IKEA APPLICATION OF BEHAVIORAL

ECONOMICS CONCEPTS IN BUSINESS

GROUP MEMBERS
HARSH VERMA
JAI VERMA
KUNAAL GAUTAM
MIHIR
SHIVANSH GUPTA
 HOW IK EA SELLS ??
IK

ENDOWMENT
EFFECT
SUNK
COST
DECOY
EFFECT GRUEN
EFFECT
 Decoy Effect
The decoy effect says that consumers
change their preferences between two
options when presented with a third
option which acts as an unattractive
option just to make the other options
look extremely lucrative.

Let us illustrate it using a fascinating experiment conducted by Dan

Ariely on his students.
 Decoy Effect
IKEA’s genius application of the decoy effect can be understood using the following example. IKEA places 3
cabinets for you, A, B, and C. A costs $40. B costs $60, and C costs $65.

The underlying message that IKEA wants to

project for each of the cabinets is as follows
-
Cabinet A - budget product with great value
for money
Cabinet C - premium product plus large
space, plus delightful complimentary
product, so again a high value for money
product
Cabinet B - almost the same price as C, but
not even close to it in terms of value for
money, lot more expensive than A
IKEA goes a step further
IKEA clearly identifies the needs of each segment of its
customers - budget segment and premium segment; and
strategically introduces complementary and decoy
products to enhance consumer decision-making without
compromising quality.

IKEA’s cabinet B acts as a decoy in 2 ways,

making both option A and option C appear good
for the respective target customers. This ensures
that customers from both segments remain happy
and satisfied, and also remain loyal to the brand.
 Sunk Cost
Fallacy
Sunk cost fallacy is the error of persisting
with a decision or project because of past
investments, ignoring present
circumstances. It involves irrationally
considering unrecoverable costs when
making choices.
 I K E A’ S

Sunk Cost
Fallacy
Spend time and effort to reach the store, which is
often located on the outskirts. AND

Make large stores with limited maneuverbility

“If I have come this far, spent so much time and

effort, I’ll just buy it!”
 I K E A’ S

Gruen Transfer

Gruen transfer is a concept in retail psychology

that involves creating an environment that
disorients shoppers, leading to impulsive
buying and increased sales.

Architects use large shopping centres and

complex layouts to distract customers and
make them more susceptible to sales
manipulation.
 I K E A’ S

Gruen Transfer
IKEA leverages Gruen effect to create a shopping experience that encourages customers to explore the
store and spend more time inside, increasing chances of purchases.

1 Having a Maze-like Layout

IKEA stores feature a maze-like layout, guiding customers through room displays and product sections,
increasing the chances of unplanned purchases.

2 Creating hyper realistic Room settings

Realistic room displays help customers visualize products in their homes, extending their time in the store
and exposing them to a broader range of items.
3 Using Self-service Model
The self-service model prompts customers to explore the entire store to find items, providing more
opportunities for impulse purchases.

4 Having a Marketplace section

IKEA includes a marketplace with smaller items, near the checkout area, encouraging last-minute
purchases.

5 Including Cafeterias and Rest Areas in the store

IKEA's inclusion of a cafeteria stimulates appetite and keeps customers in the store longer, increasing the
likelihood of additional purchases.
 Endowment
Effect
It refers to an emotional bias that causes
individuals to value an owned object higher,
often irrationally, than its market value

After the sale of a product, IKEA intends to

develop a greater sense of ownership of the
product sold to the consumer
 I K E A’ S

Endowment
Effect
IKEA's products are designed to be
disassembled and reassembled easily, which
gives customers a sense of ownership and
pride in the products they have created.
This encourages them to value their purchase
more than if it had been pre-assembled.
 I K E A’ S

Endowment
Effect
People value the product more

People are more satisfied with their purchase and

prefer IKEA for next visit

People may even shell out some additional

money