CASE - Ikea: Design and Pricing
I. Company Background
IKEA started in the 1950’s in Sweden by Ingvar Kampard. He built a showroom on the outskirts of Stockholm where land was cheap and simply displayed supplier’s furniture as it would be in a domestic setting. Increasing sales soon allowed IKEA to start ordering its own self-designed products from local manufacturers. But it was innovation in its operations that dramatically reduced its selling costs. These included the idea of selling furniture as self-assembly flat packs (which reduced production and transport costs) and its ‘showroom–warehouse’ concept which required customers to pick the furniture up themselves from the warehouse (which reduced retailing costs). Both of these operating principles are still the basis of IKEA’s retail operations process today.
II. Case Questions
1. What are IKEA’s competitive priorities?
The top factor is to offer products of good quality at a low price. IKEA’s priority is to keep making offerings less expensive, without making their products cheap. Currently, their prices are 30 to 50 percent below the competition’s. And while their competitor’s product prices increase over time, IKEA’s has reduced theirs. To strike a balance between less expensive and cheap, IKEA implements its strategy in designing, building and distributing its products that passes the taste of customers in terms of price and quality.
2. Describe IKEA’s process for developing new product.
Product Development – at this early stage, product developers of IKEA not only come up with product designs that will capture its market but they also design the new product with its cost, and essentially its selling price, in mind. Along the process of manufacturing the product, the designing is continuous with changes being made to make it more economical to produce, package and transport to stores.
Choose A Manufacturer - IKEA has a complex worldwide network of suppliers and sub-suppliers...
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