Wednesday, May 19, 2010

Weighing Our Options


Just wanted to write a brief comment on the premise behind the new book The Art of Choosing by Sheena Iyengar, which was reviewed in the April 12 issue of Canadian Business by Jordan Timm.

Now, we've all gotten used to the idea of personalization. We've got personalized computers built to our exact specifications (Dell), we can personalize our hamburgers at Harvey's, and even customize our homepage through Yahoo!. In the middle part of the spectrum are options - many of them. Walk into any personal care aisle (shampoo and hand lotion, notably), and you will encounter options by the bottle. They've got moisturizing lotion, extra dry skin lotion, lotion with cocoa butter, ultra-care lotion, and more... and that's just the one brand. Walk into any cereal aisle and it's the same situation: you can get Honey Bunches of Oats with Almonds... but wait, you can also have them with vanilla clusters, pecans, honey clusters, and we're just getting started...


The premise of Iyengar's book is thus: too many options take a toll on consumers. Although they will always respond yes when asked if they want more options - as many as possible - the truth is that it's easier when there's less. It's easier to choose between three varieties than it is to choose between ten.

Iyengar first realized this notion when conducting a study on how people choose in a shopping market. She set up a tasting booth that would switch between one that offered twenty-four jams to taste and one that offered only six every few hours. The results: although the display with greater variety was more popular with shoppers, only 3% of them actually bought any jam. At the display with fewer options, on the other hand, 30% of those who visited bought a jar.
"The expansion of choice has become an explosion of choice, and while there is something beautiful and immensely satisfying about having all this variety at our fingertips, we also find ourselves beset by it." - Sheena Iyengar, The Art of Choosing
As the quote above describes, too much choice overwhelms us and complicates things. Canadian Business' Jordan Timm writes about Princeton professor George Miller, who investigated the human limitations for processing information. Miller found that we struggle to cope with more than five to nine pieces of information at a time. This is the same reason while most presentation and speech gurus will advise people to keep their content to three to five main points (including an introduction and a conclusion) - any more and you've lost your audience.

Two examples where less choice resulted in more profit:
  • Proctor & Gamble reduced the number of Head and Shoulders SKUs to 15 from 26, eliminating the least popular varieties, and saw an increase in sales of 10%
  • The Golden Cat Corp. eliminated 10 of its worst-selling kitty-litter SKUs, and saw sales rise 12% (while cutting distribution costs in half) - resulting in an 87% increase in profit
"Valuing the condition of having options over the quality of the options can sometimes lead to decisions that don't serve us well." - Sheena Iyengar, The Art of Choosing
A good example of simplifying the decision-making process that I've encountered recently is the new Subway sandwich menu. In the past, each type of sub had a different price depending on the type of meat (meatballs, tuna, cold cuts, etc.) and the size (6" or 12"). Choosing a sub was a process of constant decisions and an exercise in weighing your options. The revamped menu has simplified things considerably: each of the available subs are grouped into three pricing tiers. One simply has to find the tier that fits one's budget and then a select a sub from there. Voila!

As marketers, when it comes to developing products, writing briefs, and even presenting creative ideas, sometimes less is definitely more...


UPDATE: MAY 19, 2010

I want to update this post on "Weighing Our Options" with a great article by Marina Strauss in The Globe and Mail on the impact that having too many options has on the shopper. Here's the article in full:


 News from globeandmail.com
"RETAILERS AIM TO UNDERWHELM"
Wednesday, May 19, 2010
ONE AISLE, TOO MANY CHOICES MARINA STRAUSS

Several months ago Wal-Mart Canada Corp. decided to overhaul one of the staples of its grocery business - the peanut butter aisle.

It dropped two of its five lines of peanut butter to free up scarce shelf space for cinnamon spreads. But the decision didn't cost the retailer a single jar in sales. With fewer selections to browse, customers wound up purchasing more than before.

"Folks can get overwhelmed with too much variety," said Duncan Mac Naughton, chief merchandising officer at Wal-Mart in Mississauga. "With too many choices, they actually don't buy."

In a reversal, retailers are now reducing the amount of choice on their shelves. After years of tempting customers with ever expanding arrays of brands, hues, sizes and flavours, they're racing to simplify their offerings. The recession has encouraged them to focus on top sellers and private labels while throwing marginal products overboard.

Storekeepers are culling their product lines to trim costs, reduce consumer confusion and ultimately boost sales. Reducing the number of products can help companies increase sales by as much as 40 per cent while cutting costs by between 10 and 35 per cent, according to a 2007 study by consultant Bain & Co.

But the process of choosing which products will die can be hit and miss - and retailers risk a customer revolt if they get it wrong. "Even with retailers removing products on the shelf, public pressure can bring them back," said Liesbeth Teerink, managing director of marketing agency Launch.

Customer feedback was quick when Loblaw Cos. Ltd. recently culled about 10 per cent of weak-performing products from a store in west Toronto. The retailer is now restocking about half those items because customers missed them.

"We knew we'd get probably about half of it wrong," Loblaw executive chairman Galen Weston told shareholders earlier this month[may 5].

While picking the wrong products to dump can lose sales, a growing body of evidence suggests that reducing the number of products on the shelf can improve the overall shopping experience. The average shopper takes just 2.5 seconds looking for an item and notices only half the products on a shelf, according to research by Procter & Gamble Co., the consumer products giant.

P&G, maker of Tide detergent and Ivory soap, recently reduced the number of its soap and other skin care offerings by about one-third at one retailer, while cutting the array of detergents and other fabric care products by about 20 per cent at another chain.

Following the cutbacks, sales grew in each category, spokeswoman Jennifer Chelune said. "In the skin care example, shoppers reported they felt that they had more choices because the selection on the shelf was clearer."

To help pick the right products to cull, chains such as grocers Loblaw and Metro Inc. and general retailer Canadian Tire Corp. are investing in improved inventory tracking systems and rewards programs to better pinpoint customer preferences.

"There's a proliferation of SKUs [products, or stock keeping units] in the marketplace," said Rob Persiko, a director of marketing at household product titan Unilever PLC. It has targeted a 14 per cent reduction in its product offerings, ranging from Dove soap to Lipton soup, over the next couple of years.

"There's also a lot of confusion when you reach the shelves," he said. "Consumers have a hard time finding what they're looking for because there's so much on the shelf."

Retailers frown on shoppers having to spend too much time in any one aisle, Mr. Persiko said. "One retailer told me: 'Help my customers find what they want and get in and out quickly so they can shop the rest of the store.'"

But downsizing can be tricky, as Wal-Mart discovered earlier this year. After abandoning thousands of slow-selling products, ranging from freezer bags to $1 sacks of brown rice, Wal-Mart's U.S. parent was forced to re-stock about 300 items.

The world's largest retailer found that some customers turned to rival stores for the bag of rice, for instance, and then did the rest of their $80 shopping trip elsewhere. Now the rice is back, and the rationalization strategy is paying off, chief operating officer Bill Simon said in March. "The vast majority of what was removed was done for the right reasons in the right way and have actually improved the category sales."

Montreal-based Metro, which has been weeding out soft sellers over the past year partly to make room for more private labels, hired Dunnhumby, a British-based loyalty-program expert, late last year to help minimize the risks of pruning products.

Its tests found that each category has to be evaluated separately. Reducing the array of slow-growth dairy products such as margarines didn't hurt their sales, while adding more yogurts to the cooler boosted business in the category, Eric La Fleche, Metro's chief executive officer, said recently.
Added Mr. Mac Naughton at Wal-Mart: "We're balancing choice, duplications and cost."

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