Tuesday, February 10, 2009

Economist's Notebook: IKEA

Over the holidays I found myself in IKEA shopping for some cheapo furniture. I had not been to an IKEA in about 16 years. It was quite an experience, but what struck me the most was a sign that read (paraphrasing): "Why is there no one around to help me? If we employed more staff to help we would have to charge more for our furniture. That's why."
This struck me as quite remarkable. There are other businesses that aggressively cut costs to provide cheap wares - Wal-Mart being the most notable example. But they don't like to point out to customers where they are cutting corners, they would just assume you didn't notice. IKEA is different and there are signs all over the store that explains exactly how they are saving money and reminding customers that they are passing it on to you. [This particular sign was apparently just there for the holiday rush because when I went back to take these pictures, it had been removed - dang!]

I find this fascinating. You economic behaviorists can help explain, no doubt, but it must be that IKEA has found that by explaining to customers their cost cutting strategies (including he less obvious ones) the customers are more excepting of this cutting of corners. But if they think it is a good idea, why don't other businesses do it? Airlines, for example, seem like a perfect candidate for this. Heck, US Airways is about to start charging for pillows and blankets! [Insert your joke here about charging for floatation devices]

Signs such as this one that seemingly excuses the company for selling furniture that is mostly flat, this other one that apologizes for making you haul it yourself might be seen as just serving to draw attention to areas in which customers might not have noticed. But based on IKEA's success, it must be working.

One wonders if it has something to do with the fact that it has, as far as I can tell, one business blueprint for the whole world. It could be that marketers have figured out that Americans don't generally like acknowledging cost cutting but that Europeans don't have the same aversion to it. I don't know a lot about behavioral economics, but I would be interested to know if there is a big difference in behaviors across the pond.

As for me, I don't mind, I was looking for something cheap and efficient, and I got it, the $2.49 kiddie meals came in handy too, and I didn't even mind busing my own table...


LisaMona said...

Ikea is an intriguing topic. Take their corporate structure for one. Largest furniture manufactor in the world it's control is in private hands, a confusing array of for profit and not for profit parts with most decision made by it's founder Ingvar Kamprad. He used to peddle matches from his bicycle. Legend states that he still only flies economy and owns a 15 year old car (Wikipedia). He has elevated frugality to a virtue that is broadcasted through his companies image.
Flatpack works well in a european market where cars are generally much smaller than here. Take my car, Mazda 5- in the US it seats 6 and gets 27mpg. In Europe the same model seats 7 and is offered with two smaller engines- higher gas prices work!
Combination of great design and low price: Due to the tax structure in Europe many discerning, educated consumers don't make a six figure income. The market for good desighn is extended to lower income classes.
Customer service (why is there no one to help me) ; I venture that those signs are for the american market. In europe customer service is different. No one gets their groceries bagged or carried out. That would be so, so , expensive! Not to mention demeaning for the baggers and the bagee. The jury in my mind is still out on the expense part since Oregons gas is cheaper than Californias...
Americans invented the customer service thing. Even though European Laws protect the consumer much more than here the tone in retail establishments in Europe is very different. I actually would not want staff to help me. Knowledgable they may be, they are oh so rude. When I went shopping with my 9 month pregnant girlfriend for a stroller the store clerk assured us that we could return the stroller "should there be an unfortunate outcome of the pregnancy" Come again??
Environmental issues play bigger in Europe. Your basic garbage pick up vessicle is the size of a kitchen garbage. Pitty those with kids in diapers. You don;t want huge packs of peanuts and styroform and since the manufacturerer has to pay part of the disposal fee for all packaged products minimal packagind makes sens.
IKEA is value driven but it is not like WalMart. As a company they are under constant scurtiny over labor and environmental issues and have to appease the european consumer, at once more value driven and socially conscious. Look at Target stores here for similar mode, also H+M fashions for the same design for the masses concept. Look at "Manufactum" company as the antagonist in the quality vs price battle. There logo is "the good things, we still make them" They peddle high design at high prices. And their catalogue is pure eye candy. Finger candy too, heavy, textured, tactile... Europe has many years of high unemployment behind them. Values have shifted. Cheap is good, as long as it looks decent.

Patrick Emerson said...

"Knowledgable they may be, they are oh so rude. When I went shopping with my 9 month pregnant girlfriend for a stroller the store clerk assured us that we could return the stroller "should there be an unfortunate outcome of the pregnancy" Come again??"

This is a classic! Thanks for your thoughts.

Aaron J. Grier said...

I have heard rumors Aldi will be opening stores in the US. I have an image in my mind of a large German kassefraue giving stern looks to customers at checkout and tsking when not given exact change.

Patrick Emerson said...

They are alredy here in force apparently - Aldi owns Trader Joe's: http://freakonomics.blogs.nytimes.com/2009/02/19/do-you-know-who-owns-trader-joes/