The IKEA Effect: When Creation Leads to Overvaluation

When instant cake mixes were introduced in the 1950’s as part of a broader trend to simplify the life of the American housewife, housewives were initially resistant: the simplicity of the mixes made women feel self-indulgent for using them, and as a result, women weren’t able to enjoy the feeling of accomplishment which comes with the manual labour of baking a cake. In subsequent years, manufacturers made changes to the cake mix recipe, requiring an egg to be added by the consumer. This way women could enjoy the emotional rewards of presenting a homemade cake, while still benefitting off the simplicity of the convenient baking-mix model. Following this modification to the recipe, the popularity of the cake mixes soared, highlighting how crucial infusing the product with labour was to the products’ success. This case makes up the groundwork for a behavioural phenomenon known as the “IKEA effect”, given its name by the Swedish manufacturer and furniture retailer IKEA, which sells many items of furniture that require assembly. 

Over the years, numerous practical experiments and investigations have been carried out on the IKEA effect, demonstrating its value-adding ability on products. In 2011, Behavioural Economist Dan Ariely conducted an experiment on 52 participants at a university in the Southeastern United States, in which participants were instructed to assemble a black IKEA storage box. Some participants were given an unassembled box with assembly instructions, while other participants were given an already-assembled box and had the opportunity to inspect it. After the initial stage — either building or inspecting the box — the participants were asked to make a bid on the boxes. As expected, builders bid significantly more for their boxes (M = $0.78, SD = 0.63) than non-builders. Thus, while both groups were given the chance to buy the same product, those who assembled their box were willing to pay a 63% premium compared to those who were given the chance to buy an identical pre-assembled box. The ruling was simple — active participation in the assembly of items induces greater liking for the fruits of one’s labour.

On a commercial scale, companies have shifted their principles in recent years from viewing customers as recipients of value to viewing them as co-creators of value. This shift in perspective has occurred due to the impressive impact on business performance that can be induced by instilling the IKEA effect within products. In 2017, marketing agency Iris Worldwide computed a Participation Brand Index, revealing how world-leading brands use customer-participation to drive commercial performance. The index surveyed and analysed data from 7,000 consumers in the US, Europe, and Asia, using 25 different levers of participation to demonstrate the impact each has in driving business performance. The findings showed that in 2017, an investment in the top 20 brands in the Participation Brand Index would have seen 4x higher ROI than investing in the brands at the bottom of the ranking. The correlation between Participation Leveller (to what extent the brand encourages consumer participation) and Performance Outcome (how much more consumers are willing to pay for the product as a result) is seen in Figure 1. In short, brands which integrated a participative touch into their products were able to sell their products for higher prices, thus increasing profit margins.

Numerous studies have hypothesised a number of psychological and emotional mechanisms which underlie the IKEA effect, integrating insights from psychology, neuroscience, and microeconomic theory. The conclusions of these studies suggest the IKEA effect happens due to the (sometimes illusionary) belief that consumers are saving money through self-assembly, coupled with a psychical attachment to products which consumers participate in.

The first rationale which has been taken as exposition for the IKEA effect follows the consumer perception of themselves as efficient, effective, and generally as “smart shoppers” when participating in the assembly of products. Varying from the classical smart shopper model, product-participation is not done in the form of seeking price promotions, but through actively engaging in the construction of the product itself. By configuring products independently, consumers are under the illusion that they have saved money through the time-money relationship. However, this is not the case, as the chosen course of action (assembling the product independently) has no benefits, since firms leverage the IKEA effect by making consumers pay inflated prices for products (Refer to Figure 1).

The second mechanism which underpins the IKEA effect draws on the findings of Csikszentmihalyi and Rochberg-Halton, who propose that we invest “psychic energy” in an object to which we have dedicated our efforts, time, and attention to. Because this object has grown and evolved from the self, this energy, now housed in the product, is seen as a component of the individual. Hence, we possess a greater attraction to it. Furthermore, this proud sense of accomplishment satisfies a deep-seated human desire for sensations of competence and efficacy. As a result, we affirm that developing a product oneself prompts feelings of accomplishment, which are subsequently closely linked to the product, leading to a higher valuation of the product. 

These two underlying mechanisms work in congeniality, leading consumers to overvalue their labour. However, while the IKEA effect can be positively applied to encourage proactivity on an individual scale, on a commercial scale, the IKEA Effect can be conveniently leveraged by businesses to overcharge for products. So, perhaps next time you are out furniture shopping, you may ask yourself whether the Fjädermoln sofa you’re after is such a bargain after all.