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Blu Dot

When a trio of college friends with backgrounds in art and architecture started moving into their first apartments in the late 1990s, they were frustrated to find that when it came to furniture, they couldn't afford what they liked and didn't like what they could afford. Happily for many future furniture shoppers, however, this frustration led the three to found Blu Dot, a Minneapolis-based furniture design and manufacturing company that has flourished and grown.

Blu Dot specializes in the creation of furniture that is attractive, high quality, and affordable. Its modern, streamlined pieces use off-the-shelf materials and simple manufacturing processes that keep the company's costs and prices down. The company also contracts with suppliers that make industrial rather than consumer products, because they use more efficient and cost-effective processes and technology. These strategies, plus designs that pack flat and are easy to ship, allow the firm to combine what Maurice Blanks, one of the founders, describes as the affordability of the low end of the market and the craftsmanship of the high end. Anyone can design a $600 or $700 coffee table, Blu Dot believes. It's the $99 one the company is aiming for that's more of a challenge.

The company sells seven product linestables, storage, accessories, desks, beds, seating, and shelving. Its pricing strategy for each of these is straightforward. Managers add their fixed and variable costs, plus the markup they believe they'll need to keep the business functioning. They then usually look at what competitors are doing with similar products and try to identify three or four different pieces of pricing information to help them settle on a profitable price. The company also uses some creative pricing strategies to make its margins. For instance, one coffee table in a set might have a higher markup, whereas another has a slightly lower one for more price-conscious customers. Overall, then, the target margins are often met.

Blu Dot thinks of its total product offering as consisting of three interdependent elements: the core product, its supplemental features, and its symbolic or experiential value. Although some customers are attracted by the design aspects of the products, others are more concerned with value. That's one reason the company recently introduced a separate brand, called +oo ("too"), and priced it slightly below the original Blu Dot line. These items have been marketed through Urban Outfitters, and Blu Dot has adjusted the prices over time after seeing how sales progressed. Co-founder John Christakos likens Blu Dot's pricing practice to cooking, in that both are processes that allow for fine-tuning as events develop.

In an interesting recent promotion that flirted with the price of zero, Blu Dot celebrated the opening of its new store in New York's hip SoHo district by leaving 25 brand new units of its iconic "Real Good Chair," normally priced at $129, on various street corners in the city. Most of the chairs were equipped with GPS devices that allowed the company's marketing agency to trace the chairs to those who "rescued" them and brought them home. The company's website proclaims that all the chairs found good homes, and those "scavengers" who agreed to chat with the firm about its products received a second free chair in thanks.

Is Blu Dot's strategy one of cost leadership, differentiation, or focus? Explain your answer.