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T h e Swedish retailer dominates markets in 32 countries, and now it’s poised to conquer North America. Its battle plan: Keep making its offerings less expensive, without making them cheap.
Above all else, one factor accounts for IKEA’s success: good quality at a low price. IKEA sells household items that are cheap but not cheapo, at prices that typically run 30 to 50 percent below the competition’s. While the price of other companies’ products tends to rise over time, IKEA says it has reduced its retail prices by a total of about 20 percent during the past four years. At IKEA the process of driving down costs starts the moment a new item is conceived and continues relentlessly throughout its production run. The price of a basic Poang chair, for example, has fallen from $149 in 2000 to $99 in 2001 to $79 today. IKEA expects the most recent price cut to increase Poang sales by 30 to 50 percent.
IKEA’s corporate mantra is “Low price with meaning.” The goal is to make things less expensive without ever making customers feel cheap. Striking that balance demands a special kind of design, manufacturing, and distribution expertise. But IKEA pulls it off in its own distinctive way: tastefully, methodically, even cheerfully, and yet somehow differently than any other company anywhere. Here’s a stepby-step guide to how IKEA designs, builds, and distributes the items that the entire world wants to buy.
The TrofS mug is one of the most popular IKEA products. The story of the mug is an example of how IKEA works, from a co- worker’s bright idea through to production and sales. It is also a story about all the demands that we and our customers place on IKEA. A low price tag is the obvious one, but other requirements include function, modem design, environmental considerations, and making sure products have been manufactured under acceptable working conditions. Both
customers and co-workers must be able to rely on IKEA.
had to take into account materials, colors, and design. For example, the mug is made in green, blue, yellow, or white as these pigments cost less than other shades, such as red.
STEP 2. CHOOSE A MANUFACTURER
Suppliers and Purchasing—The task of developing products never ends. Working with suppliers, the mug was shortened and the handle changed so it stacks more efficiently, saving space for transport, warehousing, and store display—and, not least, in the customers’ cupboards at home. IKEA is always keen to banish as much air as possible from its packaging. Packages should preferably be flat for efficient transport and storage.
One supplier, a factory in Romania, has worked with IKEA for 15 years. Long-term relationships help both parties to build up a huge fund of knowledge about demands and expectations. That is why products are often developed in close cooperation with suppliers. In the case of Troft, for example, the new size has rationalized production by making better use of the space in the kiln during the firing process. That’s costeffective and saves time. IKEA has introduced a code of conduct governing working conditions and environmental awareness among suppliers. This deals with matters such as health and safety in the workplace and forbids the use of child labor. The practical work of implementing this code of conduct is carried out by co-workers in IKEA Trading Service Offices worldwide. Many suppliers already meet the demands; others are working together with IKEA to carry out the necessary improvements. IKEA also works closely with external quality control and audit companies who check that IKEA and its suppliers live up to the requirements of the code of conduct.
The low price tag is crucial to the vision IKEA has of creating a better everyday life for many people. That is why IKEA works nonstop to reduce costs. But it’s also a question of saving raw materials and, ultimately, the environment. The low-cost...
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