4 Reasons the “IKEA Effect” can help your startup

Simply put: do people value products they make/build more than products they do not make/build?

In the first experiment, one group of participants was asked to assemble IKEA boxes and bid on them, while another group of participants was asked to bid on identical pre-assembled IKEA boxes. Surprisingly (or not so), participants that were asked to assemble their own boxes bid an average of $0.78, while participants that were given pre-assembled boxes bid an average of $0.48 ($0.30 less). Additionally, participants that had assembled their own boxes rated their affection for the boxes at an average of 3.81 (on a scale of 1 to 7; 1 being not at all to 7 being very much), while non-assemblers rated theirs at an average of 2.50 (1.31 less).

What this experiment shows: people will value their own creations higher than creations by others. This is true for utilitarian products like an IKEA box.

In a second experiment, a group of participants (“builders”) were asked to assemble either origami frogs or cranes and bid on them. In conjunction, a second group of participants (“non-builders) were asked to bid for the builders’ origamis, while simultaneously, also to bid for origamis assembled by a group of experts. To little surprise, non-builders bid an average of $0.27 for expert origamis, while bidding an average of only $0.05 ($0.22 less) for origamis assembled by the builders. However, quite interestingly, builders bid an average of $0.23 for their own origamis, valuing them nearly as high as the expert figures ($0.04 less).

What this experiment shows: people will value their own creations nearly as high as creations by experts. This is true for hedonic products like origamis.

In the third and final experiment, two groups of participants were asked to assemble identical IKEA “Kassett” boxes. The first group was allowed to complete their assembly, while the second group was asked to stop midway, though was given all the necessary tools to assemble the boxes following the experiment. When asked to bid on the boxes, the first group bid an average of $1.46, while the second group bid an average of $0.59 ($0.87 less).

What this experiment shows: people who only partially complete a particular creation will value it less than people that fully complete theirs.

Together, these three experiments demonstrate a widespread cognitive bias that we as humans possess — we simply value what we do more. We think our personal efforts translate to increased value of some sort.

And like it or not, we’re all guilty.

We could be assigned to work on a mundane project for work or university, though with enough time and effort, we will generally come to value our work; suddenly the mundane won’t seem all that mundane and your peers’ projects won’t look all that interesting anymore. The same is true if we decide to pick up a hobby like painting. We may be terrible at it (I sure am), but we’ll grow to value our pieces and before we know it, we’ll be framing dozens of our artworks on the walls within our houses.

So if that is the case — meaning we really value our own work more than the works of others, what can you do to leverage this cognitive bias to your company’s advantage?

1. Let your users/customers take part in building and/or making your product(s) by investing their time and/or money.

As an example, the success of Oculus Rift can be attributed to its successful Kickstarter campaign back in 2012. By letting people back the company early on, the company was able to build a following of developers and testers that felt responsible for the creation of the product. Their personal involvement led to a spread in virality, which eventually got Facebook’s attention and led to the sudden sale of the company back in 2014 for $2bn. Had Oculus not gotten people to back them early on, it is very likely that the company would have seen less publicity — and perhaps the future of VR would look a little different today.

More recently, London-based Challenger bank, Mondo, asked the public to invest £1m to bring the company to life. Within a staggering 96-second timeframe, the company achieved its goal, raising the amount from 1,898 individual backers. Additionally, the company launched a community forum to get people to share ideas. Already, the forum is overflowing with new ideas, generating buzz and getting users to feel as though they’re part of the team as they communicate intimately with the company’s founders. While it is too early to tell how Mondo will do — in a time where increasingly more challenger banks are beginning to emerge, having loyal customers that will surely help the company down the road.

2. Give your users/customers the option to customize your product(s).

Rather notably, Nike’s NIKEiD service allows customers to design their own sneakers by picking colors, stitching and performance features. The service, which initially launched in 2012 has been instrumental in helping build Nike’s direct-to-consumer (DTC) strategy, an initiative aimed at bringing in more profits. While the company doesn’t publicize its NIKEiD sales figures, they have been very vocal to shareholders, stating that it is a key part of their $5bn per annum DTC channel. As it seems, customers are willing to pay a hefty premium for a product that they can customize according to their preferences.

The same is true for companies selling digital goods. As an example, Pipedrive, a sales CRM platform founded in Estonia allows their customers to extensively customize almost every facet of the product, be it pipeline stages, deal elements, organization elements and so forth. By bundling customization features with a 30-day free trial, customers are able to invest their time to carefully design the platform to match their needs — by the end of the trial period it’s quite a no-brainer why many will value it over alternative products; it feels unique and self-created. Pipedrive, which now reports over 10,000 paying customers (e.g. Postmates and Blippar), has seen first-hand, the positive effects of allowing users to customize (better yet, build) their product.

3. Let your users/customers finish whatever it is they need to finish.

It’s important to note that if a user/customer is involved in the building/assembly/customization of a particular product but unsuccessfully completes the task, he/she will not value that product more. In fact, in many cases, labor leads to love only when that labor is proven successful. As a result, if you’re going to include your users/customers in the building/assembly/customization of your product, make sure that the task is achievable. I won’t go name-calling on any particular companies, but just remember: people don’t enjoy failing that much. If you want your users/customers to value your product more, set them up for success. Make it easy for them to contribute to a new idea or grant them the ability to easily test the product and offer feedback. And remember, it doesn’t matter if they genuinely have control or not, what matters is what they perceive.

4. Make sure to avoid wasting time and money on existing projects that are not working out.

It’s true, no one likes throwing money down the drain. But guess what people dislike even more? Throwing a whole lot of money down the drain. Many managers factor in sunk costs into decision-making. They value projects that they have worked on more than these projects should be valued. If something isn’t working out, think it through and scrap it if necessary. Do not let your biases stir you into pouring more money into something that is faltering. Lastly, don’t succumb to the Not Invented Here (NIH) bias. If you come across something that has originated somewhere else and may be beneficial to your company, adopt it. There should be no egos in business, only rationality.

TL;DR: People value their creations more than the creations of others. As a company you should leverage that. Get your users/customers to take part in the making/building of your product. Involve them in any way you can to make them feel as if they are a part of the team — they’ll value you more. Also, make sure to avoid factoring in sunk costs into decision-making. Just because you’ve invested time and money on a particular project doesn’t mean it’s good. The world is filled with opportunities. Go out and seize them.

P.S. If you’re working on a company that gets your users/customers excited, I’d love to take a look. Drop me a line at ziv@bluewirecapital.com