Emotional Investment — IKEA, Starbucks and Apple
IKEA revolutionised furniture shopping by getting us cheaper furniture. In reality, Walmart provides the same cheap furniture. Yet, people like and rave IKEA. There are so many IKEA fan clubs. I am a fan too :) Yet, I could never figure out why I was so attached to my IKEA products. Especially when know that they make cheap furniture compared to my neighbourhood furniture store.
Then one day, I asked this question to an IKEA store manager and he replied — “It is the emotional investment a customer does at IKEA makes them loyal fans.” I couldn’t understand it first.
He explained it to me that in IKEA, when people walk through the Showroom, they actually create an image of their home with the IKEA product. (Investment #1).
And the moment, they write down the Aisle information in the IKEA cheat sheet, about where to pick it up, they have started to like the product in their head ( Investment #2).
Once they purchase it, and load it onto their car, they have put an investment of physical labor (Investment #3).
It takes a day to assemble most things and that investment is huge. (Investment #4).
After that much of physical and emotional work (and pain) , you are so heavily invested, you get a sense of accomplishment.
It is your own furniture and YOU BUILT IT (with a little help from IKEA).
After such a huge investment, you are not going to pooh-pooh it. In fact, you are going to guard it and keep it for years, if not decades and talk about how hard it took to buy, assemble it. That is a commitment. Note that despite all the physical work, the sense of building something is the actual investment. IKEA works so hard to ensure you get a sense of accomplishment whenever you buy a product. I really didn’t believe what the store manager said but eventually ran into this page at the IKEA website.
Nothing to read on Starbucks. Just watch this very short scene from the movie — “You’ve got mail”. Watch it from the 33rd second.
Apple shopping is not a technology shopping. A very small percentage of people buy their Apple products without ever seeing them. Most of them buy it differently. They go to their favourite mall for something else and suddenly there is an Apple store. They walk through the aisles and get to see what they have. At that time, they do not have any plans to buy an Apple product. But everytime, they go to a mall, they invest some time to explore further into Apple Products. This happens because walking into an Apple store, is a low-pressure shopping experience, just like in IKEA. You walk the aisles and see how different people use the product. After some 5 or 10 times, they become convinced that the time commitment (investment) they have put into the Apple store visits must yield something. They go ahead and buy it from the same Apple store. This feels like accomplishment. After numerous visits, you are finally seeing a return on that time spent on learning about Apple. How do I know this happens? After the IKEA incident, which was way back in 2006, I noticed a similar pattern was happening to me. I ended up buying an Macbook, Macbook Pro, numerous iPods and iPads and what not. Weirdest thing is that I still hold on to my Apple products even if they are decades old. Hence the thought that the Apple Store creates a similar IKEA-like experience.
So there is a pattern here — an emotional and physical investment, makes you like certain products over other.
I write mostly about investments, but this post is different than normal. But I am getting to investments here.
Most of us when we buy shares in a company and if the price of it goes down by 50% or more, we do a mistake of holding on to it, expecting to make the loss from the same equity. It is purely because, we have spent a lot of time analyzing that stock, you feel that your investment in that analysis shouldn’t go waste. Charlie Munger and Warren Buffett warn us here that you should do an analysis again here to see if the old thesis still holds valid. When your old thesis doesn’t hold anymore, you should sell those shares. Just because you made a time, analysis investment, doesn’t mean you should commit your money in it.