How the IKEA Effect Changed Marketing - What MBA Students Can Learn
HelloFresh and Blue Apron meal kit delivery services. CafePress t-shirts and coffee mugs. Build-A-Bear stuffed animals. Amateurish YouTube videos and new iPhone apps. Swedish home furnishing kits sold in huge warehouses.
What could all these trendy products possibly have in common with Betty Crocker cake mixes?
Compared with 2020’s America, where keeping up with the latest technology has become challenging for most of us, instant cake mix technology hasn’t changed all that much since the 1950s. Only about a decade before, the earliest generation of production lines applied new flour and egg dehydration technologies to cake mixes. For the first time, these products relieved customers of all the tedious drudgery involved with home baking using ingredients prepared from scratch.
The only problem: the cake mixes didn’t sell.
Disappointing sales troubled General Mills, which sought to propel its relatively new Betty Crocker brand into a household name. So the firm hired one of the fathers of modern consumer behavior: the Austrian psychologist and marketing research expert Ernest Dichter.
Dr. Dichter’s innovative track record impressed General Mills. From customer interviews, he learned that consumers associate motor vehicles with power. To emphasize that connection, Dichter wrote the famous “Put a Tiger in Your Tank” tagline for Standard Oil’s Esso division, which the company used continuously until it rebranded as Exxon during the 1970s.
Then Dichter invented the “living laboratories” that we now call focus groups. Insights from these panels prompted him to encourage Chrysler’s leap as the first American automaker to advertise cars in womens’ magazines. That recommendation prompted a Plymouth ad campaign that ignited record sales.
Other focus groups for Mattel with young girls gave him ideas—radical at the time—for a glamorous, sexy fashion doll. Yes, Dichter even invented Barbie.
But the results from Dichter’s Betty Crocker focus groups seemed so counterintuitive that they surprised the General Mills executives. Like most marketers during the years just after World War II, they had assumed that greater convenience delivered value that always translated into better sales.
They were wrong. Instead, the instant cake mixes were too easy to prepare. In fact, they proved so easy that buyers felt slighted. Customers perceived that the mixes actually devalued their cooking skills and industriousness. The focus group participants essentially explained to Dichter that they felt little sense of “ownership” over the cake they eventually pulled out of the oven. In other words, they never felt engaged or invested during the baking process.
Despite all its capital investments in dehydration equipment, Dichter recommended the company delete the powdered egg ingredients, then require customers to whip and add fresh eggs instead. He was right once again, and sales took off. Notice how in this messy yet fascinating 1950s Betty Crocker TV commercial, General Mills hypes the benefits of all that “fresh egg goodness” in baking the perfect devil’s food cake—ironically, goodness never found inside their product’s packages.
To be sure, it wasn’t as if Dichter had uncovered a secret completely unknown within the industry. Entitled “Dehydrated Flour Mix and Process of Making the Same,” the famous 1935 U.S. patent that launched the instant cake mix industry leads off with this passage:
In our aforesaid co-pending applications and patents we have pointed out . . .that they contain dried or powdered eggs which, while entirely satisfactory in many ways, are considered by some as inferior material. The housewife and the purchasing public in general seem to prefer fresh eggs and hence the use of dried or powdered eggs is somewhat of a handicap from a psychological standpoint.
What’s more, a competing product introduced at about the same time as Betty Crocker’s had also required fresh eggs. This was the new cake mix line introduced by Duncan Hines, a blockbuster baking brand within the Procter & Gamble family for decades that today continues under Conagra.
Still, Dichter’s astute analysis spotlighted one of the most profound insights in all of marketing. This is the axiom that consumers usually overvalue their creations. Adding labor causes customers to value their creations disproportionately—even with products like cake mixes that may be only marginally enriched by the additional effort.
This tactic of enhancing customer value and satisfaction through the customer’s own labor changed marketing. It amounts to the major factor that drives demand not only for cake mixes, but also for legions of other products.
Moreover, this tactic has relevance not only for MBAs planning careers in marketing, but also for any MBA that manages a team. Indeed, once one understands this tactic, one recognizes it everywhere.
