How Conglomerates Match Methods and Products to Local Markets
When Ikea launched in the United States, the company might have expected an easy rollout. Sweden isn’t very different to America. The income levels are similar, as are the size of the families, the homes, and the lifestyles. The same products that sold well in Europe could be expected to sell well in the US.
But when the company checked its sales data, it noticed one big difference: Americans were buying a lot of vases.
That didn’t add up. There was no sign that Americans were more likely to decorate their homes with flowers than they do in Europe, or place them in more rooms. What could account for this unexpected interest in glass plant-holders?
Ikea conducted more market research. It found that American customers weren’t buying the vases for decoration. They were using them as drinking glasses. A culture that serves a “large Coke” in 32 ounce cups, an amount 150 percent larger than a “large Coke” in Japan, likes to buy water glasses the size of small buckets.
It’s a surprising cultural difference, and one to which Ikea would have had little trouble adapting. (It could simply have moved its vases to its kitchenware department and relabeled them to boost sales even further.) But it does show how even small cultural differences can have big effects that global companies have to bear in mind as they’re expanding into new markets.
That challenge is now more important than ever. At a time when the world has never been more connected, when a marketing team in New York can reach customers in New Delhi, Nanjing, and Nantucket, understanding what people in each of those markets buy—and the messages that can persuade them to buy—is essential.
What companies are looking for is “glocalization,” an ugly term first used by sociologist Roland Robertson in 1980 to describe a mixture of universal and particular characteristics. Brands have to create products and marketing messages that are international enough to appeal anywhere but also specific enough to appeal to unique markets.
They’re doing that by focusing on both the product and on the marketing.
Would You Like Fries with Your Vegetarian McAloo Tikki Burger and Coke?
Few companies have larger global brands than McDonalds and Coca Cola. The golden arches can now be found in more than 36,000 locations in more than 100 countries around the world. And in each those locations, you’ll be able to order a Coke with your meal. In fact, the only countries in the world where you can’t buy a Coke are Cuba and North Korea.
In each of those countries, the Coca Cola will be exactly the same: black, fizzy, and full of sugar. Customers who buy that cup of Americana will be purchasing the same product whether they’re in Kentucky, Kenya or Kazakhstan.
What might change, though, will be the way that the drink is sold. In India, for example, Coke found itself with a particular challenge. It was popular in the cities, but not in the countryside where most of the population lived. The company needed a way to expand out of urban centers and into rural regions where it faced competition from cheap and traditional local refreshments such as lemon water and tea. The company made a small adjustment. It introduced a new, smaller bottle and charged half the price. The product stayed the same but the company’s unique format suited a market with less disposable income and which was used to low-cost drinks.
When McDonalds expanded in India, it found itself with a different problem—and it took a different approach. The company is best known for its beefburgers. But India is at least 40 percent vegetarian… including the family that McDonalds invited to be its local partner in 1994. Amit Jatia, whose company is the sole owner of McDonalds franchises in west and south India, told the BBC that he and his family thought the proposition through carefully, and only accepted when they saw that McDonalds was willing to adapt.
“What convinced us was that McDonald’s was willing to localize,” he said. “They promised that there would be no beef or pork on the menu.”
Jatia worked with McDonalds to produce an entirely new menu. Diners could still get Chicken McNuggets and Filet-O-Fish but Indian McDonalds have no Big Macs or quarterpounders. Instead, customers can order Chicken Maharaja Macs and McSpicy Paneers. Jatia also introduced the Aloo Tikki Burger, a 20-rupee burger made of mashed potatoes, peas, and local spices. The idea was to compete with low-cost Indian street food.
The service is very different to anything that McDonalds customers can find anywhere else and which has been shorn of many of the brand’s key products. The alternative would have been to present a menu that would have put off nearly half the potential market. The result has been rapid growth and a wider mixture of customer demographics than is usually found in other regions that the company serves. While McDonalds in the United States tends to be largely blue collar and family-oriented, the franchises in India also attract young people, IT workers, and even parents arranging matches for their children.
It’s McDonalds, but the products alone make it a very different kind of McDonalds.
The Golden Arches aren’t the only brand that’s reworked its menu as it’s expanded around the world. Starbucks created the Red Bean Green Tea Frappucino when it opened branches in China, and introduced a Teavana Matcha Cruffin. But it also went even further, adjusting its architecture to match local habits. Starbucks branches in the US tend to be places to grab a brew to drink on the hoof. Starbucks recognized that customers in China wanted a place to sit and stay. Spaces are often 40 percent larger than the outlets in the US, and Shanghai has the largest Starbucks in the world. Customers can sit and watch the coffee being roasted, ground, and packed. They can’t hear themselves think as they sip their cups in a two-story working factory but the place is usually packed and they can be seen enjoying a Western-style experience.
