A sizeable number of shoppers around the world love IKEA. This is not because of hype or a strong loyalty toward the brand. IKEA sells inexpensive ready-to-assemble furniture items, home improvement accessories, and even appliances and electronics.
The global success of the company, including its pervasive brand recognition and multiple presence, comes from the fact that it sells affordable products with a considerable level of quality. Why exactly is IKEA cheap? How does it keep its prices low?
Why Products From IKEA Are Cheap: From Pricing Strategy To Low-Cost Operations
1. Value Proposition and Penetration Pricing
One of the reasons IKEA is cheap is that the key elements of its marketing mix are a product strategy with a value proposition that centers on affordability and a pricing strategy based on the principles of penetration pricing.
2. Mass Production for Mass Consumption
The company also deliberately designs and sells inexpensive furniture and other homeware products for the mass market. Its business model is based on producing high volume for mass consumption. It is fast-moving consumer goods and fast-fashion companies.
3. The Ready-to-Assemble Nature of Its Products
Another reason how IKEA keeps the prices of its products low is that most of its products are assembled by consumers. This product design philosophy allows the company to save space, thereby allowing it to save costs associated with storage and transportation.
4. Strong Control of Its Entire Value Chain
One of the key strengths of the company is that it has a considerable level of control over its suppliers, outsourced manufacturing facilities, and distribution channels. It ensures that its entire value chain is well-coordinated to avoid unnecessary costs and waste.
5. Production Process and Output Standardization
Standardization of the production process, as well as the orientation of its products, is another reason IKEA is cheap. The company utilizes universal templates for its products. It also uses similar raw materials and parts to make various products.
A Note on Economies of Scale: Understanding Further Why and How Is IKEA Cheap
The reasons mentioned above represent a key IKEA products are affordable: economies of scale. The company has achieved a sizeable scale of production, operations, and distribution to the point that the costs of running its entire business have gone low.
Of course, economies of scale represent cost advantage and cost leadership, as well as a notable competitive advantage. Without its scale, the company would not be able to utilize a penetration pricing strategy and a value proposition centered on affordability.