The right to choose is considered to be a primary right in modern societies. In the current age of multiple satellite television channels and subscription video on demand services like Netflix, Amazon Prime and Hotstar, who would want to return to an era of a single or two channels of Doordarshan? Who would argue for a return to a monopoly of MTNL/BSNL as compared to the options of telecom service providers that we have or the monopoly of Indian Airlines against the choices that we have today?
Similarly, investors have a choice of various investment avenues today as compared to say a PPF, National Savings Certificate, LIC policy and a UTI scheme of the past. Indeed, some amount of choice greatly adds to customer benefit, reduces monopoly profits, brings about product innovation and so on.
However, in this article, we are not talking about monopolies or the lack of choice. We are examining the impact of excessive choice on human behaviour. The Paradox of Choice – Why More is Less is the title of a 2004 book by Barry Schwartz. There is also a study done in 2000 by Sheena Iyengar and Mark Lepper that examines the same problem.
For readers interested in the full study by Iyengar and Lepper, a copy of their report can be found here and it makes for interesting reading. Overall, the report can seem a bit intimidating due to the details and the academic nature of the study plus the various citations, it does contain some interesting data.
For example, it talks about a grocery store in California that sells 250 varieties of mustard, 75 varieties of olive oil and 300 varieties of jam! The report, however, is not just about listing the mindboggling variety that some American consumers face. The authors go on to conduct an experiment in the store.
In the two versions of the experiment, customer reactions to limited choice and extensive choice were tested. In one version (limited choice), the product display was limited to six varieties of jam whereas, in the other version (extensive choice), 24 varieties were displayed. In each version, customers were invited to try the jams and if they liked any, they could proceed to buy the product.
The outcome of the experiment may come as a shock to many marketing professionals in the FMCG space. Think about the endless variants of soaps and shampoos one encounters. Indeed, the results may shock many mutual fund companies with the numerous variants of the mutual fund schemes.
In a surprising outcome, the average number of jams tasted by potential customers in both versions did not vary significantly. The number was 1.38 jams when six jams were on display (limited choice) versus 1.50 jams when 24 jams were on display (extensive choice). Most people tasted just one or two versions of the jams.
This, however, is not the most surprising aspect. The most surprising aspect is that in the limited choice version, 30 percent of the potential customers who tasted went on to make a subsequent purchase, whereas in the extensive choice version of the experiment only 3 percent of the potential customers made a purchase.
I am not aware of any similar large scale study in India especially in the financial sector. However, I would hazard a guess that Life Insurance companies in India that target a well-defined need say retirement (via retirement plans) or child’s education (via child plan) would be resonating more with the customer than a mutual fund with 100 different schemes to offer. Maybe we need to revisit Iyengar and Lepper 19 years on.
From the customer’s point of view, if ever you find yourself obsessing over multiple choices and hence postponing a decision, it may help to reduce the number of options. People face this when choosing a holiday destination or buying a home or choosing a financial product.
One way of reducing the number of options is to apply filters and to do some top-down thinking. For example, one could decide on a budget, distance from the home city and kind of destination (beach/mountains/historical). Once the relevant filters are applied, the choice set becomes more manageable. Remember, postponing a decision because of a lot of choices is never helpful.