Skip to main content
Bite-size Case Study

IKEA: reducing non-price outlays and maximising demand

Published on January 31, 2019 Originally recorded 2009   3 min
0:03
The idea Pareto loss is the idea that you are going through some effort, some labor, and these effort and labor do not benefit the firm in any way, and that's why they're called the Pareto loss amount. Is a loss loss. No gain to you, no gain to the firm.
0:24
IKEA or IKEA for some parts of the world, provides a very good example of how Pareto losses can be reduced, while maintaining price and as a consequence increase demand. Now IKEA is a discount retailer. The whole principle of the business is actually to provide very good value for money furniture. Now, as a discount retailer, particularly IKEA in the US, you will find that they are very concerned to make sure that the furniture's flat paint and that you do most of the work and in so doing they can provide the furniture to you at very low cost. IKEA recognizes also that one of the biggest outlays in going to their shop is the idea of bringing the whole family along. So you could have children and children provides a very big outlay in terms of the effort and time required to make sure they're well supervised and looked after, while you're trying to do shopping at the same time. Now in some IKEAs around the world, providing for children is a huge service that is part of the store by making sure that children have a place to play, and that even adults and children have a place to eat and that serves good, hearty, family cooking, and reasonably good food at good prices. You find that it substantially reduces the outlay in going to a discount retailer to get furniture. By doing it this way, you find very often if you go to an IKEA on weekend, it's usually full of people, and it's full of people because they make the IKEA experience a good one. They provide for children as well as adults for all their needs as far as possible. What happens is a reduction in terms of outlays for the principal person buying furniture and in so doing, you just get more people coming and, in doing so, increases in demand.
Hide

IKEA: reducing non-price outlays and maximising demand

Embed in course/own notes