Saturday, September 1, 2007

Why less is more - Choice Paralysis

“The Paradox of Choice: Why More is Less” raises what at first seems like a ridiculous concept, but proceeds to back up this seemingly absurd statement with simple examples from studies that seem to point that an increase in choice does indeed lead to a variety of undesirable conditions, the first and most debilitating of which is “Choice Paralysis”.

Barry Schwartz highlights the example of pension contribution schemes in most modern companies as an example of this paralysis and what ramifications that this can cause.

According to Mr Schwartz, no longer are your pension arrangements taken care of directly by your employer, nowadays you are faced with the choice of choosing where you pension contributions go yourself, and the choice in front of you can at times be truly huge, with countless different mutual funds based in different industries each with varying levels of risk and returns. Faced with such an array of choices it can often cause an individual to simply freeze in a state of confusion and make no choice at all. Schwartz goes on to say that in recent studies conducted across companies in many different industries that on average for every 10 further choices you put in front of your workforce, participation on the pension scheme drops by 2%, so by offering more choices you are leaving more people in worse financial situation for the rest of their lives.

My personal favourite example of more choice being bad for both customer and retailer is seen in the example of a California based jam shop.

The Jam shop decided to stage a promotion that involved sampling of its 24 imported jams, participants were then given a $1 off coupon for any jam in the shop. The next week they repeated the promotion with 6 varieties of the imported jam on display with the same $1 off coupon. The promotion with the 24 jams led to more buzz, excitement and more sampling around their shop front when compared to that of the day there were six, however sales of the jam were ONE TENTH of what they had been on the day when fewer samples were offered.
By offering too many choices the customer could not decide on what jam to buy… so just didn’t decide at all, and at the same time the retailer lost out on sales that the promotion could have provided them. The large amount of variety and choice therefore had a distinctly negative effect on both parties.

Two important facts I gather from this are
1. If there are too many choices the end result will be no choice
2. Do not judge the success of a promotion solely by numbers of people/ buzz

NB: Mr Schwartz does recognise that if you are knowledgeable about a certain area, and in this case are a financial expert or jam specialist, then an abundance of choices are ideal and exactly what you are looking for, however most people buying jam, wine or whatever it may be are not experts in that field.

1 comment:

jedimasterbooboo said...

We have a show here called The Apprentice, it's a reality show for finding an apprentice for Donald Trump. On this show we see time and again that buzz does not equal sales. Teams keep failing because of this season after season. Very interesting.