Sunday, June 19, 2011

Product Management - Paradox of choices

Yesterday, I & My wife went out shopping. We wanted to buy few temple jewellery for my daughter. We went to Jayanagar 4th block - a main shopping hub for South Bangalore. Initially, we went to few shops and then finally ended up at 'Bhavani Kangan' - a well known store for fashion products. The shop was filled with people to the brink with hardly any place for me & my wife to stand. Being Indians we managed to get in and buy the stuff we wanted. The store had so many choices in each category that was mind blowing.

First we asked for necklace, and the store had 100s of designs, We started to look at all the designs, and it was taking a long time just to see all the designs he had. The range of choices we had at the store was actually making it tough for making a decision. Finally, I just decided to make a call and choose the one that met my basic needs - design, color and price.

As we stepped out of the shop, me & my wife felt drained - just by shopping. On the way back, my wife made a comment that when she was a kid, she could get nice looking designs than today.

Her comment made me think and write this blog.

The statement - "When we were kids, we used to get nice looking designs" was a loaded one. At the first level, we has humans tend to have nostalgic memory of the past. Nostalgic memory is often not true - but we tend to remember only the good things from the past and also tend to passionately cling on to them.

At the second level, more choices we have, the more confused we become - and hence when compared to the past experience of limited choices we tend to make an assumption that things were better in the past. This can be attributed to Paradox of Choice.

As a product manager and as a marketer, it is important to understand the paradox of choice.

Simply put, having multiple choices confuses customers and at the end customers often end up making a wrong choice, or defer making a decision. In the process of going through all the choices available, the buyer gets exhausted and the whole buying experience becomes painful, killing the joy of shopping.

The paradox of choice is equally applicable to manufactures and sellers. Offering too many choices to customer results in increased selling costs and lower profitability. Increasing the range of choices to customer may end up in lowering sales - as customer gets turned off by the multitude of choices.

The paradox of choice is very well described by Barry Schwartz in his book The Paradox of Choice - Why More Is Less. Barry Schwartz observed the human behavior of choosing and documented the fundamental reasons for the paradox of choice.


Why More is Less

Having too many choices is actually bad for the consumer. Today consumers are being offered too many choices, consumers are being bombarded with too many marketing messages, and the poor consumer is forced to "think" even for simplest of all buying decisions.

To illustrate it, just walk into a store and look at the choices you have for "drinking water" or soap or shampoo. Even in India there are so many options - that its impossible to determine the best.

Given such a wide range of product choices, the consumer ends up with a choosing one and then the buyer remorse sets in - as the customer now doubts that if he has made the right choice.

Consumers want to feel good by making the best decision or making the right decision. Making the right decision involves getting all the information about all the choices and then choosing the one that best fits his needs. In the world of unlimited choices, the customer will soon be overwhelmed by information and simply cannot analyze all the possible options and is forced to opt for a choice that meets his basic needs - a satisficing option. But with a satisficing option, the buyer is not sure if he has made the right decision and is often left in a state of doubt. This results in a unhappy buying experience.

This has been validated by psychologists David Myers and Robert Lane, who independently concluded that the current abundance of choice often leads to depression and feelings of loneliness.

Analysis paralysis

People want to analyze all the possible options. In case of simple consumer goods of low purchase price, people do not mind making a wrong decision. But when buying a big ticket items, where the buying decision has major ramifications, customer have to analyze all the options. Given a huge range of choices - customers often end up in analysis paralysis.

Missed Opportunities

Another human behavior thats particular importance here is that we tend to fret over missed opportunities. Even after making a decision, people often tend to worry about the missed opportunity. This makes them doubt their decision and hence are less satisfied with the product they bought.

Pressure to Win

In today's hyper- competitive world, people are always under pressure to win. Winning or losing is heavily dependent on making the right decision - i.e., choosing the right products. So when the person does not win, they end up blaming the wrong choice they made. And from that experience, customer are always in self doubt even after purchasing the product.
Examples of this paradox.

There are tonnes of examples of this paradox, and yet companies tend to make the same mistake. The best example of this is General Motors. In 2008, GM had more than 23 brands & 100 models of cars in 20+ variants for each model. Yet, GM was making losses, losing market share.

Another example is Yahoo Vs Google. Yahoo offers a wide range of services in their home page, while Google offers very few choice.

Apple Vs Dell. Walk into an Apple store, there are only few choices of PCs/Laptops available. Log into Dell website and you will be offered such a wide range of options - that is bound to confuse the buyer. No wonder that Apple's profit & sales are growing at such a fast clip.

Closing Thoughts

Having choices is essentialy for the consumer, but having too many choices does not help. Instead understand the customer needs and offer a select range of choices - this increases customer satifaction and greatly increases the pleasure of buying.

2 comments:

Saras said...

And ofcourse Henry Ford's choice of black :).

Anuradha Goyal said...

Read this book called Art of Choosing...you will get many insights into what goes into making a choice.

It is reviewed here on my blog: http://anuradhagoyal.blogspot.com/2010/06/art-of-choosing-by-sheena-iyengar.html