Presentation

The Paradox Of Choice

How does giving your consumers more options influence the purchase outcome?

There is an interesting amount of research around choices being presented to consumers and the effect that this has on their purchase decisions.

Consumers have a choice, but there are so many options that it becomes difficult to decide. When there are too many decisions, consumers become overloaded and paralyzed, and in the end, these same consumers do not make a choice at all.

One study conducted by Iyengar & Lepper (2000) details the effects of more choices presented to consumers versus less choices. The results can be seen in the image below.

Image result for jam study paradox of choice

This study shows that when consumers are presented with more choices, they are more likely to abandon the purchase.

However, an alternate study conducted by Maxwell (2005) demonstrates that this effect is reduced dramatically when the price of the products are lower.

Thus, depending on the price point, the number of options you present to consumers may differ.

Patagonia & Hyper-Choice

Patagonia, interestingly enough, has a vast array of choices available for consumers. By better categorising their products and reducing the choices available to consumers, Patagonia has the opportunity to increase their profits and reduce the number of consumers abandoning the checkout process.

This can be tested by Patagonia first, before actually putting it out into the market. This sort of consumer research and testing can have an enormous impact on the company. However in saying this, their products are cheap, so as demonstrated in the study by Maxwell (2005), the negative effect of having a large amount of choices is most likely mitigated due to Patagonia’s low price points.

As can see in the images below, having a high number of choices is done both at the product level and the categorisation of products level. The reason Patagonia most likely do this and don’t need to worry is because their brand is trusted and well-known in their target market, they know what their market wants, and they have a low price point, so having a large number of choices most likely doesn’t negatively influence their sales. This contrasts to how they first started off, selling only one category of products.

How Patagonia Reduces Perceived Risk

Essentially, perceived risk is the uncertainty that consumers face when they cannot foresee the consequences of their purchase decisions (Mitchell, 1999).

There are a number of categories of risks associated with perceived risks, including:

Functional risk – product will not work as well as expected
Physical risk – product may not be safe
Financial risk – product will not be worth its cost
Social risk – possible social embarrassment as a result of the purchase
Psychological risk – risk a poor product choice will impact on consumer’s self esteem
Time risk – amount of time spent in product search will be waste if the product does not perform as expected.

Consumers generally attempt to handle risk by seeking information and reassurance. As a marketer, you can leverage this point and influence consumers by lowering their perceived risk. There are also a number of other things you can utilise as a marketer to reduce the perceived risk of a product or service, including: direct marketing, promotional strategies, pricing, branding, channels utilised and target markets, among others.

Perceived risk helps explain why consumers often do not move from the desire stage to the action stage in the customer journey.
(Tian-Que, 2012)

Generally, businesses will find it easy to make sales from referrals, because the trust level of the consumer is higher. However, in order to reach any higher level of growth, businesses need to make sales from traffic sources that are not referrals. The problem is, users from these traffic sources are generally unlikely to buy as scepticism is high and trust is low. What if I buy a product and then it’s not what I was expecting? Won’t I then I lose my money?

So the question is, how can businesses reduce perceived risks for traffic arising from sources other than referrals?

How Patagonia Reduces Consumer Perceived Risks

Patagonia needed to reduce consumer perceived risks in order to generate the millions of dollars that they now create. One way in which Patagonia does this is through providing a return policy.

This policy promises that “if you are not satisfied with one of our products at the time you receive it, or if one of our products does not perform to your satisfaction, return it to the store you bought it from or to Patagonia for a repair, replacement or refund”. It also offers a fair return option via shipping.
Patagonia Return Policy

Another thing that Patagonia includes to reduce consumer perceived risk is through reviews.

By including reviews for products, consumers who don’t yet trust the brand can be sure that the products are as advertised. This effort is also applied through Seller’s Ratings on their Google Ads, which are essentially ratings provided by Google based on reviews. This can be seen below.

Overall, by applying these methods, Patagonia successfully reduces consumer perceived risk.

How Patagonia Uses Disrupt & Intercept Strategies

Brands can be placed into different categories, or sets which define how consumers view or perceive the brand. These include:

Evoked Set: brands that consumers consider as acceptable to purchase from.
Inept Set: brands that a consumer excludes from purchase consideration, for whatever reason.
Inert Set: brands that a consumer is indifferent toward because they are perceived as having no particular advantage.

(Narayana & Markin, 1975)

Obviously, brands in the evoked set will be generating more sales. So the question is, how can you move from the inert or inept set to the evoked set?

There are three specific strategies that can be used depending on what part of the customer journey the consumer is in. If the consumer is in the awareness stage and is not currently searching (known as habitual decision making), then we can use a disrupt strategy. If the consumer is problem aware and starting to search for a solution (known as limited decision making), we can use an intercept strategy. If consumers are ready to buy and are looking for their best options (known as extended decision making), we can use an acceptance strategy.

