Episode 4: Paradox of Choice & Differentiation

Intro

Hey, it’s Dallas and I have a question for you.

But first, let me take you back to a time when things were a little bit different.

Imagine it’s January, 2020. You wake up on a Monday, it’s early in the morning. You’re getting ready, you get your breakfast and coffee and then… wait for it.

You get in your car for your morning commute to the office.

Yikes.

But it gets worse. Right as you’re walking into the office, settling in for the day – like a scene straight out of Office Space – you get an urgent Slack from your boss.

He tells you that as part of a new inbound leads sales initiative, each leader in the organization is responsible for crafting one new blog article for your company’s website. And guess what? That means you’re writing a blog.

And then he tells you that the sales team has identified two blogging categories and right now they are dividing the team into two groups so they can divide and conquer.

Both are categories that you have no prior knowledge or experience with and each will require the same amount of work from you.

For one category the sales team has already brainstormed 30 possible blog topics that they need researched and written.

For the other category, they’ve only been able to identify 6 blog topics.

Your boss tells you that while you’re only being asked to write one blog article, you get to choose – without seeing the blog topics – which group you want to join. The group assigned to the category with 30 topics already brainstormed, or the group assigned to the category with 6 topics already brainstormed.

Again, knowing that you have no prior knowledge about anything in either category, and you haven’t seen the brainstormed titles – do you want to work out of the category with a lot of choices, or the category with a smaller amount of choices?

Take a second and consider it….

My bet is that you’re naturally inclined to choose the category that gives you the most topics to choose from. Since we’ve already mentioned you have no prior preference to the subject of the categories, it’s common that people will choose the category that offers them more choice and more freedom. People perceive that this will lead to a better outcome, since they’re more likely to find something that more closely aligns to their preferences when given more choices.

But what if I told you that if you actually joined the category that gives you only 6 blog topics to choose from, you’re more likely to complete the blog article, it’s more likely to be completed on time, and it’s far more likely to actually be a higher quality blog article than if you completed an article out of the category containing 30 choices.

To go further, what if I told you that if by chance, you somehow selected the very same blog topic, but from the larger category, the quality of the blog article you produced would be lower than if you chose the same topic, but out of the category with 6 selections?

How does removing choices actually result in your boss getting a more timely result, and a result of higher quality? Why are you more likely to complete the work when you actually have less choices of the type of work you’re going to do? How does taking away opportunities actually improve the quality of the work? How does giving you more choices and more freedom actually result in less work produced, and of lower quality?

Let’s take a quick break and we’ll dive in…

The Research

Okay, so if you think about, you’d think that if we each lived in a world of complete autonomy and unlimited choice, we’d be far more likely to find and choose things that match our personal preferences, which then would maximize our individual happiness – whether that’s choosing a meal, a t-shirt, a piece of software, a job, a significant other – whatever.

Afterall, as humans, our desire for choice is unlimited. We want all the choices. We want all the options.

And as business owners, our natural response is to try to match this desire. We think that if we create a business, or a product that offers near limitless personalization – the something for everyone approach – then obviously we’d meet the needs of more customers, leading to more sales and revenue.

Now, the question I opened this episode with is a variation of research done by Sheena Iyengar and Mark Lepper, published in the Journal of Personality and Social Psychology, titled “When Choice is Demotivating.”

Iyengar and Lepper set out to test that if having more choices actually led to an easier and better decision making experience for the person making the decision.

The first study Iyengar and Lepper ran was done in order to test what is called, Limited Choice versus Extensive Choice. A few options versus a lot of options.

To test this, shoppers entering a grocery store encountered one of two display tables – you know those tables where they give you the free samples, I love them – anyway, two tables giving out free samples of jam.

One group of shoppers encountered a table with 6 options – 6 different types of jams to try. This was the limited choice set.

The second group encountered a different table with 24 options. This was the extensive choice set.

