The IKEA experience: when great bundling gone rogue

I was recently at IKEA looking at one of their Kallax displays. The entire setup was priced at around 320 and underneath it listed the three products that made up what I was looking at: the inserts, the bottom section and the Kallax itself.

Next to the Kallax was a price of 245, together with the usual IKEA product code. Fine. So I went to the warehouse to pick everything up and found what looked like exactly the same Kallax for 275. Hmmmm, different product code.

Now my revenue-management brain immediately kicked in. Why the hell would I pay 275 when I've literally just been shown the same Kallax upstairs for 245?

So I went hunting. And eventually I found it. The Kallax with the exact product code from the display: 245.

At this point I was feeling rather pleased with myself. Clearly I'd cracked the IKEA pricing matrix. Revenue manager 1, Swedish furniture empire 0.

I took my 245 Kallax to the checkout. Beep. 320. What the ....?!?

The moment they scanned the product, the other components from the display were automatically added to the bill. The 245 wasn't really the price of the Kallax as a standalone product at all. It was effectively the Kallax's allocation inside a bundle whose total price was 320.

And that is where IKEA accidentally gave a fantastic lesson in bundling.

the problem wasn't the bundle. the bundle was actually clever.

The 320 product wasn't really A + B + C anymore. IKEA had created D (aka. zeeee bundle). And commercially, I love that.

Bundling works brilliantly when I see the complete product and make one value decision: Is everything I'm looking at worth 320 to me?

I don't actually need to know whether IKEA internally allocated 245 to the Kallax, 40 to one insert and 35 to another. Those numbers are accounting mechanics behind the bundle.

The problem started because they showed me the internal allocation.

The moment you put 245 next to something that I can physically identify as the Kallax, you've created a reference price in my head. And when I then walk downstairs and see what appears to be the same Kallax for 275, I'm no longer evaluating the bundle.

I'm trying to arbitrage IKEA. That's exactly what happened. I went searching for product codes because I thought I'd found a cheaper version of the same thing.

hide the sausage-making

That's probably the simplest rule I would add to the newsletter.

Bundling is amazing. But don't unnecessarily expose the internal economics of the bundle.

If A costs 275 individually and B + C cost another 75, perhaps selling A + B + C as “The Complete Kallax Setup” for 320 is brilliant. The customer understands immediately: individually these things would cost 350; together they're 320. Value created.

Or give me a $30 voucher when I buy all three together. Same principle. I understand why I'm receiving a different price.

What you shouldn't do is visually tell me that A is 245 inside the bundle when A appears to cost 275 ten minutes later in the warehouse.

Because now I'm not thinking, “Great, the bundle saves me money.” I'm thinking, “How do I get the 245 one?”

And that's the much stronger lesson for hotels too: the bundle should create a new value proposition, not accidentally create a cheaper reference price for one of its components.

A room + breakfast + late checkout for 450 can be fantastic. I don't need you to tell me that inside your system you've allocated 310 to the room, 65 to breakfast and 75 to late checkout. Sell me the experience for 450 and let me decide whether the whole thing is worth 450.

Because once you expose every internal allocation, you've stopped helping me evaluate the bundle. You've invited me to take it apart.

And, as IKEA discovered with me, give a revenue manager three prices and two product codes and you've basically ruined his afternoon.

Love,

Fabi