Today experts call it the IKEA effect.
Could Labor Actually Lead to Love?
In 2011, a group of business school professors published landmark consumer behavior research in the Journal of Consumer Psychology that coined the “IKEA effect” phrase. By August 2021 their article had been cited in Google Scholar by almost 1,100 publications—more than 22 times what a typical well-received management journal article can expect.
This all-star research team included Dr. Michael Norton of the Harvard Business School, Dr. Dan Ariely of Duke University’s Fuqua School of Business, and Dr. Daniel Mochon of the A.B. Freeman School of Business at Tulane University. In short, they demonstrated that experimental subjects felt significantly more satisfied with their purchases and valued them more highly if they finished the production of those products in some way.
The experimenters measured satisfaction using price as a proxy. That is, they asked the subjects what they would bid for a variety of products, including some already pre-assembled, some that the subjects incompletely assembled, and others that they completely assembled. When the research team compared the prices that the various subjects had bid, the extent to which labor affected the subjects’ price bidding seemed not only surprising, but arguably profound.
For example, in one experiment the effect was even validated with mundane, purely utilitarian products that didn’t provide for any customization or self-expression. In this case, those who assembled simple IKEA storage boxes volunteered to pay 63 percent more for the box they assembled than the exact same box that came pre-assembled.
Note that in this experiment, by paying substantially more for the boxes that they had constructed, those subjects are engaging in an act which runs completely contrary to their own economic self-interest—either way, they’re buying an identical box! In other words, the subjects were perfectly willing to give up more of their time, effort, and money to purchase an identical product. In an economic sense, behavior like this makes no rational, logical sense.
Yet from an emotional perspective, it might make complete sense. That’s because the sensation of touch becomes connected neurologically with emotion. In other words, touch appears to help activate emotional brain centers that can help people feel a closer connection. From that perspective, it’s no wonder that those who assemble IKEA storage boxes and whip eggs into cake mixes develop more feelings of ownership over those products than they’d develop over the alternatives which require less tactile involvement.
Now, back to the experiments: After assembling the IKEA boxes, the next experiment transformed the subjects into impromptu artists.
Origami is the Japanese art of folding paper into decorative figurines and shapes that look like frogs or cranes. If one has never practiced this kind of paper folding before, it’s difficult to perform—and typically, one’s first origami project wouldn’t exactly qualify as an objet d’art.
Yet the IKEA effect proved so powerful that it caused the subjects who folded their own origami to value their creations five times more than a control group asked to value origami that they didn’t construct. Moreover, the paper-folding subjects valued their creations as much as the prices for work by expert artists with years of experience in constructing complex origami figures.
Keep in mind that effects like these probably don’t apply in all circumstances because when the experimenters tested the subjects’ limits, they found firm constraints. For example, the subjects refused to pay more for creations that they failed to completely assemble. Neither would they pay more for objects that they first constructed, then disassembled. The latter result suggests that people won’t pay more to learn how to put together their products—they exclusively assign greater values to successful end results, symbolized by their completely assembled, finished creations.
Extending the IKEA Effect
The IKEA effect has been cited in a wide variety of contexts well beyond home assembly of the firm’s KVARNVIK storage boxes, BILLY bookcases, or even its iconic POÄNG cantilever armchairs. One particular context where the IKEA effect has been applied extensively encompasses web and mobile software applications.
A particularly challenging process involves new user onboarding, the process by which new users set up their accounts in applications they’ve never used before. A frequent issue described at this juncture is known as the blank slate problem. Like “writer’s block,” this is an empty screen within the app that leads first-time users to feel overwhelmed—a feeling that’s never good for sales.
But by encouraging new users to perform bite-sized, guided setup tasks followed by rewards, software development managers can apply the IKEA effect to help new users set up their apps and feel satisfied with their early progress. Teamwork applications like Basecamp, the video marketing web app Wistia, and the productivity and management tool iDoneThis all comprise examples of software platforms that successfully apply this approach.
So does Coinbase, the cryptoasset trading platform that went public amid huge fanfare in spring 2021. Coinbase takes the IKEA effect even further, by actually paying new users for their labor. For example, a user who uploads images of their driver’s license to Coinbase—a requirement under U.S. banking regulations for all new customers—earns $5 worth of Bitcoin.