An easy-to-understand explanation of evoked, inept, and inert sets.

Brand credibility will have a dramatic impact on what set the brand will be placed in by consumers. Three factors that impact brand credibility are:

Perceived quality of the brand
Perceived risk associated with the brand
Information costs saved with that brand (due to time saved by not shopping around)

Playing around with these three factors can help improve brand credibility and thus move your brand closer toward the evoked set.

Patagonia & The Disrupt Strategy

Patagonia used a disrupt strategy to not only “disrupt” the market and get consumers to pay attention to them and actually consider buying their products, but also, they used the strategy in a way which would improve their brand credibility, which as I said is a factor influencing what set the brand will be in (their strategy also acted as an acceptance strategy).

In particular, Patagonia’s “Don’t Buy This Jacket” advertisement was used as a disruption strategy. The advertisement spoke about the cost to the environment of one of their best-selling fleece sweaters and asked consumers to reconsider before buying the product and instead opt for a used Patagonia product. As a result, the company saw a 30% increase in their revenues. While this single advertisement was not necessarily the single cause of this vast increase, it definitely played a part.

This clearly demonstrates how disrupting the market and improving brand credibility can slowly move you into the evoked set, and I think this ad played a big part in giving Patagonia the sort of credibility they were after. This leads into my next point…

Patagonia & Successful Consumer Research

Understanding and predicting consumer behaviour is an essential part of succeeding in business. However, how can you make sure that you can successfully predict this? The answer is, through consumer research. Without consumer research, your business will fail.

Consumer research involves investigating people (consumers) and their environment, and how that make buying decisions. By finding out everything you possibly can about your customer, you can better direct your marketing efforts to influence their behaviour in a way which is favourable to you.

The Questions Consumer Research Helps Answer

There are many questions in business, such as:

What are consumers in my target market buying?
When are they buying it?
Where are they buying it?
How often are they buying it?
How often are they using it?
Are they coming back for a second purchase?
Why are they buying it?
Why are sales falling?

Consumer research helps us understand the why questions.

“These sorts of consumers like the idea of buying a product that is made by an environmentally friendly company in an environmentally friendly manner.”
Poonkulah Thangavelu

Patagonia started off as a clothing and gear brand for extreme sports, like climbing. Patagonia’s customer research has enabled them to better understand their target market consumers. Patagonia has discovered that their target market are people who happen to be environmentally friendly. Using this information, Patagonia has had massive success.

One example of this is with their “Don’t Buy This Jacket” advertisement as mentioned previously. On top of this, they made changes in some of their branding, including their environmentally friendly messages on their website and other marketing channels.

As you can see, conducting consumer research can really be a make-it-or-break-it factor in succeeding in business.

Perceived Benefits

Consumers may get x, y, and z benefit from a product, however, they may only perceive that they are getting x benefit from a product. It is important for a marketer to be able to look at the beliefs the consumer has in relation to the benefits they will receive from a product, and what specific factors can influence this perception.

A good example of perceived benefits in action can be seen when looking at Patagonia, the somewhat environmentally-friendly clothing company. Patagonia associates itself with a social cause – that is, making the earth a healthier place to live. By doing this, Patagonia have successfully created an added perceived benefit in the mind of the consumer. This benefit is a social one, related to being associated with a brand that supports the health of the environment. All of a sudden, Patagonia has enabled their target market to move from seeing x benefit to x and y benefit.

Perception And Your Brand

How does perception influence your brand and the quality that people associate with it In order to answer this questions, we must first understand what perception is and the influences of it.

Perception is the process by which an individual select, organises, and interprets stimuli into a meaningful and coherent picture of the world.

In other words, perception is one’s understanding of the world. This understanding is influenced by two factors:

The stimuli our senses are absorbing
Our previous experiences

How Packaging Influences Perception

Packaging can have an enormous influence on how consumer’s perceive a product. This is prevalent in Zealong Tea’s efforts.

The packaging of the product has been created in a special way so that it is an effort to unpack it. This creates a ritual for the consumer as they must open the product in a unique fashion every time. This does a few things.

It builds trust as the same thing is happening over and over for the consumer when they buy Zealong Tea.
It creates the feeling of the product being a special product, as so much effort is put into tacking off the packaging.

This effect has been multiplied through the use of augmented reality technology, as can be seen in the video above.

Moving Beyond Attention

Before you can actually influence a consumer’s perception about your product or brand, you must first grab their attention. There are so many distractions in today’s day and age that consumer’s can easily miss you if you don’t make a stand!

