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January 17, 2008

Product Customization Decisions: Order Does Matter

Giving consumers too many options early in a build-to-order transaction may trigger decision-making meltdowns — which can boost or erode product sales.

Topics: Marketing

In an unforgettable scene from When Harry Met Sally, Meg Ryan’s high-maintenance character asks a waitress for dressing on the side, lightly toasted bread and endless other options, triggering a near apoplectic fit in dining companion Billy Crystal. This type of insatiable appetite for customization has prompted manufacturers of products to churn out millions of options, from chicken-asparagus pizza to candy-colored iMacs to custom-colored Nike swooshes.

The proliferation of these tailored products, along with the growth of Web-based configuration programs that allow customers to build items to their exact specifications, prompted Professors Jonathan Levav and Sheena Iyengar to ask if the order in which value-added features are offered to consumers influences their buying decisions.

Their research was inspired by the late Columbia economist Kelvin Lancaster’s pricing theory, which asserts that a product’s perceived value is the sum of the perceived values of its attributes — and should thus be unaffected by the order in which each attribute is assessed. By this reasoning, a laptop, for instance, is the sum of such components as memory and a disk drive, and the order in which these attributes are added to the laptop should not matter to customers. But, Levav and Iyengar wondered, would Lancaster’s theory about order hold up in a real-world purchasing environment where order is manipulated?

Levav and Iyengar’s thesis — that order may indeed matter — is rooted in two psychological premises: First, a product’s value is based on a customer’s assessment at the moment he or she is mulling a purchase. This decision, according to psychologists, involves a finite source of mental energy that dwindles over time unless the customer takes a break from a decision to, in a sense, reenergize. The second premise asserts that customers tend to focus only on the task at hand and are thus unlikely to conserve precious mental resources for an extended decision-making process involving a series of complex choices.

The research, comprising two studies, showed that presenting consumers with a multitude of options at the beginning of a decision-making process triggers a sort of short-circuiting of the brain. As a result, buyers gave up on tailoring each aspect of a product, switching instead to a default option — company-selected features, such as silver for a car color — toward a transaction’s end because they neared sensory overload. By contrast, those warming up with fewer choices at a study’s start tended to settle for the default choice less often.

Levav and Iyengar also found that customers reported greater satisfaction with a transaction when offered fewer choices at the beginning. Finally, buyers completed a transaction involving many similar choices in roughly the same amount of time irrespective of whether they were offered more options at the beginning or the end of a transaction. Mental exertion, and its influence on buying decisions, thus appeared to be a function of both the number of choices consumers had to make and the number of subsequent options for each choice, but not a function of time spent making choices.

“The order in which numbers are added doesn’t matter in math, and it might not matter in economics. But it matters a lot to the consumer,” says Levav.

The first study asked 73 male subjects to customize a suit plus accessories like socks. Participants were divided into two groups. The first group started by focusing on 100 suit-fabric choices; the second, conversely, started by choosing from a simpler selection of 20 different sorts of socks and worked their way up to attributes like suit fabric that had a greater number of choices.

Confirming Levav’s and Iyengar’s hypothesis, subjects in the first, front-loaded options group appeared tapped out before the second group. They seemed to have little energy for decision making by the end of the task and were more likely to choose the default option (as suggested by the tailor) for the remaining suit features instead of continuing to make customized choices. Conversely, suit buyers with fewer options at the study’s start were far less likely to choose the default option as they moved through the decision-making sequence.

Levav and Iyengar’s second study, involving the computer-based configuration of a car at a dealership, produced similar results. It also shed light on several important implications of the order in which features were offered for a company’s profit-making prospects.

In this study buyers selected 67 car attributes in a task that took roughly 30 minutes. Eight attribute categories were manipulated for the purpose of the study. One group of subjects was offered more variety up front — a choice of 56 car interior colors — and fewer choices later (four different gearshift knobs), while the other subjects tackled the same transaction in reverse. And, unlike the suit study, in which price or cost was never mentioned, subjects in this study could see the immediate cost implications of their decisions because of a split-screen system that showed real-time price updates as they chose various car features.

A key finding for both groups was a higher likelihood of passing on the default choice when it was presented at the beginning of a sequence, because neither group had reached the stage where their energy levels were depleted and they were seeking simplification. Having consumers pass up the default is a less-than-desirable outcome for companies if a specific category’s default offering is more expensive than a customized option. In other words, the researchers found that manipulating offerings and the order in which they are presented could help companies maximize profits.

“If the default option is cheapest and shoppers at the start of a build-to-order buying decision lean toward more expensive options, a company should offer attributes with more expensive options at the beginning,” Levav says. “Alternatively, in the reverse situation in which customers nearing the end of a transaction may approach sensory overload from too many front-loaded options, a firm might want to make the default options at the end a bit more expensive.”

This strategy holds value, Levav notes, for any firm offering product customization or configuration. Convincing customers to select specific options can add up — in this case to a few thousand dollars per car. “It’s free money for the company,” he says.

The researchers also found that gradually increasing the number of options decreased the probability that customers would choose the default option when it was offered at the end. These findings seem to indicate that willingness to pay depends more on the configuration sequence than on the price of attributes in a certain order.

Thus shifting the order in which options were presented influenced the purchase — and its final price — even though buyers had access to ample information about their various options and were kept constantly aware of cost. The research shows that the low-cost, low-effort process of tweaking the order of option offerings can materially impact a company’s bottom line.

“Preferences are malleable,” says Levav. Ordering options in the most appealing way to both buyers and sellers, he says, may help firms “make more money and — as the study showed with high satisfaction ratings from subjects offered fewer choices at the beginning of a transaction — keep customers happy.”

Jonathan Levav is the Class of 1967 Associate Professor of Business in the Marketing Division and Sheena Iyengar is professor of management at Columbia Business School.

Read the Research

Jonathan Levav, Mark Heitmann, Andreas Herrmann, Sheena Iyengar

"Order in Product Customization Decisions: Evidence from Field Experiments"

View abstract/citation  Download PDF  

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