IKEA’s value proposition in the US retail furniture is essentially one of “Low price furniture with a Meaning”. The company offers higher-quality, customer specific furniture at low end prices while maintaining a professional and high quality atmosphere within their stores. Additionally, IKEA has managed to cut costs by partnering with manufacturers and designers to provide low-cost, quality furniture, as well as utilizing the customers themselves by creating an atmosphere conducive to letting the customer ‘do it themselves’. Customers find the items they need, determine what would fit and look best on their own, and even assemble their own purchases. To contrast this, low-end retailers typically have low prices but the tradeoff is that the environments of those stores are dingy and poorly managed, the customer service experience is bad or nonexistent, and the furniture selection is generally dull or unattractive. On the other hand, high-end retailers had excellent sales consultant and a high quality furniture selection but all of these costs were inevitably passed along to the consumer.
One factor of IKEA’s success is their ability to maintain low prices by utilizing cheaper wood wherever they could, the fact that the company’s furniture was designed to ship disassembled (flat-packaged boxes) which keeps shipping, storage, and labor costs down, and creating a store environment that allows the customer to ‘do it themselves’.
Another factor of IKEA’s success is that they modify their product designs and costs to best fit whatever market they are targeting utilizing a council of senior managers and a tool known as ‘the matrix’. IKEA’s ‘globe-trotting’ council members survey markets to determine the priorities for IKEA’s product lineup. Once this is done, the developer sets the product’s target retail price using “the matrix”, which allows the company to establish a benchmark price and then set its own price point 30%-50% lower than its...