Ikea Makes a Manual for Locals
Ikea’s failure to understand how Americans drink their water was surprising because the company always puts a great deal of effort into researching each new market. The brand’s core concept remains the same. The furniture will still be carefully designed. Customers will still have to drag their purchases out of a giant warehouse, drag them on a trolley to the cash desk, and put them together themselves… then take them apart and put them together again correctly. But that core concept is matched to local knowledge.
“Most people don’t really know and can hardly imagine that we visit thousands of homes round every store in the world every year,” IKEA Chief Executive Mikael Ohlsson told Reuters.
“We sit down in the kitchen and talk to them … That’s the way we try to learn and understand. ‘What are you annoyed with? What are your frustrations? What would you like to have? How much can you afford? What are your alternatives?’”
The result of those conversations are changes to the products that rival even the removal of beef from Indian McDonalds. Ikea matches its products to people’s lifestyles and, like Starbucks, it also matches its outlets to the way people use its stores. In China, for example, Ikea’s mattresses are harder than they are in the United States, and the beds smaller. Before the company opened its first store in Korea in 2014, it conducted 900 interviews and home visits, and come up with a unique “super single” bed. The bed is small enough for Koreans’ small bedrooms but larger than an average single.
Even within a country, habits can change, affecting the products the company offers. Most apartments in China have balconies, often closed and accessible from the living room through wall-to-wall sliding doors. But while those balconies are used largely for food storage in northern China, homes in southern China use them as laundry rooms. They put the washing machine there and hang clothes. That affects how Ikea presents its showroom balconies and the products it displays in them. Northern stores will have food racks; southern stores will have clothes baskets.
Like Starbucks, Ikea’s local research also affected how it built its outlets. Ikea shoppers in China are less likely to own cars and more likely to live in giant super-cities. Greater Shanghai alone has more than 20 million inhabitants. A typical Ikea store in Beijing will have 28,000 visitors on a Saturday, about the same number that a European store serves in a good week, according to Reuters.
As a result, Ikea’s stores in China tend to be both much larger than European stores and built closer to their customers. A visitor to an Ikea in Beijing won’t be driving to some large out-of-town warehouse. They’ll be arriving by subway, pushing through crowds, and having their goods delivered.
When It All Goes Wrong… and Comes Back Right
Despite all of that research and the careful localization that follows, global brands do still get things wrong. In America, Ikea didn’t just make its drinking glasses too small. It also put the size of its beds in centimeters instead of describing them as “king” or “queen”-sized. In China, it used the smaller bed sizes common in Hong Kong before adjusting them to the larger sizes on the mainland.
Those small errors were easily fixed and are inevitable when adapting to something as complex and pervasive as culture. In France though, McDonalds made a much larger mistake. The company is used to working with children’s entertainment brands such as Star Wars or Disney characters in order to promote its family meals. In France, it ran a picture of Asterix and his fellow villagers enjoying their victory feast inside a McDonalds restaurant.
But Asterix isn’t just a cartoon character like Donald Duck. The boar-munching, Roman era superhero is also a symbol of Gallic resistance, of France’s indomitable spirit standing up against foreign invasion. CBS compared the sight of him in an American fast food restaurant to the sight of Herman Melville’s Ishmael chowing down an a quarterpound whaleburger. A Beyond burger might have been more appropriate. Albert René, the owner of the rights to Asterix, had to explain that their character worked with McDonalds, not for it, and that the company is not a defender of “bad food.” McDonalds failed to speak to France in a language its customers could understand.
Working in other cultures is always difficult. It always poses challenges and some risks for global brands that fail to understand every aspect of local life and thought. But the benefits are worthwhile and not just for the companies.
Chinese food in the West might have little in common with the food found at a roadside stool in Chengdu or a noodle restaurant in Xian but there’s no doubt that even that localized cuisine has enhanced people’s dining habits. Without a willingness to expand across cultural borders, we wouldn’t have Taiwan’s bubble tea, Vietnam’s Pho, or Japan’s sushi, even with its California roll. Students wouldn’t be able to sleep on futons, Europeans wouldn’t have potatoes, and we wouldn’t have coffee.
Each time a product or a way of selling expands into a new market, it delivers opportunities for conflict, certainly, and more profits for the brand, but also a better lifestyle for customers in that market. It’s a process that requires careful research, understanding, the courage to make mistakes, and the ability to respond quickly to cultural pushback. The benefits though are worth drinking to… in a very big glass.
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