If your business follows a low price strategy then the power of the price cannot be underestimated, but price is not something that your business can randomly arrive at. At IKEA price has to complement design, functionality and a wide choice. For IKEA the ability to deliver extremely good value for money compared to its competitors is the main reason for IKEA’s success.
There are reasons why the company is able to get this right. One is the courage to not be too greedy on the margin. in this regard, IKEA believes that reducing prices substantially , not just a little will bring rewards.
When new important products are introduced, IKEA usually prices these products at a level of 50 percent below the competition. In these cases, the company’s margins will be very low, because the sales volumes are still unknown. However, the thinking behind this is that as a consequence of low the incredibly low price, competitors will not be able to follow, and sales prices will rise with the consequence of better buying prices that will help drive the margin to the right level.
What is the one thing that you can do today that you have learnt from this post? Comment Below!
Sharky of DentistFind.com says
Interesting, I’ve never heard of this pricing strategy before but sounds good.
Yaseen Dadabhay says
Sharky, It is a good strategy, but not for all businesses and for all situations – because it is based on the premise of low profit margins and high sales volumes, you need to be able to ensure that your business can survive existing on such low margins!
Sharky of DentistFind.com says
It’s a good way to introduce a product then start increasing the price to find out what people are willing to pay and if it is unprofitable then discontinue the product. This is easier for some businesses than others, Ikea would have to produce a huge amount so they need to be sure there is the demand.