Many businesses, when you look at them on a surface level, make some level of intuitive sense. When Starbucks sells you a fancy frappuccino for $6 or more, it’s obvious enough that it doesn’t cost them anywhere near $6 to produce that sugar- and calorie-rich beverage. When you pair that drink with a sandwich, muffin or whatever else, Starbucks makes some more money from you.
The Starbucks Rewards program is designed specifically to encourage frequent repeat business. You’ve got to earn those “bonus” stars so you can redeem for a “free” drink, right? I’m not saying that Starbucks has avoided taking missteps entirely — I’m sure they’ve fumbled here and there — but as a whole, Starbucks has been overwhelmingly successful. And, even if you know nothing about the specifics of the business, you have some intuitive understanding of why that has been the case.
But then, sometimes you see companies that made the strangest or the most “out of left field” business decisions… and somehow those work out too. They don’t make sense, but they make plenty of dollars.
Build It Yourself
Perhaps the best example of this is IKEA. Of course, now that the company has been around for so long and so many of us have purchased a Billy bookcase or three, we can see how the furniture giant got as big as it has. We can see why IKEA turns a global gross profit of over 12 billion euros (over $13 billion US) every year. And yet, so much of IKEA’s business model makes no sense at all.
For just about everyone, prior to the arrival of IKEA, of course it was expected that when you purchased a piece of furniture, it came fully assembled. The delivery guy would show up with your dresser or coffee table or whatever else. Then, IKEA comes along and decides that customers should build the furniture themselves. It was an outrageous idea at the time, and it turned into a hugely profitable one.
Flat-pack furniture saves IKEA untold amounts of money. It’s cheaper to manufacture, cheaper and easier to package, cheaper to ship, and cheaper to warehouse. Most customers pick up their own products too, so IKEA mostly doesn’t have to deal with delivery. And they don’t have to pay staff to assemble the furniture either.
But, can you imagine if you applied this same idea to other products? What if it was normal to assemble your own car, your own winter jacket, or even your own house? No way, right?
Sell Cheap Food
IKEA is in the furniture business; it’s in the business of selling furniture. Along the way, it also got into the business of selling a variety of housewares and knick-knacks, like cutlery and photo frames. But, furniture is its bread and butter. Why is it, then, that so many people flock to IKEA to eat a cheap hot dog or get a place of cheap Swedish meatballs with the lingonberry sauce?
Walk into practically any other furniture store and they probably aren’t going to serve or sell you any food. Maybe there’s a coffee machine in the corner, but that’s about it. Again, this is an idea that’s outrageous and makes no sense at all, especially if the profit margin on the cheap food isn’t all that big. They’re probably not much better than break even at those prices.
The point isn’t to make money on selling you a soft serve cone, however. The point is to entice you into the store and then keep you in the store. Maybe you’re drawn to the cheap hot dog, and then since you’re already there, you browse through the store and decide to pick up a few things. Or maybe you’re already furniture shopping and get hungry. Instead of leaving (and potentially not coming back), you grab a bite at the IKEA restaurant, strategically placed about halfway through the store’s maze-like layout.
I bet that when IKEA first introduced its restaurant and bistro, other furniture chains scoffed. But, IKEA’s success is heavily fueled by lingonberry and hot dogs.
Mazes, Childcare and Other Confusing Choices
I could go on. Whereas every other furniture store typically features an open layout where customers can browse and peruse at their leisure, IKEA effectively forces customers to walk down a preset path. Customers end up visiting every display, furniture for every room, culminating in the warehouse and bistro.
The bistro is strategically placed after checkout, giving customers time to think about the purchases they didn’t make, so they can go back and get them. But, what customer would want to wander down such an exhaustive maze every time they visit the store? Every IKEA customer apparently.
Most, if not all IKEA locations also feature an area called Smaland. It’s effectively supervised daycare, providing a free play area where parents can drop off their children. What conventional furniture store owner in their right mind would decide to open up a free childcare center inside the store? Except, this frees up the parents to shop more freely, and probably buy more stuff.
We take a lot of these IKEA decisions for granted today, but they all made little logical or practical sense against traditional schools of thought. To this end, when you’re in business for yourself — as a blogger, affiliate marketer, app publisher or anything else — don’t let “common sense” and “logic” get in the way of a potentially incredible idea. It might not make sense, but it could make you (billions of) dollars.