Hooked

Meatballs and DIY bookcases: The psychology behind Ikea's iconic success

VIDEO14:3514:35
How Ikea used Billy bookcases and Swedish meatballs to bring in billions

With 433 Ikea stores in 53 countries and 2019 global retail sales of about $45.5 billion, everybody has an Ikea story.

"It's like the main name when I think about furniture," Archie, 34, from the Bronx, New York, told CNBC Make It in New York City's Times Square in June.

Shelby, 27, from New York City, recalls putting together an Ikea bookcase with her fiance. (Couples beware, Ikea is infamous for igniting relationship drama.) And when her family comes to visit from upstate New York, they often make a special trip to Ikea since there isn't one near their home in Buffalo.

Ikea hacks have even become their own cottage industry. (Strainers turned light fixtures, anyone?) And other retailers sell products specifically made to work with Ikea furniture.

Then there's Ikea's cafe.

"I haven't ever bought anything from Ikea except for the food," Tony Ardolino, 27, from New Jersey, told CNBC Make It. He most strongly associates the Swedish home goods store with the little pink "princess cakes" cakes it sells (Swedish cream cakes with raspberry and vanilla custard filling and pink almond paste icing).

So how did Ikea become so much more than just a furniture brand? It inspires obsession — and that is by design. Here's how Ikea gets you hooked with everything from psychological tricks to the layout of the store and its great value.

The furniture is cheap, but it looks good

At the heart of Ikea's success is value: You know what you're going to get when you shop at Ikea, and it's going to be affordable.

In fact, price is so important to Ikea's strategy that the company first decides on the price of a piece of furniture and then reverse engineers the construction, the company says.

Ikea has a "democratic design approach," according to Antonella Pucarelli, the chief commercial officer of Ikea retail U.S., which means that it "deliver[s] form, function and quality products at a low price. Even though our products are affordable, we don't compromise on quality," she says. (Ikea has had high profile recalls of millions of chests and dressers after several tipped over, killing children. In response, Ikea admitted the chests and dressers could be dangerous and offered free kits to anchor the chests and dressers to the wall, as well as refunds.)

Some of Ikea's furniture is made from wood, some is made from particleboard (recycled wood chips fused together), keeping production more affordable. Ikea furniture is shipped and sold in flat-packs, which makes transporting it cheaper, and customers put it together themselves (or pay for someone to do it for them), keeping labor costs down.

And the trademark simple style of the furniture Ikea sells is not just because it's a Scandinavian aesthetic. It's easier and cheaper to make affordable versions of such furniture look good.

"Ikea's aesthetic is pared down and minimal, which is not an accident. Uncomplicated forms with very little applied decoration are easier to manufacture. More can be produced in a shorter amount of time, increasing efficiency and decreasing production costs," Ashlie Broderic, interior designer for Broderic Design, tells CNBC Make It. "The Malm bed is an excellent example of simple rectangular shapes combined to create a very chic bed."

And "most of Ikea's furniture is available in black, white, or unfinished wood. By producing more items in fewer finishes, Ikea takes advantage of economy of scale," she says.

All this makes Ikea's "aesthetic per dollar" ratio very high, says neuromarketer and author of "The Buying Brain" Dr. A. K. Pradeep. Ikea's affordable style is its "category-busting-metric," or what makes it stand out from all the other brands in that space, he says.

The brain looks for a single defining characteristic to differentiate among brands, products and services, and if that's not easily identified, the brain falls back to price, says Pradeep, who has worked with companies including Coca-Cola, Procter & Gamble, Pepsi, Subway and Mondelez in the neuromarketing space.

The store layout turns retail into retail therapy

Ikea's stores also appeal to the subconscious mind, which is the primary driver of decision-making, Pradeep tells CNBC Make It.

For one thing, the layout of Ikea's warehouse stores' showroom floors are generally familiar to shoppers — furniture, pillows and other home goods are staged in mock rooms.

"Furniture is set up in its natural environment," Pradeep says, which your subconscious brain appreciates. "Every single thing there is contextually in position. The brain perceives it, understands its inherent value, and therefore desires it."

But within that context, there are always new and unexpected items to discover along the way. Both of those things are positive triggers in the brain.

"A great store will give you the sense of comfort and familiarity and will also give you the pleasure of discovery," says Pradeep. "That is when retail becomes retail therapy."

Ikea's vast amounts of white also appeal to the subconscious, a neuromarketing technique tech behemoth Apple also uses liberally.

"[I]f Apple was to design a closet it would probably look like an Ikea closet," Pradeep says. "The brain perceives everything through context. The notion of that white there symbolizes clutter-free, pure, simple, transparent — without saying all those words."

