Harvard Business Review Blog Network
If you want your customers to care about product quality, give them a choice.
That’s the finding from our recent research, forthcoming in the Journal of Marketing Research, which reveals a surprising fact about retail assortments: Consumers who are offered a richer array of relevant choices in a given product category grow engaged and interested in quality and are prepared to stretch their budget accordingly. In one of our experiments, for instance, consumers paid 40% more for a high-end chocolate and 33% less for a low-end chocolate when they chose from 21 different pieces instead of only five.
What’s the explanation behind this phenomenon? We believe that consumers exposed to a sparse set of alternatives (think of the choice of sugar or eggs at your local supermarket) take the limited assortment as a signal that the average consumer is unenthusiastic about quality differences, and therefore that there is no real reason to get excited about the purchase. But a consumer who is exposed to a dense set of alternatives (think now of the choice of coffee or yogurt at your local supermarket) concludes instead that like-minded consumers must care about even small differences in quality, so this consumer should follow suit.
This finding is great news for marketers who focus on value creation. It means that empowered consumers—those who are given access to and trusted to make a choice among many different offers—won’t necessarily “give up” and embark on a chase for the lowest-priced option. Especially in situations where consumers typically refine their preferences at the point of purchase, we can expect that choice engages interest in innovation and quality differences. And the effect is not limited to specific categories of products; a surprisingly large assortment invites people to contemplate and raise their personal interest in quality, regardless of whether we are talking about groceries or musical instruments, sports cars or—as our research shows—collectors’ items sold at auction. We analyzed two-and-a-half years of auctions (81,245 lots) conducted by Christie’s at their London branches. These auctions included books, carpets, furniture, jewelry, photographs, watches, pictures, and wine, among other items. Across all sales, we replicated our lab results: while the hammer prices of items with high initial expert appraisals soared with the number of total lots in the sale catalogue, lower quality pieces suffered from the availability of choice.
Of course the opposite rule also holds, and our findings have implications for firms that seek to compete on price with me-too products. Their goal is to persuade consumers that a low-quality, low-price alternative is practical and, frankly, good enough. Accordingly, these firms need to partner with like-minded retailers who actively limit the number of SKUs and price points per category — a sparse assortment diverts attention from quality and pushes the focus back on price. After all, consumers typically do not frequent Costo or Aldi to learn about and appreciate quality. Similarly, retailers who invest in private labels can benefit further if they flank their attractively priced products with fewer branded alternatives.
A final implication of our research is that the creation of a super-premium brand might be an appropriate response in a crowded marketplace, even when undercutting competitors with a low end, efficiently-produced product might be tempting and, for many managers, the intuitive reaction. This is one interpretation of Apple’s success in the fragmented personal computer industry. While companies like Dell assumed that the market was ripe for price competition, consumers had grown choosy and there was a thirst for a jump towards new innovative heights. We believe that the garment industry, after the recent successes of Zara, H&M, and Mango—where in each case variety coexists with low prices—will soon revert to a course where consumers are passionate about what they wear and turn their attention back to higher quality items.