If you want your customers to both buy quickly AND feel less regret after they buy, give them fewer rather than more choices.

Eating out may be a distant memory for many of us in current times, but cast your mind back to the last time you went to an upmarket restaurant. More than likely the restaurant had a reasonably small menu with only a few (signature) dishes to choose from. And you probably found it was quick for you to decide on what to order…

Contrast this to a time when you saw a really long menu with lots of options in a restaurant that you visited for the very first time. You might have asked for recommendations from the waiters or your dining companions, or maybe even looked at an online restaurant review app for recommended dishes. Chances are that choosing a dish in this scenario was a more time consuming, and potentially less satisfying exercise.

While companies often feel that more choice is better for their customers, human beings are generally easily overwhelmed when we are offered too many product options or choices. This is the same whether we are talking about restaurant menus, investment fund options or even the cereal aisle in your local supermarket.

The culprit here is choice overload.

What is choice overload?

When the number of relative choices increases, we get what’s called decision fatigue. It all starts seeming too hard. The risk of making a bad choice increases and humans have what’s called a “loss aversion” – we fear loss much more than we worry about gains. The more options there are, the greater the likelihood of loss and therefore regret.

When faced with too much choice, we are more likely to do one of four things:

1. Procrastinate on making a decision
2. Don’t act or buy at all – we stick our head in the sand!
3. Go with the default or recommended option
4. Go to a competitor with fewer options

We’re also more likely to feel regret after a decision if there was too much choice offered in the decision making process.

The infamous jam Jar experiment on choice overload

The most famous study around choice overload is Columbia University’s “jam jar” experiment, run by academics Sheena Iyengar and Ross Lepper in 2000. They ran several experiments in a supermarket where they set up tasting tables for jams. One day they had only 6 flavours of jam; another day they had 24 flavours. While the table with 24 jam flavours attracted a lot more people to stop for a taste test, it was the table with 6 jam flavours that had 10 times more sales (from 3 to 30% of people who sampled)

So – more options means more interest; but more importantly it means fewer sales.

What can you do to avoid choice overload?

There are a number of things you can do to reduce choice overload and ensure your customers actually make a choice AND have lower levels of regret.

1. Reduce the number of options in each category – think about removing less popular options (though make sure you test this first as sometimes the less popular options serve an important role as a “decoy”).
   
2. Categorise the options – if you’ve got more than 5 or so products, it’s time to categorise them into logical groupings. A great example is the classic Asian take-out menu where you may have 100s of permutations but generally you choose by meal type and then customise the meat etc.
   
3. Help customers make the choice – for example, get customers to work through an online wizard that helps them narrow the range of options, or use phone or web agents to guide customers, or simply make it obvious what’s the recommended or default option for them.

Choice overload or not, here’s hoping you get that trip to the restaurant soon!

The post The paradox of choice appeared first on Nudge By Design.

As we’ve become more cashless this year than ever before, we’ve inadvertently reduced our overall “pain of paying”. This is great news for companies selling products or services. But it has consequences for keeping our spending in check. Plus cash versus card is only one of many factors that influence the pain of paying.

What is the “pain of paying”?

The pain of paying refers to the generally negative emotions that humans experience when they pay for a good or service. We are a loss averse species and handing over money can feel like losing money. Of course as always there’s a spectrum, with some of us more sensitive to this pain than others. Some behavioural economists call it the difference between ‘tightwads’ and ‘spendthrifts’. My husband calls it my travel addiction ;-)!

As a business your interest is likely to be to decrease the pain of paying for your customers so that they feel better about their purchase and so are more likely to buy again, or to recommend your business to others. But as a consumer you may wish to increase that pain of paying so that you have stronger willpower and control over your spending habits and can step away from the online shopping basket!

Test your own pain of paying

Imagine the following scenarios and think about how painful, or not, it would be for you personally to pay in each instance.

• You’ve enjoyed a week away at a five star resort and participated in lots of activities, meals etc that you charged to your room. Then you receive the total bill on checkout.
• You’re eating at a sushi train restaurant and every time you pick a plate off the conveyer belt, your table bill, which is displayed on a screen at your table, makes a beeping noise and immediately increases with the cost of the plate you’ve just taken off the conveyer belt.
• You go to the casino and use your debit card to buy some casino chips. You then spend the evening winning and losing the chips. You end up with fewer chips than you started with by the end of the evening when you cash out.
• Your wife buys you the beautiful, expensive wristwatch you admired a few weeks ago and decided you really couldn’t justify buying – using your joint credit card.

If you felt the pain of paying in these scenarios would be 1) higher, 2) higher, 3) lower, 4) lower, you are on the money (pardon the pun).

Cheat Sheet for the Pain of Paying

There are a range of factors that influence the pain of paying, including:

• Whether you pay by cash, credit, or some other format (like casino chips)
• Whether you pay before, during or after an experience
• If and when you’re reminded about the payment
• Whether you pay, or someone else pays on your behalf (even though you may be using the same source of money)
• The reference point or anchor that you’re comparing the amount of the payment to also plays a role
• Whether or not the payment has an element of doing good for others attached to it

Here’s a quick guide to get you started (you can download the PDF version below too):

So here you have plenty of ways to either increase or decrease the pain of paying based on behavioural science principles and research!

The post The “Pain of Paying” Cheat Sheet appeared first on Nudge By Design.

Customers generally feel the pain of paying at a time when there are immediate transition costs, while at the same time there is uncertainty around any benefits sometime in the future. 

When you are buying something new, there’s often a transition or switching cost that is fairly certain. But the value or benefits are both uncertain AND might not come until much later. That’s one of the reasons why most sales funnels generally have a pretty sharp drop off and conversion rates suffer. Transition costs are not only the actual money cost of the product or service you are buying but can be the effort involved adjusting to the new product or service.

For example, if you buy a new kitchen, once installed you have to spend quite a bit of time sorting through your pots, pans, crockery and that cluttered miscellaneous items drawer that everyone seems to have. Or if you buy a financial advice session, you have to prepare for it, which means looking or preparing budgets and getting a good sense of your financial position. By the way, you’re in the minority if that’s your idea of a fun evening!

As for the benefits of getting advice … will the advisor give you great advice that will have a big impact on your finances in the decade to come? You won’t know for potentially many years later, or at all – so there is a lot of uncertainty there. Will you love the new kitchen enough to justify the cost and effort of installing and setting it up? After all, you could have spent that money on a trip on your bucket list, or something else you’re passionate about.

Two ways to improve your sales funnel in relation to transition costs

1. Increase certainty around product or service quality 

• Offer a money back guarantee (and make it easy to apply)
• Show customer testimonials or ratings
• Give free previews or trials
• Show data on previous successes (sales numbers, companies you’ve worked with, case studies with past customers or clients)
• Provide data on how your competitors compare (from an objective, independent source)

2. Remove friction or effort from the purchase and adoption journey

• Minimise the data customers need to give you to buy – limit this to critical data only and capture the rest later, or in stages over time
• Pre-fill any data you already have so the customer doesn’t have to provide it
• Offer installation or set up services at a competitive price (or free if viable)
• Work towards offering one click purchasing if possible

And next time we’ll tell you all about how to reduce the pain of paying!
 
Until next time,
Clarissa and Dave

The post Transition costs may be hurting your sales funnel appeared first on Nudge By Design.