Strategy

Think Twice Before Growing That Product Line

Retail shoppers, retirement-plan participants, and everyone in between are paralyzed by society's plethora of choices.
David McCannDecember 6, 2011

Growth companies may view the development of a robust product line as the ticket to financial success, but in doing so they may be contributing to a flourishing societal malaise and actually acting to deter potential customers from buying their wares.

People in developed countries have long accepted a syllogism that the more choice they have, the happier they are, says Barry Schwartz, a professor of social theory at Swarthmore College. But, he adds, that is true only to a point. Too much choice confuses them and often results in a decision not to buy anything at all.

At the modest-sized supermarket where Schwartz shops, there are 175 different salad dressings on the shelves, not counting the 10 balsamic vinegars and 12 virgin olive oils with which customers could concoct an even larger number of homemade recipes. The same holds true for almost every category of things we buy.

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Studies have empirically proven that people buy less often when they have more than a certain number of choices, says Schwartz, the keynote speaker at CFO’s Playbook for Private Companies conference on Monday in Miami. Some research has suggested that people are comfortable with between 8 and 15 choices for some types of retail purchases.

In one study, shoppers were offered 30 flavors of jam to sample on one day and 6 on another day. While more people tasted more jams from the 30-option table, the other one produced 10 times more sales. “We all know what’s good about choice,” says Schwartz. “But we assume that since choice is good, more choice is better. That’s not true. Too much choice paralyzes people.”

Even when they do make a choice, they often regret it, the professor observes. “The more options there were, the more easily you can imagine that there was something better than what you chose,” he says.

People tend to base their choices on the factors that are easiest to evaluate, which are often brand and price. “There’s a long list of specs for that camera, and there are 100 cameras in the store, so you buy the second-cheapest Sony,” says Schwartz.

The phenomenon extends far beyond retail stores. A study of 1,000 401(k) plans serviced by Vanguard revealed that for every 10 additional funds a plan sponsor offered, participation dropped by an average of 2%. People couldn’t figure out which funds to choose, or had too little time, or put off the decision to a tomorrow that never came.

For that reason, some companies are reducing the number of funds in their plans. But it still may prove tricky to message to employees, especially young ones, that there are now 5 options instead of 25. “When my students hear me talk about this, they say, ‘There’s an old guy who doesn’t live in the modern world.’ That really [ticks] me off. What I see is that they can’t decide what to major in, can’t decide what kind of job to take, and are running in droves for counseling. They are completely messed up. They face a world that is unrestrained and unstructured, and so they don’t know how to make any decisions of consequence.”

That concept could be applied to any number of corporate activities. Many brainstorming sessions, for example, consist of throwing onto a whiteboard every idea that comes up. That is an unproductive approach, Schwartz insists. In fact, he says he would like the phrase “outside the box” to be “interred deep into the ground.”

“You need a box,” he says. “The main thing is constructing the box in the right way so that productive thought and conversation can happen. Unstructured conversation and brainstorming are almost never worth anything. It’s the job of leaders to provide that structure.”