Did you know that Ikea is currently the most valuable furniture brand in the world?
(It’s valued at over $21 billion USD (S$29 billion).
It also employs over 220,000 people around the world and sells over a billion meatballs per year.
Yes, that’s right, a billion.
But here’s the stat that really floored me – for some popular Ikea products, prices have actually been getting cheaper, rather than more expensive.
For example, the iconic Poäng chair cost over $300 in the early 1990s (adjusted for inflation).
Today, it’s $79.
Other examples include the staple Lack table, which sold for $56 in 1985 (again, adjusted for inflation), compared to $10 today (it’s $19.90 in Singapore).
Of course, not everything is cheaper today in the Ikea catalogue, but it’s absolutely fascinating how this brand that was founded in 1943 is still so relevant today.
From its first store in Singapore in 1978, to the current three stores in tiny Singapore, its popularity has just been rising and rising.
So what magic does Ikea have on me, or on all of us for that matter, which causes us to shop for more than we intended to, and yet, we still look forward to every trip?
So I went on a quest to find out how Ikea works. What kind of marketing and sales tactics does this Swedish furniture shop employ? Why do these techniques continue to captivate each one of us regardless of what’s happening in the world?
The inner workings of Ikea
Meatballs drive furniture sales too
Let’s start with the other intriguing Ikea stat – 1 billion meatballs sold per year.
Now I can’t say I know how many are sold in Singapore specifically, but it is a staggering fact to learn, especially because Ikea isn’t even a food company.
To be sure, Ikea’s food sales only constitute around 5per cent of its overall revenue every year. But studies have shown that buyers tend to spend two times more on home furniture after eating at their food court.
It’s like this. Crave meatballs. Head to Ikea.
The next thing you know, that trip has turned into three FRAKTA bags overflowing with items worth around $200.
This is the outcome of the food-and-furniture symbiosis, and I’m sure you’ve already experienced something similar.
There’s no hocus-pocus on their food that hypnotises you to spend more than you should. It’s all about science – particularly the psychology of it.
An eight-piece Swedish meatball plate with mashed potato and mixed veggies for only $6.50 is cheap for a comfortable air-conditioned environment. When you pay for the meal, the low price sticks in your mind.
It reinforces the idea that Ikea sells cheap-priced items.
Just think about it. Even if you’re someone who doesn’t always shop around for a corner sofa bed, you’ll probably be enticed to buy the Friheten sleeper sofa. Its $799 price tag would seem really cheap since you already find their food to be very affordable.
As the head of food operations at Ikea said: “When you feed them, they stay longer, they can talk about their (potential) purchases, and they make a decision without leaving the store.”
Likewise, Ikea’s founder, Ingvar Kamprad, said it’s difficult to do business on an empty stomach, and that’s why he added food courts to his stores. Does this mean he didn’t intentionally conceive the influence of their food strategy? We’ll never know. But one thing’s for sure – everyone experiences the effect.
$1 Hotdogs for a delightful conclusion
I’ve always wondered why IKEA would create a separate bistro when they already have a cafeteria. While it’s obvious that it offers refreshments after a long day of shopping, there must be something more.
But with a hotdog this cheap, buying a second one is a no-brainer.
(It’s just $1 by the way).
In a nutshell, the Ikea hotdog helps to position Ikea as a bargain – it again further reinforces how affordable Ikea products are.
It’s also the concept of a loss leader, at such prices they are unlikely to be making any profits. They take a hit on the food, but they also just sold you $500 worth of furniture.
Business strategies aside, its strategic location provides a timely relief to some whose children are already cranky or those with partners whose energies have already been spent.
A cheap and filling hotdog or ice cream cone is too great of a deal to pass up, giving us another reason to come back to Ikea again and again.
Confusing catalogue-like store layout
Have you ever noticed how we probably look like white mice going through a maze inside an Ikea store?
There’s only one direction we can go – a one-way path subconsciously leading every shopper to go through more than 50 rooms.
It’s so iconic that there’s even an upcoming game called The Store is Closed which is a survival game set in a store that looks suspiciously modelled after Ikea.
Compared to lab mice, though, the maze we’re going through is instead filled with treats.
The strolling adventure through the aisles of Ikea offers gratification that never gets old. The immense number of products to examine and choose from satisfies one of the basic cravings of any Singaporean – finding practical items that don’t break the bank.
So what makes Ikea effective in getting us to buy impulsively?
One of their tactics involves an excellent implementation of the Gruen effect.
Conceived by master architect Victor Gruen in the early 1900s, it’s a set of practices applied to retail store layouts for the sole purpose of converting passersby into purchasers.
The core idea behind the Gruen effect is about overwhelming the senses to disable logical reasoning. It changes a shopper’s mindset by focusing more on the experience rather than the initial purpose.
Ikea’s confusing store layout is all intentional, making us feel like we’re browsing through a catalogue with no index to quickly find what we’re looking for. It forces us to flip through every page every time.
Or, in this case, walk through all the aisles at every visit.
It’s a blissful exposure to a lot of IKEA products, creating an impression of picking an item directly from a catalogue.
Plus, it’s all about creating a false sense of scarcity.
Think about it.
You’re happily walking along the path, and then those black Ribba photo frames catch your attention. However, you feel like you don’t need it yet, so you decide to just pick it up later. But then again, you’ll have to backtrack through the maze in order to do so. So you think, what’s the harm in adding just a couple of these affordable frames to your cart, right?
Additionally, the maze-like layout creates a sense of mystery.
Since everyone loves unravelling a mystery, the eagerness to discover what’s waiting behind the corner causes us to enthusiastically claim some of the “treasures.”
