IKEA continues to defy prevailing wisdom and cut the prices for many popular products. Why wouldn’t they try to defend the higher prices they implemented over the last two years? After all, that’s the path many other retailers and consumer goods manufacturers are pursuing. The answer isn’t a flawed methodology or mistaken assumptions on IKEA’s part. Instead, IKEA’s actions are a reminder that pricing starts with strategy, not numbers. The price cuts reflect their declared pricing strategy in the Uniform Game, where success depends on how companies in very large markets manage their tradeoffs between volume and margin. Jesper Brodin, the CEO of IKEA’s parent company INGKA Holding, said in an interview at the World Economic Forum that the logic behind their pricing strategy is “not rocket science.” The company is building its pricing strategy around affordability, and it has seen an opportunity to play the Uniform Game on a different part of the demand curve. It can cut prices, drive quantity, and preserve margins because it is seeing “massive deflation upstream,” according to Brodin. In our book Game Changer, we define a pricing strategy as a company’s conscious decisions on how to share value with its customers. Specifically, the pricing strategy is how a company will shape its market by determining the amount of money available, how that money flows, and to whom. There’s nothing wrong with making affordability the cornerstone of a pricing strategy, as long as the company also makes affordability its organizing principle. That pricing strategy is at least as old as Henry Ford’s Model T pricing strategy, which guided his decisions on manufacturing and marketing and helped scale the automotive industry in the early 20th century.
IKEA price cuts: CEO says strategy ‘is not rocket science’ | CNN Business