Optimizing for Indian Customer Mindset - Part 2

In the last article, we spoke about Location, Store Layout and Visual Merchandising in context of 宜家 's Bangalore store. If you have not read Part 1 here is the link.

https://www.dhirubhai.net/posts/jibran-sait_an-article-to-foster-creative-thinking-and-activity-7231643059019522048-zKgW?utm_source=share&utm_medium=member_desktop

It would make more sense to read part 1 before moving to part 2.

This part is dedicated to the major pillars of a retail business Assortment and Pricing.

Assortment & Pricing

IKEA's décor items are simply unmatched, they seem to be priced reasonably as well when compared to its competitors in India such as Homecenter. However their core merchandise i.e furniture, not so much due to pricing and value, IKEA very well understands this and that's why their 90% of advertisements in India has been on price reductions and discounted promotions.

Pros:-

• IKEA has inspirational décor and lighting assortments, their outdoor category is also great, rugs are also fancy. The pricing is a mix, for some you feel its a bargain and others are simply over priced, that's how the balance is met, but over all the average works out.
• The furniture designs are modern and the color tone will simply blend in any contemporary decorative styled homes.

Cons:-

• The pricing is not Indian market friendly. i.e - During my first visit last year, I saw a rug that mimicked sheep wool of dimensions 55x85cms, each unit was priced around 7000/- inr which obviously I skipped. This time they were priced at 999/- and I bought them. (Note, this was not discounted price, they simply revised the price obviously after seeing the trend). Similarly, the furniture pricing is also steep and does not match the product quality as compared to their competitors. i.e If you are looking for a set, they do not have a "set" however, they have same colors for 2 or 3 seater sofa and a single seater. Thats what I did last time, I bought a sofa with lounge and bed and 2 matching single seaters. Now if you do the math, each single seater was about 20K and the sofa itself about 70K so just to make a set you need to spend about a lakh or more. Same thing with dining set, the table is of different cost and each chair is 60% to 70% of the table's cost. So there is no "Set" you have to buy the lego pieces and make a set which increases the cost significantly.
• Speaking of assortment and pricing, the shoppers always compare, so in my recent visit I had an older gentleman murmur to me, as we were in the same room, browsing the assortments. There was a single bamboo look alike chair but actually made of plastic, priced around 11k to 12k. Well if you are a baby boomer or Gen X, Y, Z, I am sure you might have either grown around these classic bamboo furniture sets or at least seen it in Indian restaurants. He murmured annoyingly, translating - "For this price, I will get a whole bamboo furniture set, that is 2 chairs and a glass bamboo table". Now what did this do to me, him and others around, it creeps in a feeling that everything around here is over priced. Now the shoppers get even more critical and starts to look at every detail before deciding to complete the rest of their shopping list. Also there are too many decoys, instead of helping the customer to move on to the next expensive product, due to the nature of comparison, the customer ends up abandoning that category and prefers to buy local.

Potential Solutions:-

This is a difficult one and may not be relevant, unless we know IKEA's vision and brand positioning (i.e we only would like to sell to first segment of customers). If the vision is to gain market share and increase the bottom line in Indian market, then perhaps some of the below ideas can spark the initiation of lengthy market insights, white boarding and ideation sessions, partnerships and acquisitions and marketing and repositioning to achieve the same.

Lets understand their competitors first, not as per market research but as per customers. My observations are based on the conversation that I had with shoppers there during my and their 5 to 6 hours of IKEA tour and also my family and elder's opinion on my IKEA shopped furniture.

Well there are 2 kinds of customers and maybe IKEA doesn't target the other for furniture at least or rather cannot, not with this assortment and pricing.

The first kind is us the young crowd who lives a fast life, we either have our business or our jobs, we do not have much time so we value everything that is quick, fast food, fast service and everything functional. IKEA's furniture is also very functional, takes less space, blend with our modern flats.

Then comes the second kind, like my dad and other elders of my family, their friends, colleagues, who pause and relish everything, gosh I am jealous of and inspired by them. They live in much much bigger homes, much bigger, that what they call a house (not bungalow, not villa, not mansion) just a house is at least 2 to 3x bigger than what today's real-estate folks have criminally diluted and called a "Modern Row Housed Villa". They prefer and I would like to quote "The Real Furniture" the bulky ones which are made of real wood and metal and not OSBs or Saw Dust which we call as "Engineered Wood" with plastic handles and pegs.

