Biases

Adding value with The IKEA Effect

By June 7, 2021 No Comments

Ever heard of the IKEA effect? It’s the reason that children love Build A Bear, but it’s also the reason that you take pride in that mediocre dinner that you prepared for yourself the other night (no offense). And it’s a bias worth being aware of for everyone – especially us interested in startups. Interested? Then read on to learn more, and find out how you can use the IKEA Effect to your advantage.

What Is The “IKEA Effect”?

The IKEA effect is a cognitive bias where consumers value products more if they created it themselves. It is named after the Swedish furniture company, famous for its ready-to-assemble furniture. Since IKEA’s products require assembly, the IKEA effect refers to the fact that their customers are willing to pay higher prices for the product.

It’s interesting to think about the IKEA effect, and its existence seems to be undeniable. IKEA requires that customers assemble the furniture, and it is one of the largest furniture manufacturers in the world. It might seem counterintuitive, but it is BECAUSE it asks customers to assemble the furniture that IKEA scaled worldwide since it was founded in 1943.

If there were one way to summarize why the IKEA effect exists, it would be that people value what they create. The effect was first identified and named thanks to a 2011 study, and the experiment involved participants that built Lego items, made origami figurines, and assembled IKEA furniture.

To read more about the science behind the IKEA effect, feel free to read the study here. The study is called “The IKEA Effect: When Labor Leads To Love” and it was published by Michael I. Norton, Daniel Mochone, and Dan Ariely. They were previously studying “effort justification,” where they noticed that subjects would value something more if it required more effort.

The Psychology Behind It

There are all sorts of everyday examples of the IKEA effect. You might not consider yourself much of an artist, but your private sketches might still be important to you, or you might have an emotional attachment to them. You could have paid professional contracts to create your basement bar, but the fact that it was a DIY project makes it that much more special to you.

If we think of the IKEA effect as a “labor of love” effect, it should be noted that it can often change like love, as well. The IKEA effect is most prominent when the labor results in a successful completion of the task. If this is not accomplished, “the IKEA effect dissipated.”

There’s also a pretty simple reason that the IKEA effect exists: most human beings want to feel competent. If we take the time to create something, then it tends to mean more to us. The paper that discovered the IKEA effect begins by talking about cake mixes in the 1950s.

Housewives were initially resistant to cake mixes because it made “cooking too easy”, so manufacturers began changing the recipe to require an egg. Companies sold more cake mixes, housewives felt capable, and it is all because of what we would later call the IKEA effect.

Startups That Capitalize Off The IKEA Effect

Some well-known companies clearly use the IKEA Effect to their advantage. The most obvious example might be the Build-A-Bear Workshop. The company sells the experience of building your own stuffed animals, and it has expanded internationally.

In fact, Build A Bear boasts over 160 million customers since it was founded in 1997. However, the company charges a premium since it is not selling a teddy bear but the unique experience of creating and assembling one with your child.

Hello Fresh is one of the biggest meal-kit companies globally, and the Ikea effect has been critical to its overall success. HelloFresh boasts millions of customers that want convenient and affordable meals delivered to their house. However, HelloFresh also leans into the idea that customers also want to feel competent. There are recipes and ingredients provided in Hello Fresh meal kits, but the meal kits still require some level of co-creation.

Consumers are willing to pay more for something that they participated in, whether it’s a stuffed animal, a cake mix, or their dinner. The fact that they completed a task makes them feel valued, and they, in turn, tend to pay more for the product or experience.

How Can You Use It To Your Advantage?

Since the IKEA effect has been identified, companies realize that consumers may want to be more involved in the process. Some businesses have realized that allowing consumers to customize their products – even in small ways – can drive sales significantly. Other organizations have also found a way to personalize their products in some form or fashion.

If you are selling a physical product, keep in mind that allowing your customers to help assemble the product means that you can probably charge more for that particular product. It’s also a win-win because your company can end up saving on assembly costs.

How else can you get customers involved in your products in a meaningful way? For example, a clothing company may offer made-to-measure attire to help customers feel more involved and empowered. It might also be worth it to find a way to provide some personalization option for your products or services from the very beginning, if possible.

However, it’s also critical to note that making the experience TOO difficult can make the IKEA effect backfire entirely. Your customers will likely go frustrated, and that additional value no longer exists.

While it might be a bit counterintuitive to some business owners and marketers, the truth is that people value something more when there is time and effort invested. Thus, the IKEA effect continues to help many companies profit handsomely – not only because their customers value their product because of the DIY aspect, but also because they feel happier about completing the task or customizing the product.

The Takeaway

It’s no secret that businesses are more aware than ever that consumers are looking for personalized experience. The IKEA effect proves that customization, or co-creation, of any kind, can help you improve your profit margins.

As Dan Ariely himself told Insider in 2016:

“These days, life is so complex, projects have so many people involved, it’s very hard to feel a sense of ownership, especially over the whole thing. … So many people do so many small things. The final product is a combination of lots of effort. But having a true IKEA effect, where you say, ‘This is mine,’ is a little harder.”

Kim Hvidkjaer

Kim Hvidkjaer

I’m a father, author, speaker as well as multi-disciplinary serial entrepreneur and investor. I started my first company at age 19, and have built and invested in companies in innumerable industries.

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