The rule of thumb in business and marketing is the more choice you give your customers, the better. Recent studies and the experience of several Fortune 500 companies have shown that’s not always true.
In fact, it seems at a certain point, the more product choice you offer consumers, the more complex and confusing their decision-making process becomes, and the less likely they are to make a purchase. At the same time, giving little or no choice can be equally counterproductive, particularly when competitors are offering options and features consumers want.
The goal for growth-minded businesses is to hit the sweet spot between too much and too little choice. And hitting that target can only come about when you have a thorough understanding of your customer and prospective customer base and do insightful research to learn what they want in a given product or service.
WHAT HAPPENS WHEN CONSUMERS HAVE TOO MANY CHOICES?
In “Cutting Down On Choice Is The Best Way To Make Better Decisions,” Business Insider points to the results of a revealing experiment in consumer response to product choice:
“Two stands were set up in Draeger’s…One stand had six jams and the second had 24 for customers to stop by and sample before choosing to buy. The test was set up to see how many people would buy jam when they were presented with six choices versus 24. The results: While more people stopped at the stand with 24 jams, more people actually bought the jam from the stand with six options, and were six times more likely to do so.”
The important takeaway from that experiment is that consumers, presented with more choices than they can easily make sense of, are less likely to buy a company’s products and services. And it extends to more than choosing jams and jellies.
It’s a phenomenon described in Barry Schwartz in his book, “The Paradox of Choice: Why More is Less.” According to Schwartz, giving too many choices leads to consumer anxiety, indecision, and dissatisfaction. As a result, they tend to make no decision at all or take their business elsewhere.
WHAT HAPPENS WHEN YOU GIVE CONSUMERS TOO FEW CHOICES?
While giving too many choices can hurt sales and profitability, not giving enough can be equally harmful to business. That’s what Apple discovered when they released the iPhone, designed to be as simple as possible for consumers. Unfortunately for Apple, users wanted many of those features (read, “choices”).
Android, spotting a marketing weakness, gave consumers options they wanted, like Google Assistant, going split-screen to use 2 apps at the same time and home screen customization. In this instance, giving too few choices proved a costly mistake for Apple: through March 2020, Android boasted more than 72% of the market sector, with Apple far behind at just 27%.
SO, WHERE’S THE SWEET SPOT?
The sweet spot in consumer choice isn’t a number, as in a specific number of features, options or varieties. The sweet spot is something carefully curated through insightful research—the kind of research that tells you who your customers are, as well as what they want and need, and what they don’t. That’s how Draeger’s learned the best way to display jams. And that’s one of the reasons Costco is so successful.
According to recent research, Walmart offers more than 100,000 product choices and Kroger about 50,000, Costco has limited choice to just 3,800. But Costco didn’t simply cut down on choices. It learned through careful research first that many consumers want to get in and out of their stores quickly (without pondering a mountain of choices in every aisle), and second which products their customers want most.
That’s been a winning business and marketing model for Costco, with an increasing market share, consistent profit growth, and a lower gross margin than Walmart for more than a decade. In fact, Costco customers like the way it does business so much that they’re willing to pay annual membership fees that constitute about 75% of its operating margin.
IN CONCLUSION
Knowing how much choice to offer your customers can be the difference between success and failure for your business. But it can also be both complex and confusing. That’s where we can help.
To learn more about the ways our choice modeling, brand strategy, shopper insights, and product development services can help you achieve your principal marketing goals—and take your business to the next level—below you can set up a time to talk with Robert Clark, Managing Partner at MAi Research.
