Start With The Price, Then Design Backwards
Ingvar Kamprad's entire approach to product development ran in reverse from how most companies work. He did not design a product and then figure out what to charge for it. He set a price that would feel breathtaking to the customer and then asked his team to figure out how to manufacture it at that price while still making a small margin. He called these breathtaking price products, and every product category in the Ikea range was supposed to have at least one. The Lack coffee table is the clearest example. The retail price today is $9.99. To hit that number Ikea wholesale reinvented the manufacturing process, moving away from solid wood to board-on-frame sandwich construction using waste scrap and pulp material from other production runs. The raw inputs cost almost nothing, the table is lightweight enough to ship cheaply, and the process can scale indefinitely. They now sell close to 20 million Lack tables every year. Ingvar wrote: 'The whole idea is based on the substantial price difference the easily understood price by the consumer we don't lose on the deal nor do we make much profit but at least we make a little.' He eventually formalized this into what he called the hot dog product policy in 1995, requiring at least 10, later 20, of these impossible-price items across the full range at all times. The Poang chair, introduced in 1976, originally cost the inflation-adjusted equivalent of $350. By 2016 it was below $100. Today it is $130. A comparable recliner from another brand runs $2,000 to $3,000.