Ikea Case

Case: IKEA: Design and Pricing
In this case the author discusses how Swedish retailer IKEA continuously designs and redesigns their product line to reduce cost throughout the supply chain and ultimately provide consumers with a modern, functional, “cheap” product that they want to buy.   IKEA maintains a few competitive priorities in order to achieve this goal.  
1. Provide modern, functional furniture at a low price.
2. Continue relentlessly to find ways to drive down price.
3. Never pay to ship air!
4. Do it all while being environmentally friendly and maintaining acceptable working conditions.
IKEA begins the process of developing a new product with price top of mind.   While all new products will start with a plan or drawing they will also include a calculation of what the product will cost.   With the ideal cost of the item in mind when production begins, product developers can reach out to long term suppliers to help with specifications and ideas to tweak the design to keep cost low.   Shave an inch off the top and we can double our pallet volume, or limiting the color option to lower cost options.   Once the price point has been achieved and suppliers and manufacturers are chosen, the idea is sent to IKEA’s staff designers to refine the ideas.   The end product will have maximum functionality with minimal cost.
Along with their design process, IKEA employs a few other features that add value to the customer.   IKEA has a saying, “Never pay to ship air”.   It has already been stated that IKEA is in relentless pursuit of driving down cost.   One way they do this is buy maximizing container fill rate.   How does IKEA do it?   Well, IKEA is obsessed with flat.   Removing the legs from tables to create flat packaging, sucking the air out of pillows, and designing coffee mugs to stack more efficiently are all ways that IKEA is increasing capacity in their containers.   Along with this overall decrease in transportation cost comes a decrease in price to the...