🧠 The IKEA Effect

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🧠 The IKEA Effect

It’s 1943 in a small Swedish town, and a 17-year-old kid with less than $100 to his name just opened his first catalog furniture store.

The first official IKEA store

This is the first IKEA - The global DIY furniture store everyone is obsessed with.

In 2023, IKEA made over $53B in revenue.

With over 860,000,000 store visits worldwide, and over 3.8B website visits, we can’t help but wonder…

Why are people so crazy about IKEA?

Is it their Swedish meatballs?

Is their inexpensive furniture?

Or do people find a weird joy in spending a day wandering a warehouse for a heavy $399 desk in a box?

The answer?

The IKEA effect - A psychological hack that IKEA has discovered to work less and charge more.

Let’s talk about what that is and how you can apply it to your business.

  • 🪑 The Story Of IKEA

  • 💰 The Backwards Business

  • 🥷 The Billionarie’s Secret Weapon

Read Time: 5 min 27 sec

🪑 The Story Of IKEA

Ingvar Kamprad founded IKEA at 17 years old. At the time, IKEA was a magazine that sold everything from picture frames to furniture.

IKEA was founded in Småland, a small Swedish town with a population of less than 10,000.

Most did not have the money to spend on furniture which was a problem because quality furniture was expensive to make.

So Kamprad had two choices…

  1. Move to a larger city where he can continue to sell expensive furniture

  2. Cut his prices and sell low-quality furniture.

Neither sounded appealing.

So Kamprad had to find a way to lower prices, cut costs, and maintain his furniture quality.

“Why are beautiful products only made for a few buyers? It must be possible to offer good design and function at low prices." – Ingvar Kamprad’s journal

That’s when Kamprad designed the LÖVET table - A 4 piece table packed in a flat box.

To this day, the LÖVET table is the fastest item to sell out at IKEA.

The invention of the LÖVET table did 3 things for IKEA:

  1. Lowered shipping and storage costs

  2. Eliminated assembly costs

  3. Allowed them to store more tables at once

Kamprad didn’t know it yet, but this table is the reason that IKEA is now a $16B business.

After the success of the LÖVET table, Kamprad redesigned his entire business.

Instead of selling ready-made furniture, IKEA showcases its furniture in showrooms.

When customers see what they want, they can take it home in a prepacked box with assembly instructions.

The first IKEA showroom

Within 5 years of the switch, IKEA opened 2 new stores around Europe.

Within 10 years IKEA had 13 locations across Europe, Australia, Asia, and North America.

Today, IKEA is the #1 furniture retailer in the world.

But none of this answers the big question….

Why do IKEA buyers prefer boxed furniture that requires hours of setup instead of ready-made furniture?

Isn’t the game of business to make the customer experience as effortless as possible?

Well, I’m glad you asked…

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💰 The Backwards Business

Let’s say you want a bookshelf from IKEA. Here’s what your Saturday looks like...

8AM - Drive to the nearest IKEA

9AM - Wait in the growing IKEA line at the front door to be one of the first inside

10AM - IKEA opens

10:05AM - Go up the IKEA escalator to the showroom floor and look through 50+ bookshelves

(The average shopper spends 2 hours on this floor)

IKEA showrooms are so large that most customers need a map

12PM - Grap a few Swedish meatballs for lunch at the IKEA cafe

1PM - Go down the escalator to pay for your bookshelf in a box

2:00PM - Drive home

3:00PM - 6PM - Put your bookshelf together

With the average IKEA able to fit 5 football fields inside, IKEA is an all-day experience that does not finish when you get home.

To business owners, selling an incomplete product is a bit backward.

We’re told that the easier the product is to buy and use, the more customers will pay for it. But for IKEA, this couldn’t be farther from the truth.

Why?

Participants were given one of three assignments, all using the same product:

  1. Build a set

  2. Build a set, then take it apart

  3. No assignment. They were given a pre-built set.

Each participant was asked to place a bid on their set and one built by a professional.

The results?

Those who built their own set bid the highest on their set, even if the others were built by professionals.

Those who built their own set and had to take it apart were less likely to place a high bid on their set compared to Group #1.

Those with pre-assembled sets bid the lowest on their set.

This is the IKEA Effect.

Buyers are willing to pay more for products they put effort into than products that don’t require effort, even if they’re the same product.

However, this only works if the effort creates a sense of accomplishment.

(Turns out this effect applies to everything from relationships to employees!)

What does this mean for you?

The more you require buyers to invest in your product the more they will value it, meaning they will pay more or see better results.

But they have to see results quickly. If they do not see results, they will consider it time lost.

We see this concept everywhere from some of the biggest brands around…

More on this

🥷 The Billionarie’s Secret Weapon

The IKEA effect has made IKEA into a $16B brand. Here are 3 other brands that use the same secret weapon to make billions.

#1 - Lego

There’s a reason LEGO doesn’t sell you the Harry Potter replicate pre-built.

Instead, they send you a 6,020-piece set.

This also shows on their YouTube which is filled with ‘Build With Me’ live streams and games where you can build Lego sets online.

#2 - Betty Crocker

In the 1950s, Betty Crocker’s cake mix had 1 step: Add water.

The thought was that it would be convenient to not need flour, sugar, eggs, etc.

Turns out, the recipe was too convenient and women felt ‘guilty’ for not putting in the effort.

So Betty Crocker added an extra step: Add 2 eggs.

Within a few months, sales soared.

#3 - Build-A-Bear

How much does a stuffed bear cost on Amazon?

About $15-$20.

Yet, Build-A-Bear charges $40 for an incomplete bear (not including any accessories).

Parents pay for their kids to put the effort into building a bear, dressing it, and picking a name. Not the product itself.

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