Introduction to Supply Chain Management

IKEA Design and Pricing

Name: Rwanda Vanessa Phillington

Student ID number: R2206D14662363
Module Name: UU-SCM-1200-MW: Introduction to Supply Chain Management
Module code: 52793
Date: March 26, 2023 

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 TABLE OF CONTENT
Page #

Introduction Product Design and Pricing 3-5

What are IKEA’s competitive priorities?
Describe IKEA’s process for developing a new product
What are additional features of the IKEA concept (beyond its design process)
that contribute to creating exceptional value for the customer?
Conclusion 6
Reference 7

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 Businesses today are constantly introducing new products to meet changing consumer
demands and preferences. Many businesses rely heavily on product design, which varies greatly
depending on industry. The most important standards for product design are those that directly
address client needs. As a result, it's crucial to align the product's design with the preferences of
the intended market. This criterion entails creating the product with minimal production costs in
mind while keeping the attributes the consumer wants. Next, having a low-cost manufacturing
process depends on the product's ability to be manufactured (Osterwalder et al., 2014; Clarkson
et al., 2013). One such company is the Sweden retail firm IKEA.
IKEA is a global retailer firm that controls marketplaces in 38 nations. IKEA offers
pricing for home goods that are typically 30 to 50% less than those of the competition. Their
products are both affordable and of high quality. While the cost of goods from other companies
typically increases over time, IKEA claims that over the previous four years, its retail prices have
decreased by a total of around 20%. IKEA serves as a useful research environment for examining
global pricing and product cycle behavior because it is a significant international player in the
retail of home furnishings and accessories.
One of the primary areas of IKEA's competitive strategy is cost leadership. Because of
their use of economies of scale and the incorporation of technology into numerous processes,
IKEA is able to provide affordable prices to their customers (Baxter & Landry, 2012). IKEA
recognizes that higher volumes equate to lower pricing, and in order to accomplish this goal,
they want to further reduce the prices from where they currently stand. IKEA enters into long-
term agreements with its suppliers. This enables them to take the required steps, such as
investments, to ensure that they have raw material supply for a considerable amount of time
(Morgan & Cooper, 2015). IKEA supports its suppliers financially, which opens up new business
prospects for IKEA and allows it to continue selling a variety of well-designed, reasonably
priced home furnishings that are accessible to a large audience (Chase & Robert, 2018).

What are IKEA's top priorities in the market?

The company bases its competitive advantage on offering low-cost, high-quality goods
that are distinctive and customized. This firm’s objective is to provide products that are less
expensive without ever making consumers feel cheap. Moreover, IKEA manufactures and
designs its products in locations where it can guarantee the lowest cost. The store's layout also

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makes it appear less like a furniture outlet and more like an experiential shop. Due to the
requirement that customers build their own furniture, the business has a competitive edge in
terms of operational efficiency. Customers will therefore have a distinctive and novel experience.
The Swedish multinational conglomerate IKEA sells ready-to-assemble furniture, kitchen
appliances, and home accessories. Several factors, such as brand loyalty, the company's status,
and the products and services, can highlight a company's success. Customers and the company
alike benefit from these success factors.
Describe IKEA’s process for developing a new product.
IKEA's strategy to creating a new product is firstly choosing a price for the new product,
a group of designers, product developers, and buyers later decide on the best strategies for
creating the product, with each member contributing ideas from their specialized area. This
includes identifying the design, colour, and materials to be used and potential suppliers.
Secondly, a manufacturer is chosen who can meet IKEA's price expectations and the company's
operations while also producing the product efficiently. IKEA is deeply involved in the entire
process, as was already acknowledged.
The third step is designing the product, which includes writing a report outlining the
price, material, and function that must be used. Emphasis is placed on creating efficiency in areas
of manufacturing, shipping and storage of the product. The best design, which should have the
best applications, the most cost-effective materials, and good quality in mind, is obtained through
an internal competitive process using the price and the manufacturer as a starting point.
Fourthly, shipping the products requires frugality in order to ensure that the maximum
amount of space is used. The products are designed to trap as little air as possible, allowing for
more items to be shipped efficiently. Some products are even vacuum sealed to keep them as flat
as possible and furniture are disassembled for shipping. Finally, the products will be sold
globally in all branches. IKEA's process includes the DIY culture, which means that each
customer assembles his or her own furniture at home.
• What are additional features of the IKEA concept (beyond its design process) that
contribute to creating exceptional value for the customer?
It seems like IKEA goes above and above to give their consumers the greatest goods at
the lowest cost. The bulk of businesses, in my opinion main goal is how to maximize profit, in
doing so their products can be costly. The majority of merchants may use design to support their

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high costs, but IKEA's designers operate in the exact opposite approach from those businesses.
Instead, design is employed to ensure that their products have the lowest possible cost (Chase &
Robert, 2018). IKEA’s objective is to sell this product at a cost where they can still make money
while also making it incredibly inexpensive. IKEA makes their items more widely available
because their vision is to create a better life for everyone. In addition, IKEA takes pleasure in
giving customers the opportunity to fully experience their products inside of their store locations.
They do not intend to solely market one item. They make their stores dynamic and inviting so
that you can actually linger there for a while. Customers are shown examples of modern spaces
within the store where IKEA furniture can be used, along with examples of how well it utilizes
space. Customers can shop in comfort at their own convenience without staff interference. IKEA
focuses on giving their customers a wide range of selections as well as useful and multipurpose
products.
In an effort to make its products easier to carry, IKEA also tries to modify its products
and as therefore, use the great technique of flattening their packages to save shipping expenses. it
makes the most of the available space inside shipping containers, and are able to ship the large
amount of products. If its products were sent assembled, according to the corporation, the
transport volume would be six times higher.
IKEA has established a code of conduct covering labor conditions and supplier sensitivity
to the environment. This addresses issues including occupational health and safety and prohibits
the use of child labor. Further, IKEA also collaborates closely with outside quality assurance and
auditing firms that make sure the company and its suppliers adhere to the code of conduct.
Something like this is frequently neglected because so many consumers don't consider it while
making purchases, but IKEA has prioritized it for their business, adding value for their clients in
the process.

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CONCLUSION

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 REFERENCE

Baxter, M., & Landry, A. (2012b). IKEA: Product, Pricing, and Pass-Through. RePEc: Research Papers

in Economics, 2012(132). https://doi.org/10.24149/gwp132

Chase, R. B., Robert, R. J. (2018). IKEA: Logistic Study (2011) p, 1-17. Operations and Supply Chain

Management

Morgon, H., & Cooper, B. (2015). IKEA hacking a case study on design, marketing and branding

startegies.

Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). Value proposition design: How to

create products and services customers want. John Wiley & Sons.

Wikipedia contributors. (2023, March 19). IKEA. Wikipedia. https://en.wikipedia.org/wiki/IKEA

Yu, R. (2019). Core Elements of IKEA’s Successful Product Design. Journal of Physics.

https://doi.org/10.1088/1742-6596/1168/3/032118