In this setup, Iyengar and Lepper wanted to understand:

• First, will more people stop at the table with more choices
• Second, are people more likely to try to more samples when more samples are available
• Lastly, are people more likely to choose to purchase an item from limited choice table or the extensive choice table

What they found is that the extensive choice display – the table with 24 options – tapped into the shoppers initial desire, or attraction to wanting more choices. 60% of shoppers who encountered the larger display, actually stopped to look at it. This is compared to only 40% of people stopping at the limited choice table.

So right off the bat, we see that buyers are attracted to having more choices. They subconsciously are feeling that with all of the available choices, there has to be one that matches their preferences. So they stop to find out.

Score one for extensive choice.

Moving from initial attraction to actual utilization rates, the extensive choice display table also resulted in shoppers sampling more products on average, even though it was close. The average shopper sampled 1.5 jams at the extensive choice table, compared to only 1.38 at the smaller, limited choice table.

So, again, put that one in the win column for providing an extensive amount of choices to buyers.

But here’s where it gets interesting, and in my opinion, this is what actually matters.

While the experiment demonstrated that shoppers are more attracted to the display with more choices, and they sample more products – which are both good things of course – of the shoppers who encountered the larger display, only 3% actually made a purchase. In raw numbers, that’s only 4 converted shoppers out of 145 people who stopped at the extensive choice table.

Now, here’s the crazy part. At the smaller display – the limited choice display – of the people that stopped, 30% actually went on to make a purchase.

Out of 104 people that stopped at the table, 31 made purchases.

The limited choice display had a lower initial attraction rate, lower sample rate, but 10 times higher conversion rate. Going from 4 sales to 31 sales, by actually removing choices from the potential buyers. They had the very same products. Very same price. Less choices.

That’s incredible! So, think about that in the context of a website conversion rate, an email open rate, or a direct mail response rate. To be able to go from a 3% conversion rate to 30% is a complete game changer.

Understanding this experiment helps us challenge the assumption that giving the customer more choices somehow creates a more motivated buyer.

While we as humans – and our buyers – may be initially more attracted, or more enticed by a large amount of choices, study after study shows that our motivation to then make a final choice, or purchase, is severely diminished as we’re presented with all of those choices.

This is called the paradox of choice. This is why sometimes, more is actually less.

Why It Works

So what causes this paradox? Afterall, it runs so strongly against our natural intuition of wanting more choices in our day-to-day lives. But it turns out, interesting things start to happen when we’re faced with a large set of choices.

At the simplest level, when we’re faced with a limited set of choices, our natural intuition is to optimize our choice. When we go into this optimization mode – since the choices are limited – we feel we’re more likely to make the choice that will lead to the best outcome for us. So we actually do it. We make the choice.

But when we’re faced with an extensive amount of choices, rather than optimize our choice, we tend to satisfice. We sense – either consciously or subconsciously – that we don’t have the time or ability to make the optimal choice with any degree of certainty, so we simply make the satisfactory choice. Since we don’t have the confidence that we’ll get to the optimal outcome, we’re more reluctant to make a choice, and unless pressured, it’s less likely that we’ll make any choice at all. When we do eventually make a choice from an extensive choice set, we’re also less satisfied in our choice, even if we actually got it right.

This is where buyer’s remorse comes from. Something you definitely don’t want your customers to have.

This is proven by another study that asked respondents right up front if they wanted to join the extensive choice group or the limited choice group. The respondents were far more likely to join the extensive choice group. But, in post-study surveys, those same respondents who chose to join the extensive choice group, reported much higher levels of dissatisfaction and regret about the choice they made.

We tend to think of the paradox of choice as an exclusively transactional, or shopping problem. But it extends beyond the grocery store.

Choice paradox, or choice overload, also applies in non-transactional settings.

This goes back to the question I opened the episode with.

College students were given the ability to write an essay for extra credit, but first they were divided into two groups:

• Group 1 was given a list of 6 essay topics to choose from
• Group 2 was given a list of 30 essay topics to choose from

Despite what you’d assume, Group 2 with 30 topics to choose from, was far less likely to complete their extra credit essay.

Again, we’d assume that having more essay topics to choose from would motivate the students to complete the essay as they are more likely to find a topic that resonates with them. But we see that offering people an extensive list of choices leads to demotivation rather than motivation.