And then there are more mysteries to unravel, so we continue exploring, happily adding more and more into our cart.
Strategic item positioning
Aside from the store layout, Ikea has other ways to keep us from missing out on what could have been a great purchase.
Decoy pricing, already used by many businesses, is an effective sales tactic to subtly direct consumers into buying a product based on the perception of finding a good deal.
Grabbing a bargain that a store explicitly offers seems like a good use of your money. But when the deal is based on your own decision, it feels more satisfying.
It’s empowering – convincing us into believing that we beat the house in its own game. As a result, we end up doing it over and over again.
Here’s how the decoy pricing method works in Ikea.
Let’s say Ikea has a chair available for sale – and you found one that fits your needs and costs $219. Viewed alone, this $219 may seem pricey.
So you then see option one which is really cheaper compared to the high-end option, but lacks certain functions like height adjustment. To make both products more attractive, a middle-range option is added as the decoy and priced very close to the higher-end range.
So instead of walking away from the $219 product, the higher-end range looks more attractive for just $30 more. If you weren’t even willing to pay so much, the cheaper range item is attractive since it reaffirms its affordability for what it does.
In other words, decoy pricing creates a reward-based mindset, influencing our spending decision to buy more.
Some of the other effective tricks used by Ikea include:
- Tactical distribution of dump bins, which contain low ticket items such as slippers and plush toys, reinforces that Ikea sells affordable items.
- Setting up showrooms with furniture and fixtures as close as possible to their natural positions in the home creates familiarity. It allows consumers to easily see the value of each item.
- Propping or hanging mirrors in strategic places so shoppers can easily identify with the showroom. It creates an immediate connection with the items in the room, resulting in a desire to purchase them.
Everyone gets to build a cake
People tend to place a higher value on things they build themselves. Or so they say.
In the 1950s, General Mills launched a line of Betty Crocker instant cake mixes.
It was incredibly simple to make, all you had to do was add water, mix, and bake it in the oven.
Sounds like a winner, doesn’t it?
To everyone’s surprise at General Mills, the product flopped.
And so they hired the father of motivational research, Ernest Dichter, to investigate.
He found out that the problem with the all-instant cake mix was that it made baking too easy – baking the cake was nothing to be proud of because it didn’t involve much effort.
And as unintuitive as it sounds, his solution was to remove powdered eggs from the mixture and to require a fresh egg instead.
The product was relaunched, and sales soared.
With the addition of fresh ingredients, that little extra work meant that there was time invested – giving both housewives and bakers a sense of ownership.
Likewise, when you build your first IKEA furniture, it gives you the same level of ownership the bakers had back in the day.
Compared to other build-your-own stuff from other home furnishing shops, Ikea’s products are easy to assemble, and the screws fit perfectly. But not too easy that it devalues the item and the effort.
In my case, the LACK coffee table was the first IKEA product that got me hooked on assembling Ikea furniture myself.
It’s a fantastic strategy that offers numerous advantages to them and their consumers alike. One is that it helps cut down Ikea’s expenses for labour and warehousing, resulting in lower prices.
But perhaps the most satisfying benefit to both parties is that it drives more sales. A lower price and higher perceived value make for a highly gratifying purchase.
Keeping up with collaborations
There was a time when Ikea thrived in solitude.
As if seemingly following Nikola Tesla’s words, “originality thrives in seclusion,” this Swedish shop became known for its simple yet functional designs and tongue-twisting product names. All of which are packaged into all-original IKEA products.
However, the advent of social media changed the landscape of every industry forever.
Businesses no longer thrive on their own but need to collaborate with brands outside of their niche to magnify their reach.
Being the successful furniture giant it now is, Ikea knew it had to keep up with these changing times.
So in 2015, Ikea started its earliest collaboration with a British designer, Katie Eary.
Today, it’s not uncommon to buy items from Ikea designed by top creative brands in a different category, like Adidas or the upcoming Marimekko collection.
Take the Symfonisk Wi-Fi speakers, for example. Ikea knew that it could manufacture a well-designed casing for speakers.
However, it lacked extensive technical experience in the audio department. So they collaborated with Sonos, one of the pioneers of wireless audio in the industry.
Then there’s the Markerad collection that resulted from a creative collaboration between Ikea and the popular luxury street wear label Off-White.
In this collection, you’ll find functional rugs with an Ikea receipt design and a mirror with an intentional crack for a visual distortion flare, to name a few.
And of course, who would forget the long and winding queues at Ikea Tampines when they launched the Lego collection, Bygglek.
Such brand collaborations allow Ikea to continuously remain relevant by tapping into the other brand’s fans, and always give you a reason to revisit the store – whether or not you are moving into a new home.
A peek at Ikea’s strategy opens up a richer shopping experience
It was absolutely fascinating for me to learn just why Ikea is such a dominant force in the retail world.
From the adapting of its food catering in each country (I haven’t even mentioned the just as popular chicken wings) to turning its mistake into a marketing pitch – they are as strong a force as ever.
Still, the company isn’t resting on its laurels.
It is already looking forward to the future, using augmented reality to create customisable showrooms.
They are also looking at moving their stores into the cities (like the opening of their Jem outlet, Southeast Asia’s first Ikea small-store concept).
As Jette Jørgensen, of Ingka Group says:
“By moving into cities and creating new jobs and meeting places, we are revitalising areas and supporting local communities; something that has always been close to our heart”
I’m absolutely excited to see what more innovations Ikea will bring to the home and living space. Stay tuned.
This article was first published in Stackedhomes.