Ikea Pricing Strategy
IKEA has cut the prices of nearly 300 products since September 2012. The price of a hot product, Skubb boxes, was cut to 29. 9 yuan from 49 yuan. The president of Ikea China ( retail business ) Jillian said : ” The advantage we have is that we can control all the links in the supply chain, and reduce the cost of each link effectively so that it runs in the entire process from product design to ( shape, material and so on ), select the OEM manufacturer management, logistics design and mall management. ” IKEA claims that ” what we design first is the price tag “, i. e. et price first, then design products by designers. Designs are derived from price In order to keep low price, the designers of IKEA Bong Cup must fully consider the factors such as material, color and design. For instance, cups’ color are painted as green, blue, yellow or white, because these color materials cost less than other colors (such as red ); in order to reduce cost in storage, transportation, and production, designers design Bong Cup as a special cone, because this shape of Bong Cup can make themselves go through machine as quick as possible, which leads to a reduction of cost.
Furthermore, IKEA also change the height and the handle shape of Bong Cup so that they can stack more efficiently, then, as a consequence, can save space in transport, storage, store displays and the space used by the customers in the cupboard at home. IKEA also invented the ” modules ” – style furniture design methods (IKEA’s assembling furniture is split, and products are divided into different modules.
Need essay sample on "Ikea Pricing Strategy" ? We will write a custom essay sample specifically for you for only $12.90/page
Different modules can be produced in different regions in terms of cost; at the same time, some modules can also be used in different furniture), which not only reduce the cost of design, and the total cost of the product can also be reduced. Storage derived from cost In terms of storage and transportation, IKEA use flat packaging to reduce the rate of damaged furniture in storage and transportation process and save storage space ; and more importantly, flat packaging significantly reduce the cost of transportation of the product(Junxiao: like containers), and make it possible to produce around the world with the large – scale layout.
IKEA regards customers as partners. Customers can read the catalog, select furniture and experience by themselves, and delivery at the selected warehouse. Since most of the products use flat packing, it is very convenient for customer to transport by themselves assemble independently. In this way, customers save part of the costs ( delivery, assembly, transport ) and enjoy the low prices ; IKEA save costs, maintaining a low price of the product. Find inspiration of low cost from customers
IKEA found that the greater the amount of products sold, and the more dynamic the production suppliers are to improve the industrialization and the mechanization of the production process. This will form a “direct circulation”. Thus IKEA are going to help suppliers to improve the information system, so that the suppliers can plan their delivery and production by the dynamical data in IKEA mall every day. There is a bedroom set of five named Trysil in IKEA. First of all, retailers research local consumers’ demand in China, and consult the price of competing products in market, then design a competitive sales prices.
Sometimes sales departments of IKEA also need to consult all IKEA stores’ sales records, determine the price in accordance with the ” price matrix ” so as to ensure that a product will sell well, such as 10% lower than market prices. And then, together with suppliers, Research and Development Department, combined with market demand, design products that meet local consumers’ demand, that is, before the design, IKEA has to make sure that the price of this set of five must be able to really knock out all competitors.