Packaging and the Paradox of Choice

We love to have choices. By definition, it implies freedom and control. I can choose from the multiple options and get exactly what I want, something that uniquely fits my needs. What could possibly be wrong with that?

Anyone who has remodeled a kitchen knows exactly what’s wrong with choices. Simply put, you can have too much of a good thing. Remodeling a kitchen involves: choosing cabinets, granite, tile, appliances, lighting, plumbing, colors for all of the above, designing layout, hiring contractors … you practically need to quit your job to figure it everything out. I am certain that my wife and I actually delayed our remodeling project because we simply didn’t have the time to make all of the decisions among the myriad choices.

Could technology companies be unwittingly doing the same thing – delaying purchases by offering too many choices? I think the answer is yes.

Psychologist Barry Schwarz studies this and has published a book on the Paradox of Choice (you can listen to a 30 min summary of his findings on the TED website). From his research, he found that by offering customers many choices, two things happened, both of them negative.

First, expectations went up. If I have many choices, I expect that whatever I choose will be a great fit for my needs. If it’s anything less, I’m disappointed. Second, you feel regret for the options that you didn’t take. Even if what you picked was great, there is that nagging feeling that you could have done better.

He cites very interesting data from the mutual fund giant Vanguard, which studied participation patterns in 401k plans. The result is fascinating: for every 10 additional mutual funds offered within a 401k plan, participation rates went down by 2%. Instead of making participation in the 401k plan more attractive by increasing the potential for diversification, the result is exactly the opposite. In this case, choice leads directly to paralysis.

I am not implying that you adopt a one size fits all approach for selling your products, as there are legitimate differences in needs. But instead of giving customers infinite ability to slice and dice, there must be a middle ground preserving some level of flexibility but not going so far as to create decision paralysis from choice overload.

Citrix has done a great job in this area. For their flagship Presentation Server product line, they bundle multiple products and options into three simple packages. Customers can also buy a la carte but the sales motion is led by one of the packages.

For Citrix, this strategy makes it easier to explain to customers, reduces permutations for the development staff, and opens up simple marketing programs (e.g. upgrade from Advanced to Platinum). For the customer, it’s simplifies the purchase decision by reducing decision regret and by implicitly shifting responsibility. This latter point is important. With a bundle or package, I’m effectively telling a customer: “I am an expert in this area and here are things that make sense to deploy together.” The customer is effectively off the hook; it’s no longer their responsibility to wade through the 100’s or 1000’s of options to figure out what’s best.

The results for Citrix have been phenomenal, as they are blowing the doors off of Platinum sales since they introduced that bundle. Could they have introduced the Platinum features on an a la carte basis and achieved the same result? I doubt it.

- Raj

Comments

[Steve S.]

There is a great example of this in Made to Stick where they discuss how Hamburger Helper went through a similar process. At one point, there were over 30 varieties of Hamburger Helper which led to all kinds of grief amongst their customers. The most common complaint: Moms who couldn't remember which flavor that their kids liked. The whole point of Hamburger Helper was shot as a result because it was no longer a quick, easy meal with guaranteed success. When they shrunk their choices down, sales went up.