IKEA Effect

Published on :

21 Aug, 2024

Blog Author :

Edited by :

Reviewed by :

The IKEA effect refers to the bonding individuals share with something they have tried to create, assemble, or work on. It explains that when people work on a particular thing to design, join, construct, or, in general, put their physical labor to complete, they value it more than something they bought quickly.

The prominent Swedish furniture company IKEA is well-known for providing unassembled furniture kits that consumers must assemble themselves, which is how the name "IKEA Effect" originated. Companies can leverage this bias by involving customers in the customization or creation of products. Moreover, it also fosters a sense of ownership and attachment.

What Is The IKEA Effect?

The IKEA effect signifies the increased value people put on a particular thing when they induce physical labor and human effort into it.
The Swedish furniture company of the same name named this effect after itself. Therefore, allowing its customers to take their purchased furniture home and assemble it themselves.
Moreover, the IKEA effect psychology is observed in many fields and areas of work and highlights the human psychology of valuing things compared to others in context to effort.
In general, it is also suggested that people avoid falling for it as it can influence the mindset for an unrealistic outcome.

IKEA Effect Explained

The IKEA effect refers to a simple theory of people valuing things more when involved in their own manufacturing or process efforts. This is mostly in terms of human effort and physical labor. The IKEA effect explains this attachment. The term was coined in 2012 by Psychologists Mochon, Ariely, and Norton in their Harvard Business School (HBS) publication.

IKEA allows customers to visit their store, buy their favorite furniture, and take it home in part or in a disassembled way. The customer then reaches the home and puts in the effort to join the pieces, create the furniture, and properly install it in their homes.

Therefore, this effect is also connected to the endowment effect where people tend to assign a higher value to objects simply because they own them. This simple idea invokes an IKEA cognitive bias in the customers' minds that they have created it, and hence, they start to value them more. People often like to put in the extra effort to feel authority and customized satisfaction. There are many examples, like people who genuinely like to cook, set things in order, clean their room, or narrate the exact type of coffee they want in a cafe. All these are general examples of adding value to simple things. It is the same reason the IKEA effect marketing plays a critical role in businesses and multinational brands.

Hence, businesses can leverage this effect by providing opportunities for customer involvement in the creation or customization of products. Thus, fostering a stronger connection between the consumer and the product.

Examples

Let us check out these examples:

Example #1

Let's say Edward runs a bike garage. He is good at his work and is reputed in the local market. Many residents are his regular clients. Lately, when he visited a neighboring village, he found that a scrap yard had many parts of a regular bike, all lying here and there. Each part was dusty and corroded. Edward convinces the scrapyard owner to sell those parts and return them to his garage.

Edward now works day and night to assemble the bike in two weeks. He puts in all the effort and makes the bike ready. When it comes to selling the motorcycle, Edward puts a higher selling price for it. He is not ready to sell it at a lower price. Technically, the vehicle is not an antique or a rare model. Still, just because Edward has invested his time and effort into assembling it and making the bike ridable, he is convinced that the bike should be sold for a higher value.

All the employees of Edward's garage try to tell him he has overvalued the bike, but he is not ready to lower the price. This simple psychological belief is an IKEA effect example. Edward values the motorcycle more than any other vehicle he has in his garage and is not ready to sell it at a regular and fair price.

Example #2

uppose Jennifer is a college student and university topper. She is studying engineering and makes notes every year from the lectures she regularly attends at college, including the books she refers to and the online videos she watches. At the end of every semester, her juniors ask her for her notes, but she refuses to give or share them. She is ready to help her juniors select books or refer to good audiobooks but is reluctant to give her notes.

Some juniors are ready to pay Jennifer for her notes, but she values them because she puts in enormous time and effort to write them. It is a simple IKEA effect example where the notes give Jeniffer a sense of ownership and customized satisfaction that she is unwilling to give away.

How To Avoid?

Most of the time, due to the IKEA effect, the valuation of a product becomes complex, and so to avoid the IKEA effect -

Customers must understand that they are getting emotionally attached to the product and must practice keeping their feelings aside.
People should set boundaries when working or getting involved with the product. This is because the more they work, the more they get attached to it; people should take breaks and restrict themselves from getting personal with it.
Most of the time, the IKEA effect consumes people and ignores the bigger picture. The customer has to understand that, ultimately, it is just a product and must treat it like that. When a customer does this, they seek the ultimate goal rather than just focusing on the product.
People tend to value themselves more. In such cases, it is highly advised to take second opinions from their relatives and friends when valuing a product as their perspective contributes to more objective than emotional feedback.
Customers must understand that they have only partially created the item meant to be like that and should take little credit for it.
Getting external help will decrease the interest and labor in the assembly process, ultimately decreasing the customer's value of the product.

Frequently Asked Questions (FAQs)

What is the IKEA effect on economics?

The IKEA effect in business and economics is that when people add effort to a product, they value it more. Labor alone plays a significant role in increasing the valuation. Therefore, companies tend to involve the customers in the manufacturing process. It has to be a perfect balance ensuring that the customer is aware of them putting in effort and, at the same time, making sure that they play their role just enough and not fail to complete the task.

How to use the IKEA effect?

Three factors come into play when using the IKEA effect -

- Effort
- Display of competence
- Completion

The IKEA effect describes that more than the price, the customer realizes more value to the product when they try to complete it. Hence, the IKEA effect uses a customer's labor to convince them and make them add more value to the product.

How does the IKEA Effect relate to customer loyalty?

By involving customers in the creation process, businesses can strengthen the emotional connection between the consumer and the product, potentially increasing loyalty and word-of-mouth recommendations.