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The Crazy Backward Way IKEA Prices Their Stuff

Hey there!

I was flabbergasted when I first learned the process by which IKEA arrives at their ridiculously low prices.

You’d think they’d look at the materials, the labor, the distribution, the marketing and so on, then come up with a price that makes them a profit.

Yeah. No.

So…what can we learn from the crazy way they actually design their products?


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Hope this helps!

David

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Raw YouTube Captioning

hey there it’s David H Lawrence the 17th
and if you have never gone through the
rite of passage of going to Ikea and
purchasing a flat-pack box of something
set of dresser drawers or a bed or a
cabinet or a table or a chair or
whatever you may be really surprised to
find out how they arrived at their final
product first of all their prices are
insane right there they’re insanely low
and when I first learned about the
process that IKEA goes through to create
a product
it’s just crazily backward from what
most companies do you’d think that they
would be like most companies they look
at what materials go in they’d see what
kind of labor is involved the
distribution how much they have to spend
on advertising and marketing and then if
it’s too much when they come up with a
final price well then they’ll cut back
here or they’ll cut back there and so on
no they start with the price so they say
ok this table is going to cost $29 and
at first look it’s gonna look like a $69
table whatever it is they come up with
the price in fact let me read to you
what it says on the site because I heard
this a few years ago and I was just like
really price is what they start with
okay their website says at IKEA we
designed the price tag first and they
don’t mean the layout of the price tag
maybe in the price and then develop the
product to suit that price IKEA product
developers and designers work directly
with suppliers to ensure that creating
the low prices starts on the factory
floor they consider maximizing
production equipment using raw materials
efficiently and applying technical
innovations and the best possible design
it is all about making the most of our
production process keeping waste to an
absolute minimum
and considering flat pack transportation
and self-assembly and it’s all done in
Sweden and nothing
is developed outside of Sweden so it
forces them to look at their entire
product cycle in a very interesting way
it’s not okay let’s get this material
let’s get this labor let’s see what that
cost let’s add a percentage a margin
that would make us a reasonable profit
no they work backwards now they sell on
price they are competing with you know
Target and Walmart and you know they’re
not competing with high-end furniture
stores their target is people that don’t
want to spend a lot of money but they
want to get a lot of utility out of
something now what does that have to do
with us as performers
we don’t sell on price in fact I’ve got
a video coming up about how I would
really like us to stop this race to the
bottom and competing with each other to
undercut each other it really is any
other people have talked about it but I
have a particular take on it that I
think is is is appropriate we don’t sell
on price IKEA does we don’t but we can
take a page from their process and that
is to maximize our production equipment
and use raw materials efficiently our
raw materials is what our time and our
talent use those efficiently don’t set
yourself up with all the second-guessing
and the the processes of editing and
mastering that take forever keep waste
to an absolute minimum our inventory is
time so let’s not waste our time that’s
what most of these videos are all about
is keeping you efficient so that you can
take on more work and make more money
but what we don’t do is we don’t usually
sell on price I’m a firm believer that
we really kill our industry when we
start talking about price and saying oh
I’ll do it for less than the other
person we shouldn’t be pit against each
other and we shouldn’t think about how
low can we go we should think about what
are we worth and if somebody doesn’t
want to pay us that well then we’ll just
pass we’ll move on to the next person
we’ll let them find somebody that they
can pay for and it’s funny because the
truth is that’s exactly what IKEA says
because there are people who won’t pay
$29 for a table right they want to go to
Goodwill and get it for like $10 there’s
all of these different scales
and-and-and stations on those scales of
people who are willing to pay for a
certain amount we can maximize our
profit in terms of time and money by
studying how they do things starting
from the front back in other words the
final price back in our case the final
effect so what will the client get for
their money
well the client feel like when they get
that how happy will they be how
satisfied will they be how will it help
them achieve their goals how will it
help them sell their product or service
even better so it’s worth knowing about
and it’s worth taking just the parts
that can help us in our process not the
price part but the maximizing of
efficiency and using great raw materials
and and keeping track of our inventory
of time and and effort and so on it’s a
really interesting thing to think about
I wonder how you think it applies to
what you do are the things that you do
that you have decided you know what I’m
just gonna be the loss leader I’m gonna
be the person that goes on Fiverr and
I’m gonna say I’ll do your commercial
for five bucks and I don’t care about my
fellow you know talent you know they’ll
have to figure it out on their own it’s
it’s a path it’s not illegal or are you
the person that wants to support the
prices that make us all what we deserve
you know our end benefit to our clients
is we help them sell a lot more stuff
when we’re doing commercials and we help
them get booked on the air when we’re
doing documentary narration or promos we
help them do things that are far beyond
just getting audio or video production
done right so you have to look at our
value to them as not just what they pay
for but the price being one thing and
the value we provide for that price
something completely different let me
know in the comments below what you
think about what I’ve just talked about
and also if you’ve ever put together an
IKEA product and had less than five
screws and washers left let me know that
too if you’d like to subscribe to my
channel go ahead and click on my head
there if there’s no head there there’s a
subscribe button somewhere on the page
you’ll find it and if you want to see
the latest video that I’ve done go ahead
and click on that frame there and it’ll
take you to YouTube and they will play
it for you I’m David H Lawrence xvii I
got to go put together a table I thank
you so much for watching and I will talk
to you tomorrow.

