Product Proliferation and Willingness to Pay for Quality
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.
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.
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.