To take us a little further down this counterintuitive rabbit hole, not only were students more likely to complete the assignment when given a shorter list of topics, when also looking at the grades, or the quality of the work, the quality was also much higher from the group of students with less topics to choose from.

Even when the same essay topic was chosen by students in each group, the grade of the essay written by the student in the limited topic group was still higher.

What this tells us is that not only are people less motivated to make a choice when presented with a lot of options, they’re also less committed to the choice they made.

Now, we’ll steer clear of how this applies to problems with modern day dating and stick to business, but it’s incredibly clear that people presented a limited set of choices are quicker to make a choice, they feel better about their choice, and they are far more committed to the choice they made.

Now in a business context, you want your buyers, your customers to choose you, you want them to feel good about choosing you, and you want them to be committed to staying with your business or product for a long time.

But for a number of reasons, I see business after business expanding their service offerings, not limiting them. I see businesses growing their menus. Adding more SKUs to their product lines. Adding more options for personalization. Expanding their target audiences.

I can understand how this is the intuitive solution to attracting more customers – and we do know that customers are attracted to more choice – but we should now also recognize that this could severely impact a customer’s ability to choose your business and be happy with choosing your business.

So what can we do about this?

What To Do About It

When it comes to your business, whether that’s a restaurant, a hotel, a marketing agency, a law firm – like most of us, you’re probably offering too many products, too many SKUs, too many services, too much personalization, too much everything.

This “something for everyone approach,” is creating a paradox of choice for your customers.

While we can accept that this approach may be attracting more customers to your door, it’s also more than likely causing more customers to become frustrated, or uncertain with the customer experience you’re creating, and making them less likely to choose your business.

And there are a lot of reasons that businesses make this mistake.

One major contributing factor to this “something for everyone” approach, is that businesses often struggle to identify where they fit in the market. This happens because a lot of businesses are born out of other very similar businesses or companies.

For example, most advertising agency owners are past employees of other advertising agencies. Most real estate brokerages are founded by past realtors of another big box brokerage. Restaurant founders typically have prior experience managing another group of restaurants.

On one hand this is the natural progression of future business owners. They excel as employees in one business, and then think that they can do it maybe a little bit better, but with their name on the door. But the “little bit better” in most cases is completely undifferentiated. It’s typically just a faster, or cheaper, or trendier version of where they came from.

Another cause of this choice overload, is that business owners want to compete directly with their predecessors or nearest competitors, and they try to do that by offering the same services of their competitors, plus a few more. They add a few more product SKUs, a few more menu items, more payment plans. All so that they can go to the market and say, “Oh yeah, we do what they do, and then some. So come with us.” That’s their version of differentiation. And it’s not a very good one. More isn’t different.

Instead, these business owners need to find a true point of innovation or differentiation that can be clearly articulated to the market about why they exist, and why they aren’t just another business just like the rest of them. They need to point out the flaws in the other guys. They need to attack the weak spots of their competitors. They need to point out a problem that their potential customers don’t know that they are having, and then they need to provide the solution to that. Not just offer another solution that the customer is already paying for somewhere else.

For example, when Mark Benioff launched Salesforce – which was the first cloud based CRM. He was a competitor to CRM systems that physically lived in the building of the company who was paying for them. They were installed system to system by a hard disk and all of the data lived on the computer. Salesforce didn’t go to market trying to talk about why their CRM was better, cheaper, or had more features. He talked about how different it was. He talked about how risky it is having a CRM stored on the premise of the business. He talked about how many things could go wrong with that. He talked about the benefits of the cloud – something most people had never even heard of at that time. And he did that as a former employee of his #1 competitor – Oracle. He didn’t just turn around and launch Oracle v2 with more features.

Another item to add to this growing list of why businesses offer too much, is they don’t understand their target audience. They don’t know what their customer wants. They either haven’t done the research, they don’t know how to do the research, or they haven’t had some breakthrough insight into what problem they are solving and who they are solving it for. They just started a business and for the sake of survival just started offering things in this shotgun manner, thinking that their customers, through their choices and actions, will help point the business in the right direction.

