January 31, 2011

The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality

Coax consumers toward higher quality by offering a dense set of choices.


The Idea

Coax consumers toward higher quality by offering a dense set of choices.

The Research

Today’s marketplace promises seemingly infinite choices for consumers, even as evidence suggests that a surplus of choice can sometimes feel more like a burden than a freedom. Having too many choices can demotivate shoppers, prompting them to delay or abandon an intended purchase because selecting the best product at the best price requires too much effort. Retailers worry that consumers may simply opt for lower quality and less expensive products when confronted with a clutter of choices. For example, comparing prices requires much less effort than sampling the features of new cell phones or tasting half a dozen different wines.

Retailers’ fears may be unfounded, though, particularly when it comes to luxury and high quality goods. Professor Sheena Iyengar worked with Marco Bertini of London Business School and Luc Wathieu of Georgetown University to test the hypothesis that in some instances a broader set of choices drives shoppers toward rather than away from higher quality products that have higher prices.

The researchers’ underlying reasoning is that when consumers find that they have more choices and a broader range of qualities than anticipated, they tend to perceive that many consumers are seeking and buying high quality products. That perception prompts consumers — particularly those who are less familiar with differences in quality — to reassess how much they are willing to pay for quality.

In a series of experiments, the researchers showed that consumers do become more sensitive to quality when facing a dense field of choices — one in which there are a large number of products within a given range of qualities. Shoppers presented with 21 types of chocolate were prepared to pay 33 percent less for a low quality chocolate and 40 percent more for a high quality chocolate relative to those presented with only five different types. The results of further experiments where consumers chose from an assortment of wines or astronomical binoculars revealed that manipulating the perceived density of a choice set could similarly affect shoppers’ sensitivity to quality. The researchers also analyzed sales data from hundreds of lots sold through an auction house over a two-year period, finding that the same phenomenon holds true in the field.

In all cases, consumers were consistently willing to pay more for higher quality products and less for lower quality products. And, when given fewer choices, consumers were far less willing to pay for quality and gravitated toward lower quality, less costly items. They also reported weighting quality as more important when facing larger choice sets.

Practical Applications

Retailers

You can use this research to determine how dense a variety of choices you should offer for a given product. First, determine whether potential consumers perceive the product as low or high status (or quality). For products perceived as high status, carry a more dense choice set in a range of qualities. Consider forgoing the standard practice of presenting luxury brands in isolation. Instead, extend a luxury line to include a wider quality range to convey innovations and unique features. For products perceived as low status, focus efforts on offering a smaller range of lower quality products while keeping costs low.

 

Read the Research

Sheena Iyengar, Marco Bertini, Luc Wathieu

"The Discriminating Consumer: Product Proliferation and Willingness to Pay for Quality"

View abstract/citation  Download PDF  

Have You Read Columbia Business?

Columbia Business School’s alumni magazine connects alumni with each other and the School; celebrates alumni milestones and accomplishments; and chronicles the impact of Columbia Business School alumni, faculty members, and students on the global business landscape.

Read Columbia Business>