A croissant, a bun, cheese, ham, boiled egg, marmalade and a coffee for just € 1. This almost audaciously low price for breakfast has caused traffic jams at the highway exit for an IKEA outlet in the Netherlands.
Some may argue that some of these meal prices are below cost price, thus IKEA might be making a loss in their restaurants.
IKEA’s core business, most would agree, is low-price furniture and home decoration and, the low prices for meals in their restaurants are a way to attract customers.
However, I would argue that attracting customers is not the only objective here; it is also to convey an image to their customer: ‘Everything here is affordable’.
They could have chosen to do this differently, namely, advertise their low prices of furniture. But perceiving a price as ‘low’ is subjective to two things:
- A consumer’s knowledge of prices of different furniture brands and outlets.
- A consumer’s income or, as a direct consequence, their willingness to pay.
How often does a consumer buy a couch or a bed? What is your perception of a low price for furniture? Furniture is bought less frequently, resulting in that it is harder for consumers to judge for themselves whether a price is low or high. To illustrate, would you consider a price of €599,- for a couch too expensive or is it a reasonable price? It depends on your frame of reference and how much you are willing to pay / whether you are able to afford it.
Would you consider a price of €599,- for a couch expensive, reasonable or cheap?
Conversely, prices for restaurant meals are much more transparent and most consumers have a broad frame of reference for restaurant prices to determine whether a price is relatively low or high. For instance, brunch at a hotel would perhaps costs €10-€25 and a dinner at a cafe at least €25-35. Consequently, a €1 price for breakfast would be considered by most people to be a low price.
The effect that IKEA achieves through their low prices in their restaurants is that they create spillover effects for their brand image as a low-cost furniture company.