Secret behind IKEA’s pricing strategy

 

IKEA

Photo: IKEA Group

IKEA Group is a values-driven company, in the public mind, is known as a furniture company and they provide the products making home a better place. They have a wider variety of items and the number of products is approximately 9,500. Also, their products are high quality, good design and a low price (IKEA2015). IKEA keeps expanding their business and they have a total of 328 stores in 28 countries at the date of 31 August 2015 (IKEA Group 2015). IKEA arrived in Australia in 1975 and first IKEA shop opened in Sydney.

Why did IKEA become so popular on a global mass scale? One of the reasons why IKEA gets successful is because they take advantage of price strategy, especially in consumers’ psychology. Psychology of pricing is the price ending in 9, referent pricing and price discount.

Prices ending in 99

IKEA99.jpg

Photo: IKEA 2016 catalogue

First, IKEA prices their product with price ending in 99 only in Sweden. Following this successful price strategy implementation in Sweden, it has expanded to every country that IKEA has store. It became an icon of IKEA’s low-price ideology (Håkansson & Waluszewski 2007, p. 80). Therefore, all products are priced ending in 99 such as $3.99 or $9.99 in IKEA Australia as well. People might believe that round number such as $4 or $10 would be easier to recognise and promote. However, it is accurately known that price $9.99 is more attractive than $10. Why? People read from left to right and have a tendency to put more emphasis on left numbers than right. Therefore, when customers see the price of ‘$3.99’, they believe that it is ‘About $3’ (Science Daily 2009). All prices ending of product in IKEA is in 9, so buyers might only look first or second number and take a decision. Consequently, 9 is kind of magic number for sellers.

Referent pricing

newprice.jpg

Photo: IKEA Group

Second, IKEA often considers a price change, but how they make consumers believe that new price is a good deal. Then, when IKEA sets the new prices, they put the previous prices as well. When consumers estimate a price of product to decide whether they consider the price is a good deal, they need to check the price with some references. If the new price is with some references, people might think the current price is a good deal based on reference they are given (Larson 2014, p.14). Therefore, IKEA launches new price of products with reference and have great appeal to customers.

Price discounts serve as customer’s decision guidance

Third, IKEA put their products on sale occasionally. Customers believe that they are smart buyers when they get products with a good deal. People feel satisfied when they gain something for a better price than usual price (Iacobucci 2014, p. 117). In addition, IKEA puts sale price with some reference, so price discounts boost power of buy with referent pricing and customer might spend more money in the store.

 

In conclusion, IKEA’s psychological pricing strategy is related to consumer behaviour deeply. Three psychological pricing strategy makes people believe that IKEA’s products are price competitive and encourage consumers to purchase their products. This is how IKEA achieves popularity for low price and will attract more people in the world.

 

By SHOKO KOBAYASHI (211723445, skobaya)

 

References

Håkansson, H & Waluszewski, A 2007, Knowledge and Innovation in Business and Industry: The Importance of Using Others, Routledge, retrieved 29 April 2016, < https://books.google.co.jp/books?id=cA_-9aKgUMQC&pg=PA80&lpg=PA80&dq=ikea+99+ending+price&source=bl&ots=z2FvOR0kmt&sig=JiWQP2uSudG6zpMRtlksB_ZPls4&hl=ja&sa=X&ved=0ahUKEwivn5Xd3rPMAhXCGpQKHWE8AbEQ6AEIQTAE#v=onepage&q=ikea%2099%20ending%20price&f=false >.

Iacobucci, D 2014, Marketing Management (MM4), South-Western, Cengage Learning, Mason.

IKEA 2015, ‘About the IKEA group’, retrieved 29 April 2016, < http://www.ikea.com/ms/en_AU/this-is-ikea/about-the-ikea-group/index.html  >.

IKEA 2015, ‘Democratic design’, retrieved 29 April 2016, < http://www.ikea.com/ms/en_AU/this-is-ikea/democratic-design/index.html  >.

Larson, RB 2014, ‘Psychological pricing principles for organizations with market power’, Journal of applied business and economics, vol. 16, no. 1, retrieved 30 April 2016, < http://www.na-businesspress.com/JABE/LarsonRB_Web16_1_.pdf  >.

Science Daily 2009, ‘Beware the left-digit effect: Price gimmicks may affect choice’, Science Daily, 24 February, retrieved 29 April 2016, < https://www.sciencedaily.com/releases/2009/02/090223221526.htm  >.

 

 

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