This can be achieved through targeting specific consumer sensory systems. For example:

Vision: creating enticing visual elements in ads, store design, and packaging.
Smell: odours can stir emotions and create feelings such as hunger/happiness.
Sound: research has analyzed effects of background music and speaking rates in stores on the consumer. As such, sound can be used in video content to attract user’s attention online.
Touch: this has been shown to be a factor in sales interactions as it builds trust.

While we cannot influence the consumer’s previous experiences (which has an influence on their perception), we can at least influence the physical stimuli presented to them, which can influence their perception about your product or brand.

How To Grow Your Business When No One Knows You

Brands can be placed into different categories, or sets, each which hold specific characteristics. These include:

Evoked Set: brands that consumers consider as acceptable to purchase from.
Inept Set: brands that a consumer excludes from purchase consideration, for whatever reason.
Inert Set: brands that a consumer is indifferent toward because they are perceived as having no particular advantage.

Obviously, brands in the evoked set will be generating more sales. So the question is, how can you move from the inert or inept set to the evoked set?

An easy-to-understand explanation of evoked, inept, and inert sets.

Brand credibility will have a dramatic impact on what set the brand will be placed in by consumers. Three factors that impact brand credibility are:

Perceived quality of the brand
Perceived risk associated with the brand
Information costs saved with that brand (due to time saved by not shopping around)

Playing around with these three factors can help improve brand credibility and thus move your brand closer toward the evoked set.

How Patagonia Reduces Consumer Perceived Risks

Perceived Risk is the uncertainty that consumers face when they cannot foresee the consequences of their purchase decisions. To see more information on perceived risks, click here.

Generally, businesses will find it easy to make sales from referrals, because the trust level of the consumer is higher. However, in order to reach any higher level of growth, businesses need to make sales from traffic sources that are not referrals. The problem is, users from these traffic sources are generally unlikely to buy, mainly because they don’t yet trust the brand. What if I buy a product and then it’s not what I was expecting? Won’t I then I lose my money?

So the question is, how can businesses reduce perceived risks for traffic arising from sources other than referrals?

How Patagonia Reduces Consumer Perceived Risks

Patagonia needed to reduce consumer perceived risks in order to generate the millions of dollars that they now create. One way in which Patagonia does this is through providing a return policy.

This policy promises that “if you are not satisfied with one of our products at the time you receive it, or if one of our products does not perform to your satisfaction, return it to the store you bought it from or to Patagonia for a repair, replacement or refund”. It also offers a fair return option via shipping.
Patagonia Return Policy

Another thing that Patagonia includes to reduce consumer perceived risk is through reviews.

Overall, by applying these methods, Patagonia successfully reduces consumer perceived risk.

The Paradox Of Choice

How does giving your consumers more options influence the purchase outcome?

There is an interesting amount of research around choices being presented to consumers and the effect that this has on their purchase decisions.

Dr. Nguyen Beo Thai has explored this idea of the paradox of choice. Consumers have a choice, but there are so many options that it becomes difficult to decide. When there are too many decisions, consumers become overloaded and paralyzed, and in the end, these same consumers do not make a choice at all.

One study conducted by Iyengar & Lepper details the effects of more choices presented to consumers versus less choices. The results can be seen in the image below.

This study shows that when consumers are presented with more choices, they are more likely to abandon the purchase.

However, an alternate study demonstrates that this effect is reduced dramatically when the price of the products are lower.

Thus, depending on the price point, the number of options you present to consumers may differ.

Patagonia & Hyper-Choice

This can be tested by Patagonia first, before actually putting it out into the market. This sort of consumer research and testing can have an enormous impact on the company.

Miss This Single Most Important Step & Your Business Will Fail

The Questions Consumer Research Helps Answer

There are many questions in business, such as:

What are consumers in my target market buying?
When are they buying it?
Where are they buying it?
How often are they buying it?
How often are they using it?
Are they coming back for a second purchase?
Why are they buying it?
Why are sales falling?

Consumer research helps us understand the why questions.

The Cost Of Not Doing Consumer Research

A great example of the cost of not doing sufficient consumer research can be seen with Vegemite’s iSnack 2.0, which plummeted sales and caused somewhat of a social outrage – people were not happy.

While Vegemite improved the taste of their product, the name they gave to this new tasting product did not help the brand at all.

How did they choose the new product name, you ask?

