When asked about the death of his closest friend, attorney Joseph Choate, Mark Twain said that Choate had tried telling the truth for the first time in his life just to see what it tasted like, but the shock was to much for him and he died. The same fate would quite likely befall many of our friends in the sales and marketing profession whose stock in trade has been the continual refinement of smoke and mirrors in search of more clever ways of getting people to buy things they don't want, and pay too much for the things they do. A strategy of driving waste from the process in order to provide the best value proposition for customers is really all about telling the truth to customers, so we should not expect it to be a concept that comes easy to such folks as Northwestern University marketing professor Alexander Chernev who whiles away his days figuring out how to use pricing psychology to fatten you up for the undertaker by selling you desserts you neither want nor need.
When interviewed by the Chicago Tribune about the growing trend of customization and individualization of products in order to hone in on the optimal value proposition for each customer, the good professor found himself thoroughly stumped, but true to time honored sales and marketing tradition, in Grinch-like fashion 'he thought up a lie and he thought it up quick'. It takes a particularly professorial passion for both buzzwords and bullshit to even think of a phrase like "outsourcing to customers", but that was the theory when Alex said, "consumers derive 'additional utility or value' in doing something themselves. Chernev, who studies consumer behavior, calls it 'the 'IKEA effect' because buyers got to assemble their own furniture."
In fact, IKEA improves the value proposition for its customers, but it is hardly because they "get" to do the work themselves. While not a huge IKEA customer I have lugged a few IKEA boxes home in my day, and had the pieces spread out all over the living room floor as I followed the curious English instructions, written with a Swedish accent, to cobble the stuff together. While not terribly difficult, I would not call the experience a pleasure. All things considered, I would prefer having someone else do it – like IKEA.
The reason people willingly assemble IKEA stuff themselves can be easily seen on a value stream map. I have an IKEA dresser that takes about 7 cubic feet of space. I bought it knocked down in a box that was about four and a half cubic feet. Shipping and warehousing are pure waste – they do not make the dresser one iota more valuable to the customer. IKEA could charge more by performing the value adding work of assembling the dresser, but it would necessitate building the waste of excessive logistics into the total cost. By having me do the assembly, I have to do some work, but there is less waste in the process, keeping the overall cost down. From my standpoint, the 'cost' an hour of work plus the price of a box of knocked-down parts compared to the value of the dresser is a better proposition than the price of an assembled dresser that would include all of the embedded waste of logistics.
The IKEA effect has nothing to do with the sheer joy of manual labor, the good marketing professor's spin notwithstanding, and everything to do with minimizing non-value adding waste in the overall process. The holy grail of manufacturers has long been to do more of the value adding – especially among the manufacturers doing the primary materials conversion – molding, extruding, stamping, casting, etc… The ''IKEA effect', however, demonstrates that this is not always a good idea. The best spot along the supply chain for the value adding is the spot that will drive the least non-value adding waste, which may or may not be in your factory.
The value principle – that the company with the best adding ratio (money spent creating value in the eyes of the customer as a percentage of total spending) will be the most successful – is absolute. Driving to become the lowest cost producer without paying attention to the value adding ratio is a fool's errand, and playing games with pricing that trash the ratio by duping customers into paing more than the product is worth is a formula for disaster.
In the post about the technology-driven changes in books, music, news and movies the value principle was really the underlying point, as Joseph Dager commented. The discussion about value in these areas was interesting, but should have been a warm up for similar discussions in each of your companies about where the value lies in your products in your customer's eyes. Hopefully you will discuss it in terms of the complete supply chain value stream map and no one will suggest outsourcing to customers.