Why you should not blindly trust the Marketing wisdom when it comes to defining assortment
Alejandro Serrano – Sep 27, 2012| Spain
Last week I watched a very interesting talk TED talk by Barry Schwartz based on his book “The paradox of choice” . He argued that having more options to choose from does not necessarily imply having more freedom. This is despite the usual approach from Marketing, which claims that “more is better” when it comes to definition of assortment. His argument stems from some findings which show that having many SKUs to choose from may actually be counterproductive, as it could lower the customer’s utility.
I have summarized the five main findings and packed them under the acronym “PERRO” (thus the title of this piece) for me to easily remember them. Here they are:
- Paralysis. Too many SKUs force customers to try to analyze each option with respect to the others, pondering pros and cons, until a decision is made. The process can become so messy that customers simply postpone their decisions for later. Put differently, we could say that “too much analysis drives paralysis”.
- Expectation. If assortment is large, customers usually significantly raise their expectations about the quality of the product they are going to buy. Since utility can be measured with respect to expectations, rising expectations leads to decreasing utility.
- Regret. If a bought product does not completely satisfy a customer, she may ask herself, what if I had bought an alternative? Therefore, the higher the number of alternatives, the higher degree of regret she will have as she becomes more convinced that one of the others was better.
- Responsibility. If there is just one variant, and that one does not satisfy the customer, he will think “What can I do?”, with no blame. However, if there are many alternatives and the one chosen does not satisfy the customer, he will blame himself, as he was the one who chose the “wrong” product.
- Opportunity. As variety increases, the opportunity cost decreases, as the alternatives are closer in value (not necessarily in price) to the product considered. The more SKUs available, the lower the incremental value of the product chosen with respect to the second-best choice.
Given these, it is maybe time to reconsider your marketing strategy, and start reducing the number of variants so as to increase your customers’ utility (aka happiness).
The TED talk is here. The book “Paradox of choice” can be seen here.
To know more about supply chain follow the link www.zlc.edu.es
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