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"Good, Better, Best" Meets "Analysis Paralysis"

Applied Behavioral Economics For Wholesalers & Retailers


You have a wide assortment of products and services to offer. Should you present a large number of choices to consumers, or only a few? Should the options be concentrated in one prize zone, or several? What features and benefits should be presented?  

These questions also apply in reverse. As a consumer you have many choices available to you. You need to be aware of factors that influence your decision making, often without your conscience awareness. 

soon-to-be-published research paper adds a spin to two tent-pole consumer behavior models; extremeness aversion and the paradox of choice.

The study suggests that increasing the number of mid-range choices may stimulate a decision to purchase a more expensive item. And, that providing a large number of fairly standard job postings may stimulate a candidate to apply for a more unusual job function or compensation plan. This is interesting, potentially useful, and contradicts prior research.


  • Extremeness Aversion: A form of cognitive bias where the attractiveness of an choice is elevated if it is the middle option within a group of options, or decreased if it is an extreme option. In other words, people choose “better” over “good” or “best.” They use contrast to "play it safe" and avoid cognitive stress, a "goldilocks" solution.

  • Paradox of Choice: is another form of bias, often referred to as “analysis paralysis.” We are cognitive misers; too many choices create cognitive overload and reduce the likelihood of a purchase decision.

HEURISTICS:


Neither of these consumer behaviors, deciding against extremes or a larger assortment, is based on “logical’ or “rational” economic choice. Rather, these cognitive biases indicate an irrational “subjective” logic, a form of psychological shortcut called a “heuristic.”

PEOPLE ARE NOT RATIONAL:

“People are not rational, they are rationalizing,” wrote Carl Jung. 

The entire field of behavioral economics is built upon this foundation.

If consumers acted rationally, economics would be fully predictable, stock markets would not exist, most people would maximize their 401k savings, and no one would play the lottery.

THAT WHICH IS WRITTEN:


In the pending paper“The Positive Effect of Assortment Size on Purchase Likelihood: The Moderating Influence of Decision Order” by Leilei Gaoand Itamar Simonson, will argue that offering a large number of “better” options will drive the consumer toward an extreme choice. Further, the authors present that it is the order in which decisions are made that determines the choice elected. 

The article will state that a consumer purchase election is comprised of two decisions: “whether to buy” and “which option to choose.” Varying the order in which the two decisions are made determines the impact of assortment size on consumers’ purchase likelihood.The authors show that increasing assortment size will have a more positive effect on purchase likelihood when the initial decision focus is “whether to buy” rather than “which option to choose.” This finding goes against the previous belief that “too much choice” leads to indecision.

EXTREMENESS SEEKING:


In a related study, published in 2007, by John T. Gourville & Dilip Soman in the Harvard Business Review, "Extremeness Seeking: When and Why Consumers Prefer the Extremes" arguing that,
"extremeness avoidance depends on assortment type, with consumers displaying extremeness avoidance for alignable assortments, but systematically and predictably displaying extremeness seeking for non-alignable assortments."  

This study was based upon consumer responses to cell phone plans, digital camera choices, cable TV providers and Vacations to Italy. 

Their research suggests that "product providers may be well served to help consumers resolve their preference uncertainty prior to making a choice."

"Rather than have consumers choose a basic or a fully-outfitted product because those choices are easiest to justify, a product provider might wish to turn an uncertain customer into a certain customer so as to provide that person with an alternative that best meets their eventual needs." 

WHY DOES THIS MATTER TO YOU?


At our company we use an understanding of cognitive bias to help customers make better decisions; “better” in this instance is defined as decisions we pre-select. 

We create “extreme” products, in behavioral economics these can be known as "decoys," products with much higher or lower pricing or feature sets, to direct customers toward more moderate choices: The “better” of “good, better, best. And, we occasionally decrease the number of similar products within an assortment to lower the paradox of choice effect and to increase the rate of sales.  

These assortment decisions are made with a focus upon profit margins, inventory levels, and partner success metrics.

This new study suggests a new marketing proposition. To bias customers toward “extreme” choices, higher priced items, more feature-rich items, we may elect to increase the available assortment of moderate “better” products, inducing cognitive overload, and thus stimulating a more “extreme” or unusual choice. In other words, more middle choices may lead to "extremeness seeking" rather than "extremeness aversion."

This concept is particularly relevant in the new huge assortment, digital, long-tail inventory landscape. Today's wholesalers and retailers can use all the help they can get to stimulate consumer behavior. And, in today's information overloaded world, consumers can use assistance in identifying the best choices, and making the best decisions, for their needs.

As always, I look forward to reading your comments and feedback.

(c) David J. Katz, 2016 - New York City

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