Eenie, Meenie, Miny, Moe: The Paradox of Choice
Let’s start this one with an example*:
A high-end catalog company was offering a bread maker for $279.
Later, they added to their catalog another, more expensive $429 bread maker.
They sold only a few of the more expensive bread maker.
But sales of the $279 bread maker doubled.
Hmmm. We usually think about price for a product or service as being determined by supply, demand, what our costs are, and what products and services our competitors are offering. But in this case, none of those variables changed. What changed was the addition of a competing product, which should -- according to traditional logic -- have cannibalized sales of our existing product. But instead, by adding internal competition (in other words, more choice), sales doubled.
Here’s another example:
As an experiment, a gourmet food store set up at the end of an aisle a display of jams, preserves and jellies for its customers to sample and purchase. The experiment had two phases, and in both phases the table had 24 different jams on display.
In one phase, only six jams were available for sampling, although all 24 jams were available for purchase. To track the number of purchases, coupons for a $1 discount were available at the display table. Customers could use the coupons to buy the jams.
In the other phase of the experiment, not just six but all 24 jams displayed on the table were available for sampling. Again the $1 discount coupon was used to track the number of purchases.
The display where customers could sample all 24 jams attracted more total customers. However, at the two displays each customer sampled about the same number of jams.
At the display where all 24 jams were available for sampling 3% of the customers made a purchase using the coupon .
At the display where customers could sample only 6 jams, 30% made a purchase.
So, what’s going on here? At one display customers could sample four times as many jams as at the other one. Not only that, but the display attracts more customers. Yet at the other display, with fewer customers and fewer jams to sample, proportionally 10 times as many customers bought the product.
Is this starting to get confusing? In the first example above, we added more choice and sales doubled. In this case we offered more choices, and sales shrank by 90%.
Read on.
A third example (this one’s a little more complicated, so bear with me):
A Sony CD player is put on one-day sale at the bargain price of $99. Sixty-six percent of people who are in the market for a CD player say they would buy it at that price, and 34% pass on it and say they’ll wait.
Score: 66% buyers, 34% no sale.
Now, a top-of-the line AIWA CD player is placed next to the Sony in the window. Again, it’s a one-day sale, and the price of the AIWA is $169, which is also a bargain price. What happens? In this case, 27% say they would buy the Sony, 27% say they would buy the AIWA and now 46% say they would wait -- a decrease in buyers of 18%, even though there are now two bargains to choose from.
Score: 54% buyers, 46% no sale.
Oops! When customers were offered two sale choices instead of a single sale item, total sales dropped by 12%.
Now take away the $169 AIWA and put an inferior $105 AIWA next to the Sony -- again, two smokin’ deals side by side. The Sony is clearly better quality than the AIWA. In this case, almost no one chooses the AIWA, but 73% choose to buy the Sony, as opposed to 66% when it was offered by itself.
Score: 73% buyers, 27% no sale.
Aha! Although it seemed that by adding another choice reduced total sales, it wasn’t the number of choices after all. It was the choices themselves that influenced whether customers bought or passed. But was it the quality of the other product? Was it the brand? Was it the price?
In all three cases it’s the same Sony CD player, and the same $99 price. But the context in which the Sony CD player is offered for sale makes a huge difference. Just by placing another CD player next to the Sony reduced sales from 66% to 54% or increased sales to 73% -- that’s a 35% increase in total sales!
Imagine how mastering this price/choice strategy -- we’re not talking about adding sales staff, or increasing your advertising budget, or anything that would add to your costs -- imagine what this could do for your bottom line!
Looking at these examples, it’s clear that how you present your products and services -- in terms of the choices you offer -- has a profound influence not only on what your customers buy, but on whether they buy.
As an example of putting this into practice, I suggested to one of my clients that he offer his customers blocks of five, ten and 20 hours of his services at a slightly reduced price. This gave his customers four choices instead of just one. His customers immediately lined up to purchase blocks of time in advance.
My client benefited from this strategy in several ways. When a customer purchased a five-, ten- or 20-hour block of time, my client had to process only one five- or ten- or twenty-hour invoice instead of many one- or two-hour invoices. This strategy also sped up his cash flow, because now his customers were paying before they received his services, rather than 30, 45 or 60 days afterwards.
Sales increased as well. It became much easier for his customers to pick up the phone to order his services, because each time it wasn’t a sales decision anymore. They’d made the sales decision months earlier, and now they were simply using services, rather than buying them. (This is why Starbucks and department stores love gift cards. People don’t think about how much they’re spending when they use their card -- they’ve already spent it.)
So looking at the above examples, you now may be starting to consider how you can be more creative about positioning your products and services, and about what choices you can present to your customers. This is an example of the outside-the-box thinking that I help my clients bring to their businesses that increase their sales and their profits.
*All examples, except for the one about my client, are taken from The Paradox of Choice: Barry Schwartz, Harper Perennial
Robin Johnstone Consulting, LLC
Offices in Albuquerque and Santa Fe
Robin Johnstone Consulting