Founded in 1943 by Ingvar Kamprad, IKEA sells ready-to-assemble furniture, appliances, and home accessories. What started as a vision to bring interior design to the masses grew to 433 IKEA stores operating in 52 countries. It’s been the world’s largest furniture retailer since 2008. But did you know that IKEA uses psychology to help drive that success?
Principles like Scarcity, the Endowment Effect, and the Priming Effect laid the foundation for the company’s success.
How IKEA Used Psychology to Create Addictive Products
1. The IKEA Effect
This effect states that people attribute more value to products they’ve helped create. In other words, labor leads to love. Researchers described the experiment that gave the IKEA Effect its name this way:
“Two groups were given IKEA boxes, with one group given fully-assembled versions, and the other given unassembled boxes, which they were told to put together.
This second group were willing to pay much more for their box during the subsequent bidding process than those with pre-assembled boxes.”
Inspired to keep co-creating, customers created a mini-industry of “IKEA hacks”. These projects transform the basic furniture into unique reformulations. People have even created spin-off businesses that design accessories to augment IKEA furniture. For example, Semihandmade makes custom doors that are compatible with IKEA cabinets.
How the IKEA Effect Helped Grow the Brand
To understand how the IKEA Effect impacts business performance, consulting firm Iris created a Participation Brand Index.
According to their research, businesses that encourage co-creation with customers outperform their competition. For example:
- Investing in the top 20 brands in the Participation Brand Index over three years would have seen 4x higher ROI than investing in the brands at the bottom of the ranking.
- Investing in the top 10 brands in the Participation Brand Index over three years would yield a return 2x higher than the S&P 500.
2. The Choice Overload Effect
This principle states that while some choice can be good, too much choice will overwhelm customers and become a barrier to sales.
According to research from Episerver, 46% of customers have failed to complete a purchase online due to overwhelming choices. Compare that to companies like Procter & Gamble, who found that a decrease in the variety of Head & Shoulders shampoos resulted in a 10% increase in revenue.
The negative effects of choice can be much worse than a missed sale. Research shows that when there are too many options, customers feel anxious, will disengage, and can even become depressed.
How Avoiding Choice Overload Helped IKEA Grow
Most IKEA furniture comes in a limited variety of colors and sizes. For the business, standardizing choice allows for production efficiencies that lower costs.
For customers, limiting choice makes them more likely to buy rather than browse. Constraining options to black, white, and oak finishes simplifies the buying process.
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How IKEA used Psychology to Create an Unforgettable Experience
If you’ve visited an IKEA store, you’ve probably experienced going in for one or two things, then walking out with a full cart. That impulse buying is due to two features of the store layout: its one-way system and a circular design.
1. Scarcity Effect
“When our freedom to have something is limited, the item becomes less available, and we experience an increased desire for it.
However, we rarely recognize that psychological reactance has caused us to want the item more; all we know is that we want it.”
How Scarcity helped grow the brand
Because IKEA’s store design uses a one-way traffic system, it creates a feeling of scarcity. The design forces customers to put any item that catches their eye in their cart right away.
Why? Let’s say you stop to consider a lamp but then decide not to put it in your cart. If you change your mind, the store design makes it inconvenient to go back and get the lamp. You’ll have to walk through the entire store to get back to that section. No small feat when an average IKEA store is around 300,000 square feet or five American football fields.
Scarcity Effect and the Thrill of Novelty in Bulla Bulla
IKEA uses a merchandising technique called “bulla bulla” to create the impression that an item is cheap. In bulla bulla, a bunch of items are jumbled and stacked in large bins to create the impression that there are lots of items available. And because there are so many items available, they must be cheap. Often these items are intended to be impulse buys and are priced cheaply in comparison to the items surrounding them.
Why do our brains equate volume and disorder with cheapness? It’s down to a combination of the Scarcity Effect and the thrill of novelty.
Bulla Bulla merchandising is an example of scarcity at work, but not in the way you’d think.
If scarcity means that having fewer available items causes us to value them more, then the opposite can be true as well. An abundance of items signals to customers that this item is more available and therefore, should be cheaper.
On its own, this roundabout use of scarcity is probably not enough to drive sales. But, the bulla bulla technique has another trick up its sleeve. The brand is always changing out these items for something new, cheap, and exciting.
Why does this work? It’s down to the thrill of novelty.
What is the thrill of novelty?
When people discover something unexpected or new, our brain releases dopamine — the same chemical associated with falling in love. That means when you see a bulla bulla stack of unique, cute, cheap plush toys your brain makes you happy.
This one-two punch of abundance and novelty, contrasted with a streamlined selection of higher-priced furniture, is what creates the bulla bulla appeal.
2. The Endowment Effect
The Endowment Effect states that people place a higher value on items that they own or intend to buy. Ownership, or intent to own, create emotional bonds that people don’t want to break.
“Ownership” creates emotional bonds that people don’t want to break
How the Endowment Effect helped grow the IKEA brand
When a customer puts something in their cart they begin to dream about their future with that item. Fantasizing about how it will look in their living room, and how much guests will admire it. Once customers create these so called “pre-memories” they become emotionally bonded to the item.
Even the simple act of touching a product can trigger this feeling of perceived ownership, that signals the Endowment Effect.
This Endowment Effect is incredibly effective at driving sales. Once you bond to an item, you don’t want to have to walk back through that 300,000 square foot, one-way store to get it. Instead, customers are more likely to put it in their cart “just in case”, then never take it out again.
