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.
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