So the real competitors of IKEA in the eyes of the 2nd kind of customers are the Domestic Furniture Shops, I am not talking about other brands such as Pepperfry, Ferlenco etc and not even those show rooms in and around Horamavu and other places that still sell engineered wood furniture. These are skilled workforce, who have their individual shops, mills, workshops and no brand as such, but are still well known to the older generations and thus seldom need any marketing (though they can benefit a lot from marketing).

Now what's the value that these folks provide that IKEA and other are unable to and thus are not able to win the market share.

1. Quality - They use real wood, thus the quality is significantly improved, these furniture's can be thrown around without the fear of losing a leg or arm and are also very easily repairable.
2. Customization - Since these are mostly Made to Order(MTO) or Specials Order Sales(SOS) they are completely customizable, 1 seater to 20, colors, materials, patterns, designs you name it. A flexibility that is not available with IKEA and others and you are forced to choose from the 3 colors and 2 patterns they have.
3. Pricing - Of Couse these folks do not have to pay lease, rent, upkeep of a chain of 200K to 500K format stores, pay customs and import duties, manage a large workforce, spend millions and billions on R&D. Marketing, Payroll etc, thus these folks are able to offer such competitive prices that the 2nd kind of customers feel value for money due to the price and all of the above and below points mentioned.
4. Value - They are digitizing as well, they have their intake through whats app business account now and list their catalog and pricing, they provide freebies and free delivery if you hit a certain amount unlike IKEA, this is further discussed under Store Operations and Delivery Service section.

The concept of these Domestic Woodworks may not be very common in the west but in India they dominate, also they are not traditional anymore, they produce furniture just like any other designer brands today. So they cater to both, traditional and modern design for a fraction of the price. They majorly sell in sets unlike IKEA so if you compare the customer value chain, the answer is obvious.

When my family saw my furniture and price, they were ok, said it definitely is functional and good looking, but they were not motivated to renovate their hall with IKEA furniture.

They got 3 large sets for the same price locally, 2 sets each comprising of 3 seater Sofa, 1 dewaan and 2 single seater Sofa. And one dining table set with 6 chairs for about the same price that I payed. I must say, the quality and looks truly creates a royal feel, the wood work, the crating is magical. The got free delivery, their employees set the hall as they were requested and BTW the Dewaan was a freebie cause a certain bill amount was met.

I will continue to shop at IKEA until I move into a large bungalow cause atleast as per me, I do not have the time to customize the furniture, have those conversations and go out and meet these folks, its just too time consuming for 1 set. Makes sense if its a bulk purchase. But if my spouse or anyone else will help out I do not mind saving 50% or more on my actual spend in IKEA.

Recommendations:-

If I lead IKEA, I would possible look for alternatives (mentioned below) to capture the Indian market and its worth a try. The customer base of the fist kind who would prefer to shop at IKEA for furniture would be around 3 to 4% of the Indian population the early Corporate Class (Ofcouse the 2nd kind also shops at IKEA, but not the core core assortment and that is furniture, they shop other items), so there is a huge opportunity to gain market share with others, so here is what I would do.

• The costs must be high due to imports as most of these are designed and manufactured outside, so apart from the manufacturing cost, you have the imports, customs, shipping and storage costs as well. Along with the current model, its ideal to look for local manufacturing or white labeling by partnering with these skilled workers, they are a great craftsmen like any other. This way I can avoid all the additional cost, introduce real wood and metal furniture to our assortment list, introduce the flexibility of customization, thus catering to both the kind of customers and significantly grow market share in India.
• Get rid off too many decoys. Decoys are must have as part of VM strategy, but too much of anything is not good.
• Conduct product matching analysis, interms of pattern, material and especially cost i.e - What IKEA has vs what the competitors are providing and then try to provide the same value or more for a competitive price. For those products where this is not possible, its better not to have on catalogue, because it will affirm customer's perception of prices for same or inferior products been high in IKEA and thus must be the case with every single assortment.

Let me know what are your observations in terms of assortment and pricing and what would you do to attract more of the 2nd kind of customers to grow market share.

More to come in last Part 3.

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