IKEA is known for some of the cheapest furniture around. This leads to many IKEA customers wondering if the furniture is worth it if its integrity is compromised. However, IKEA has many strategies that help to reduce their products’ prices, not just including cheap materials.
- Lower-quality materials
- Honeycomb construction
- Bulk-buying materials
- Mass production
- Low assembly costs
- Flat-packing saves on transport costs
- Large stores are cheaper to stock
- Simple store interiors
- Smart marketing
- Deliveries and assemblies are outsourced
- Limited floor staff and cashiers
1. Materials Are Not the Highest Quality
One way that IKEA keeps costs low is by selecting materials that may not be known for their quality.
These materials include lightweight particleboard and medium-density fibreboard (MDF). These types of wood are less dense and less costly than more solid kinds of wood.
Unfortunately, this also means that these materials are less robust.
Despite lightweight materials’ lack of hardiness, there are a few factors relating to their weight and production that make them ideal for a furniture company like IKEA to use.
The production of particleboard and MDF is cheaper and easier than other furniture materials, so it costs IKEA less to manufacture these materials.
Additionally, the light weight of these materials makes them cheaper to ship, saving IKEA even more money.
These factors allow IKEA to save money and drive prices down, even if your furniture is more susceptible to physical and water damage.
The use of cheaper materials leads IKEA customers to wonder if IKEA furniture is worth it, but there are some aspects to IKEA furniture that makes them sturdy even without solid wood.
2. Honeycomb Construction
Not only is the type of material used in IKEA items important when managing costs, but the way the material is constructed is also important to factor in.
Particleboard and MDF are constructed to use as little material as possible while still retaining some strength.
The way they do this is with an interior structure of hexagonal cells made of strong cardboard or other materials.
Despite particleboard and MDF not being made out of solid wood, the honeycomb structure is fairly strong and also far cheaper than using solid wood.
The honeycomb structure also allows these types of materials to be lightweight, making them easier and cheaper to transport.
Overall, the hexagonal cells within the particleboard or MDF allow for IKEA furniture to be cheap and lightweight but still retain some strength despite not being solid wood.
3. Bulk-Buying Materials Saves Money
Buying in bulk is a popular shopping strategy whether you get a month’s worth of groceries at a Costco or Sam’s Club or if you’re a retail store that prefers to buy its products in bulk.
IKEA buys many of its products—furniture and otherwise—in bulk to save money.
The reason this works is that when you buy a large amount of a product, the individual prices are often lower.
IKEA uses this strategy to make the assembly of its products as cheap as possible.
When materials are bought in bulk, IKEA saves money on the cost of materials and they are also able to create more products.
More products made means more sales.
Buying in bulk doesn’t save you money when you don’t use or sell all of the items you buy, but this shouldn’t be a problem for IKEA as long as the product is in high enough demand.
When IKEA saves money by buying materials in bulk, customers save money.
4. Mass Production Saves Time and Money
IKEA sells hundreds or thousands of the same item, which means that the same boards, screws, dowels, hinges, etc., need to be mass-produced.
Mass production and its high efficiency can help create products faster.
This high efficiency is achieved through automated production processes. These processes involve various technologies, such as automated assembly lines to produce items as fast as possible while still manufacturing items correctly.
Mass production not only saves time but also saves money.
Automated production requires fewer workers and, therefore, fewer individuals to pay.
The mass production of items made with bought-in-bulk materials creates a highly efficient and cheap system where many products can be created and sold for lower costs to customers.
5. Low Assembly Costs
To further cut costs when producing items to sell, IKEA shortens the manufacturing process by limiting the assembly of various pieces.
IKEA is known for large furniture that comes in relatively small boxes, which is made possible by selling the furniture in a disassembled state.
Although this assembly can be difficult, the furniture is made cheaper with this process.
The phrase “time is money” is relevant to IKEA’s thought process here.
It costs money to produce furniture parts and it costs even more money to assemble these pieces.
More labor to assemble the parts means more time, which means more money. Whether workers have to be paid more or electricity costs go up for automated assembly, time is money in this scenario.
Eliminating the assembly step, for the most part, saves time and money for IKEA and allows them to drive down prices for customers.
6. Flat-Packing Saves on Transport Costs
Not only does IKEA not fully assembling parts lead to savings in reduced manufacturing time, but it also allows for much smaller packages.
Packing assembled furniture in boxes often means a large amount of empty space in the box.
With smaller pieces, though, a large amount of space can be saved by reducing empty space in the boxes.
