The Value of Superfluous Option

I read this interesting post on LinkedIn:

Why giving 3 options is better than giving 2 options?

A few weeks back I was to a local juice shop. A girl came and asked for a glass of juice, he gave her a choice of two sizes (INR 40 and INR 50). She asked neither the volume nor the price of the two sizes but chose the smaller one.

I got reminded of a decision bias I learned about in a course on consumer psychology during MBA.

People don’t choose big options or small options. This tendency is called the compromise effect because it means compromising between two extremes.

Marketers exploit this desire to compromise by starting with the product they want to sell and construct extremes around it to make it more appealing.

In one study, people were presented with a choice between two cameras. Half of the group chose one, and half chose the other one. But then a third camera was added. Now, most people chose the middle option.

That’s why you’re most likely to select the Grande size at Starbucks.

The juice guy told me that most consumers buy the smaller option. I asked the guy to add an additional size for INR 60.

I met him after a few weeks, he told me that the sales of the middle size shot up drastically and was quite grateful.

Any thoughts on the application of similar psychological biases?

#consumerpsychology


I remembered a classic example I had read about pricing ad by The Economist magazine.

This was covered by Dan Ariely in his TED Talk titled “Are we in control of our decisions?”

Adding or removing an option has some kind of psychological effect on your preferences/choices/decision-making.

I was considering signing up for CFA in 2009. The exam format was multiple choice questions (MCQs) with 4 options for each question and no negative marking.

The same year when I registered for the CFA course the CFA institute announced that they would now have only three options for each question instead of four. This was because the institute thought (based on their data analytics) that three options are enough to test the candidates’ knowledge and understanding.

However, the perception that students (lazy students like me) had was that the exam became easier! Earlier you had probability of 0.25 (1 in four) and now the probability of getting right answer improved to 0.333 (1 in three).

This is the same illusion of having more (redundant/superfluous) options.

Marketing strategists and clever people use this quite well…I will write a follow up blog elaborating on this!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Create a free website or blog at WordPress.com.

Up ↑

%d bloggers like this: