Good-Value Pricing Strategy for Ikea - Case Study Example

The value is foremost focused on the customers. Ikea has an idealistic notion of its business, where it emphasizes customer needs and budget as its way of life. Its organizational culture and production approach concentrate on delivering value that has meaning for customers because it is a value that they can afford and it results in products that have practical essence to their lives.

Aside from customer-centered pricing, Ikea produces value for its shareholders through its pricing strategy. Rydberg-Dumont explains that Ikea starts with the price tag and designs products from there. She says: “We design the price tag first”. The target price is aligned with market needs so that the products will have sure buyers. The pricing strategy allows Ikea to focus on manufacturing products that have high quality and that are constantly evolving according to changing customer needs and lifestyles. Ikea serves value to its shareholders by ensuring that it makes products that not only customers can afford, but can provide profit for the company. Ikea carefully balances the target price by aligning market needs and lifestyles and production costs, so that the company makes a profit that can enable it to continue and expand its business.

Ikea’s promise of value permeates all products, including the Klippan sofa. Rydberg-Dumont describes the strengths of the Klippan sofa where it balances price and quality. She says that the slip sofa is her favorite Ikea product because it has a slip cover that people can take off and wash. People can buy slipcovers with different designs and colors. This makes the product convenient to maintain. Furthermore, the Klippan sofa can retain its “modern” appeal throughout time. Different designs make the sofa look new and exciting. In addition, Rydberg-Dumont stresses that Ikea even improved the quality of the sofa over time. She explains that the company built it from the inside. Innovation in Ikea’s manufacturing process continues, which enhances the excitement factor for the sofa. Finally, the sofa represents the value-and-price offering of the company. Ikea has lowered the cost of the Klippan sofa by making it smarter and smarter over time. By “smarter”, she means that it is now a self-assembly sofa. It is the ultimate IKEA product because it can be transported easily and assembled effortlessly at home and it has good quality for a low price. Hence, the Klippan sofa manifests the promise of value of Ikea through being an innovative, good quality, low-cost product.

Aside from discussing the example of the Klippan sofa, Ikea is described as pursuing a value-based pricing approach, specifically good-value pricing, instead of a cost pricing approach that some manufacturing companies follow. Ikea follows good-value pricing because it combines quality and fair prices that customers determine. Like the example of the Klippan sofa, Ikea starts with a product’s target price that is based on customers’ needs and lifestyles. Rydberg-Dumont describes that Ikea sells products that have “good function” at low prices, with the fundamental aim of serving people who care about value. She says: “It’s for all the people”. The value comes from starting with people’s perceptions and lifestyles. An Ikea employee talks about developing an “exciting and special home furnishing offer”. She says that the company’s home products are designed for the Swedish lifestyle or the customers’ lifestyles. The employee understands that the value of Ikea products comes from the positioning that they are cost-efficient, yet of good quality. Rydberg-Dumont underlines that the company spends a great deal of effort in positioning the Ikea brand as a combination of quality and low prices. She illustrates that the company invests in innovation and cost efficiency so that quality is not sacrificed for lower prices. Instead of focusing on minimizing production costs, which the cost pricing strategy is all about, Ikea emphasizes attaining value for consumers.

Ikea pursues good-value pricing because it balances value and low-cost pricing. It does more than sell inexpensive furniture because it goes through the arduous process of determining and responding to changing consumer lifestyles. It aims for innovative products that can be sold for low prices because they can be easily assembled and maintained by consumers. As a result, Ikea products are generally seen as low-cost, but not “cheap”. Ikea stands for “good value” that its customers appreciate, and so Ikea attains its mission of contributing to better lives for many people.