IKEA takes advantage of smaller pieces by packaging their products in flat-packages.
These flat-packages make sure to fit as many parts in as little space as possible to make sure that there is limited empty space in the packaging.
Flat-packing also saves on transportation costs since it is much easier to transport flat-packages since they stack on top of each other neatly and easier.
Additionally, more will fit in each vehicle load, and fewer trips will have to be taken.
Fewer trips mean more time saved, more products available to be purchased, and more money saved on transportation.
7. Large Stores Means Stocking Is Cheaper
Another thing that IKEA is known for is its gigantic stores.
It is rare for a customer to make a quick trip to IKEA since their stores are so large that one must take a few hours to see everything (good thing they sell good food!).
IKEA stores’ size is not only infamous but also a good business practice. The larger the store size, the more inventory that the store can fit.
Smaller stores must be cautious with how much inventory they can take in at a time since they may not have the storage space for it.
This means more deliveries but fewer goods in each delivery. Higher administrative costs would also be necessary to enable the placing of orders and the delivery of the stocks.
However, for larger stores, many goods can be delivered at once and at a lower frequency. With fewer deliveries with more goods, the administrative costs would be lower.
8. Store Interior Is Kept Simple
Unlike some stores with a variety of rooms and decorations, IKEA stores are known for being fairly simple.
Instead of dividing the large space into rooms, most IKEAs instead create sections with shelves and standing furniture rather than walls. These shelves are cheap and easy to install while walls are far more difficult to erect and also more expensive.
Rather than having art on the walls or decorations, the furniture and decorations that IKEA sells create a pleasant environment in the building, while also showcasing the items that IKEA wishes to sell.
The floors of most IKEAs are concrete and the ceilings are often unfinished with a variety of structural beams, pipes, and some wires being visible.
This unfinished look works for IKEA, though since people are there for the environment created by the furniture and other goods.
Those who visit an IKEA aren’t expecting wood flooring and chandeliers, they are expecting a large warehouse full of unique furniture and decor.
IKEA, by creating a store environment that does not require decor, flooring, or finished ceilings, created a store that is low-maintenance and whose atmosphere does not require a finished look to keep customers coming back.
9. Smart Marketing
Not only is IKEA adept at the cheap creation of their products as well as how they set up their store, but they have also developed a system that allows them to cater to their customers while also reducing the cost of overstocking.
To ensure that IKEA is producing goods that its customers want, the company prioritizes finding out what people want and what they need.
The company makes sure to produce products that are in high demand and keep them stocked so that purchases keep being made and shelves don’t go empty.
Making products that are in high demand allows IKEA to reduce the cost of items since the cost wouldn’t have to be raised to account for IKEA’s loss if the item was to be overstocked.
When it seems that an item is becoming less favored or the initial sale isn’t going well, IKEA will discontinue the item and put the remaining items on sale so that they are still sold, but only to lessen the stock of an item that is dwindling in its popularity.
Doing so saves IKEA money in production and makes sure that materials and money aren’t wasted to produce and market a product that is not in demand.
10. Deliveries and Assemblies Are Outsourced
Another way that IKEA limits its costs is by limiting the labor needed in the store.
One way they accomplish this is by outsourcing both delivery and assembling services.
Rather than keeping a team of delivery workers and assembly workers at the store at all times, they are reached out to on an as-needed basis.
This significantly reduces the cost of delivery and assembly since these services are not needed as often as sales are made.
If these workers were kept on hand at all times, these employees would most likely be paid for standing around since their work would only be needed occasionally.
To prevent the situation of paying workers for standing by rather than helping customers with delivery or assembly, these associates are only contacted as needed, saving IKEA money in employment costs.
11. Limited Floor Staff and Cashiers
IKEA also saves money in employment costs by limiting its floor staff and cashiers.
To effectively reduce their floor staff and cashiers, IKEA created a store that is mostly self-servicing.
Reducing the need for cashiers was made possible through their mobile app where customers can scan their items as they go and then travel to the mobile checkout area to pay for their items.
Reducing the need for floor staff was made possible by making large posters near products so that customers had a resource for common questions. These posters often answer cost, size, and other questions about the product.
IKEA still employs some floor staff for questions that the posters do not answer and cashiers for those who would rather not use the mobile app.
However, they can hire much fewer people because of their mostly self-serving store.
Sources
https://www.investopedia.com/articles/pf/07/bulk_buying.asp
https://www.ikea.com/au/en/customer-service/mobile-apps/skip-the-line-pub58570e10