Swedish house mafia might be a thing of the past, but the real Swedish Mafia Ikea is going strong and here to stay. Although the word ‘mafia’ has a negative connotation attached to it, in relative terms, it purely is the dominant power it holds over an economy or households. No matter who you are, a student, a young professional or an established family unit, most home furnishing decisions are almost incomplete without browsing through the Ikea catalogue. Such is the power of Ikea!
Ikea runs the game in a self-created monopoly environment. There’s no competitor who can give Ikea a tough run for its business. With a clever pricing strategy, product innovation, humble offerings and it’s “all under one roof” business model, the house mafia has managed to stay on top of its game.
We looked into Ikea’s product range in Australia in detail and this is what we found:
Ikea stores close to 7,000 unique products under one roof across 22 different categories.
Living Room seems to get most of the product variety with 1,772 products followed by 687 in Decoration and 667 in Bedroom categories. Some products are counted in more than one category in Ikea’s website. For example, SUVA is included in Bedroom as well as Baby & Children products.
Other than Ikea’s ‘limited time’ Stockholm collection and FÄRLÖV series, highest average price per item sits within Bedroom and Dining categories at $253 and $251 respectively.
IKEA is one of the very few organisations to consistently plays with the psychology of customers. Psychological pricing is the practice of structuring and presenting prices to appeal to consumers’ emotions and to influence their decision-making processes (Pride and Ferrell, 1997).
First, we found Ikea making the most of power of ‘9’ in their product pricing. All of us have seen retailers marketing prices ending with ‘9’ consistently (to make the price look lower), but does it really work? Are customers really going to be affected by a $149 price point versus paying $150 or even $140? The answer is Yes, this tactic does indeed work. In a study by MIT and University of Chicago. A standard clothing item was tested at different price points – $34, $39, and $44. The item that was sold most was at $39, beating $40 and also the cheaper price of $34.
For IKEA, we got down to real numbers and the use of 9 was quite evident. IKEA prices products in integer format (i.e, no decimals) as well as in rational numbers (i.e, use of limited decimal points or cents). And 75% of their products end with 9. Human mid reads things differently. For example, human brain processes $7.00 and $6.99 as different values: it processes left to right, therefore in this example, it would read $7 against $6-something and automatically perceives the price of the product to be cheaper. This strategy is also known as ‘charm pricing’ and often associated with low-priced retail products.
In a news articles a couple of years ago, IKEA official stated that balancign between quality and pricing strategy is the most difficult task they have in hand. In the end, everything IKEA does must create value in peoples’ everyday life.
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