How Important is Price?

While writing my last post on Havaianas I began to think about the model for successful global brands. Almost all of them seem to compete through quality or luxury products and branding. Havaianas is an example of a company competing with the quality of its products over the cost of its products. Other examples would be Swis Army, Nike, adidas, VISA, and Coca-Cola. Even global brands like McDonald’s, Starbucks, and Apple compete based on the quality of their products and their service over low prices. McDonald’s in the U.S. is considered a lower-price option. Not so internationally. Many McDonald’s globally are sit-down restaurants with prices that are often higher than other restaurants that are considered fast-food (like kabobs in Central and Eastern Europe or hole-in-the-wall pizza joints throughout Italy). Luxury seems to be another very successful model when operating globally. Although not as prevalent as Starbucks or McDonald’s locations, almost every major city in the world has stand-alone luxury brand locations like Rolex, Gucci, Coach, and Salvadori Faragamo. Price is no object at these locations. When you can charge $10,000 for a watch or $500 for a small purse, then its about status as much as it is about quality.

I struggled to find global brands that operate on low price. The closest that I could think of is IKEA. IKEA is a global brand. An IKEA store in Prague, Czech Republic looks identical to an IKEA store in Oakland, California. The logo is the same. The store layouts and products are the same. The services are the same. IKEA isn’t a luxury brand like Ethan Allen. IKEA seems to operate on low prices. Its operation is standardized. Locations tend to be in lower rent areas just on the outskirts of major cities. Most products are sold flat, needing assembly that is done by the customer. I have purchased many items from IKEA. I think most people that have wouldn’t classify IKEA products as low quality. Quality of design is certinly essential to an IKEA way of life. I would be very interested to meet with IKEA executives to see how they want the IKEA brand to be seen by the global community. Do they see the successful sales of its products as being a product of low price, or a product of perceived quality?