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19 The Global Marketplace

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You’ve now learned the fundamentals of how companies develop competitive marketing strategies to engage customers, create customer value, and build lasting customer relationships. In this chapter, we extend these fundamentals to global marketing. Although we’ve discussed global topics in each previous chapter—it’s difficult to find an area of marketing that doesn’t contain at least some international elements—here we’ll focus on special considerations that companies face when they market their brands globally. Advances in communication, transportation, and digital technologies have made the world a much smaller place. Today, almost every firm, large or small, faces international marketing issues. In this chapter, we will examine six major decisions marketers make in going global.

To start our exploration of global marketing, let’s look at Scandinavian furniture and housewares retailer IKEA. IKEA operates successfully in 51 countries, engaging consumers across vastly different means, languages, and cultures. IKEA follows a highly standardized international operating model designed to create good-quality, functional furniture at low prices that everyday people can afford. However, IKEA has learned that, when it comes to global markets, one size rarely fits all.

IKEA: Just the Right Balance between Global Standardization and Local Adaptation

IKEA, the world’s largest furniture retailer, is the quintessential global cult brand. Last year, more than 771 million shoppers flocked to the Scandinavian retailer’s 368 huge stores in 51 countries, generating revenues of more than $37 billion. That’s an average of about $100 million per store annually, more than double Walmart’s average per-store sales. IKEA is big and getting bigger—its revenues have doubled during the past decade.

IKEA offers a classic model for how to do business in a global environment. Far more than just a big furniture merchant, IKEA has achieved global success by engaging consumers of all nationalities and cultures. From Beijing to Moscow to Middletown, Ohio, customers are drawn to the IKEA lifestyle, one built around trendy but simple and practical furniture at affordable prices. IKEA’s mission worldwide is to “create a better everyday life for the many people . . . by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”

IKEA succeeds globally by striking just the right balance between global standardization and local market adaptation. No matter where in the world you shop at IKEA, you’ll find huge stores, the familiar blue-and-yellow brand logo and signage, large selections of contemporary Scandinavian-design furnishings, and affordable prices. At the same time, IKEA carefully adapts its merchandise assortments, store operations, and marketing to cater to the unique needs of customers in different global markets characterized by vastly different means, languages, and cultures.

Many aspects of IKEA’s strategy are standard worldwide. For starters, all of its products are rooted in Swedish, contemporary design. Its classic, simple designs have a timeless, near-universal appeal. Low prices are another constant in IKEA’s global formula. As a benchmark, every IKEA product is designed to sell for half the price of similar competing products. IKEA keeps its prices low through a relentless focus on cost cutting. Selling largely standardized products worldwide helps keep costs down. So does IKEA’s space-saving “flat pack” approach—selling furniture in pieces to be assembled by customers at home.

IKEA’s stores around the world share a standardized design. All are gigantic. At an average size of 300,000 square feet, the average IKEA store is 50 percent larger than an average Walmart Supercenter. To offset such massive size, IKEA stores everywhere are divided into three main sections: Showrooms display furnishings in real-room settings, the marketplace houses small items, and the warehouse makes it easy for customers to pull their own furniture items in flat-pack boxes and cart them to checkout. At any IKEA in the world, parents can drop off their children in the IKEA Småland play area and feed the entire family in the snack bar or the three-meal-a-day restaurant, making it easy to hang around and shop for hours.

Although IKEA tries to standardize its operations as much as possible, however, it has learned that, in global marketing, one size rarely fits all. IKEA found this out the hard way in the early 1980s when it opened its first U.S. store in Philadelphia and stocked it by importing the same goods it sold in Europe. Americans weren’t much impressed. For example, IKEA carried beds that were too small and too firm for American tastes. Sales suffered, and IKEA considered pulling out of the U.S. market altogether.

Instead, the company made a decision that would become the cornerstone for its expansions into all-new international markets—study the market intensely and adapt accordingly. “The more far away we go from our culture, the more we need to understand, learn, and adapt,” says IKEA’s head of research. Fueled by a better understanding of U.S. consumers, IKEA changed the composition of its mattresses and added king-size beds. After similar changes storewide, sales took off. The United States is now IKEA’s second-largest market behind only Germany.

