In a previous Behavioral Economics – related article (see article ‘The Power of $0.99’), we talked about what, and by which means, behavioral pricing strategies influence our brain. However, you might have realized that those strategies do not always succeed, especially when you are aware and start noticing them. It is important to understand to what extent we are sufficiently attached to a good or product, in order for that attachment to matter in our decision-making. It is equally important finding out why we value it so much. Michael I. Norton (Harvard University), Daniel Mochon (University of California) and Dan Ariely (Duke University), studied this phenomenon, naming it the IKEA effect.
In fact, it is fairly easy to understand that we give value to both things we make and to the completed end-products we buy. However, it may not be as easy to acknowledge that our neurology influences us to overvalue what we make, even if objectively it is not true. This is a cognitive bias dating way back in history.
One example puts us back in the 1950s, when cake mixes first emerged in common supermarkets. A high demand was to be expected, for a product of easy use that would facilitate every home baker across the world, saving precious time. However, in reality, the precise opposite occurred. In the process of understanding why people didn’t react well to such a time-saving product, it was discovered that consumers found it too easy. Unsurprisingly, marketeers went blue and struggled to understand why the product made people feel unattached. What they uncovered related exactly to this: attachment. Common, not-so-rational human beings give higher value to things they put a certain level of effort in. Following this theory, marketeers changed the recipe, requiring now that bakers add an egg to the mixture (instead of dried eggs being already included in the recipe). This led to an outstanding increase in sales, since the egg addition established an effort level sufficient enough to change consumers’ perception from being too easy to facilitating.
The big question lies in what that turning-point effort level is. It is a very difficult problem to solve, since its answer depends on the products, consumers and circumstances. Notwithstanding, this rationale is currently being used alongside behavioral pricing to spark consumers’ internal need for the companies’ products.
The IKEA effect name derived precisely from the extraordinarily intelligent strategy of the IKEA brand. By being an easy “build it yourself” brand, it captivates consumers’ attention for its products – even though it would be easier to buy already made furniture – regardless of the product quality. Buyers tend to view their IKEA furniture as theirs from the moment they spend time following the instructions and assembling the product themselves. The whole mechanism relies on personal investment in the creation that later tends to develop into a personal pride symbol that ultimately leads to an overvaluing of the final product. We might be aware or completely ignorant of this unconscious trick of our brains, but the truth is that we bake a ready-mix cake or build a ready-cut armoire and we take pride in it, giving us greater pleasure than eating or passing by the same readymade products. We smile when the cake is at the table or when we pass by the armoire in the living room. It is not related to our individual appreciation or gift for baking or building, it is in fact a general human bias.
In ‘The Upside of Irrationality’, Dan Ariely later discovered that we are largely unaware of this quotidian tendency and expect others to take as much awe in our cake as we do. It may be a paining truth to understand that others don’t think greatly of our cooking, designing, family, house, company or strategy as we do, but it is actually a very useful knowledge. Allowing this reality to sink in can be life-changing in the way that we look at our developed creations and subsequently it allows a more objective, real perception on them. The notion that our ideas are not always the most desirable to follow and the power of an objective perception are crucial for managerial success. Thinking greatly of made investments, even if they continually provide loss, can be an avoidable mistake through the recognition that not always our created and baked strategies are the most valuable ones.
An impartial and unbiased reasoning may lead us to understand that others’ ideas are not only not inferior, as they may be better adjusted for our current company operations.
On the other hand, acknowledging that ‘greater effort ultimately leads to greater love’ (given that labour is successful) will encourage you to foresee relaxation over effort in completing your desired activities on the certainty that in the end you will be farming long-term satisfaction. In Economics, the labour market model leads us to believe that greater effort is the root of unbearable responsibility, frustration and stress, and that real happiness lies in immediate relaxation and no work. However, the human inheritance is to be proud of our deeds and accomplishments. Seeing a completed weekly objectives list makes us understand that all the sweat and tears given to that week’s work was why we felt the overall final enjoyment.
Concluding with the same reasoning, it is often heard that the easy way is not always the best road to happiness and the IKEA effect came to prove it. The next time you feel like buying a cake, buy a ready-mix and complete it yourself, or the next time you need a new desk, take the time to assemble it. You might come to discover that you will take pride and a little bit of happiness from it, cherishing your success in a much deeper sense. At the same time, be aware that just like your valuing sentiment may not be equally perceived by others, our particular intuitions and ideas are not always the rational and most beneficial approach to the problem.
In today’s world, it is very difficult to be the best, but some strategies can make you feel the best while knowing it.
Ariely, Dan; The upside of Irrationality; London; 2010;
I. Norton, Michael; Mochon, Daniel; Ariely, Dan; The “IKEA Effect”: When Labor Leads to Love; 2011; Harvard Business School;