In addition to the smart neuro design, Ikea's layout nudges customers to spend more money.

Ikea sets up the store along a directed walking path that takes customers in one direction through nearly its entire inventory (provided you don't take short-cuts, which are also available in some places. "We are very conscious of the value of people's time," Ikea's Pucarelli tells CNBC Make It). There are arrows pointing the way on the floor, and signs with a corresponding store map to reinforce the path.

"Part of their strategy is to take you past everything," Alan Penn, a University College London professor who studied how shoppers navigate and buy at Ikea, told the National Post in 2012. "They get you to buy stuff you really hadn't intended on. And that, I think, is quite a trick."

Further, the guided pathway gets customers into a passive mentality in which they are more prone to suggestion, says Penn. "You follow the yellow brick road. You hand over control of where you are and where you go next. That's quite psychologically disruptive, and I think that's the first step toward actually buying."

And then when you are paying for your Ikea finds, there is the smell of sweets baking near checkout.

"There's a part of the brain that fires every time you pay, right? And so by having the scent of baking, of warmth, of sugar — in particular that takes the stress out — they get down the stress of payment," Pradeep says.

One area Ikea could improve its neuro design is audio, says Pradeep. "I'm not so sure there is enough sensation for audio" in an Ikea store, he says. The sounds you hear could be more stimulating, Pradeep says.

There's cheap, yummy food

Ikea's cheap food — both in its cafe and at checkout — is as iconic as its furniture and is also a draw for customers. Globally, Ikea sells more than 1 billion Swedish meatballs each year, Pucarelli says.

Meatballs and gravy, vegetables and mashed potatoes cost $5.99 at the cafe, as do salmon meatballs with mashed potatoes and vegetables. A blackberry summer salad with blue cheese and walnuts costs $3.99, and three-layer chocolate conspiracy cake is $2.99. Kids meals are $2.99. And members of Ikea's loyalty program, Ikea Family, get free coffee every visit.

The in-store cafe was the brainchild of Ikea's founder, Ingvar Kamprad, who started the company in 1943 as a mail-order business selling pencils, postcards, and other merchandise in the south of Sweden. (The letters that spell out "Ikea" are the first letters of the founder's name plus Elmtaryd and Agunnaryd.)

"Ingvar was known for saying, 'You can't do business with someone on an empty stomach!'" Pucarelli says.

Reviews of the food are mixed, but generally positive, according to Yelp.

Dimitrios D., who lives in New York City, visited an Ikea in 2018 called the food "surprisingly decent." It "falls somewhere between cafeteria food and actual restaurant quality (and leaning much more toward cafeteria level). Nonetheless, my salmon fillet platter cost me $6.99," he said.

Karen Y. says that breakfast at Ikea is a family occasion: "My family loves going there for breakfast & then roam around. Is the breakfast great? Nope... but it's dirt cheap!" she said in a 2017 review.

Getting people to eat is also savvy from a neuromarketing perspective, Pradeep tells CNBC Make It.

A retail store "is the worst environment for the human brain simply because you're processing so much information: 20 to 25% of your oxygen intake goes to your brain — very hungry computer, right? So when it computes it consumes so much energy, [it] gets tired," Pradeep says. "So the smart thing to do would be to have food in the middle of your shopping experience so you could recharge, refuel, go shop some more. Ikea has done that."

"We've always called the meatballs 'the best sofa-seller,'" Gerd Diewald, the former head of Ikea's food operations in the U.S., told Fast Company in 2017. "Because it's hard to do business with hungry customers. When you feed them, they stay longer, they can talk about their [potential] purchases, and they make a decision without leaving the store. That was the thinking right at the beginning."

Do-it-yourself assembly gets customers committed

If everyone has an Ikea story, many of them include a torturous experience putting together a piece of furniture (with its famous pictogram instructions and Allen wrench).

With Ikea products, they are "so minimalist and beautifully designed — but my god there are 10 billion parts I got to put together to get the minimalistic design," Pradeep tells CNBC Make It.

For Ikea, that could be a win: You are more likely to feel connected to your purchase if you assemble it.

Daniel Mochon, a researcher and associate professor of marketing at Tulane University's business school, calls this the "Ikea effect." "We come to overvalue the things that we have created ourselves," Mochon told Shankar Vedantam, the host of NPR's podcast "Hidden Brain."

"Imagine that you built a table. Maybe it came out a little bit crooked. Probably your wife or your neighbor would see it for what it is, you know, probably a shoddy piece of workmanship. But to you, that table might seem really great because you're the one who created it. It is the fruit of your labor, and that is really the idea behind the 'Ikea effect.'"

