Name : Waqas Niaz

Subject : Psychology
Reg # : MBA-S-131815/2021
Subject Teacher : Erum
Assignment# 01
Write about a Company who has used psychological
Principles in its working Place and succeeded

IKEA Company

IKEA company used psychological principles in its workplace and succeeded. IKEA Founded in 1943 by
Ingvar Kamprad, IKEA sells ready-to-assemble furniture, appliances, and home accessories. What started
as a vision to bring interior design to the masses grew to 433 IKEA stores operating in 52 countries. It’s
been the world’s largest furniture retailer since 2008.

IKEA uses psychology to help drive that success? Principles like Scarcity, the Endowment Effect, and the
Priming Effect laid the foundation for the company’s success.

How IKEA uses psychology to create addictive products

1. The IKEA Effect

This effect states that people attribute more value to products they’ve helped create. In other words, labor
leads to love.

Researchers described the experiment that gave the IKEA Effect its name this way:

“Two groups were given IKEA boxes, with one group given fully-assembled versions, and the other
given unassembled boxes, which they were told to put together.This second group were willing to
pay much more for their box during the subsequent bidding process than those with pre-assembled
boxes.”
Inspired to keep co-creating, customers created a mini-industry of “IKEA hacks”. These projects transform
the basic furniture into unique reformulations.

People have even created spin-off businesses that design accessories to augment IKEA furniture. For
example, Semi handmade makes custom doors that are compatible with IKEA cabinets.

How the IKEA Effect helped grow the brand

To understand how the IKEA Effect impacts business performance, consulting firm Iris created
a Participation Brand Index.

According to their research, businesses that encourage co-creation with customers outperform their
competition. For example:

 Investing in the top 20 brands in the Participation Brand Index over three years would have seen 4x
higher ROI than investing in the brands at the bottom of the ranking.

 Investing in the top 10 brands in the Participation Brand Index over three years would yield a return 2x
higher than the S&P 500.

2. The Choice Overload Effect

This principle states that while some choice can be good, too much choice will overwhelm customers and
become a barrier to sales.

According to research from Episerver, 46% of customers have failed to complete a purchase online due to
overwhelming choices. Compare that to companies like Procter & Gamble, who found that a decrease in
the variety of Head & Shoulders shampoos resulted in a 10% increase in revenue.

The negative effects of choice can be much worse than a missed sale. Research shows that when there
are too many options, customers feel anxious, will disengage, and can even become depressed.
How avoiding Choice Overload helped grow the brand
Most IKEA furniture comes in a limited variety of colors and sizes. For the business, standardizing choice
allows for production efficiencies that lower costs.

For customers, limiting choice makes them more likely to buy rather than browse. Constraining options to
black, white, and oak finishes simplifies the buying process.

How psychology helps IKEA create an unforgettable store experience

If you’ve visited an IKEA store, you’ve probably experienced going in for one or two things, then walking
out with a full cart.

That impulse buying is due to two features of the store layout: its one-way system and a circular design.

1. Scarcity Effect

This effect, coined by professor Robert Cialdini in his book Influence, states that humans place a higher
value on items that are scarce.

Cialdini described scarcity this way:

“When our freedom to have something is limited, the item becomes less available, and we experience an
increased desire for it.

However, we rarely recognize that psychological reactance has caused us to want the item more; all we
know is that we want it.”

How Scarcity helped grow the brand

Because IKEA’s store design uses a one-way traffic system, it creates a feeling of scarcity. The design
forces customers to put any item that catches their eye in their cart right away.

Why? Let’s say you stop to consider a lamp but then decide not to put it in your cart. If you change your
mind, the store design makes it inconvenient to go back and get the lamp. You’ll have to walk through the
entire store to get back to that section. No small feat when an average IKEA store is around 300,000
square feet or five American football fields.
2. The Endowment Effect

The Endowment Effect states that people place a higher value on items that they own or intend to buy.
Ownership, or intent to own, create emotional bonds that people don’t want to break.

“Ownership” creates emotional bonds that people don’t want to break

How the Endowment Effect helped grow the IKEA brand

When a customer puts something in their cart they begin to dream about their future with that item.
Fantasizing about how it will look in their living room, and how much guests will admire it. Once customers
create “pre-memories” they become emotionally bonded to the item.

The Endowment Effect is incredibly effective at driving sales. Because once you bond to an item, you don’t
want to have to walk back through that 300,000 square foot, one-way store to get it. Instead, customers
are more likely to put it in their cart “just in case”, then never take it out again.

3. Priming Effect: The secret psychology of meatballs

First demonstrated in the 1970s, priming is when our brains call on unconscious connections in response
to a stimulus — also called primes. In other words, what we’re exposed to now changes our behavior later.

Priming is passive, subtle, and people aren’t aware it’s happening. And it can be activated with
almost any kind of stimulus. Images, words, smells, light, sound, tasks, touch, or temperature
can all unconsciously affect our choices.

How the Priming Effect grew the brand

At first glance, it might not seem like IKEA’s food has an effect on their furniture sales. But according to
the company’s research, 30% of its shoppers come to the stores just to eat. In 2017, the company made
$2.24 billion from food sales. That makes them the tenth-largest food retailer in the world.

IKEA is the tenth-largest food retailer in the world.

The food at IKEA food doesn’t only have an impact on the bottom line. It also has a priming effect on how
customers think, feel, and act in the store. Eating primes a state of happiness, and that mood can
affect how much customers spend and what they buy.