Consumers have more choices than ever. A recent Google search for "coconut oil" brought up 14 different brands on the first page alone. With seemingly endless options on everything from cooking oils to summer music festivals, brand loyalty is diminishing. In response, brands have been forced to amp up their messaging, customer interactions, and transparency in order to maintain the business of increasingly distracted and disloyal consumers.
In 2000, psychologists Sheena Iyengar and Mark Lepper from Columbia and Stanford University published a study about jams. They set up two jam displays at a grocery store near Stanford, one with 24 flavors to sample and another with just six flavors. While the big display table generated more interest, people were 10x more likely to purchase a jar from the display with fewer options. Showing that while choice seems appealing, at first sight, choice overload generates the wrong results.
Paradoxically, freedom of choice and the complexity it brings can be paralyzing. Lot of options first increases consumer attention and excitement, but often results in the failure to make a choice at all.
According to a study by Cadent Consulting Group, just over half of Millennials, 51%, have no real preference between national brands. When confronted with option-overload, many Millennial consumers will opt for private-label products based on their simplicity and the freedom from having to make a decision at all. Such apathy is in stark contrast to millennials' baby boom parents, a brand-loyal group who were raised with fewer choices, traditional advertising channels, and no Internet.
Except in cases of low-value products, consumers increasingly take the time to weigh their purchase choices. For items costing more than $50, a quarter of customers report that most of their effort is spent on product research and about 20% say that most of their effort is spent on comparison shopping.
The desire for fewer brand choices is opening the door to new brands like grocery stores Aldi, Lidl, and Trader Joe's, which emphasize their own private labels. There's also Brandless, a startup aimed at revolutionizing the industry of everyday essentials by selling unbranded goods for $3 each. While the Cadent study focused on food and consumer packaged goods, Millennials' lack of preference for national brands is also evident in categories including travel, insurance, and fashion.
For brands concerned with how this trend will affect their sales, the best tool for measuring consumer-engagement efforts is the “decision simplicity index,” a gauge of how easy it is for consumers to gather and understand (or navigate) information about a brand, how much they can trust the information they find, and how readily they can weigh their options. The easier a brand makes the purchase-decision journey, the higher its decision-simplicity score.
Big name brands who haven't adjusted to consumer needs can blame the 2008 recession. Millennials came of age in a ruined economy and many graduated college crippled with student load debt. Deeply affected by the world around them, they were drawn to purpose-driven start-up brands that promised low prices alongside a charitable mission, like Casper, TOMs, and Warby Parker. A model that stands in stark contrast to the money-hungry big name brands and remains difficult for them to adopt.
Consumers only consider choice to be valuable when they can meaningfully distinguish between the options being offered. Being permitted, or compelled, to choose among a vast selection of things that seem essentially similar might inhibit choice or even lead to the rejection of the opportunity to choose.
Whether increasing choice is the right move in another market depends on what’s happening in that market. Are consumers pushing for more alternatives or more simplicity? Many companies are trying to strike a balance between the two by figuring out the best way to bundle their options.