IKEA now routinely adjusts its product designs and assortments worldwide to meet the distinct needs and tastes of local consumers. For example, although IKEA stores in China carry many of the same items found in other parts of the world, they also heavy up on rice cookers and chopsticks. The Chinese love a good, hard mattress, so IKEA sells mostly firmer ones there. And because the average living space in China’s crowded cities is much smaller than in Europe and the United States, Chinese IKEAs stock smaller appliances and products geared toward saving space and organizing a household.

But there are limits to how much IKEA can adapt product designs and assortments without increasing costs. Says one analyst, “The IKEA model, remember, is volume, volume, volume: It needs vast economies of scale to keep costs low, and that means creating one-size-fits-all solutions as often as possible.” So instead of making wholesale product changes around the globe, IKEA often simply adapts its marketing and merchandising to show locals how IKEA’s standard products fit with their lives and cultures. “IKEA has gotten awfully good at showing how the same product can mesh with different regional habitats,” says the analyst.

For example, showrooms in Japan and the Netherlands may feature the same beds and cabinets, but the Japanese display might show tatami mats while the Dutch room incorporates slanted ceilings. In the United States, those same beds will be covered with decorative pillows. Similarly, the heavily circulated IKEA catalog (more than 217 million printed each year) is customized to show standard IKEA products in localized settings. IKEA publishes 67 versions of the catalog in 32 languages, each one carefully prepared to reflect local tastes and preferences.

Photo shows a huge outdoor signage of IKEA outside a building. The signage carries the name in English and Japanese. — No matter where in the world you shop at IKEA, you’ll find the huge and familiar blue-and-yellow stores and large selections of Scandinavian-design furnishings at affordable prices. At the same time, IKEA carefully adapts its merchandise and marketing to the unique needs of customers in specific global markets.

LIU JIN/Stringer/Getty Images

Beyond adapting designs, assortments, and merchandising, IKEA often adjusts its basic store operations to turn local cultural nuances into competitive advantages. For example, IKEA’s Chinese stores are a big draw for up-and-coming Chinese consumers. But IKEA customers in China want a lot more from its stores then just affordable Scandinavian-designed furniture.

In Chinese, IKEA is known as Yi Jia. Translated, it means “comfortable home,” a concept taken literally by the millions of consumers who visit one of IKEA’s 20 huge Chinese stores each year. “Customers come on family outings, hop into display beds and nap, pose for snapshots with the décor, and hang out for hours to enjoy the air conditioning and free soda refills,” notes one observer. On a typical Saturday afternoon, for example, display beds and other furniture in a huge Chinese IKEA store are occupied, with customers of all ages lounging or even fast asleep. One Chinese IKEA has even hosted several weddings.

Whereas this might be considered as unwanted loitering in the United States or other Western markets, IKEA managers in China encourage such behavior, figuring that familiarity with the store will result in later purchasing when shoppers’ incomes eventually rise to match their aspirations. “Maybe if you’ve been visiting IKEA, eating meatballs, hot dogs, or ice cream for 10 years, then maybe you will consider IKEA when you get yourself a sofa,” says the company’s Asia-Pacific president. In fact, that seems to be the case. Thanks to such cultural understandings coupled with competitively low prices, China is now IKEA’s fastest-growing market. Eight of the world’s 10 biggest IKEA stores are in China. What do Chinese consumers think of Swedish meatballs? “They love them,” says IKEA China’s marketing director.1

Objectives Outline

IN THE PAST, U.S. COMPANIES paid little attention to international trade. If they could pick up some extra sales via exports, that was fine. But the big market was at home, and it teemed with opportunities. The home market was also much safer. Managers did not need to learn other languages, deal with strange and changing currencies, face political and legal uncertainties, or adapt their products to different customer needs and expectations. Today, however, the situation is much different. Organizations of all kinds, from Coca-Cola and Nike to Google, Facebook, and even the NBA, have gone global.

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Table of Contents for 19 The Global Marketplace

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Table of Contents for
19 The Global Marketplace