The Variety Paradox

As a small convenience retailer myself many years ago, one of the most difficult decisions I ever had to face was how many varieties of a product I should stock. It’s by no means an easy decision.  My logic was always that I needed to keep a big enough range so as not to appear to have too limited a choice available, particularly in comparison to the Waitrose store a couple of streets away, while at the same time not overloading my little shop with a stock range that was costly in both financial and spatial terms.  Tricky problem!  Turns out, however, that my logic at the time was fundamentally flawed when you consider the human brain.

Years later, after a roundabout journey into academia, I found myself particularly irritated one morning while at a conference in Chicago.  It wasn’t the conference itself that was the cause of my irritation but, rather, the untimely interruption of a guest speaker for the conference organisers to announce the death of Margaret Thatcher.  Much disruption subsequently followed and everyone insisted that there was a break in proceedings for British guests to digest the news. Has to be said there were only two of us from the UK among hundreds attending anyway, and neither of us were particularly bothered one way or the other (sorry!), but the real issue for me was that the speaker who ended up being curtailed was the one person I’d actually gone to the conference specifically to hear!

That speaker was Colombia’s very own Sheena Iyengar, author of the best-selling book The Art of Choosing.  In my view, Sheena is one of the best experimental psychologists ever, her work being both meticulously and creatively designed to a level of elegance most of us can only ever aspire to – an even greater achievement when one consider’s Sheena is also blind.  Her most famous experiment, perhaps, identifies what has come to be known as “the six jams rule” or, to give it its correct academic title, the Choice Paradox.  In this particular series of experiments, which I am grossly oversimplifying here, Sheena demonstrated that too much choice is a very bad thing, especially for the retailer pressed for space.  When presented with displays containing 24 varieties of jam, only 3% of participants in the study actually bought anything, while reducing the display to a mere 6 varieties increased sales ten-fold.  So what’s going on here and why were my assumptions all those years earlier so wrong?

The brain is a fantastic information-processing machine, a biological computer capable of handling extremely complex tasks.  It is also an inherently “lazy” computer too, however, as it consistently attempts to perform routine decisions (such as buying a jar of jam) at an unconscious level in order to conserve information-processing capacity for more important things, such as finding lunch while avoiding becoming someone else’s lunch. A large selection of jams on a shelf takes far more processing in order to make a choice than one containing a smaller array of options, so provided there is at least some choice open to us then we are far more likely to buy if there is a more restricted range.  And, over the course of her studies, Sheena concluded that six varieties of jam was the optimal range-size to go for, a range that works equally well for many many other FMCG products.  Moreover, the context the display is placed in also has a strong moderating effect, the six jams rule being even more effective in smaller retail outlets.

If we think about it, the Choice Paradox also goes some way to explaining the success of discount retailers such as Lidl and Aldi, all of which typically stock a considerably smaller range. Now, while it would be foolish to suggest here that price is not the key determining factor, it clearly is and comes out as the main reason for frequenting a discount store in survey after survey.  Nevertheless, my own work has found that the second biggest reason for choosing say a Lidl over a Tesco is the perceived saving in time.  Consumers report saving this as much as they do money and this is easily confirmed by observational studies of actual time-in-store.  Put another way, the lower prices bring a direct financial benefit to the consumer, while the effects of the Choice Paradox allows us to make quicker decisions from a more limited range and save valuable time too.

In my view, the Choice Paradox is an even more helpful a psychological advantage for the local c-store than it is for the discount retailers. Time is prized more than money by some, and almost as much as money by others, meaning the on-the-doorstep location combined with the more “limited” (for which substitute “optimal”) range is potentially a very under-exploited source of competitive advantage for the canny local shopkeeper using behavioural science to get his/her stockholdings right!