Executive Briefings

Ikea's Prices Are Low, Former CEO Says, Because the Customer Is Part of Its Supply Chain

In his book, The Ikea Edge, former CEO Anders Dahlvig spends quite a bit of time  explaining how the company manages to offer ridiculously low prices that make it impossible to leave the store without a lengthy receipt.

Dahlvig says Ikea keeps its costs low by buying in bulk and controlling the entire supply chain, not unlike Costco or Trader Joe's.   The company also uses you, the customer, to help with distribution by delegating tasks like assembling and transporting purchases. Dahlvig claims consumers actually feel like they're getting a better experience when they're doing more themselves. (This point may be debatable for anyone who's ever wandered around an Ikea warehouse looking for the likes of a Grevbäck bookcase or Folldal bedframe.)

But Dahlvig argues that customers are compensated for their troubles: The bigger the role you take on in the supply chain, he points out, the lower the price tag. If you don't want to spend your Saturday afternoon poring over an Ikea instruction manual, you don't have to; you can select to have your furniture delivered and buy items that don't require much assembly. But you have to be willing to pay more as a result.

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In his book, The Ikea Edge, former CEO Anders Dahlvig spends quite a bit of time  explaining how the company manages to offer ridiculously low prices that make it impossible to leave the store without a lengthy receipt.

Dahlvig says Ikea keeps its costs low by buying in bulk and controlling the entire supply chain, not unlike Costco or Trader Joe's.   The company also uses you, the customer, to help with distribution by delegating tasks like assembling and transporting purchases. Dahlvig claims consumers actually feel like they're getting a better experience when they're doing more themselves. (This point may be debatable for anyone who's ever wandered around an Ikea warehouse looking for the likes of a Grevbäck bookcase or Folldal bedframe.)

But Dahlvig argues that customers are compensated for their troubles: The bigger the role you take on in the supply chain, he points out, the lower the price tag. If you don't want to spend your Saturday afternoon poring over an Ikea instruction manual, you don't have to; you can select to have your furniture delivered and buy items that don't require much assembly. But you have to be willing to pay more as a result.

Read Full Article