Introduction

IKEA, home furnishings retailer that was the world’s largest seller of furniture in the early
21st century is operating more than 400 stores around the world. IKEA specializes in low-
priced goods, sold whenever possible in compact “flat-pack” form for in-home assembly by
the customer. IKEA was founded (1943) in Sweden and still flaunts its origins store
exteriors are decorated in the colours of the Swedish flag (blue and yellow), in-store
restaurants serve Swedish food, and the company’s products carry Swedish names but its
headquarters are now in the Netherlands.
Management Accounting In IKEA IKEA’s vision is to create a better everyday life for
many people by offering functional and well-designed home furnishing products at low
prices. In order to achieve and retain low prices it is critical to monitor the product cost
development. By doing this it is also possible to lower the prices relative to the general price
trend. IKEA have an apparent cost consciousness throughout the whole organization and
puts efforts in offering high value
for low prices. By doing so they
will also achieve a financial
stability, which allows IKEA to
develop and grow in a long-term
view. To monitor and lower costs it
is necessary to have knowledge of
what drives costs in a specific
product. IKEA have an appliances
range included as a part of their
kitchen range of products that they offer their customer. The kitchen appliances are
considered as of high commercial importance for IKEA. A solid knowledge of the cost
drivers is central for IKEA’s understanding and professional behaviour towards the
appliances industry.

Cost Efficiency
Cost efficiency is the act of saving money by changing a product or process to work in a
better way. This is done to improve the organization's bottom line by decreasing
procurement costs and improving efficiencies across the board.

 Bulk Production: One of the big costs that a furniture company must contend with is
the cost of production, the labor and machinery involved do not come cheaply. IKEA
keeps its prices to consumers low by producing many of the components in bulk.

 Reverse Design Process: IKEA first decides on the price range for a particular product
before starting to design the same.
 Unique construction Technique: IKEA uses hybrid materials like medium density
fibreboards and laminates to have a strong structure at a cost and weight less than that of
wood. This helps reduce their pricing for the final product.

Cost Conscious
“Cost Consciousness-Prelude for Organisational Efficiency” is an effort to sketch the outline
of roles and functions of cost culture which entails ascertainment of cost, responsibility
accounting, product pricing, profit planning and determination thereof, budgeting, cost
control and cost information reporting. In some cases, IKEA’s low prices are thanks to the
cost saving effects of the business’s new environmental initiatives. Essentially, IKEA seeks
to create low cost, minimalist and utilitarian solutions for everyday life, and it does that in
several ways. Similar to stores like Costco, IKEA leverages buying a large amount of
material to drive prices down.

All those materials are flat-packed so

that the maximum amount of product
can be shipped and stored in one place.
On top of that, they shift the assembly
component of furniture onto the
consumer, which means that they
avoid a large amount of costs on the
manufacturing end. They push the time
and effort needed to construct furniture
onto people eager to buy their stuff. So
the key to IKEA’s cheap products is a
knowledge of where and how to cut corners, whether that’s in the manufacturing stage,
shipping process, or up to the point of sale.

IKEA has focused its strategy on the core competency of sustaining profitability through a
low-cost business model. This model allows IKEA to examine the true cost involved in a
specific product or process, including the design, sourcing, and operational expenses
involved. While growing its operations, IKEA has also capitalized on maintaining low costs

IKEA believes that it can be a low-cost leader without sacrificing quality or compromising
its corporate social responsibility. To generate low cost savings IKEA uses a flat packing
process that allows more merchandise to be shipped and stored between distribution centres.
The company wants customers to understand that their role is not to consume value, but to
create it.

IKEA has been able to modify the value chain approach by integrating the customer into the
process and introducing a two-way value system between customers, suppliers, and IKEA’s
headquarters. Through this, the company is able to create a supply chain that is
differentiating and growth enabling, which allows IKEA to operate efficiently.
Long term value
Long term value of a company is the value of a company or product over an extended period
of time. Businesses often classify their customer base in terms of the customers' predicted
long-term value. Long Term Value may influence marketing strategies, particularly
customer relationship management and concern resolution. IKEA always have a a strong set
of values. Togetherness, Caring for people and planet, cost consciousness, simplicity, renew
and improve, different with a meaning, give and take responsibility and lead by example are
some of their core values. The IKEA value chain starts with listening to people’s needs and
dreams and understanding how can they make a difference. First they start with a product
idea and then discuss it with suppliers, designers and technicians and then efficient
packaging and distribution of final product.

Contemporary Cost Strategy

Competitive costs are placed at the core of IKEA pricing strategy. The company aims to
offer its products “at prices so low that as many people as possible will be able to afford
them”
IKEA introduced "flat packing" the method now synonymous with IKEA that cuts costs by
letting consumers purchase their furniture in pieces and assemble it themselves. While it
may be annoying to assemble furniture yourself, it allows IKEA to charge less for
everything.
IKEA follows a marketing strategy called the 7 P's of marketing that stand for: Product,
Place, Price, Promotion, Physical evidence, People and Process. IKEA prioritizes projecting
a consistent brand message across all 7 elements to create a strong connection with their
customers.

Conclusion
With 433 IKEA stores in 53 countries and 2023 global retail sales of about EURO 44.6
billion, everybody has an IKEA story. How IKEA became so much than furniture brand? It
inspires obsession and that is by design. IKEA has a democratic design approach which do
not compromise on quality.The secret of IKEA’s success is their commitment to people with
THIN WALLETS.

By Hazel Mary Simon.

4 Bcom PA
Reg No. 2112529