Choice Overload And Why It Matters In Business

Choice overload is a phenomenon where consumers are overwhelmed by too many choices. Modern consumers have access to a bewildering array of products and services. Simply buying the ingredients for a morning cup of coffee involves choosing from a long and varied list of milk, sugar, coffee, and coffee machines. Indeed, connoisseurs who prefer 1% milk over 2% milk or coffee beans from a remote Ethiopian plantation are well catered for.

Understanding choice overload

But is this necessarily a good thing?

A lot of research has been done to attempt to answer this question. Psychologist Barry Schwartz coined the term “paradox of choice” in arguing that choice overload discourages consumers from making purchasing decisions.

However, a subsequent study explored the subject in more detail. By conducting 50 separate experiments on choice overload, researchers had mixed results. In some instances, large assortments of items hampered decision-making ability. In others, decision-making ability was unaffected.

Choice overload and the decision-making process

Disagreement over the validity of choice overload was quelled in a 2016 study conducted by Stanford marketing professor Itamar Simonson.

Simonson found that consumers do enjoy a large assortment of options, but the degree of enjoyment is based on where they are in their decision-making timeline.

Put differently:

  • When a consumer begins by considering whether they want to make a purchase or not, a large selection of products increases the odds that the consumer will make a purchase. 
  • However, if a consumer selects a single product from an assortment of products before considering whether to make a purchase, the larger selection increases indecision and reduces the likelihood that a purchase is made.

The decision to purchase under choice overload actually involves two decisions. As Simonson noted, “If your first decision is about whether you want to buy, then having more options is conducive to buying. But if your first decision is on which specific product to select, then having a big assortment can make it more difficult to identify the best option.”

Implications of choice overload for consumers and business

When a consumer becomes indecisive and fails to act, there are several negative consequences for businesses. Here are a few of them:

  1. Indecisive consumers tend to purchase less, hurting sales revenue.
  2. Indecisive consumers tend to put less thought into purchasing decisions. When a study gave participants the choice of several variants of the same toothpaste brand, most opted to avoid the pain of making a decision and went with a brand with a single variant.
  3. Indecisive consumers are less satisfied. Choice overload causes a consumer to become instantly dissatisfied with their purchase – even if no better alternative exists. This can lead to products receiving negative reviews and seriously hinders the ability of a business to build relationships with its target audience.

Implications for business

Businesses can address indecision by reducing the complexity or breadth of their product range. Perhaps counterintuitively, a smaller product range with fewer distractions can also improve conversion rates. This is because consumers are less overwhelmed and tend to make careful and reasoned purchasing decisions that meet their needs.

For those who absolutely must offer a large product range, improving site navigation on mobile and desktop can help avoid choice overload. Products should be grouped into categories where possible. However, a consumer without a particular product in mind might want to see a large range of unrelated products – so websites must incorporate this functionality too.

Key takeaways

  • Choice overload describes the tendency for consumers to become overwhelmed in the face of too many product options.
  • Choice overload occurrence is dependent on where a consumer is in the decision-making process. Consumers browsing a list of products without a specific preference in mind are more likely to be immune to this phenomenon.
  • Choice overload causes dissatisfied consumers who tend to purchase less often. When a product is purchased, the decision is based on a desire to avoid careful deliberation and not on whether the product satisfies their needs.

Related Business Concepts

As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
Nudge theory argues positive reinforcement and indirect suggestion is an effective way to influence the behavior and decision making of individuals or groups. Nudge theory was an idea first popularized by behavioral economist Richard Thaler and political scientist Cass Sunstein. However, the pair based much of their theory on heuristic research conducted by psychologists Daniel Kahneman and Amos Tversky in the 1970s.
The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain. Observing, analyzing, and understanding how the bullwhip effect influences the whole supply chain can unlock important insights into various parts of it.
Maslow’s Hammer, otherwise known as the law of the instrument or the Einstellung effect, is a cognitive bias causing an over-reliance on a familiar tool. This can be expressed as the tendency to overuse a known tool (perhaps a hammer) to solve issues that might require a different tool. This problem is persistent in the business world where perhaps known tools or frameworks might be used in the wrong context (like business plans used as planning tools instead of only investors’ pitches).
The Hawthorne Effect refers to an inclination of some people to work harder or perform better when they know they are being observed. The effect is most associated with those who are experiment participants, who alter their behavior due to the attention they are receiving and not due to any manipulation of independent variables. Therefore, the Hawthorne Effect describes the tendency for a person to change their behavior with the awareness that they are being observed.
In statistics, the Simpson Paradox happens when a trend clearly shows up in clusters/brackets of data. But it disappears or at worse it reverses when the data is grouped and combined. In short, the Simpson paradox shows that when the data moves from clusters to combined data, it hides several distributions, which end up creating a biased overall effect.
Nudge theory argues positive reinforcement and indirect suggestion is an effective way to influence the behavior and decision making of individuals or groups. Nudge theory was an idea first popularized by behavioral economist Richard Thaler and political scientist Cass Sunstein. However, the pair based much of their theory on heuristic research conducted by psychologists Daniel Kahneman and Amos Tversky in the 1970s.

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