The IKEA Effect : Labor leads to Love

The global favorite furniture store, IKEA is a Swedish MNC that marked a revenue of 47 billion euros in the FY 2023. As it already stands as a market leader in various countries including India, the company is also expecting its online demand to go up in the coming years. Ikea till date stands as the world's largest furniture retailer with 445 stores around the globe.  

Its significant competitors are Wayfair, Amazon, Tesco, American Woodmark and Home depot. And the average revenue these sellers is significantly lesser than what ikea makes. Ikea makes more revenue and enjoys a larger customer base than many other premium furniture retailers like Ashley, Royaloak and Pottery Barn. 

Ikea has always followed a low cost, highly flexible business model. Ikea's stores are designed in maze-like model, which makes the customer see most of the store in order to exit. They use decoy effect in their pricing strategy. And one popular thing about its furniture is how they are not typically pre assembled. While conventionally, a furniture retailer sells a product in this way : Customer places an order, furniture is shipped from a warehouse to the store and then the product is delivered to the customer. 

Whereas, Ikea's furniture mostly are not pre assembled. The customers get the loose parts along with a manual in order to assemble it by themselves. 

Ikea follows an interesting strategy that customers associate an emotional connection towards the products which they create by themselves, assemble or customer. When a person makes something, no matter how big or small, he develops a natural cognitive bias towards it. This in the business world is IKEA effect which has amazingly worked out for them. Ikea has capitalised on the very idea of DIYs (Do It Yourself). When customers buy furniture from ikea, the assembling process requires them to take their time out and put it together with their loved ones. And that so assembled furniture now is not just a mere table or a chair but also the memories which were created in the process.  

This way that furniture always holds a special place in the customer's perception. The more the work you put into something, the more the value it holds: "labor leads to love". 

And this simple technique also cuts supply chain costs as the furniture are arranged as stacks and can be transported without the need of high capacity vehicles, and it saves storage space as well. For the customers as well, transportation costs are saved as the furniture can simply be taken home in a car.

Ikea effect is one example of many other such genius strategies that brought along the success, the company enjoys today. By understanding what customers want, and what adds value to them, making timely analysis will help the company to continue its market position and stay relevant in the industry.