The Seductive Illusion Of Choice

Vivek Bapat

“Any customer can have a car painted any color that he wants so long as it is black.” – Henry Ford

These famous words by Henry Ford in 1909 exemplified the industrial age, during which innovations in automation drove unprecedented advances in mass production, making it possible to manufacture products that were once too complex and expensive and deliver them to scale for the masses at an affordable price. Henry Ford began with a global vision, with consumerism as the key to peace and prosperity.

Since then, subsequent improvements in design, production, and supply chain management practices, all accelerated by information technology, drove process standardization, lower costs, and higher productivity, which paved the way towards mass customization. These advances have enabled legendary companies like Ford to create and market hundreds of different models today, each offering a unique proposition to its intended audience.

Ford is not alone. Choice is mushrooming around us everywhere. Starbucks’ marketing campaign proudly claims 187,000 unique combinations of drinks, PepsiCo now has more than 200 variations of its original cola, and Crest has 41 different types of toothpaste. Wal-Mart offers thousands of products in its physical stores – the choices grow to hundreds of thousands with its online marketplace.

The abundance of choice is not just a western phenomenon. In India in the ’70s and ’80s, when I grew up, it was considered a matter of great fortune and rare privilege for someone to own a television set that carried the one and only state-controlled television channel, however grainy the visuals (there were only 41 television sets across all of India in 1962!). Today, there is a cacophony of more than 515 TV channels each vying for attention of millions of viewers every minute. In fact, as more and more brands go global, the number of product variations is ballooning.

Shouldn’t we be happy with the feast of choices laid out before us? Doesn’t having choice reflect more freedom, more autonomy, and as conventional wisdom would have it – a better outcome for consumers?

Many economists say yes – more product choices keep the innovation engine of the economy humming, more competition keeps prices affordable. But, research into the psychology of choice says no.

In groundbreaking research, American Barry Schwartz argued that choice and consumer unhappiness are inextricably correlated. His research suggests that decreasing consumer choices can greatly reduce shopper anxiety and even help curtail the rise of modern dysfunctions like Continuous Partial Attention.

Another famous experiment by Sheena Iyengar, a professor of business at Columbia University and the author of The Art of Choosing, concluded that, while increasing the number of choices might help a business attract more prospects to consider your products, customers were almost 10 times more likely to purchase a product given dramatically fewer choices.

So, what’s a business to do in solving this paradox of choice? How can one continue to seduce customers with the warm and fuzzy feeling of autonomy they crave through more choice on one hand, but on the other reduce the anxiety and decision paralysis it counterintuitively creates?

One answer is to purposefully reduce choice.

When Steve Jobs returned to Apple, one of the most important decisions he made was to reduce the dozen variations of computers that Apple made at the time to just four. He systematically eliminated all but the most important features in the revolutionary lines of “i” products, creating a simplified, satisfying end-user experience that is still the envy of competitors. Apple continued its pursuit of “owning” the user experience with the promise of instant value to customers through iTunes and the Apple store.

Somewhat obliquely, Google exploded on the Internet scene, transforming our access to the World Wide Web by presenting users with a simple box surrounded by an ocean of white space that gave the end user virtually no other option but to focus exclusively on “search.” It upped the ante by providing instant gratification to users – displaying results that magically updated at the strike of every keystroke – in real-time. The genius in both these examples is in the way these companies focused both their business decisions and product designs intimately with the end customer and their experience in mind.

A better answer however, may be that of personalizing choice.

Amazon is a good example of this line of thinking. While Amazon can’t be accused of the Apple-like simplicity or Google-like speed on the front end, Amazon’s early success lay in its intelligent use of consumer search criteria and purchase history to deliver instant, personalized choice for their customers. By personalizing the “next” experience for each individual, Amazon provided the precise mix of choice to draw consumers in, while instantly reducing customer anxiety by gently nudging customers towards making informed purchase decisions they were comfortable with. While this model is now copied by many other online retailers and online businesses, Amazon’s early start made it the largest online retailer in the U.S. last year, attaining 74% market share in online retail.

Whether we reduce choice, as in the case of mouse-clicks, or we personalize choice in the form of product offers, the common thread across each of these examples is their persistent emphasis on delivering instant gratification only achievable with the right blend of choices displayed “in the moment.”

Consumers seem to agree. In fact, a recent eMarketer survey indicated that 66% percent of U.S. cross-channel shoppers think stores that provide a loyalty program should deliver a more personalized shopping experience. And 50% say retailers they frequent should offer promotions or merchandise that reflect their past online purchases.

Unfortunately, many businesses can’t seem to keep up. Only nine percent of companies cited in the survey were able to consistently integrate and deliver personalized marketing and promotional information to customers across all channels. The constant barrage of irrelevant promotions and messages invading our email inboxes every day is living proof.

However, there is good news on the horizon.

A convergence of new advances in IT is creating a perfect storm of opportunity for next-generation business. Today, any company can potentially access real-time streams of structured and unstructured data, ranging from consumer sentiment, to up-to-the-second inventories, to transactions at any location, as well as customer history and information used in the manufacturing and assembly of products and consumables.

Public and private clouds are enabling secure, cost-effective storage and unlimited availability of this data, without the overhead of massive and expensive hardware infrastructure investments dramatically flattening and reducing barriers to entry, for innovative startups and established businesses alike. This convergence, combined with smart analytics powered by in-memory computing, is enabling companies to instantly sift through Big Data in real-time, arming them with the predictive intelligence they need to deliver the personalized choice that precisely matches their customers’ individual preferences – whether it is location, promotions, or products or services they are most likely to purchase – answering this new conundrum. The ubiquity of mobile devices has created a potent channel perfectly positioned for the delivery of information right to the consumer’s fingertips when they want it.

Companies in diverse industries like Burberry, Coinstar, and Ace Hardware are leading the pack by combining these available technologies to transform their business models by personalizing their offerings to “segments of one,” rather than segments of many.

With the introduction of the Model-T on Oct, 1, 1908, Henry Ford revolutionized the automotive and the transportation industry forever with automation at the center of the transformation to drive scale to the masses. A century later, the convergence of information technologies in cloud, in memory, analytics, and mobile is creating a new Model-T moment, one that can fundamentally revolutionize the way business is run, with personalization at the center of the transformation. Faced with the enormity of the opportunities that modern technology convergence is creating today, Henry Ford would have stood up and applauded. Corporate leaders should take notice.

For more on replicating the in-person shopping experience in a digital world, see Primed: Prompting Customers to Buy.

About Vivek Bapat

Vivek Bapat is the Senior Vice President, Global Head of Marketing Strategy and Thought Leadership, at SAP. He leads SAP's Global Marketing Strategy, Messaging, Positioning and related Thought Leadership initiatives.