IKEA CASE STUDY

IKEA Case Study



IKEA Case Study

Introduction

IKEA products are known for its modern-day and practical design. The furniture is designed to be easily assembled by the consumer rather than being sold pre-assembled. This method allows IKEA to reduce costs because it is cheaper to ship an item that is unassembled and takes up less space. The flat-pack distribution method also allows a consumer to easily transport the product from the store to a customer's home for assembly. IKEA's approach to manufacturing and designing their products is what makes their products unique. The company uses particle board which is engineered wood particles such as wood chips that is pressed together to form a large piece of medium-density hardboard. Particle board is cheaper and lighter than regular wood which cuts costs even more on manufacturing and shipping.

Product Life Cycle

IKEA is currently experiencing the introduction stage of the product life cycle. The products are still in the process of being introduced in the market in the United States. With only 29 IKEA stores in the United States, Germany holds the biggest market with 41 stores (Bartol and Martin, 1993). It is predicted that IKEA will ease into the growth product life cycle which will steadily rise little by little until it reaches the maturity stage. The IKEA product life cycle will ultimately decline gradually due to competition.

Price Strategy

IKEA differs from any other furniture companies in that IKEA has a very unique strategy of pricing their products. Most manufacturers design a product and then try to price the product so that it will sell and profit but at IKEA, the price comes first. The price is set by the product developer who first identifies an existing problem that can be solved by IKEA's product (Clutterbuck, Clark and Armistead, 1993). For example, if the product developer notices that there is a need for an inexpensive kitchen unit suitable for studio apartments or offices, he or she would survey and aim for a price 30 to 50 percent lower than competitors. After the price being born, the product developer would then work within the budget to create an affordable and complete with cabinets, sink, stove and refrigerator kitchen for $650. This strategy of pricing makes products very inexpensive to make and sell

As well known, the price that IKEA charged on the products is the comparatively lower than other furniture retailers in Australia. The price is much lower than FREEDOM, its biggest competitor. The price of working chairs is around $100-$300 and the price of computer tables is around $100-$500. If the customer find a lower price at other retailer within 30days on an item which bought at IKEA, they will give refund plus free meal in IKEA restaurant. This make customer buy with confidence at IKEA get lowest price (Jones, 1996).

Place

Place is about the marketing channel and distribution used of obtaining products. In Australia, IKEA has located its stores in Sydney, Melbourne, Brisbane and Perth. There two stores in ...