April 18, 2023

I'll always love IKEA's retail magic

There’s a chance I might be moving soon. I’ve only truly moved a handful of times in my life, and it’s always a bittersweet pain in the butt. On the one hand, I get to design a new space, which is a ton of fun – but that also means having to move all my stuff into a new space, which is not as much of a joyride.

In anticipation of this move, my wife and I recently popped into a nearby IKEA to grab some meatballs and browse through a few potential design ideas. Walking the aisles, I found myself enamored once again by this somewhat magical brand.

Rapidly approaching two decades of living in and furnishing a place on my own, we’re now fortunate to be at a place where we can afford to buy furniture from other retailers, and we often do just that. But I don’t care if I’m a billionaire; I’ll always have a soft spot in my heart for assembling a flat packed shelf that just works.

I’m not alone. IKEA sold 44.6 billion Euros of stuff in 2022, a company record. By some measures, it’s the 10th most valuable retail brand on the planet. IKEA uses 1% of global lumber production. And according to reports, 1 in 10 Europeans are conceived in an IKEA bed. IKEA is massive.

Priming Effect

Those meatballs I mentioned before are one of my favorite bits of pricing psychology. It’s called priming.

How often do you buy lunch? A few times a week, perhaps? You have a sense of what lunch costs: $10, maybe $15 or even $20 if you find yourself in midtown. So when IKEA rings up your lunch as $5, you feel like you’re getting a steal.

But then, how often do you buy a sofa? Maybe once or twice a decade? You don’t instinctively know what a sofa costs in the same way that you know what lunch costs. Maybe they’re usually $500. Or maybe they’re $5,000? In the absence of this knowledge, we substitute what we know about a plate of meatballs: well, that was a good deal, so this couch is probably a good deal too.

Those cheap meatballs, in addition to giving our feet a break and our brains a boost of blood sugar, prime us into thinking positively about the value we’re getting with everything else the store offers. (Oh, and they help make IKEA the world’s 6th largest food chain.)

IKEA Effect

Even accounting for that priming, the tables, dressers, and desks that IKEA sells are actually great values. That’s largely thanks to two things: a logistics innovation known as flat packing and the resulting DIY nature of transporting and assembling the end product.

By breaking their furniture into component pieces and densely (flat) packaging them into easily stacked boxes, IKEA can fit more products on its ships, trucks, and warehouse shelves than a traditional retailer that deals in fully-assembled items.

The labor expense IKEA then avoids by having customers assemble their own furniture is certainly a cost savings, but it also results in what researchers Michael Norton and Dan Ariely call the “IKEA effect,” where consumers disproportionately value things they had a hand in creating. The bookcase that comes fully assembled in nice, but the one that I built with an Allen wrench and my bare hands is an accomplishment.

Norton and Ariely’s experiments showed that some customers would pay up to 62% more for the same item if they had a hand in building it. This is how they describe the concept:

“In a series of studies in which consumers assembled IKEA boxes, folded origami, and built sets of Legos, we demonstrate and investigate the boundary conditions for what we term the “IKEA effect” – the increase in valuation of self-made products. Participants saw their amateurish creations – of both utilitarian and hedonic products – as similar in value to the creations of experts, and expected others to share their opinions.”

This feeling of ownership is related to another iconic retailer’s peculiar behavior. Employees at the Apple Store are instructed to keep all laptop screens open at precisely 76°, which is just a little uncomfortable for viewing while standing up – and which prompts customers to adjust them downwards. By grabbing hold and manipulating the product, you’ve customized it in the slightest way possible, creating a faint sense of ownership in the process.

And a lot more

IKEA’s retail magic doesn’t stop there. The stores are designed as mazes to unfold in a linear path – prompting you to feel a sense of urgency as you pass each section for the only time. Limiting choices by only carrying a small set of colors helps you avoid the “paradox of choice” and makes you feel more confident in your ultimate selection. The bakery pumping out sweet cinnamon buns just so happens to be right next to the registers, softening the blow when you have to swipe that credit card.

Will we buy everything from IKEA while we furnish our new place? No. But I definitely see some more Swedish meatballs in my future.

About the Author

Ben Guttmann ran a marketing agency for a long time, now he teaches digital marketing at Baruch College, just released his first book – Simply Put, and works with some cool folks on other projects in-between all of that. He writes about how we experience a world shaped by technology and humanity – and how we can build a better one.

Get my new book, it just came out.

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