Customer Centricity : Your Customers Don’t Want So Many Options

Mark Murphy is CEO of Leadership IQ a well regarded leadership development and employee survey firm. Leadership IQ's clients include the Harvard Business School, Merck, MasterCard, Volkswagen, and Microsoft, and our survey research has appeared in Fortune, Forbes, BusinessWeek and more.

We’ve come a long way since Henry Ford famously declared that his customers could have any color Model-T automobile that they wanted, so long as that color was black. Nowadays, businesses give their customers a nearly unlimited array of options ( they can have whatever they want, whenever they want it, with a broad array of ways to pay for it ). And salespeople are taught to give customers lots of options, thinking that if there’s enough options the customer is likely to find at least one thing that they like.

But there’s a growing body of research that suggests that too much choice actually causes customers to buy less.
 And this is something to which every business leader should pay attention. Researchers at Columbia and Stanford (led by Sheena S. Iyengar and Mark R. Lepper) have made some fascinating discoveries. In one study, they set up a displays of gourmet jams in a specialty grocery store. In one display, customers passing by could taste 24 different flavored jams; and in another display, customers could only taste 6 different flavored jams.

Well, more is better, right ? Initially the customers thought so, as 60% of passers-by stopped at the display with 24 jams and only 40% of passers-by stopped at the 6 jam display. But, that’s where having a lot of choices stopped being a good thing.

When customers stopped at the 24 jam tasting display, only 3% actually ended up buying a jam. But when customers stopped at the 6 jam display, 30% ended up buying a jam. That’s a 10 times better customer conversion rate, and it comes from offering fewer choices, not more.

One of the researchers, Sheena, has conducted similar research looking at 401(k) plan participation. Of course, companies think that people want lots of choices, so when they offer a 401(k) plan, they give employees lots of different investment choices to pick from. But like the previous study, when a company offers more investment funds in which to invest, employee participation in the 401(k) plan decreases. For example, if a 401(k) plan only offered 2 funds to invest in, employee participation rates could hit as high as 75%. But when a 401(k) plan offered 59 different funds to choose from, employee participation rates dropped to about 60%. In fact, for every additional 10 investment fund choices the company provided, employee participation rates would decline as much as 2%.

Have you ever wondered why makes “recommendations” for you ? ( If you buy enough stuff from them, they’ll start looking at your past purchases and using those to recommend other products that you’ll be statistically likely enjoy ). Of course, Amazon wants to be helpful. But more fundamentally, they’re trying to limit your choices ( albeit in a very nice and helpful way ). They know that if you see too many options on a page, you won’t end up buying any of them. But if they can limit your choices to just a few recommendations, you’re way more likely to actually buy one of them.

I’m not telling you to take away choice completely. Instead, what I’m saying to you is be very careful how many options you offer ( and be like Amazon and turn “limited choice” into a really helpful feature ). As I advise companies how to use psychology and behavioral economics to increase their revenue, I’m struck by how many companies are scaring their customers with too many choices. 

I know that customers say they want more choices, but have you actually scientifically studied whether those extra choices are helping or hurting your revenue ? Most of the big companies I work with haven’t done a statistically robust split A/B test to assess whether revenue went up or down based on the number of choices presented to customers. And so they end up scaring away lots of customers who might have otherwise paid them lots of money.

Choice architecture ( as it’s technically called ) is a very important part of selling more to your customers. You've got to guide them through the buying process without overwhelming them, and even limiting their options in a way that they find helpful. By the way, in the studies I mentioned, people initially said they wanted more choices. 

But when they got more choices, they ended up being less satisfied with their purchases and experienced much more regret. By contrast, people that saw fewer choices were significantly happier, experienced less regret, and once again, were 10 times more likely to buy something. 

If you’re in the business of getting people to buy stuff, you really need to evaluate the number of choices you offer to customers.

© Copyright 2010 Mark Murphy

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