A Look at Behavioral Economics: Don’t Overwhelm with Choices

July 26, 2011 2 Comments

Whatever you are selling, understanding your customer’s behavior is key to your success.

There’s actually a science called Behavioral Economics that seeks to explain why people behave the way they do. Behavioral Economics combines psychology and economics to understand the purchase decision. It looks at how customers make decisions and why they make them.

I’m sure many of you are wondering whether or not science done by some university Ph.D. is applicable to real world business– my answer to you is absolutely! (at least in this case)

Understanding why consumers buy what they buy is extremely valuable knowledge. In my next few blog posts, I am going to look at some interesting findings on consumer behavior and how you can apply them to your business.

Let’s get started…

Fewer Choices

Too many choices can overwhelm customers and make them less likely to purchase. A study done by Columbia University psychologist Sheena Iyengar found that too many choices can actually cause a type of “information overload” in the mind of consumers. The classic experiment offered grocery shoppers a selection of 24 varieties of jams one day and only 6 the next. 30% of shoppers who were faced with the limited selection of 6 made a purchase, whereas only 3% given the 24 variety selection made a purchase. That’s right—fewer choices led to 10 times more sales.

The Takeaway

Choice isn’t always good. In fact, too many options can actually reduce sales by forcing customers to think too hard. Because of this, offering fewer choices can be a huge differentiator. Apple, Trader Joe’s, and In-N-Out Burger are a few brands that have adopted this approach and made the purchase process easier.

If you enjoyed this article, you may be interested in some others from the Understanding Customer Thinking series:

Filed under Consumer Behavior, Customer Experience, Marketing Tagged with , , , ,

The Two Sides of the Deals & Discounts Story

June 22, 2011 Leave a comment

Deals and discounts are a big draw for customers, but at what expense to retailers?

Kohl's Department Store

A while back I wrote The Double Edged Sword of Discounting in which I warned brand marketers and small business owners about the danger of relying on discounting to attract customers. In short, deals and discounts will breathe life into your short term sales, but can lead to detrimental long term effects.

My perspective on discounting, though, is continually challenged by the consumer in me. You see, I have this whole Dr. Jekyll & Mr. Hyde thing going on. As a marketer, I am a big proponent of adding value (as opposed to discounting). But as a consumer, I am always on the lookout for coupons and deals.

No one brings out the Mr. Hyde “Deal Hunter” in me quite like Kohl’s department stores. To say the retailer is highly promotional is putting it mildly:

  • New charge card customers are offered 20% off entire purchase the day they open an account.
  • Kohl’s offers extra discounts to charge card holders ranging from an extra 15% – 30% off all regular, sale, and clearance merchandise.
  • Regularly send “$10 off everything” coupons.
  • Frequently offer $10 in Kohl’s Cash for every $50 spent.

This discounting strategy has helped Kohl’s cope better in the recessionary environment than many of their competitors (see below)

Source: NRF 2010 Top 100 Retailers ¹

Kohl’s success, however, has come with a steep price.

As a consumer, I love the deals. But as a marketer, I am concerned for the retailer’s future. Why? Kohl’s has essentially made discounting and price promotions their sole marketing strategy, which, as history shows us, is neither smart nor sustainable. The retailer has trained their customers to shop on price….and that’s never a good thing.

¹ 2010 Top 100 Retailers

Filed under Branding, Marketing, Pricing, Strategy Tagged with , , ,

The Importance of Consistency: is Your Product ‘Like a Box of Chocolates’?

June 7, 2011 Leave a comment

My momma always said, “Life was like a box of chocolates. You never know what you’re gonna get.” –Forrest Gump

For the past seven days, the subject of consistency has weighed heavily on my mind.

In fact, I have been reminded of it every time I look in the mirror; that’s because last week I was the recipient of the dreaded “bad haircut”. Even though I pay the same amount every time, I never quite know what I’m going to get when I go to the salon…sometimes a great cut, other times a pretty bad one. Oh, what I would give for consistency.