They created a Name Me competition to name the new Vegemite. When the name “iSnack 2.0” appeared, Vegemite launched it without testing how the name would be received by consumers. If only they had created focus groups and conducted test marketing prior to releasing it, they would have avoided the fatal mistake that hurt their brand.

iSnack 2.0

Patagonia & Customer Research

“These sorts of consumers like the idea of buying a product that is made by an environmentally friendly company in an environmentally friendly manner.”
Poonkulah Thangavelu

One example of this is with their “Don’t Buy This Jacket” advertisement. The advertisement spoke about the cost to the environment of one of their best-selling fleece sweaters and asked consumers to reconsider before buying the product and instead opt for a used Patagonia product. However, the company saw a 30% increase in their revenues. While this single advertisement was not necessarily the single cause of this vast increase, it definitely played a part.

As you can see, conducting consumer research can really be a make-it-or-break-it factor in succeeding in business.

Perceived Benefits v.s. Resource Cost

An interesting concept in consumer behaviour arises when we look at customer’s perceived benefits versus the resources these same customers must use in order to purchase a product or service.

Perceived Benefits

For example, there are various different factors that influence a consumer’s decisions. By appealing to some of these factors, brands can increase perceived benefits. In particular, brands can make changes to appeal to:

Culture
Demographics, income and social status. For example, you can appeal to certain income groups by lowering or increasing your price. A good example of this can be found with wine. More expensive bottles of wine have more benefit in the consumer’s mind, even if that bottle is no different to a cheaper version. Information about this study can be found here.
Motivations & Emotions. For example, if you can successfully make a consumer happy through an advertisement, they will perceive your product as one that has the added benefit of happiness.

These are just a few examples of how perceived benefits can be used.

Resources Cost & Relationship with Perceived Benefits

How does resource cost relate to perceived benefits, and what is it?

Resource cost is essentially the resources the consumer perceives as using in order to purchase a product or service. If the cost of the resources are greater than the perceived benefits, then the consumer will have less of a reason to purchase. Thus, increasing perceived benefits and reducing perceived resources costs is an appropriate option to better appeal to consumers.

Developing a value proposition can help tip the scales.

An Example In Action

Top End Motorwerks uses professional clothing to increase consumer perceived benefits. As is described in the video above, by wearing professional clothing, consumers feel more at ease and their trust increases. This is because this sense of professionalism creates the idea in the consumer’s mind that they will be given the most top quality services, thus creating a greater benefit in their mind. This is just one example, of how consumer perceived benefits can be used in action.

Do you consider consumer perceived benefits in your business?

The #1 Untold Secret That Can Completely Transform Your Business

Every small business wants to know – how can I get more sales? There’s a tonne of content online around this, and because of this, it can get quite confusing around what works and what doesn’t. However, there is one thing that if you miss, will be detrimental to your business. This is the thing that you absolutely must do, and if it is done, your business will benefit tremendously, both in the short and long term.

The study of consumer behaviour is the #1 thing that can completely transform your business.
Every Half-decent Marketer Alive

But what is consumer behaviour? And how can you utilise it to positively impact your business?

Consumer behaviour is the behaviour that consumers display in searching for, purchasing, using, evaluating, and disposing of the products and services that they expect will satisfy their needs. When acting as a consumer, individuals have one goal in mind: to obtain goods and services that meet their needs and wants. This process generally involves looking at what influences a consumer, in order to better predict their behaviour so that your products and services match their desires and needs. Without this, you’ll likely be selling products and services that consumers won’t even look at, let alone buy.

The Influences on Consumer Behaviour

Consumer behaviour is a function of the person and the environment. This means that their personal characteristics, such as personality, and their environment, such as where they live, has a combined impact on their behaviour when choosing or not choosing to buy a product. By better understanding these aspects of your target market, you can influence their behaviours in a predictable way in order to gain more sales.

This is an example of the study of consumer behaviour with an easy to understand practical explanation.

Perceived Risk

What influences a person’s decision?

Well, there are many things that influences the decisions someone makes – their environment, the context, their social influences, their background, their personality, and so on.

But one thing that has a rather larger influence on the decision a person makes is perceived risk. And this is the same thing that influences consumer buying choices. By better understanding perceived risks, you can become a better marketer and leverage your products in a way that allows you to control consumer behaviour, to some degree.

Let’s start off with what perceived risk is all about…

Essentially, perceived risk is “The uncertainty that consumers face when they cannot foresee the consequences of their purchase decisions.”

There are a number of categories of risks associated with perceived risks, including:

Functional risk – product will not work as well as expected
Physical risk – product may not be safe
Financial risk – product will not be worth its cost
Social risk – possible social embarrassment as a result of the purchase
Psychological risk – risk a poor product choice will impact on consumer’s self esteem
Time risk – amount of time spent in product search will be waste if the product does not perform as expected.

Be creative! Reducing the perceived risk of a product or service may really cause people to change their mind and buy your product or service. But to do that, you have to really get in the head of the consumer and understand the differing types of perceived risk.