Ikea Company – Essay Example

1. Why is the price elasti of demand important to your product/service? How would demand for your product/service be influenced by price? Price elasticity of demand of IKEA’s furniture is the ratio of percentage change in quantity demanded of IKEA’s furniture to percentage change in price of furniture (Karl, 2007). Although costly furniture comes under the category of costly goods however, IKEA’s furniture is affordable for an average consumer therefore, it cannot be assumed as a luxury product. For IKEA’s furniture, price elasticity will be greater than unitary elastic demand because in this degree of elasticity percentage change in demand is greater than percentage change in its price (Jain, 2009). It means a decline in price of furniture will increase its demand by many folds. When IKEA started its operations in China, it learned through its experience that price-elasticity is very important to impact the demand of IKEA’s furniture. IKEA lowered its furniture prices by 10 percent and its sales in China rose by 35 percent in 2003 and 50 percent in 2004 (Wikinvest). Today, IKEA is using this concept to maximise its sales’ rate in various countries.
2. What pricing strategy would you recommend for the product/service that would maximise the sales rate?
In consideration to the price elasticity of demand for IKEA’s products, positioning of its products and target market, I will recommend low-pricing strategy for IKEA’s furniture. IKEA is already pursuing this strategy and it is one of the reasons because of which demand of furniture of IKEA, even it is made up of inexpensive material, is very high.
Bibliography
Jain, T. (2009). Business Economics. Vimla Kumrai Publications.
Karl, C. (2007). Principles of Economics, 8/e. India: Pearson Education.
Wikinvest. (n.d.). Rise of Chinas Middle Class. Retrieved November 2, 2010, from http://www.wikinvest.com/concept/Rise_of_Chinas_Middle_Class