This idea of consistency often gets lost in the shuffle, especially among small business owners. This is surprising because consistency really is the key to success. Even with a mediocre product, you can be tremendously successful if you are consistent and reliable.

Just look at McDonald’s. Their food is average at best, however they have found nothing but success over the past 50 years. Why? Because they are consistent. Whether in Tokyo, New York, or London, you always know what you are going to get when you eat at a McDonald’s.

More than a great product, customers long for a consistent product. They want the same quality, the same service, and the same experience every time they come to your business.

As a business owner, you should create processes so that you can deliver this consistency. Make it impossible to be inconsistent and make it impossible for your employees to make mistakes. This example from Andy Sernovitz sums it up best:

How do you prevent your dental assistant from frying herself with X-rays all day?

The “on” button is OUTSIDE of the exam room.

There is no way to do it wrong. You have to leave the room to turn the machine on.

Filed under Brand Touchpoints, Customer Experience Tagged with , ,

Nissan LEAF Helps Drivers Understand the ‘Value of Zero’

April 21, 2011 Leave a comment

Nissan Leaf: the Power of Zero

Zero is worth more than nothing. Zero is worth everything.

The latest commercial for the battery powered Nissan LEAF is a winner. The LEAF is the first all-electric vehicle from a major car maker and is a 100% battery car, unlike other electric-hybrids such as the Chevy Volt. What makes the spot so powerful is the way it communicates the car’s USP — zero emissions.

I have written before about the power of showing customers the benefits of your product, rather than telling them. This ad is a fantastic example of this concept of showing; it combines a simple idea with attention-grabbing imagery. The result is a spectacular ad that  enables customers to grasp the true value of zero.

Ad Copy: What is the value of Zero? Is it nothing? Imagine zero dependency on foreign oil. Zero pollutants in our environment. Zero depletion of the Ozone. Suddenly zero starts adding up. Which is why we at Nissan built a car inspired by zero. Because Zero is worth more than nothing, zero is worth everything.

Filed under Advertising, Brand Message, Marketing Tagged with , ,

Is There Really Such a Thing as Too Many Choices?

March 11, 2011 Leave a comment

Too many product choices can leave consumers unhappy and afraid to buy.

Conventional marketing wisdom says that the more varieties of a product you have, the more you will sell. You can see this in action the next time you go grocery shopping; just take a stroll down the toothpaste aisle. However, more choices does not equate to more sales; in fact the opposite is true, it actually decreases sales.

Something strange happens when we are given too many choices…we become paralyzed and make no decision at all. Columbia University psychologist Sheena Iyengar ran an experiment to  study this phenomenon.

Her team set up a booth in a grocery store with free samples of jam. On the first day, 6 flavors were displayed; 40% of customers stopped to taste and 30% of those who stopped purchased jam. On the second day, 24 different flavors were displayed; 60% of customers stopped to taste and only 3% of those who stopped purchased jam.

These findings show that, at first, a variety of options seem highly appealing to consumers (40% vs. 60%). However, having too many choices drastically reduces the motivation for a customer to purchase the product. (30% vs. 3%) In this case, fewer choices led to 10 times more sales!

Not only do too many choices de-motivate consumers to purchase a product, but it also leads to a greater level of dissatisfaction. For instance, when looking for a new pair of jeans at the Gap, they will dozens of different styles. You may find a pair that fit damn good, however, they aren’t perfect. Watch Barry Schwartz as he describes his jean-buying adventure and why choices don’t make us happier, but more dissatisfied.

The Choice is Yours

All of this points to the fact that too much choice is bad for business. When consumers have too many  choices to make they end up more dissatisfied with their decision or don’t make a choice at all.

Every now and then a company recognizes the power of making the purchase decision easier. This will be the topic of my next blog post.

Filed under Branding, Marketing, Strategy Tagged with , , ,

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