been proven effective. IKEA’s sales in China increased 500% from
2000 to 2005. At the same time, price has also been paid for a lesson on how to
balance global marketing strategies and local marketing activities. Ian Duffy, IKEA’s
CEO of Asia-Pacific region, admits in an interview that IKEA has made little profit
since entering the Chinese market (Song 2005 translated by the author). Therefore, for
multinational companies like IKEA, who want to proceed in different markets with
distinctive cultural characteristics, the research on IKEA Shanghai’s marketing
performance provides useful information on how to think globally and act locally.

1.2 Structure of the thesis

In order to demonstrate the central topic, how IKEA integrates its global marketing
strategies with its local marketing activities taking culture differences into
consideration when designing marketing strategies for the Chinese market, the thesis
proceeds as follows. Part 1, Introduction, raises the research question and proposes
the importance of the research to multinational companies as whole. It also introduces
the thesis structure and summarizes previous research on similar topics. The second
part discusses the research’s methodological points of departure—a case study. The
whole process involves the interaction of qualitative and quantitative approaches as
well as hermeneutics to interpret and analyze the collected data. Part 3 accounts for
the key theoretical concepts applied in the research. Theories concerning marketing
and marketing process are illustrated with IKEA’s global marketing concepts,
followed by the development of the culture concept and discussion of the Chinese
culture. The interdisciplinary feature of cultural studies enables the author to examine
marketing strategies from a cultural perspective, providing a theoretical support for
further arguments in the case of IKEA Shanghai. Part 4 begins with the story of the
IKEA saga as a cultural background introduction of the Swedish home-styling
company, especially its earlier experiences of struggling in the USA and Japan. It then
moves on to the case study of IKEA Shanghai. The model of the marketing mix, i.e.
the 4Ps—product, price, place and promotion, is followed to discuss the cultural
concerns shown in the company’s marketing activities. The research shows culture’s

3

---

influences on the implementation of marketing strategies in China in the times of
globalization. Last but not least, the conclusion accounts for the whole research on
IKEA Shanghai’s marketing performances and culture’s impacts on international
marketing. Multinational companies should try to balance their global strategies and
local tactics in order to build long-term customer relationships and capture customer
value when dealing with customers cultivated in different cultures.

1.3 Previous research

IKEA has been deemed as a legend in the contemporary history of business.
Therefore, there has been a lot of research on IKEA from various perspectives. Some
of them show great interest in IKEA’s founder, Ingvar Kamprad, although half-retired
but still the soul leader of the corporation (Business Strategy Review 2004, Daniels
2004). Others recall the history of IKEA’s success, arguing IKEA’s unique business
idea and corporate culture lead the company through its ups and downs (Kippenberger
1997, Edvardsson and Edquist 2002, Barthelemy 2006). A few articles discuss
IKEA’s performances in a specific country but usually an established market like a
European country or the USA (The Economist 1994, Howell 2006, Marketing Week
2007). China is a relatively young market for IKEA but it is attracting more and more
attention from scholars and consumers alike (Moller 2006). There has been study on
IKEA China in general but not really focusing on culture’s influences on marketing
strategies (Miller 2004). Hence, hopefully, this thesis can initiate discussions on how
multinational companies like IKEA should deal with cultural variations when
designing marketing strategies for different markets. It starts with the author’s
methodological concerns and choices of theoretical concepts follow.

2. Methods and Selection

By definition, methodology means a set of methods and principles used to perform a
particular activity (Oxford Advanced Learner’s Dictionary 2005). In social science,
methodology is deemed as a set of theories and tools adopted to approach the reality
in a scientific way. According to Yin (2003), the case study is one of the several ways
of doing social science research, which includes experiments, surveys, histories, and

4

---

the analysis of archival information. Each of them has particular advantages and
disadvantages. The case study is the preferred strategy when a “how” or “why”
question is being asked about a contemporary sets of events, over which the
investigator has little or no control. The strength of the case study lies in its ability to
deal with a full variety of evidence—documents, artefacts, interviews, and
observations.

Hence, in order to solve the research question—how IKEA designs marketing
strategies for the Chinese market, integrating its global marketing strategies with
culturally-based marketing activities—conducting a case study is a sensible selection.
First of all, since IKEA’s establishment in 1943 at a small village in the south of
Sweden, the company has stood the test of time alongside the world’s economy’s ups
and downs in the past few decades and developed into the world’s No. 1 furniture
retailer; secondly, the author plays a role of an observer and analyst during the
research, who has no control or influence on designing IKEA’s marketing; last but not
least, data and facts can be collected from a wider range of sources, therefore, the
findings are more likely to avoid bias and approach reality. Based on the above
understandings, the author conducted a case study, focusing on IKEA Shanghai while
referring to IKEA Malmö in terms of the 4Ps model, tracing culture’s influences on
the company’s marketing decisions in China. Some first-hand information was gained
by the author’s own observations during the fieldwork in both shops. Other evidence
was collected from all kinds of publications, from academic writings to official
websites of IKEA.