4 Responses to The Crazy Backward Way IKEA Prices Their Stuff

  1. Curt Bonnem March 18, 2019 at 6:48 am #

    I recently had my first experience losing a client on price. In December I began what was to be a regular gig doing narration for short entertainment trivia videos for a few YouTube channels. I agreed initially to a fairly low price, but the gigs seemed pretty quick and easy and steady. In the first month, while it was a nice steady flow of work, I quickly realized I was spending more time on them than necessary. The copy was written by folks for whom English was clearly a second language and in order for me to be able to make it work, I had to do a lot of copy editing. Not part of the deal and significantly ate into my ROI. I addressed that issue in a very professional manner and said that if I were to continue, we would need to discuss the payment terms. We did and I even allowed them to haggle me down to a fairly minor increase. But apparently, even that was too much, as I have not had a single project from them since and have seen they are using another voice now. While I’m bummed to lose out on some steady money, I don’t feel bad losing a client who was so cheap that a very small and reasonable pay increase due to work I shouldn’t have been doing in the first place was just too much. There was someone out there willing to do it, so good for them. I also imagine they have a fairly high turnover rate.

  2. Leslie Anne Ligon March 18, 2019 at 7:00 am #

    I do offer this to clients. I took that approach from having worked on designing and making my own jewelry for the last 18 years.

  3. Trey Shelton March 18, 2019 at 2:10 pm #

    My observations lead me to conclude that industry price erosion has been aided, promoted and exacerbated by VO coaches who appeal to entry level individuals, and by our industry trade group, WoVo, whose technical leadership outrightly denigrates the value of more expensive, premium outboard gear, and the judgement of those who would propose otherwise. Ancillary to this point, are the countless YouTube videos about VO setups emphasizing the very cheapest path into the business. The combined result has created the notion the VO field has no barriers to entry from a skill or monetary point of view…….if you have a closet you’re in business.

    However, once an entrepreneur has invested $10 – $15, 000 (at least) in evaluation, coaching, a custom studio or booth, and quality gear……..if you’re inclined to want to run a successful business, creating a revenue stream that supports meeting your objectives becomes serious business.

    You and Marc Scott are notable exceptions to the current trends mentioned above………more power to you.

  4. Rebecca Yavner March 18, 2019 at 4:50 pm #

    This seems to be an issue for many self employed people in industries far and wide. I am a real estate sales professional, have been for going on five years now, and have seen other agents undercut one another to get the deal. My thoughts on this is that it devalues the service we offer to our clients and makes all of us look more like commodities instead of true service providers. I too, have spent thousands upon thousands to make myself better in my field, taking classes, keeping up with certifications, contract language, etc… just to have my clients go elsewhere because they can get a discount. It’s very disheartening… It’s also easy to say, “well, let them go because they are cheap or whatever” but it’s harder in practice because it’s happening soooo frequently. Add that to the amount of real estate agents across America that are being killed by people who pray on such singularly solo practitioners and it’s got me exploring other avenues to making a living. I’ve been contemplating VO for a couple of years now. I’ve had minor experience with IVR and I liked it. If I were to go the VO route, I would develop my skills and become a pro… not just a wanna-be without the effort. It is disheartening to see the same devaluation going on in the VO world… :(

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