Ikea Case

IKEA's competitive priorities are low price and quality. They deliver good quality products at low price and also, they ensure products are functional, modern design, environmentally friendly and manufactured under acceptable working conditions. Its products' prices are at 30 to 50 percent below the competition and while the price of other companies' products tends to rise over time, IKEA has reduced its retail prices by a total of about 20 percent during the last few years.

IKEA's product development process begins with the establishment of a target price for the final product. A sketch bearing in mind the price point the design should hit is then developed. Discussions are ensued with potential suppliers regarding the suitable materials that will allow IKEA to offer the product at a real knock-out price.

Products are designed in collaboration with manufacturer to allow the design of products that can be produced cost effectively. Transportation costs for the product are also considered and those considerations also contribute to the design process. Once the framework has been set for price target, and a manufacturer selected, IKEA's internal designers compete to produce the best design for the final product. A description of the product's price, its function, the materials to be used, and the fabricator's capabilities are developed for the consideration of the designers. Several designs are discussed until the one to be produced is agreed upon and many times products are redesigned to increase efficiency and reduce time & cost.

Once manufactured by different suppliers they are transported using a very well managed logistics and distribution system which ensures fast and timely delivery. IKEA doesn't make use of middlemen but sells its products through its own and uniquely design stores with great emphasis on their low price.