BBA 3201
IKEA’s Price and Promotion Strategies
Columbia Southern University
BBA 3201 Principles of Marketing
IKEA’s Price and Promotion Strategies
Price is the set amount that is charged for a product or service that holds value to a
consumer and is an extremely important tool when it comes to marketing as it has a direct impact
on revenues and profits (Wyner, 2014). In some instances, the price for a product or service can
even be the determining factor in whether or a not a consumer will purchase it. For example, if
the customer sees a product that has a high price tag but feel that the quality of the product
doesn’t justify what it costs, they are less likely to purchase it. Whereas if the same product had a
lower, more reasonable, price tag, but still held the same quality as it did with the higher price
tag, a consumer may still decide to purchase it, simply because it’s more reasonably priced.
This is where pricing strategies come in to play. The most commonly used pricing
strategies are, premium pricing, penetration pricing, economy pricing, psychological pricing, and
promotional pricing (Nagle, 1993). In this research project we will explore the main pricing
strategies mentioned previously, IKEA’s pricing strategy, and how their pricing strategy
correlates with the promotions they choose to run.
The Five Pricing Strategies
While there is a magnitude of pricing strategies available for a company to take
advantage of, there are five that are most commonly used, premium pricing, penetration pricing,
economy pricing, psychological pricing, and promotional pricing. Which one a company intends
to use is usually solely based on their targeted market (Wyner, 2014).
Premium pricing, or sometimes referred to as prestige pricing, is a strategy where prices
are set at an extremely high price in order to cultivate a sense of higher quality and image in the
product or service and set them apart from competitors (Monger, 2015). An example of premium
pricing is luxury vehicles. When it comes to vehicles it feels as if there are thousands to choose
, from. Luxury vehicle companies, such as Mercedes and Cadillac, have made it a point to make
and sell high priced vehicles that far surpass the level of luxury and comfort than that of a Toyota
or Ford.
Penetration pricing is when a product or service is priced below that of competitors prices
in order to penetrate the market and generate a large market share quickly (Monger, 2015). In
simple terms, it’s a strategy designed to attract and generate new customers by offering a lower
price. Internet providers are a terrific example to use of those who effectively use penetration
pricing to generate growth and revenue. Internet providers will routinely offer low introductory
rates for new customers, enticing them to switch their service provider, before ultimately
increasing the rate after the introductory period has ended.
Economy pricing is used when pricing generic products that are similar to that of a major
brand (Campbell, 2020). Grocery stores such as Aldi and Trader Joe’s are those who most
commonly, and effectively, use economy pricing. They are able to generate revenue and growth
by offering products that are extremely similar to major brands such as Coke, Frito Lays, and
Kellogg but at a much lower cost to their consumers. CVS and Rite-aid, both pharmacy stores,
also effectively use economy pricing by offering generic drugs and medications to their
customers.
Psychological pricing is used to encourage consumers to purchases goods products or
services on an emotional response, rather than a rational one (Monger, 2015). Psychological
pricing uses specifically formulated techniques to form a psychological, or subconscious impact,
on consumers (Campbell, 2020). Psychological pricing will sometimes utilize tactics used in
promotional pricing to encourage consumers to purchase products they may not even need. For
example, retailers that offer “Buy One, Get One” sales that are only available for a limited time
would be considered psychological pricing. As it is encouraging a consumer to purchase a
product that they may not need simply because it’s on sale now but might not be in a day or two.
Promotional pricing is used to temporarily lower the price of a product or service in order to
IKEA’s Price and Promotion Strategies
Columbia Southern University
BBA 3201 Principles of Marketing
IKEA’s Price and Promotion Strategies
Price is the set amount that is charged for a product or service that holds value to a
consumer and is an extremely important tool when it comes to marketing as it has a direct impact
on revenues and profits (Wyner, 2014). In some instances, the price for a product or service can
even be the determining factor in whether or a not a consumer will purchase it. For example, if
the customer sees a product that has a high price tag but feel that the quality of the product
doesn’t justify what it costs, they are less likely to purchase it. Whereas if the same product had a
lower, more reasonable, price tag, but still held the same quality as it did with the higher price
tag, a consumer may still decide to purchase it, simply because it’s more reasonably priced.
This is where pricing strategies come in to play. The most commonly used pricing
strategies are, premium pricing, penetration pricing, economy pricing, psychological pricing, and
promotional pricing (Nagle, 1993). In this research project we will explore the main pricing
strategies mentioned previously, IKEA’s pricing strategy, and how their pricing strategy
correlates with the promotions they choose to run.
The Five Pricing Strategies
While there is a magnitude of pricing strategies available for a company to take
advantage of, there are five that are most commonly used, premium pricing, penetration pricing,
economy pricing, psychological pricing, and promotional pricing. Which one a company intends
to use is usually solely based on their targeted market (Wyner, 2014).
Premium pricing, or sometimes referred to as prestige pricing, is a strategy where prices
are set at an extremely high price in order to cultivate a sense of higher quality and image in the
product or service and set them apart from competitors (Monger, 2015). An example of premium
pricing is luxury vehicles. When it comes to vehicles it feels as if there are thousands to choose
, from. Luxury vehicle companies, such as Mercedes and Cadillac, have made it a point to make
and sell high priced vehicles that far surpass the level of luxury and comfort than that of a Toyota
or Ford.
Penetration pricing is when a product or service is priced below that of competitors prices
in order to penetrate the market and generate a large market share quickly (Monger, 2015). In
simple terms, it’s a strategy designed to attract and generate new customers by offering a lower
price. Internet providers are a terrific example to use of those who effectively use penetration
pricing to generate growth and revenue. Internet providers will routinely offer low introductory
rates for new customers, enticing them to switch their service provider, before ultimately
increasing the rate after the introductory period has ended.
Economy pricing is used when pricing generic products that are similar to that of a major
brand (Campbell, 2020). Grocery stores such as Aldi and Trader Joe’s are those who most
commonly, and effectively, use economy pricing. They are able to generate revenue and growth
by offering products that are extremely similar to major brands such as Coke, Frito Lays, and
Kellogg but at a much lower cost to their consumers. CVS and Rite-aid, both pharmacy stores,
also effectively use economy pricing by offering generic drugs and medications to their
customers.
Psychological pricing is used to encourage consumers to purchases goods products or
services on an emotional response, rather than a rational one (Monger, 2015). Psychological
pricing uses specifically formulated techniques to form a psychological, or subconscious impact,
on consumers (Campbell, 2020). Psychological pricing will sometimes utilize tactics used in
promotional pricing to encourage consumers to purchase products they may not even need. For
example, retailers that offer “Buy One, Get One” sales that are only available for a limited time
would be considered psychological pricing. As it is encouraging a consumer to purchase a
product that they may not need simply because it’s on sale now but might not be in a day or two.
Promotional pricing is used to temporarily lower the price of a product or service in order to
