Posted on Tuesday 12 March 2013 by Ulster Business
The organisation is up and running, and it needs to develop a stable revenue stream fast to maintain cash flow. For the most part, organisations seek to sell as much product as they can to as many clients as possible while not compromising quality or service along the way. To this end, product ranges grow organically to try to appeal to as many customers as possible. More products, more choice, more sales... right?
Few things are more damaging for an organisation than an over stocked warehouse. Low stock turnover increases the likelihood of damaged merchandise, inventory obsolescence, and unnecessarily high storage costs. Not to mention, of course, that capital tied up in a in a vast array of stock items can cripple any enterprise s ability to operate with agility.
So is it a good idea to try and satisfy everyone by having a product for every punter? Is it possible to please all of the people all of the time? The answer might surprise you, as research shows that having fewer concentrated options for your customers can dramatically increase your sales.
A LESSON IN LESS
A professional researcher set up a free sample stand in a high end supermarket in Columbia, USA. A store renowned for a wide range of scarce and expensive delicacies, it proved the perfect testing ground for a study in choice, carried out over two Saturdays.
Customers were dealt with in exactly the same manner on both occasions. They were greeted as they roamed around the store, offered a sample, and if they enjoyed it they could take it – or one of the others on offer – to the till to purchase. One Saturday, 24 varieties of jam were offered to try and buy at the sample kiosk, and on the other Saturday the stock on display was reduced considerably, by 75% in fact, and shoppers could choose from just six.
One display was rich, varied, and bountiful. The other was contrasting in it s sparseness of choice. Two key questions present themselves: first, which kiosk attracted more footfall and interest; second, and more importantly, which sample stand sold more product?
Youd be forgiven for expecting a marginal difference in sales, but the results were an astonishing landslide that offer insight for every business.
When the researcher (posing as a promotional representative) offered 24 jams for sample and sale, 60% of the busy shoppers opted to try out the preserves, but only 3% of those converted to a sale. While certainly not impressive by themselves, the conversion rate will at least be familiar to those who have employed in store sampling as a sales mechanism.
On the second occasion only six jams were offered to customers. On this occasion, markedly less browsing shoppers chose to stop and sample the produce – only 40% of the shoppers chose to try out the preserves. The conversion rate, though, is far more interesting. When dramatically fewer products were offered, nearly 30% of shoppers stumped up the cash to buy.
So why were shoppers shying away from the wide choice on offer? The truth is theres a huge amount to learn from these findings, even beyond the lesson on conversion rates.
Having a wide range of products to choose from made for an eye-catching display that garnered attention and whet the punters appetites. The bountiful display attracted more foot traffic and created more customer engagement.
The much smaller display sold more. Dramatically more – almost six times as much product in fact. That s a staggering 600% increase in sales from the same product line, by offering far less to choose from. And all with a lower investment in stock, lower amount of capital tied up in inventory, and even a lighter load for the sales team.
WHY LESS IS MORE
Every decision that we make involves a certain amount of mental effort, and those that involve spending money arguably require even more effort. Few of these decisions are simple; prices vary, specifications are unequal, and everything from availability, size, postage, warranty, and build quality factor into the process. For the poor purchaser, the senses are bombarded and suddenly picking a new printer for the office becomes the hardest job in the world.
Every time your clients buy from you, they need to gather and process the information on each option, evaluate if it will meet their need, then survey your competitors. Then and only then can they begin to make a buying decision. If your product list is extensive, the process becomes even more cumbersome as the client needs to repeat these steps ad infinitum as often as more options occur.
In short, one of two things will happen. Either the buying process with you becomes so cumbersome that the customer sees it as a joyless dredge for information, or worse still they become bored or frustrated and take their business elsewhere. In either case, you ve likely lost a customer.
Social psychologists call it 'choice overload'. When a person is faced with an overwhelming amount of options, they are much more likely to avoid the cumbersome process of making a decision and instead go elsewhere. This was evident in the earlier jam experiment: when 24 options were on the table, 97% of people chose none, whereas when there were six available, 30% bought at least one.
You shouldnt, of course, go out and cull your 400 page brochures down to a mere pamphlet. Instead, take a look through your sales and examine your five lowest performing lines and ask yourself if the costs associated with carrying these items are worth the yield and margin that they create for you and your business. The lesson in the research is clear – consumers will buy more from you and your team when they re presented with a shorter simpler value proposition.
David is a researcher and lecturer in international business with one of Irelands leading Universities, whose personal interests have always focused on aspects of popular psychology, consumer behaviour, and choice. He s driven by a passion for understanding how and why we think the way we do. David has become a sought after international speaker and corporate advisor in the USA and Europe with a reputation for an innovative style that forces audiences to think critically about the challenges around them. In this series of articles for Ulster Business, he ll cultivate a wide range of cutting edge research in management and leadership to help you achieve peak performance. Find out more about David s work on
www.davidmeade.co.uk and follow him on twitter @ davidmeadelive