Product Proliferation and Willingness to Pay for Quality

THE PROBLEM

Recent research has shown that too many choices can demotivate consumers, prompting them to delay or abandon an intended purchase simply because selecting the best product at the best price required too much effort.

However, Professor Luc Wathieu and colleagues (Sheena Iyengar and Marco Bertini) suggest that product proliferation can in fact increase the motivation for consumers to look for high quality options. Wathieu reasons that when consumers are confronted with a surprisingly dense choice set, they perceive that others like themselves must be surprisingly picky and sensitive to small product nuances. This perception prompts consumers — particularly those who are less familiar with the product category — to reassess how much they care to pay for quality improvements. In other words, the presence of finely differentiated products on the market place induces consumers to become more discriminating, and their willingness to pay for high quality products (and to stay away from low quality products) increases.

FINDINGS

In one study, Wathieu and colleagues presented consumers with an assortment of either 5 (small assortment) or 21 (large assortment) gourmet chocolate bars that were rated on a 100 point scale. The highest and lowest rated bars in each assortment were identical. Wathieu found that consumers in the large assortment condition were willing to pay more for the highest rated bar (91 pts), but less for the lowest rated bar (19 pts), compared to consumers in the small assortment condition (see the Figure).

Wathieu replicated this finding when consumers valued wine bottles for which they knew only approximate price information (they did not have objective ratings). In a third study using astronomical binoculars, Wathieu and his colleague demonstrated that larger assortments cause consumers to infer that “small differences in product quality matter, motivating them to raise their [the consumer] own sensitivity.” This sensitivity causes consumers to increase what they will pay for high quality products and decrease what they will pay for low quality products.

To support their theory in a real world context, the researchers analyzed sales data from hundreds of lots sold through an auction house in London over a two-year period. They found that the same phenomenon held true: the proliferation of lots being auctioned on a given day caused high value objects to reach a higher selling price, while objects with a low estimate would reach a lower selling price.

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IMPLICATIONS & CONCLUSIONS

This research suggests that a proliferation of options does provide value by encouraging consumers to be more discerning in their choices. Retailers should consider forgoing the standard practice of presenting luxury brands in isolation; including a wider quality range will help consumer sharpen their impression that quality matters. In contrast, when a low quality, low cost alternative is being sold, retailers should offer a sparse line of products, which will make consumers feel like fellow buyers are not very discriminating in this category, and therefore seeking out a low price/low quality offering is more acceptable.

Luc Wathieu

Deputy Dean

Luc Wathieu is Professor of Marketing at Georgetown University McDonough School of Business, where he was Deputy Dean from 2013 to 2017. Prior to joining Georgetown in 2010, he served as Associate Dean of Faculty and the Ferrero Chair in International Marketing at the European School of Management and Technology (ESMT) in Berlin, Germany. He was on the permanent faculty at the Harvard Business School between 1997 and 2007, where he co-taught “The Customer Behavior Laboratory” (later called “Understanding Customers”) with Jerry Zaltman. His first academic appointment was at the Hong Kong University of Science and Technology. He has taught at the University of North Carolina in Chapel Hill, NC, University of California in Davis, CA, and Xiamen University, China. He holds an M.Sc. in Economic Theory from the University of Namur, Belgium, and an M.Sc. and Ph.D. in Management (Decision Sciences) from INSEAD, France. His research combines economics and psychology to understand consumer empowerment and the adoption of new technologies. He has addressed a variety of specific topics including pricing psychology, habit formation, brand loyalty, advertising language, corporate social responsibility, genetic testing, and privacy. His work on these topics has appeared in top academic journals such as Management Science –where he was an Associate Editor-, Marketing Science, Journal of Marketing Research, Journal of Consumer Research, Journal of Marketing, International Journal of Research in Marketing, and in the Harvard Business Review. He also wrote many popular case studies available through Harvard, on marketing innovations like the Apple stores, TiVo, elBulli, LivingSocial, Intelliseek, Burt’s Bees, Tchibo, Swatch Internet Time, etc. He teaches courses on Marketing Strategy, Strategic Marketing Research, Applied Product Management, Global Marketing Management, and Analytical Problem Solving, at the MBA and executive level, and taught executives worldwide across a variety of industries. He was an Officer of the INFORMS Society for Marketing Science.

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