Most of us who run small businesses want to sell as much as we can. When we plan to grow, one of the first things we think about is what new products or services we can add to attract more customers. Our thinking goes something like: “More choices, more sales.”
We’re almost certainly wrong.
Think about this. My favorite brand of toothpaste seems to have disappeared recently. It’s not on store shelves and it’s hard to find online. I need to switch toothpaste. But when I go to the store, what do I see? Shelves and shelves with so many choices – whitening, sensitive, gum protection, cavity preventing, mint, gel, even “nourishing” (what does that mean?).
I’m overwhelmed. I’m not alone.
In fact, there’s a famous study of consumer buying behavior showing that when consumers are presented with too many choices, they buy less.
Researchers set up tables at a supermarket where customers could sample jams. Sometimes, there were six flavors of jam they could sample. Other times, they had 24 different flavors.
The result? Having more options got more people looking – and sampling. When there were 24 types of jam, 60% of people passing by stopped. That’s a lot – and a lot more than when there were just six flavors for tasting – only 40% of customers stopped by then.
Well, no. Far fewer people actually bought jam when there were 24 flavors than when there were only six, only two buyers versus 12. The table with fewer choices attracted fewer prospects but generated higher sales.
Why?
Customers with too many options experience “choice overload.” Sure, we all think we want lots of options. But when we’re actually given all those choices, we’re stymied. Do I want the blackberry? The blackberry with lime? The marionberry? How about apple? I like them all but I only want to buy one. So I walk away so I can “think about it.”
No. It’s even worse than making fewer sales when there are too many choices.
Customers who buy when they’ve had lots of choices were actually less satisfied after making a purchase. That means they’re less likely to buy again. And businesses, especially small businesses, survive on repeat customers.
Many large companies have learned that too many choices are counterproductive. When Steve Jobs returned to run Apple, one of the very first things he did was drastically cut the number of products Apple sold.
Apple had been selling dozens of product lines to meet the needs of different retailers and market segments. Jobs came in and slashed Apple’s products to just four.
One of the keys to Costco’s success is they limit the number of individual units, or SKUs (or Stock Keeping Unit) they carry. According to Costco’s website, a typical Costco store carries around 4000 SKUs compared to the 30,000 SKUs you might find at your local supermarket.
For a small business, the number of products or services you offer is a critically important decision. Every product or service we develop or sell takes investment, not just of money but of our very limited time. We need to make sure that new offerings will actually increase sales.
Is there a “sweet spot” of how many are “just right”? Every business and every company may be different. But for many businesses, the perfect number of choices to offer customers is three.
If you look at many products or services, for example, you’ll typically see three options: the equivalent of economy, regular, and deluxe versions. These may have other, sometimes fancier, names – premium, professional, expert, silver, gold, platinum, small, medium, large.
Three works well because some people naturally gravitate towards the cheapest choice and others to the most expensive.
It’s time to think about whittling down the number of different product and service offerings in your small business. I know it seems counter-intuitive, but marketing fewer products or services may lead to more sales and more satisfied customers.
Too many choices is confusing, and when we’re confused, we feel stupid. When we feel stupid, we don’t buy. And that’s what leaves me standing in the toothpaste aisle at Target unsure of a very simple purchase. Who wants that?
Rhonda Abrams is widely recognized as one of America’s leading small business experts. A “Top 30 Global Guru” for Startups, her book Successful Business Plan: Secrets & Strategies was named one of the 100 best business strategy books of all time. Connect with Rhonda at www.facebook.com/MeetRhonda, Instagram and Twitter @RhondaAbrams. Register for Rhonda’s free small business newsletter at www.RhondaAbrams.com/subscribe