As Alan Penn, professor at University College London, put it:
“[IKEA] get you to buy stuff you really hadn’t intended on. And that, I think, is quite a trick.”
3. Environmental Priming: The secret psychology of meatballs
First demonstrated in the 1970s, priming is when our brains call on unconscious connections in response to a stimulus — also called primes. In other words, what we’re exposed to now changes our behavior later.
Priming Effect: What we’re exposed to now changes our behavior later.
Priming is passive, subtle, and people aren’t aware it’s happening. And it can be activated with almost any kind of stimulus. Images, words, smells, light, sound, tasks, touch, or temperature can all unconsciously affect our choices.
How the Environmental Priming Grew the IKEA Brand
At first glance, it might not seem like IKEA’s food has an effect on their furniture sales. But according to the company’s research, 30% of its shoppers come to the stores just to eat. In 2017, the company made $2.24 billion from food sales. That makes them the tenth-largest food retailer in the world.
The food at IKEA food doesn’t only have an impact on the bottom line. It also has a priming effect on how customers think, feel, and act in the store. Eating primes a state of happiness, and that mood can affect how much customers spend and what they buy.
As Gerd Diewald, former head of IKEA food operations told Fast Company:
“We’ve always called the meatballs ‘the best sofa-seller…
When you feed them, they stay longer, they can talk about their [potential] purchases, and they make a decision without leaving the store.”
4. Sunk Cost Fallacy in Store Locations
IKEA store locations tend to be giant warehouses located just outside of urban centers. For its mostly younger, city-dwelling customer base, that represents a significant challenge — getting to IKEA. For those who don’t own a car, there’s a cost in getting the furniture home as well. They’ll have to either rent a van from IKEA, rent a car themselves, or get it delivered. However, IKEA does not offer free shipping, and the cost for shipping a flat-packed desk is between $40 and $60 in the United States.
But interestingly, inconvenient store locations can work in IKEA’s favor. Because people have to spend time planning their trip, researching public transport routes, or even renting a car to get to IKEA, they become more committed to spending money once they make it to the store. Why? It’s down to a cognitive bias known as the Sunk Cost Fallacy.
What is the Sunk Cost Fallacy?
The Sunk Cost Fallacy states that people are more likely to commit to an activity if they’ve made a significant financial or time investment. For example, a business might spend millions on developing a product that customers don’t want. But because a middle manager has committed money to the project, they go ahead with the product launch.
New Coke, perhaps the most famous marketing mistake in history, could be seen as an example of the Sunk Cost Fallacy. The brand dedicated $4 million to develop the product, then doubled down on marketing once the product launched. Eventually, they decided to pull New Coke from the shelves and destroy more than $30 million in unwanted products. Had they admitted the product wasn’t viable early in the process, they could have saved millions that were spent due to the Sunk Cost Fallacy.
How does the Sunk Cost Bias help grow the IKEA brand?
Research about the IKEA customer experience found that most people plan their trip — some customers even have to spend a night away to visit the store. That makes IKEA seem like a get-away from ordinary life, like a mini-vacation. And once customers get to IKEA, they spend a long time at the store, where they can discover products. Because of the sunk costs of so much time, money, and effort, customers feel they have to make the most out of their trip. In other words, if they see something that strikes their fancy, they are more inclined to buy it.
5. Anchoring in the “Open the Wallet” section
Every IKEA store has an area internally dubbed the “Open the Wallet” section. A former IKEA employee named Rob described it this way:
“[This area is] a lot of very cheap items, things that look practical, useful, something you didn’t realize you wanted.”
“Open the Wallet” is stocked with plastic trash cans, hampers, ice trays, and other cheap household items, priced under $5.00. This section’s location varies from store to store but is usually toward the middle of the customer journey.
On the surface, “Open the Wallet” doesn’t seem different than any other store’s accessories section. So why is this area so good at driving sales? It’s not just because the items are cheap. It’s also down to a behavioral science principle known as the Anchoring Effect.
What is Anchoring?
The Anchoring Effect states that the first information we see influences our later decisions. We anchor to this information without being consciously aware of its effects. This effect has been rigorously researched in situations like home prices, legal judgement, and purchasing decisions.
How does Anchoring help IKEA sell more items?
Customers anchor to the price of the sofa they came in to buy, and in comparison, $5 trashcans in the “Open the Wallet” section look like a fantastic deal. As author Lauren Collins described it:
“[In ‘Open the Wallet’ there are] an abundance of cheap goods — flowerpots, slippers, lint rollers — [that] encourages the customer to make a purchase, any purchase.”
IKEA’s perspective is that customers either buy nothing or a lot. If the brand can get you to put a few cheap items in your basket, you’re much more likely to purchase a bigger product, like a sofa.
The Bottom Line
There are many behavioral science and psychology principles at work in IKEA’s experience. Whether the company knows it or not, IKEA uses psychology to help make their brand more engaging.
If you’re looking to apply some of these principles to your experience, ask yourself:
- IKEA Effect: If there’s a problem area in your product experience, ask yourself if customers can be more involved in the process. Do they feel left out, like there’s no transparency, control, or participation?
- Choice Overload Effect: How can we limit our options to maximize sales?
- Scarcity: Is there a way to design our experience so that items seem to be available, but only for a limited time?
- Endowment Effect: How can we get customers to imagine their futures with our products? Is there a way they can make a small, low stakes emotional commitment to our brand or product?
- Environmental Priming: Are there moments where we can prepare our customers to buy by influencing their sensory environment or mood?
If you enjoyed this article, check out my podcast episode about IKEA: