Tuesday, September 27, 2011

Quotation of the day for September 27, 2011

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Quotation of the Day for September 27, 2011

"When instant cake mixes were introduced in the 1950's as part of a broader trend to simplify the life of the American housewife by minimizing manual labor, housewives were initially resistant: The mixes made cooking too easy, making their labor and skill seem undervalued. As a result, manufacturers changed the recipe to require adding an egg; while there are likely several reasons why this change led to greater subsequent adoption, infusing the task with labor appeared to be a crucial ingredient (Shapiro 2004). Similarly, Build-a-Bear offers people the "opportunity" to construct their own teddy bears, charging customers a premium even as they foist assembly costs onto them, while farmers offer "haycations," in which consumers must harvest the food they eat during their stay on a farm.

"One view of the impact of labor on valuation suggests that asking customers to assume production costs should result in reduced willingness to pay once customers subtract the value of their labor from the overall cost of the product; the above examples instead suggest that when people imbue products with their own labor, their effort can increase their valuation. And while some labor is enjoyable (building a bear with one's nephew) and some labor allows for product customization (making a bear with one's alma mater's logo) -- both of which might increase valuation -- we suggest that labor alone can be sufficient to induce greater liking for the fruits of one's labor: Even constructing a standardized bureau, an arduous, solitary task, can lead people to overvalue their (often poorly constructed) creations. We call this phenomenon the "IKEA effect", named in honor of the Swedish manufacturer whose products typically arrive with some assembly required."

- Michael I. Norton, Daniel Mochon, and Dan Ariely, from the Harvard Business Review article The "IKEA Effect": When Labor Leads to Love.


Submitted by: Terry Labach
Sep. 26, 2011

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