Imagine that you are out shopping for a new chair for your dining room, and you come across a wooden chair. How much would you be willing to pay for the chair? Now imagine that you’ve brought the chair home as part of a trial program offered by the store. Even though you have not yet purchased it, you can see how it fits in your room, it’s a part of your meals and it feels like it already belongs there. How much would you be willing to pay for the chair in this scenario? Finally, imagine that you have made the chair with your own two hands. Even though it is the same chair you saw at the store, you know every surface and joint. How much would you pay for this chair?
Did your evaluation of the wooden chair change from situation to situation? It would not be surprising if it did. We endow value to a product in different ways. Perceptions of total value increase when we imagine ourselves using a product, try a product, own a product, or make a product ourselves. Three related but distinct concepts are at play here. First, the Endowment Effect suggests that individuals value items more when they own them than when they do not. Second, Psychological Ownership, feeling possession over an item regardless of actual ownership, suggests that even perceived ownership can increase value. Third, the IKEA Effect suggests that we value items more when we make them ourselves.
Previous research by Carmon and Ariely (2000) found that buyers of NCAA tickets were willing to pay a lot less than the sellers were willing to accept to give up the tickets, suggesting the presence of the Endowment Effect. This occurred because buyers and sellers have different focuses during purchase interactions: buyers focus on the financial expenditure required to buy the item, whereas sellers focus on surrendering the item (e.g., NCAA tickets). While this is the natural tendency for buyers and sellers, this focus can be shifted. Carmon and Ariely (2000) found that when the focus of the buyers was shifted, to the benefits of possessing a ticket, there was a substantial increase in the amount they were willing to pay. In other words, people were willing to pay more if they were already visualizing themselves owning the ticket and enjoying the game.
Additionally, Norton, Mochon and Ariely (2011) discovered that individuals were willing to pay more for a product when they built it than when they did not, suggesting the presence of the IKEA Effect. The IKEA Effect does not happen because of the ability to tailor a personalized object; rather, it is about effort. This effect dissipates if the product is disassembled or when the labor is no longer evident in that product.
Applications to Brand Building
You can leverage the Endowment Effect, Psychological Ownership, and the IKEA Effect in different ways to encourage an experience with your product. Here are some ways you can do that and examples of prominent brands who do this well:
1. Endowing Ownership: Brands can provide opportunities for customers to experience the product and visualize it in their lives. For example, open houses give people the ability to visualize their furniture in that house, and test drives allow people to experience what it would be like to own that vehicle. Additionally, brands that offer free samples, such as Costco, allow people to test out their products and imagine when and how they would use them. If you can allow your customers to visualize and experience the product, the overall value of that product will increase due to a perceived sense of ownership. You can also provide your customers a sense of perceived ownership through possession, like offering free home trials: once a product is a part of their day-to-day lives, customers will be less willing to give it up.
2. Labor of Love: Brands can increase the value placed on their products by finding ways to get consumers to invest time and effort into their creation. For example, brands such as Doritos often give consumers opportunities to vote for their favorite flavor. Voting for a product provides a sense of co-creation of the product and a stake in its success, increasing its perceived value.
To conclude, we place more value on objects when we own them, feel like we own them, or put effort into creating them. Brands can help bring their products into the lives of their customers by providing free trials to help them visualize the product and experience its utility firsthand. Additionally, they should focus on making their customers feel like they participated in developing that product. At Hotspex, we use behavioral-science-driven tools and strategies to help your brand tap into these effects to improve your sales.
Sources: Carmon, Z., & Ariely, D. (2000). Focusing on the forgone: How value can appear so different to buyers and sellers. Journal of consumer research, 27(3), 360-370.
Norton, M. I., Mochon, D., & Ariely, D. (2011). The IKEA Effect: When Labor Leads to Love. Journal of Consumer Psychology, 22(3), 453-460.