Instead these businesses need to find a way to say to the world, “people like us, do things like this. People like us eat at places like this. People like us wear clothes like this.” This is how you create a tribe. There is no Walgreens tribe, even though they offer a lot of things for a lot of people.

This is because consumers are more savvy and intuitive – and have shorter attention spans – than at any point in history. If you can’t clearly articulate to the buyer – whether that’s a teenager or an enterprise CMO – in one or two sentences who you are and why you’re alike, and why you’re a fit for each other – if your buyer can’t connect to you – you don’t have a buyer.

Similarly, too much choice pushed to the customer is often a result of businesses not being able to come to a consensus – within the four walls of their business – of what that business actually is. For example, in the initial stages of a business – let’s stick with our advertising agency example – it’s easy to imagine a scenario where co-founders and early employees get in a room to start listing the services their agency is going to offer.

They want to offer branding which turns into creative, which means you need messaging and copywriting, which turns into web design, which turns into search engine optimization, then organic social media which turns into photo and video, and on and on.

The thinking goes that if a customer needs one of those things, they probably need all of the others, so just cast a wider net, capture more customers, sell them more stuff and earn more revenue.

This is the Walmart approach. Great business, makes a ton of money, but not exactly known for their exceptional products and service. No one is paying a premium to walk into Walmart, and no one is going home to tell their friends about their Walmart experience.

So in time, this unnamed agency website taking the Walmart approach bloats to include every possible marketing and advertising service you can probably think of – even synonyms of the same service because the business is too afraid to limit their offerings, their afraid to limit their prospect pool by saying, “hey, we offer best-in-class services across a limited set of services. And if you want these services, you’re in the right place. If you want those other things, you’ll have to find someone else.”

These businesses are too afraid – or unable – to let their work and experience speak for itself. They’re too afraid to focus their business on the minimal viable audience. So they end up just offering a bunch of stuff.

Instead, these business owners need to look in the mirror, or look across the table at the talent and do an honest talent assessment to answer the question of, “what can we be exceptional at? What are we not very good at? What services do we need to offer to make this a viable business, that we can execute at a level beyond our competitors, and what is the market willing to pay for the value that we create?”

Because guess what? The equation of offering more services + capturing more customers, doesn’t always equal more revenue.

The equation is actually the better that you are at the service you offer + the more value your service creates for the buyer, equals more value your business can capture – typically in the form of revenue.

Think of it like this.

If the service I’m selling only creates a $1,000 of value for the buyer, theoretically, $1,000 is the maximum I can charge. It’s the point where value meets cost.

But if I can perform that same service at an exceptionally better level and I can create, say $10,000 of value for the buyer, then I – the business – can charge and capture ten times the value I was capturing before.

The more value you create – often through the quality of your work – the more value you can capture.

The more things you offer, naturally the less value each one can create for your business.

Because you can’t be the best-in-class at everything. You can’t afford the best talent for every service. You can’t perform research and development to have all of the best products. You can’t source all of the best ingredients to have the biggest and best menu.

So have the conversations. Make the difficult decisions. Do what is necessary to limit the choices you’re asking your customers to make by only offering the most impactful, innovative and differentiated services or products. The things that will help you stand out in a crowded market place. The things that once the customer has them in their hands, or has experienced them, can’t help but talk about. They can’t help but tell their friends and coworkers about it. They can’t wait to buy more or do it again or for you to release your next product.

Remember, your goal is to make the buyer’s choice easy, and you know this is done by limiting the amount of choices we are asking them to make. Your goal is also to make them feel confident about choosing your businesses, and we know how the amount of mental tax going into the choice negatively impacts their overall satisfaction with the choice – even if it was right.

Lastly, only offer what you can be absolutely confident is an exceptional service or product, that creates the most value for your buyer, so that you can maximize the value you are capturing for the work that you are doing.

Your customers don’t need an extensive amount of choices. They are drowning in choices. They need actual solutions. They need work that is better than the work they are getting today. They want work that outperforms their expectations. They want to be confident in their choices. And they will pay for that confidence and performance. They will pay a lot for it.

Dallas McLaughlin