In a positive shift its customers, IKEA is implementing strategic price reductions worldwide on furniture following a period of inflationary pressure. As raw material and transportation costs stabilize, IKEA is prioritizing affordability by lowering prices across a range of products. Retail Mashup investigates this phenomenon even when other brands have kept prices higher in a race to manage inflated costs.
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IKEA – Gears In Motion
IKEA celebrated its 80th anniversary in 2023 with a fiscal year that cumulated with a revenue increase of 6.6% (7.3% when adjusted for currency impact) to EUR 47.6 billion compared to FY22. This positive result was achieved despite lower sales quantities and lower visitor counts to its online channels.
Working closely with suppliers on product manufacturing, sourcing, and sustainability, IKEA continued to find ways to prioritize on affordability.
“Intensification of internal efforts to reduce material and manufacturing costs, led to a decrease in IKEA retail prices at the end of FY23. In challenging times when inflation is high and many people struggle with the cost of living, the need for home furnishing solutions at affordable prices is high. This is where we will continue to do what IKEA has always done – putting customers’ affordability first. Looking further ahead, the three main opportunities we see for IKEA are to become even more affordable, more accessible and more sustainable,” says Inter IKEA Group CEO, Jon Abrahamsson Ring.
IKEA – Looking Ahead In 2024
The price reduction initiative extends beyond the United States, with IKEA implementing price cuts in other countries and aiming for further expansion throughout 2024. Its long-term goal is to return furniture prices to pre-pandemic levels, adjusted for inflation, by the end of 2025. This commitment is reflected in markdowns on popular items, such as a 20% reduction on the Billy bookcase in Canada. In the United States, over 10,000 products have their price reduced since September 2023.
Going Against The Tide, Gaining Goodwill And Loyalty
News of IKEA reducing its prices strategically gathered positive media attention worldwide.
This initiative creates customer engagement opportunities in the following ways:
Increased Accessibility: Lower prices make the furniture chain more accessible to a wider range of customers. This is important as inflation reduced affordability overall. Attract new customers who may have previously been priced out and encourage existing budget-conscious customers to consider additional purchases would help turn the tide lower online visitors.
Trial and Experimentation: With lower prices, customers might be more willing to experiment with new furniture pieces or try out different styles. This can lead to increased browsing, both online and in-store, which can spark further engagement. IKEA has been adding more city stores in countries like Columbia and Canada to cater to urban dwellers who may not want to drive out to the suburbs for their needs. Additionally, more products are placed online.
Positive Brand Perception: Amid repeated headlines of price increases or product deterioration, the price reduction initiative is a customer-centric move fostering brand loyalty and positive sentiment. This can lead to increased customer engagement through positive word-of-mouth recommendations and online reviews.
Repeat Purchases: Affordable furniture with proven quality can encourage repeat purchases as customers return to the store to furnish different rooms or update their existing furniture as their needs or tastes evolve.
Bundled Purchases: Lower prices might incentivize customers to buy additional items, like cushions, throws, or lighting, to complete the look of a newly purchased furniture piece, increasing their overall purchase value.
Increased Traffic: News of the price decrease can generate excitement and attract customers to IKEA stores and online platforms. This increased traffic can lead to more customer engagement through interactions with sales staff, product displays, and online content.
Beyond Prices – Customer Experience Plays A Key Role
Headquartered in the Netherlands, the Swedish furniture has always been known for its affordable, ready-to-assemble furniture, and customer experience designs that go beyond competitors.
For example:
Immersive experience:
- Showroom-style stores: Stores are designed like giant showrooms, with multiple decorated room settings that showcase how the furniture pieces can be used. This lets customers envision the pieces in their own homes.
- The IKEA Catalogue: The iconic catalogue isn’t just a product list. It is a source of inspiration, support, and imagination. The yearly edition is a collector’s item and features beautifully designed rooms/helpful tips for home furnishing, home automation technologies, and next steps.
- Digital tools: Online tools for kitchen planning and room visualization (using virtual reality) have been a boon for the brand. This allows customers to experiment with different layouts before they buy online or at a store.
- IKEA Family reward program: Being a member definitely has its privileges with up to 90 day price protection benefit, specials on food and beverages, free member workshops and events, member-only pricing. Membership is free!
Convenience across platforms:
- Multiple shopping options: Customers can choose to shop online, in-store, or use a combination of both. They can order online for pick-up or home delivery (with or without installation).
- Clear signage and layout: The stores are designed with a specific layout to guide customers through different product sections, making it easier to find what they need. Lighted arrows on the floor aids navigation around the store. It’s hard to get lost!
Making it their own:
- DIY assembly: While assembly can be a test for some, it also allows for customization. Customers can personalize furniture by choosing different configurations or adding their own touches.
- Restaurant and Swedish treats: The in-store restaurant is a popular destination in itself, offering Swedish meatballs and other delicacies. It adds to the overall experience and encourages customers to linger longer. IKEA Family reward program members are award with lower everyday prices of select food and beverage items (e.g., In Canada, a medium coffee is free).
Affordability throughout the journey:
- Cost-conscious approach: Ikea keeps prices low by using efficient manufacturing and packaging. They also offer a variety of financing options to make furniture more accessible.
- Value-added services: The home furnishing company provides childcare services and a marketplace where customers can buy and sell used furniture, extending their affordability focus.
IKEA’s price reduction strategy demonstrates a focus on customer affordability in a dynamic economic climate. This shift presents a potential opportunity for consumers seeking cost-effective furniture solutions. Combine that investment in customer experience innovation has given the brand a major leg up to the competition. It’s no wonder that the brand has stayed no.1 globally for the past 15 years and more.
Fun Fact:
Ingvar Kamprad, IKEA Founder, once said about the brand’s business idea, “To offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.”
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