Question

Based on article below, Which distribution channel structure was adopted by IKEA in Russia? Please provide evidence to support your answer.

(word limit: 250)

IKEA is a leading home furnishing company with around 340 stores in 40 countries, selling a range of some 10’000 articles and having more than 150’000 employees. The company was founded in 1943 by Ingvar Kamprad in Småland, a province in Southern Sweden where people are renowned for working hard, being thrifty and innovative, and achieving big results with small means. Today, the IKEA group is controlled by a private foundation and the company is thus not on the stock market. Ingvar Komprad’s innovative idea was to offer home furnishing products of good function and design at prices much lower than competitors by using simple cost-cutting solutions that did not affect the quality of products. This is a prominent philosophy at IKEA, which is now realizing its ambitious plans in Russia. IKEA opened its first store in Moscow, Khimki, in March 2000, followed by one more in Moscow in 2001, one in St Petersburg in 2003, and one in Kazan in March 2004. In 2012, IKEA had 14 stores in Russia and some of them in distant places such as Novosibirsk (2007) and the newest ones in Ufa (2011) and Samara (2012). All Russian operations are controlled as fully owned ventures by the IKEA group. IKEA is characterized by a strong brand based on its vision to create a better everyday life for many people. A set of explicit values is linked to the vision and plays a guiding principle in the strategy development. The values are the foundation of a culture called internally the ‘IKEA Way’, which is an expression of lKEA's history, the product range, the distribution system, the management style, the human resource idea, etc. Brand and cultural values coincide and affect the strategy, organizational processes product development and customer relationship. Thus the key value of cost-consciousness that lies at the heart of IKEA's flat-package concept dictates the necessity of global sourcing, define the customer relationship where 'IKEA does a half and customers do a half' and guides the product design, choice of material and logistics. The value of simplicity is reflected in the fast planning process, behaviours and routine governed by common sense, straightforward relationships with suppliers and customer as well as in the product development process. By linking vision and values, IKEA thus create a firm platform for entering a new market. In each new market lKEA enters it must recreate its company culture from scratch. In Moscow that included the replication of the store design and layout in accordance with the latest version of the existing store and extensive cultural education that was implemented by the team of experienced IKEA people. It was the overall company vision that guided the desire to establish business in Russia; most particularly, the impression that few companies in Russia focused on solving the needs of the many people by offering attractive products at reasonable prices. However, knowledge of the Russian market when IKEA initially decided to open its first store in Moscow was very scarce. No special market research was carried out before setting up the store. IKEA’s basic strategy is to neither adjust the style of products to local needs nor follow the competitors’ products development was central as the cornerstone in preserving the IKEA concept and image: ‘The range is supposed to be IKEA – unique and typical IKEA’. All products are divided into four major categories or styles – Scandinavian, Country, Modern, and Young Swede – which are clearly distinguished in all business areas across the store. One of the reasons why IKEA was successful with its standard product ranges in Russia was the fact that several of these IKEA ranges emphasis the modern style, which is very different from the traditional Russian style but is attractive and fresh for the Russian customers because it symbolizes change. An important factor in the market approach was to identify needs that are not fully recognized and to teach customers what IKEA is about. IKEA's retail proposition is based to a large extent on its Swedish roots and history, which is, in turn, very different from Russian traditions. Therefore, learning as much as possible about the local culture and customer needs was considered essential. For example, lKEA made home visits to customers to talk to people, see how they lived and used their homes and to identify potential needs and wants not fully acknowledged by customer themselves. Understanding local family conditions and furnishing traditions then provided a basis for the effective introduction and marketing of the IKEA concept. As exemplified by a store manager, the main priority for Russians is normal living costs; then comes the car and TV; and afterwards maybe a trip abroad. The idea of changing people's priorities by explaining to them that a beautiful home does not have to cost a fortune and they can afford both the wardrobe and a trip abroad is an essential leitmotif of the marketing campaigns in Russia. The importance of aligning the IKEA concept with the desired image was critical from the very beginning. The intention was to build an image with a low price brand that also guaranteed attractive and modern products of good quality. To achieve this, IKEA has faced many challenges such as: high customs fees; the requirement to purchase more from the local producers; difficulties in finding and developing suppliers in Russia; still low buying-power of Russian customers etc. For IKEA, it was critical to associate the low price with the desired significance. An increased capacity and bigger volumes by the Russian suppliers will allow the company to cut costs and reduce prices in Russia as well as to export the Russian made furniture to its other markets. As a matter of fact, IKEA prices are still very high for many ordinary Russians. For example, even in St Petersburg, the second-largest city, shopping power is, according to different estimate, 30 to 50 per cent lower than in Moscow, where an average purchase value equals that in Stockholm. But for Russian customers low price was very strongly related to unattractive products of poor quality, and one challenge has been to overcome this and explain how it is possible to offer good product at low prices. Therefore, it has also been an ambition to provide the Russian market with the best and most attractive IKEA products. Marketing communications became an important tool in creating the right image of IKEA in Russia. The ways to communicate the image were many: the outdoor product ads (price), image ads in the glossy magazine, TV (though IKEA has used this very restrictively due to high cost), and articles in the newspapers (press coverage has become very broad and quite positive towards the IKEA culture and philosophy). Another very important communication means in Russia is the buzz network or word-of mouth communication that works very effectively. In addition, IKEA had an open and friendly approach towards Russian journalists. This was in sharp contrast to most other large organizations. IKEA was completely open to the journalists and introduced them to the IKEA way and values by organizing press trips to Älmhult in Sweden to learn how the range is created. The result was that the press coverage of IKEA in Russia became much more positive. In the spring of 2009 IKEA thus had 11 stores operating in Russia. Most of these locations were mega mall shopping complex operated by IKEA. The shopping complex at the Tyoplyi Stan site in Moscow for example accommodate around 210,000 square meters of retail space and 240 retail outlets. The mega malls were treated as a separate business, and were an addition to IKEA's core concept. Normally, IKEA does not manage or develop shopping centres but this was considered necessary in Russia due to its lack of an existing structure of large branded stores and external as well as central shopping centres of a Western kind. Previously, many Russians have shopped for furniture as well as other products in outdoor markets or at smaller, local stores. From IKEA’s perspective developing a whole mega mall was part of attracting Russian customers to the stores. As a whole, IKEA has made substantial investments in Russia, and turnover is increasing rapidly. However, a major principle has been that monetary returns are needed to back up further expansion: ‘As soon as we make a profit, I can see at least ten years ahead when we will need all the money that is generated in Russia. So, the day when we will start to take out profit from Russia and use it in other countries is perhaps 15 years away'.