Of course, feels the need to struggle, and to that point, Ikeas acquired TaskRabbit in Sept., 2017 for an undisclosed sum.

Ikea faces the future

Today, Ikea is facing new challenges, like keeping up with the changing consumer preferences of the young, eco-conscious shopper and in a digital world. The advent of online shopping and new competitors — like Amazon, Wayfair and Overstock — has changed customers' expectations.

Ikea is still a home goods sales giant: Globally, Ikea had retail sales of 41.3 billion euros or about $45.5 billion in its 2019 fiscal year (Sept. 1, 2018, through Aug. 31). And according to market research company Euromonitor International, the next biggest homewares and home furnishing retailer is Bed, Bath and Beyond, which had total sales of $12 billion in 2018. That's less than a third of Ikea's global sales of 38.8 billion euros or $42.5 billion last year.

Amazon declined to share a break out of its revenue from home goods, but Wayfair had revenue of $6.8 billion in its fiscal year 2018, which ends Dec. 31, 2018. Homegoods e-tailer Overstock.com had $1.8 billion in revenue in 2018. (Wayfair and Overstock are primarily online retailers with smaller international business than Ikea.)

Still, Ikea is doubling down on a reinvention strategy.

"We have been operating for 75 years with the same business model. From 2018-22, we have a big program to change the company, to be ready for the next 75 years. We are investing like never before," Maeztu said.

The new investments are three pronged: First, Ikea is overhauling its digital presence so customers, can shop "at home on a Tuesday evening when the kids are to bed," Brodin tells CNBC Make It. Second, Ikea says it is improving its services, like home deliveries. And third, Ikea is testing new ways of bringing showroom to city centers (rather than warehouse stores on the outskirts of cities). Its first such planning studio opened in April on New York City's Upper East Side and a 115,000-square-foot retail store is set to open in Queens, New York in the summer of 2020.

"Most people have the same challenge: Lack of time or sometimes lack of opportunity to travel to one of our big sized stores," says Brodin, so these investments allow Ikea "shorten the distance between us and the customer."

The investment in new areas has decreased Ikea's profits, at least in the short term. Ingka Group, the franchise operating majority of Ikea retail stores, reported profits (operating income) of $2.5 billion (2.3 billion euros) in its fiscal year 2018, down 26% from $3.3 billion euros (3 billion euros) the year prior.

"It's a conscious decision to lower the profit to finance the business transformation, [and] we expect to keep the same level of profit for the next three years," chief financial officer Juvencio Maeztu said in November, according to the Financial Times.

"It's not clear whether or not [Ikea's] investments will actually help — but all it is is a sign that Ikea recognizes the challenges and is committed to at least trying to address them," says CNBC retail reporter Lauren Hirsch.

And even as profits are cinched in the near-term, sales at Ikea continue to grow (they were up by 6.5% in fiscal year 2019 from the year prior). More than 1 billion visitors went to Ikea stores around the globe in 2019, 2.8 billion people visited Ikea websites, customers bought 7 million of the iconic Billy bookcases and more than 10 million veggie hot dogs in 2019.

As for consumers' concerns about the environment, how can Ikea sell so much stuff for low prices and be environmentally sustainable?

"True sustainability would be people buying better -quality things that last longer and that results in fewer purchases," Michelle Grant, the head of retailing at market research firm Euromonitor International, tells CNBC Make It. "But that is not how corporations work."

So Ikea has had to find solutions. According to Brodin, Ikea has committed to "actually reduce more greenhouse gases than we emit," by 2030. It is also testing a program where people rent Ikea furniture instead of buying it. The pilot programs began in February and are operating in Poland, Sweden, the Netherlands and Switzerland, Ikea tells CNBC Make It.

"If we don't go this path, we are sure that our customers will deselect us tomorrow, and they should," Brodin says. "The business models of tomorrow can only be successful if they are sustainable."

And Ikea has to make all these changes without hiking prices. It's "very easy" to design an expensive sustainable sofa, but to make a sofa that is sustainable and affordable and looks good is the tougher challenge, Brodin says. "Our commitment is to the many people with thin wallets."

— Video by Emma Fierberg

See also:

How Costco uses $5 rotisserie chickens and free samples to turn customers into fanatics

Ex-Apple exec Guy Kawasaki: I want a product that will make me 'wait like a fool outside an Apple store'

Google execs reveal secrets to success they got from Silicon Valley's 'trillion dollar' business coach

VIDEO9:1509:15
How Costco's $1.50 hot dogs and free samples helped rake in billions
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