We like choices. Would you care for the red or white? An IPA or a Porter or a Bud Light? Maybe it’s the sense of control. There’s research suggesting that this is hard-wired into our thinking, and having choices helps us decide. And thus offering choices helps customers buy.
Up to a point. Offer too many choices, and people get paralyzed. When facing too many choices, people often make no choice at all and walk away from the decision. It could be something as mundane as shoes, or ice cream, or a retrofit to improve the comfort of their homes. This is true even when the non-choice leaves them worse off.1
In how we perceive and choose, context often trumps rationality.
Earlier this week, I talked about anchoring. Yes, that was more about how programs sometimes tie an anchor around our necks as we’re trying to swim in the ocean. But understanding anchoring and how it affects people’s decisions is important in sales, too.
In the image at right, which blue circle is bigger? OK, you’ve seen this before. You know they’re both the same size. But even knowing this, the relative size of the surrounding red circles still influences our perception of the size of the blue circles. Even with something as simple as circles, we look for a frame of reference, some context, to measure things against.2
In an example given so many times I can’t remember where I saw it first, there’s the story of Williams-Sonoma, the fancy kitchen ware retailer, introducing a home bread making machine for $275. Initially sales were abysmal. However, they heeded the advice of a marketing research and introduced a slightly better model with some nicer features at a price point 50% more than the $275 model. Sales shot up. Not on the new model, but on the orginal $275 model. In the context of the more expensive model, the $275 model seemed like a good deal.1
Let’s move from bread makers to jars of jam to show another side of this. Sheena Iyengar, of Columbia University, conducted a study in a supermarket with a booth of samples of jam. They tested two different approaches, offering 24 jams or 6 jams. In each case, customers on average tasted two jams. But now it gets interesting. From an attention perspective, the 24 sample approach won. 60% of customers passing by stopped at the 24-sample booth, but only 40% by stopped at the 6-sample both. But wait. Only 3% of those who stopped at the bigger 24-sample booth actually bought jam. But 30% of those who tasted from the smaller 6-sample bought a jar. Almost 7x the sales with the smaller sample approach!
How does all this apply to offering residential contracting services, including HVAC and home performance?
You’ll often see: Good. Better. Best. This is helpful in several ways. Best provides an anchor, making Good and Better some more affordable in comparison. Having a Best, more people will choose Better. (Careful though, having a Crappy instead of a Best will shift choices in that direction. Do good work. Don’t offer Crappy.)3
This also let’s you continue the conversation on the value of the different solutions and how deep they go in meeting all the customers’ needs that you’ve identified together. You’re not presenting a “yes or no”. You’re giving the chance to validate the importance of the solutions to problems the customer has expressed an interest in remedying. It also gives price sensitive customers a solution that makes sense for them.
Only offering the Best, you don’t give people a choice. Sure, you’ll land some whales, but it will seem like too much to too many. You’ll lose a lot of sales—a lot of opportunities to help people solve their problems.
Back to the too many choices. If you ask people whether they want cellulose, fiberglass, or foam insulation, give them 12 different furnace and air-conditioner options, present a variety of lighting solutions, five water heaters, and much, much, more, and you’ll overwhelm most people. The typical audit report is a decent laundry list. But it doesn’t help people move forward with a good decision. You’re a professional, right? Use your technical expertise to figure out what’s going on in the house. Ask good questions and find out what the homeowner values enough to fix. And what they can pay for. Then blend this into your professional recommendations into packages that make sense. Distill it. Good. Better. Best. Give them choices, but help them decide.4
1 Since writing this originally, I’ve found that the Williams Sonoma story is from Itamar Simonson in “Get Closer to Your Customers by Understanding How They Make Choices,” California Management Review. For more along these lines, check out the work of Sheena Iyengar including Choice is Demotivating, and Barry Schwartz’s The Paradox of Choice: Why More Is Less. I suggest looking at this through a filter of “information overload“. It may not be the number of choices, but rather the quantity of information, and the individual’s familiarity and comfort level with the information. Experts may want to know more than non-experts.
3 I’m not suggesting that you use the terms Good, Better, Best. Or Basic, Standard, Premium. Or Silver, Gold, Platinum. Or Moe, Larry, and Curly. It’s the concept that’s important. Give people a few options which offer different levels of benefits that they value.
4 For most homeowners, think about Good, Better, Best, at the package level, not at the widget level. For example, 95% of your projects in snow country might include a 95% AFUE furnace if that is part of all three of your G, B, B options. Better and Best may be whether the customer decides to retrofit their lighting and/or replace their water heater. Good doesn’t mean you have to start by trading down within a set of measures.