I would have liked to have heard furniture maker IKEA's elevator pitch. "We build giant stores that sell inexpensive Swedish meatballs and modern-style furniture that customers have to put together themselves!" But it worked. IKEA in its last fiscal year reported sales of $29.3 billion, with net profit climbing 6 percent year-over-year in the midst of worldwide economic turmoil.
Why do shopper wait in long lines to buy stuff that needs assembly? Recent research from Harvard Business School's Michael I. Norton and colleagues Daniel Mochon (University of California at San Diego), and Dan Ariely (Duke) may hold the key. Their data also helps explain the reason behind several common organizational downfalls.
IKEA isn't the only company that has customers play a role in designing their own products, of course. According to the researchers, "Build-a-Bear offers people the 'opportunity' to construct their own teddy bears, charging customers a premium even as they foist assembly costs onto them, while farmers offer 'haycations,' in which consumers must harvest the food they eat during their stay on a farm."
What gives? In the researchers' paper The IKEA Effect: When Labor Leads to Love, the message is clear. Consumers value things more when their own effort is required to build them. There is enjoyment in showing off our "creations" to others. Even if I do a crummy job putting it together -- you should see the Leaning Bookcase of Pisa I built -- I value products that I assemble more than those I don't. This overvaluing holds even for consumers who don't profess an interest in build-your-own.
There is an important caveat. In order to overvalue do-it-yourself products, it seems that assemblers have to be able to complete them. So a GM strategy of having car buyers assemble their own vehicles probably wouldn't work well.
There are general lessons for organizations from this work as well. The overvaluation that occurs as a result of the "IKEA Effect" can be seen at work in two key organizational pitfalls: sunk cost effects and the "not invented here" syndrome. According to the paper:
"Those ideas that managers conceive of and labor on from the very beginning are those most prone to the overvaluation that results from the IKEA effect, suggesting that our intervention that eliminated overvaluation due to labor -- forcing participants to "un-complete" their creations -- is exceedingly unlikely to be one adopted by managers. While markets may sometimes correct these erroneous overvaluations, the IKEA effect may be resistant to any intervention, suggesting that the 'not invented here' syndrome may be here to stay."
Do you see the IKEA Effect resulting in bad decisions at your work? How do you break through the overvaluing of our own work?
- Educate Your Clients
- Make Your Customers' Wait Times Less Painful
- 'Good Enough': The Next Business Trend You Need to Know