But Coinbase doesn’t stop there. Coinbase even pays new users to educate themselves about potential investments. Each time a user completes a two-minute lesson about a new crypto token and passes a quiz, that user earns a one dollar-equivalent of that token’s value, automatically deposited in their account.
After completing a few of these easy quizzes, the novice crypto trader finds their account stocked with their very own demonstration “portfolio” of cryptoassets, which can help them learn about market trends and price fluctuations. But the labor required to construct their demo portfolio is what really builds brand loyalty and helps the new users feel connected to Coinbase.
The IKEA Effect for Managers
Furthermore, some other results reported by the researchers might resonate with many MBAs who have experience managing groups or divisions. That’s because these experiments relate to two closely-related leadership traps studied within the management and organizational behavior literature. These pitfalls are known as sunk cost effects, along with the “not invented here” syndrome.
Briefly, sunk cost effects can lead managers to persist in devoting resources to failing projects in which they’ve previously invested. And the “not invented here” syndrome prompts managers to “refuse to use perfectly good ideas developed elsewhere in favor of their—sometimes inferior—internally-developed ideas.”
The research team interprets their results to explain likely reasons why managers might continue to throw resources at projects and concepts that are failing. Like the experimental subjects who overvalue their boxes and origami, such decision-makers might sink even more budget dollars into lost-cause projects because the IKEA effect has these bosses truly believing in the “superior value” of their ideas. “Not pursuing them would be leaving money on the table, and using a competitor’s ideas would simply be choosing an inferior option,” the researchers suggest.
Driven by the IKEA effect, this cognitive trap offers particular significance for the region that, after eight decades, still monetizes innovation like no other: Silicon Valley. That’s because managers are especially likely to over-commit to extremely innovative projects, a tendency demonstrated by research since the late 1990s. If not corrected by realistic, objective facts like market comparisons or negative contribution margins, the powerful impact of the IKEA effect on managers in these situations could very well defy interventions.
Why is the IKEA Effect So Powerful?
While under the magic spell of the IKEA effect, why in the world would people behave in these ways? That is, what psychological mechanisms might prompt ostensibly savvy company leaders to continue investing in faltering projects? And what mechanisms might drive the absurdly large valuations and boosts in satisfaction that the experimental subjects reported to the researchers, even after constructing such simple creations?
To find out, it turns out that we need to review a follow-up paper that the professors published the following year in the International Journal of Research in Marketing. That report clearly identifies the surprising driver: competence. According to the researchers, competence plays a role that’s critical “in creating consumer interest in self-created products, and in making their efforts feel rewarding.”
Is the need to feel competent such a strong human drive that it would exhibit such remarkable effects on behavior? Based on these professors’ subsequent research, apparently, it is. Here’s how they explain the two aspects of this mechanism:
Assembling products fulfills a core psychological need—consumers’ desire to signal to themselves and others that they are competent—and that the feelings of competence associated with self-made products lead to the products’ increased valuation. . .this increase in valuation occurs because of the feelings of competence associated with self-created products.
In other words, the sales of all the products cited above are largely driven by two factors that often work synergistically: first, internal feelings of competence, and second, external signaling of competence to others. Moreover, in a digital world, signaling competence to others online takes on dramatically expanded significance:
Much of the self-made content created for new media channels (such as YouTube videos) is made specifically for display to others; in these cases, it is likely that the utility associated with one’s own creations is heavily dependent on their ability to signal one’s competence to others.
The Insight for Marketers
All in all, whether we’re talking about Hello Fresh’s meal kits, Betty Crocker’s chocolate cakes, or IKEA’s POÄNG chairs, the insight for marketers is clear: People want to engage in purchase-related labor that helps them feel competent and show off their competence to others.
Indeed, competence in various forms amounts to the largely unspoken quality that drives billions of dollars in sales each year. Perhaps marketers’ leveraging that competence might entail finding even more ways for customers to both feel and demonstrate that their competence conquered even greater challenges.