Answer 1

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[Q] Which distribution channel structure was adopted by IKEA in Russia?

The Swedish superstore IKEA is an all-inclusive perceived brand for its moderate home decorations and furnishings property. Here, the distribution channel structure that was adopted by IKEA in Russia is Retailer to Customer. The aim was to fabricate a picture with a low-value brand that likewise ensured appealing and current results of good quality.

Retailer to Customer Distribution Channel Structure:

[a.] This impact can be seen between both IKEA's exposure endeavors and the responsiveness of the Russian people to the IKEA brand. In that capacity, the organization stores, and megamalls all sit at the convergence of social and political subjects in contemporary Russia. To accomplish this, IKEA has confronted numerous difficulties, for example, the prerequisite to buy more from the local makers, high traditions expenses, challenges in finding and creating providers in Russia, and so on.

[b.] IKEA along these lines has 11 stores working in Russia. A large portion of these areas was worked by IKEA. For instance, the shopping complex at the Tyoplyi Stan site in Moscow, oblige around 210,000 square meters of retail space and 240 retail outlets.

[c.] IKEA considers retail outlet low-stream range for bigger areas while the high-stream range can be put away in focuses that near the pertinent market. Simultaneously, it alludes to the method for direct delivery to decrease transportation costs. Overall, IKEA has made significant interests in Russia, and turnover is expanding quickly.

[d.] With IKEA at their heart, megamalls are upheld by prominent, advertise driving stays that have the impact of marking IKEA as the main image. In the words, the retailer has become such a symbol of Russia's success called the Ikea Generation.

REFERENCE

Athena, “Marketing Strategy in Distribution and Logistics – IKEA,” 2016.