Marketing research studies find that respondents unequivocally report that they want choices. But that clear message masks complexity.
Anyone who’s shopped for a car is all too aware that this single decision involves a multitude of choices. Gas, diesel, electric or hybrid? Full-size, mid-size, compact or subcompact? Which makes or models are best? The list of possibilities goes on: exterior and interior color, entertainment, communications, and so on.
This disorienting range of options in cars – and virtually every other product and service available today – creates a decision dilemma. Consumers want alternatives but often find it difficult to settle on one. In some circumstances, the ramifications of making a bad decision may even provoke fear. Freedom of choice can be paralyzing.
So, in a market full of choices, how can a brand optimize a product or service to give consumers the freedom to choose that they say they want, benefiting the bottom line without creating decision dilemmas?
Concepts of Choice
When marketing research is being designed, specific questions about product mix and pricing depend on a correct understanding of a respondent’s concept of choice. Sheena Iyengar, the S. T. Lee Professor of Business in the management division of Columbia Business School, is one of the world’s leading experts on choice, and she argues that cultural factors are key to both applying basic marketing principles and interpreting specific research findings.
Consumers say they want choices in a general sense, but digging deeper reveals that they actually only value opportunities to choose when they perceive meaningful differences between the options they are offered. Permission, or compulsion, to choose among alternatives that are numerous but seem essentially similar might inhibit choice or even lead to rejection of an opportunity to choose.
This idea took on new meaning for Iyengar after a research session with a group of Eastern Europeans who were accustomed to a very narrow range of consumer choice. When presented with a selection of seven sodas, these consumers interpreted the choice as binary: soda versus no soda. The common qualities of these products were far more meaningful to them than the differences between them. A Westerner might see this offering as thoughtful, even unremarkable, but this group found the range of choice essentially meaningless.
Iyengar’s research has found, unsurprisingly, that Americans identify the primary focus of choice as the individual. In one study, Anglo-American children completed more puzzles more accurately when they were permitted to choose the puzzles they worked on. In contrast, American children of Asian immigrants achieved better performance when they believed that their mothers had chosen the puzzles for them.
The concept of choice suggests the operations of an individual mind, but some people view a decision to accommodate or adopt the preferences of others as a means of establishing or strengthening relationships. When individuals believe that their choices, and the outcomes of those choices, are related to the actions of others, they may begin decision processes by deciding to choose collectively. These individuals will not welcome opportunities to act independently and may reject the idea as socially disruptive.
Choosing Among Predefined Packages
A case study example involving a telecom company illustrates this point. As is common in the telecom industry, this company offers phone, Internet and TV in simple, predefined packages or bundles, in a progression of performance/features and price. The lowest tier provides basic Internet, phone and TV; the middle tier offers higher levels of service; and the top tier provides customers with very fast Internet, unlimited calling and a long list of TV channels.
This menu of three options was easy for customers to evaluate. However, the company was considering distinguishing itself from competitors by allowing customers to assemble their own bundles. For example, customers could choose the fastest Internet, mid-level phone service and the most basic TV.
How might this more complex freedom of choice affect the company’s revenue? With the predefined package offerings, it seemed likely that some customers were paying for some services at higher levels than they preferred in order to obtain another service that they wanted. So customers might express their increased freedom by choosing cheaper options and reducing their monthly spending. On the other hand, if people valued choice as much as they say they do, would these expanded options attract customers from competitors?
How Much Customizing?
The telecom company’s query was actually several related questions. First, would customers prefer customizing? Presented with both predefined packages and the ability to customize their own bundles, respondents clearly favored customizing. Second, would customizing reduce the average monthly expenditure under the company’s current offering? The findings showed that it would.
That result seems to indicate that the company would not benefit from offering this much choice to customers. However, it is important to keep in mind that consumers have preferences for providers as well as products. The offer had to be evaluated in a competitive landscape, not in isolation, in order to understand its effect on overall market share. So a study was conducted using a model that presented the options (predefined packages only, freedom of choice only or both) randomly among providers. The results showed that the company could nearly triple its sales - and revenue - with the increased level of choice.
Offering more choice was the right move for this telecom company, because they both satisfied consumers’ preferences without overwhelming them and increased the company’s revenue through improved understanding of those preferences.
The effects of increased choice in other markets depend on the specific conditions in that market. Are consumers expressing interest in more alternatives or more simplicity? Achieving the proper equilibrium is the key. Many companies are trying to reach the right level by identifying the best ways to bundle options. The ultimate balance any company should aim to strike is the one between consumer appeal and higher sales and revenues. Reaching that goal requires asking the right questions for a specific market and arriving at actionable answers through sound research methodology.