IKEA Pricing
How about this pricing strategy — You pay for the product with ‘your time’. That’s exactly what IKEA has done in the UAE.
As I understand, one of the biggest issue with any IKEA store is it’s physical location. It is generally quite far from the centre of the city, which means the customer is expected to travel quite a lot distance to experience shopping at IKEA. As every marketer knows, you must provide value to the customer — a value that commensurate with the perceived utility of the product (in the mind of the customer); IKEA came up with a smart idea to pull crowd into its physical store — the longer you travel to the reach the store from your location, the higher discount you would end of getting. In effect you pay with ‘your time’. Couple this with the experience IKEA creates in the store, and you have an excellent value proposition on the cards.
Of the four Ps of marketing, Pricing is one that is dependent on the other three. You can’t compete on price over a long-term period for sure. When we look at the price of any product (or service), we generally compare it with the utility of that product (or service), which diminishes with time. Discounts offer as a nudge to help us speed up the buying decisions. For a brand custodian, the discount so offered of the product impacts the other Ps. This discount offered is generally used as a tactic and NOT as a strategy. When you use the discount as a strategy, it may become ineffective in the long run. Now, when I consider the pricing strategy of IKEA in question (i.e. paying by the time), it does offer unique insights. Using Geolocation (through Google Maps), they not only inform the prospective visitor how much time it would take to reach the store, but also create in-house experience once the customer reaches the location, apart from using as a ‘proof’ to calculate the discount. In Indonesia, for intense, they managed to achieve over 130% of their footfall targets by using geolocation. Add to this the layout of a typical IKEA store and you have to cross every offer by IKEA before you reach the checkout counter. Another form of nudging through impulse buying.
Every discount I offer on my product eats into my profit, hence we have seen brand managers offering discounts to clear their unsold stocks. They may use it to increase the footfall in the store. IKEA used it to achieve just that. They also use it as a tactic to move the customers away from competition, especially when the competition is new and aggressive. IKEA in UAE is using it to attract the customers, especially those customers who live far from the store. Once the customer has reached the store, the IKEA experience takes charge and the customer ‘gets’ the expected utility, whether through the products she purchases in the store or through the other offerings such as the restaurant and play area for kids et al.. The question here is will this strategy sustain itself for a longer period of time? To answer this questions, we must consider how the customer behaves with the brand, offline and online. With the recent events impacting the globe, there has been a transition from offline to online for almost every product category, including furniture and furnishing. With this shift towards online shopping, the physical stores convert into godowns for practical purposes. To understand this, we need to look at Walmart in the US. But there’s a difference between shopping at Walmart (offline and online) and IKEA — the frequency of purchase. If the frequency of purchase is low, the customer, it is expected, would not mind travelling some distance to the store, as its the experience that counts. Add to this the typical customer segment IKEA targets and we see offers and discounts playing an important role.
The jury is still out there on the impact this strategy has created in the UAE. The question is whether IKEA will be able to sustain the tactic for a longer period of time.
