The Proactive Reputation Strategy of IKEA in India
IKEA recently reached a major milestone in its quest for market expansion by opening its first store in Hyderabad, India, with additional retail locations planned. While the company’s global revenue has been steadily growing year-over-year, gaining a strong foothold in the fastest growing economy in 2018 – and the sixth-largest globally – will be crucial for meeting its stated goal of €50 billion in worldwide sales by 2020.
While IKEA has only recently been able to enter the Indian market, it has been playing an active role as a corporate citizen in the country since 1990 – 28 years before their first store opening. As of 2017, the IKEA Foundation has contributed an estimated €175 million to multiple organizations operating in India, with a focus on improving children’s and women’s access to education and healthcare, as well as increased efforts around sustainability and environmental protection throughout the supply chain.
IKEA’s commitment to Corporate Responsibility globally has also been front and center in its India launch. While tackling challenges around affordability and local sourcing mandates, IKEA has taken great care in adapting to local cultural expectations around food offerings, types and sizing of furniture, and in-store customer service with the concept of DIY furniture assembly.
In addition to offering industry-leading parental leave policies to its employees, the introduction of electric delivery rickshaws, fueled by solar power, mirror IKEA’s well-publicized commitment to environmental sustainability.
The fact that IKEA is one of the first businesses in India to have been allowed 100% foreign direct investment in the retail sector, seems a clear tribute to the retailer's long-term vision for entering the Indian market. While no official sales numbers have been reported yet, and despite a few food-related incidents, consumer response has reportedly been overwhelmingly positive.
But has IKEA’s reputation—a longer-term indicator of both future support and a buffer in times of crisis—benefitted similarly? And what does IKEA have to do to continue building and managing its reputation in India, as its expansion efforts continue?
To answer these questions, we used data from the Reputation Institute’s 2018 annual Global RepTrak study, measuring the reputation of the largest and most visible global companies in 15 industrialized countries—including India—among the informed General Public. The following analyses represent the overall reputation and performance of IKEA in early 2018 and thus represents a baseline prior to opening its first store.
How Reputable is IKEA in India?
From a global perspective, IKEA has a strong reputation at 71.4-pts, though at the lower end of the spectrum (70-79.9 = strong), as shown in Figure 1.
Figure 1: IKEA and Global 15 2018 Reputation Scores
Conversely, IKEA’s reputation in India is perceived as average, but at the cusp of being strong and within the margin of error of its global score.
What drivers of Reputation matter most for IKEA India?
While the reputation score measures the emotional connection that respondents have with any given company, the latter is heavily influenced by the rational evaluation of how that company is performing on seven different content areas, what we call reputation dimensions. Our Reptrak Model also allows us to evaluate each dimension’s relative importance in driving reputation within a given industry, enabling businesses to develop the most effective and targeted reputation-building strategies.
Figure 2 shows the seven dimensions of reputation for global retailers and their relative importance in driving overall reputation, both in India specifically as well as for the 15 most highly-ranked industrialized countries on average.
Figure 2: 2018 Global Retail Reputation Dimension Weights – India vs. Global 15
Our findings show several key differences when it comes to the relative importance of reputation dimensions. While performance on Products/Services (quality, affordability) and Governance (ethical behavior, transparency, and fairness) are critical for IKEA in India and globally, Financial Performance (profitability, prospect for growth) and Innovation (first-to-market, innovation, adaptability) carry a much higher weight in India.
It is also notable that even for commonly shared top content drivers of reputation, Governance plays a bigger role in India (16.9% vs. 14.9%), while product-related performance is less critical (15.7% vs. 20.2%).
As IKEA, or any other global retailer, considers entering the Indian market or expanding its presence, its reputation-building efforts will be best served by focusing on these key four dimensions: Products/Services, Governance, Financial Performance, Innovation.
Does this mean that IKEA’s societal contributions in India – i.e. Citizenship performance – are unimportant? Despite having a lower overall weight of 12.9%, further analyses of attributes making up this dimension reveal that “having a positive influence on society” is the third most important single attribute in driving overall reputation. The latter thus continues to play a vital role as a component of corporate responsibility efforts.
How does the General Public perceive IKEA’s performance on the seven dimensions of reputation? Figure 3 shows both reputation dimension weights as well as IKEA’s performance score.
Figure 3: 2018 India Global Retail Reputation Dimension Weights and IKEA Performance
IKEA’s perceived performance is very consistent across all dimensions and rates as solidly average. One of the reasons why IKEA does not perform better is because 40% of all respondents do not know or are unsure about the company’s performance on the seven dimensions. It is a fair assumption that this number will go down as consumers get a first-hand experience of shopping at the retailer, word-of-mouth, and increased local media coverage.
As the company’s popularity grows in India, IKEA will need to focus on the right content areas and shape its messaging accordingly. Incidentally, those respondents who say that they are very familiar with IKEA give the company a very strong reputation score of 77.3. The second observation is that the emotional attachment that the General Public has with IKEA is significantly higher than the perceived performance on reputation dimensions. This suggests that the company may still benefit from an initial “honeymoon phase,” where existing and prospective customers give it the benefit of the doubt in case of early growing pains or missteps. At the same time, IKEA needs to back up the initial positive sentiment that they have earned via their historical contributions and presence in India, so as to avoid reputation risk.
IKEA's India Experience - Lessons Learned
As companies consider expanding their global footprint or entering new markets, IKEA’s reputation journey allows us to identify both promising reputation-building strategies for the Swedish multi-national furniture giant, as well as broader conclusions for existing or aspiring global players:
- Your global reputation precedes you. News travels fast. Social media is ubiquitous. Your home country reputation, as well as that in other economies you operate in has a direct spill-over effect on countries you may consider expanding into next. An existing, and consistently strong international reputation, as is predominantly the case for IKEA, will greatly facilitate success in new markets and increase local willingness to welcome you as a foreign company—both by consumers and regulators.
- Be proactive by laying down a strong reputational foundation. IKEA’s proactive local engagement has not only given the company a significant advantage in getting a license to operate in India but has created a foundation of trust among the general population, as reflected in a nearly strong reputation score. What is impressive, is that IKEA was able to create this reputational equity without having opened a single local retail location. Instead, the company focused on making significant, meaningful contributions to local communities.
- Understand what drives your reputation locally. Our analyses highlight that a keen understanding of what drives your reputation locally, and within your specific industry, is crucial in both building and managing your reputation. In the case of IKEA, our results show that the company needs to continue focusing on:
(a) offering quality products at an affordable price
(b) developing innovative solutions to cater to the local furniture market and customer needs, including expanded online offerings
(c) showcasing ethical and transparent operations, including supply chain processes and suppression of child labor
(d) a long-term commitment to investing in local economies
(e) an unwavering commitment to making a difference in Indian society and especially underserved communities/groups
- Communicate what you do to drive familiarity. Focusing on the right initiatives will only be of limited value unless your key stakeholders are aware of what you are doing and what you represent. Despite IKEA’s long-standing presence in India, much work still needs to be done to create familiarity with its activities, It t is hard to gain local trust as a foreign company and reputational equity can quickly erode if repeatedly challenged. IKEA might be best served by leveraging the voice of their CEO to sustain the goodwill the company has already created.
So, will IKEA’s reputational groundwork pay off in the long-term? A key to this question will no doubt lie in the company’s ability to deliver on its promises to the Indian consumer and keep a finger on its reputational pulse.
Sven Klingemann, Ph.D.
Global Research Manager