‘The Ikea Effect’

‘The Ikea Effect’

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29th August 2024

How did IKEA become a $40 billion company selling furniture?

Essentially, By exploiting a cognitive bias called the Labor Perception Effect, Aka the “IKEA Effect” wherein people value products more when they’ve assembled them themselves.

From Swedish mail-order business to a global giant, IKEA’s success hinges on this simple psychological trick.

We see our creations as extensions of ourselves.

When we invest our time & effort into creating something, we form a strong emotional attachment to the result.

This bias isn’t limited to furniture. It applies to various scenarios:

* DIY projects

* Customized products

* Even digital services requiring user input

But Ikea did something completely insane…

They added another psychological phenomenon to it:

Enter the Endowment which is our tendency to value things more highly simply because we own them.

Key aspects of the endowment effect:

* Overvaluation: We believe our possessions are worth more than the items we don’t own.

* Loss aversion: Giving up something we own feels like a greater loss than the pleasure of acquiring something new.

* Status quo: We want things to stay the same, attaching us to what we already have.

Having customers assemble their furniture, IKEA makes them feel like co-creators.

This triggers both the IKEA Effect and the Endowment effect and the result is that Customers develop a stronger emotional connection to their furniture than they would to pre-assembled pieces.

This attachment leads us to view our creations more favorably, often overestimating their quality or value.

But it’s more than just clever marketing:

* Lower manufacturing costs: Shifting assembly to customers reduces production labor costs.

* Cheaper storage: Flat-pack furniture takes up less warehouse space.

* Reduced shipping expenses: Compact packaging allows more items

* People are less likely to return items they’ve built, even if imperfect. Their effort justifies flaws, boosting overall satisfaction.

Ikea has hit the perfect ‘Sweet Spot’ between what to supply & what to allow customers to create.

Another example which points out the importance of hitting the ‘sweet spot’ comes from the period of 1920–40, when American food manufacturers wanted to reduce the time and effort required to make a cake. They simplified the process so much that the cooks only needed to add water and bake the cake. Unfortunately, the sales of the cake mix quickly stalled.

The manufacturers reached a psychologist named Ernest Dichter who found out that the reason for falling sales was the level of effort required from the buyers.

Making the cakes was too easy! It was so easy that people didn’t get any satisfaction from baking the cake.

People felt as if they were still buying pre-made cakes from a store.

The solution was to get the egg out of the dry mixture and allow people to add it themselves. Doing this made the sales go up again.

To hit the ‘sweet spot’ we need to aim to create a product where the level of effort is low but the perceived contribution is high.

This way the IKEA effect can be achieved for greater success.

Use the Ikea Effect In business, advice, relationships & all interactive areas & stay blessed forever.