The issue of qualitative versus quantitative methods has been a heated topic in
social science for a while. Attempts have been made to bridge the gap between the
two. Kvale (1996) believes qualitative and quantitative methods are tools, and their
utility depends on their power to bear upon the research questions asked. In the case
of this thesis, the whole research process involves the interaction of qualitative and
quantitative approaches. The research question is initiated by a qualitative analysis of
IKEA’s performances in China and the concepts of associating marketing with culture
studies. The following phase of data collection and analysis also sees qualitative and
quantitative methods intermingle. The final conclusion of the research is mainly
qualitative but it does not mean qualitative method is given priority in general. As

5

---

tools, qualitative and quantitative approaches are selected for the purpose of
approaching the reality hidden underneath the research question.

According to Alvesson and Sköldberg (2000), hermeneutics has two main
approaches: objectivist and alethic hermeneutics. The former advocates the part-
whole circle in the process of interpretation whilst the latter supports the
preunderstanding-understanding circle. The debate between the two schools has been
intense, however, the intensity also implies the two approaches are complementary
rather than mutually exclusive…Hermeneutics presupposes a general
preunderstanding as a basic, harmonious unity in the parts of the work, a unity which
expresses itself in every single part: the postulate of the absolute foundation in the
shape of uniform meaning. This hidden, basic precondition will then express itself in
the interpretation, and in our analysis we reach via a circular route that we had
presupposed…namely the harmonious, basic wholeness (ibid). Marketing theories
and cultural studies are both independent disciplines. However, when marketing
strategies are studied from a cultural perspective, the two disciplines are combined
into a bigger theoretical circle of understanding, i.e. how IKEA deals with cultural
differences in terms of marketing strategies. In this way, a general pre-understanding
of marketing and culture respectively develops into a further understanding of
culture’s influences on marketing in international business.

3. Key Theoretical Concepts

As its title indicates, this part of the thesis presents the key theoretical concepts to be
applied in the case study of IKEA Shanghai in Part 4, including theories concerning
marketing and concepts concerning culture. Marketing theories summarized in
Section 3.1 are based on Armstrong and Kotler’s (2006) understanding of marketing
and marketing process and illustrated with IKEA’s global marketing concepts. The
importance of designing a customer centered marketing strategy and the
implementation of such a strategy through the marketing mix (the 4Ps model) are also
discussed. The development of the culture concept and cultural studies depicted in
Section 3.2 explains the feasibility of associating marketing theories with cultural

6

---

studies, which serves as the theoretical foundation for studying IKEA Shanghai’s
marketing performances through a cultural approach.

3.1 Marketing and marketing process

Marketing, among all business functions, is most down-to-earth in terms of dealing
with customers. As ordinary customers, every one of us already knows about
marketing. After all, it is all around us. Many people may be under the impression
that marketing is only selling and advertising, i.e. what we can see. However,
Armstrong and Kotler (2006) argue that selling and advertising is only the tip of the
marketing iceberg. There exists a massive network of people and activities, competing
for customers’ attention and purchases. In today’s marketplace, marketing must be
understood in the new sense of satisfying customer needs. They define marketing as
the process by which companies create value for customers and build strong customer
relationships in order to capture value from customers in return.

On the basis of the above definition, Armstrong and Kotler (ibid) move on to
describe the marketing process in detail and divide it into 5 steps. The first 4 steps
create value for customers and build customer relationships. At first, the company has
to understand the marketplace and customer needs and wants. Therefore, the company
needs to research its customers and the market place in order to collect and manage
marketing information and customer data. The second step, designing a customer-
driven marketing strategy, takes place once the market place and customers are fully
understood. The company will select which customers to serve through market
segmentation and targeting. A value proposition will also be decided through
differentiation and positioning. After deciding on its overall marketing strategy, in the
third step, the company is ready to construct a marketing programme, which
transforms abstract strategies into real value for customers. The programme is also
known as the marketing mix which consists of 4 elements (the 4Ps)—product, price,
place and promotion. The fourth step, which is actually throughout the whole
marketing process, is to build profitable relationships and create customer delight. To
achieve the goal, the company must establish strong relationships with marketing
partners as well.

7

---