Why giving your customers choice might be a bad idea

Posted on 27 May 2016 by

Another piece of business advice from Sochall Smith the Leeds Accountants

How could giving your customers more choice possibly be a bad thing?

Intuitively it seems like a smart move after all, we love choice right?

As a selling organisation your natural inclination is to do everything you can to get sales and offering a wider catalogue of products or services seems like the right thing to do.

The problem is that there are some serious problems with offering too much choice and they affect businesses in all sectors from retail to financial services to construction. If you offer too much choice then you run the risk of falling foul of one of the following issues.

It confuses your brand identity

Your customers know what you do. You’re a great recruiter for financial services. You can find the best interim managers with great FS experience. But one day a client comes to you and asks you to find someone for their retail company, and the next day someone else is looking for a travel company exec.

Before you know it your niche Financial Services recruitment agency is looking for all sorts of different people for many different sectors.

Slowly but surely, your financial services clients, who used to value the fact that you were an expert in your area (which was also their area) drift away and your business starts to flounder.

If clients know and understand what you do then they’ll value you. As a test why not see if you can express exactly what you do in a short snappy sentence. If you can’t then are you overcomplicating?

It confuses the customer

Have you ever been into a shop and looked at shelves that just have too much choice? Ever been to a restaurant that has a ten page menu?

The problem is that we as customers actually get confused by more choice. If there are twenty different dog foods on the shelf then it takes a long time to decide, if there are two then it’s pretty quick. There’s no evidence to suggest that more choice equals higher sales, quite the opposite.

In fact there is good evidence to suggest that a customer that is faced with a large array of different choices and options actually walks away as they are concerned about making the wrong choice.

Increases production/stockholding costs

If you’ve ever watched an episode of Gordon Ramsey’s Kitchen Nightmares then you’ll have seen that one of the first things that he does is slim down the menu.

Whatever you think about monsieur Ramsey’s management style you have to admit he knows what he’s doing with food. It’s far better to do a few things really well rather than many things badly.

If you are a manufacturer and you produce many varied products with a corresponding array of options then your manufacturing costs will be higher than a competitor that produces a small number of standard items. If you are a retailer that has a massive stockholding then your store (and its rent) will need to be bigger, if you are a wholesaler then your stockholding costs will be massive.

As an antidote why not look at your whole inventory and work out which products are producing the most sales/profit. A Pareto analysis will probably show that actually 80% of your profit is being produced by 20% of your inventory.

The Business gets distracted by choice

If you find that it takes forever to get a product introduced in your company, then ask yourself why.

Companies that produce new lines often get totally sidetracked by the need to offer the same things in multiple colours or in different sizes/styles.

A business that produces one thing with very few options finds manufacturing and production very quick, streamlined and cheap. A firm that produces many bespoke and ad hoc products finds that it is forever swapping tooling or re-thinking a design.

Services companies don’t escape either. If you have one service that you offer then training and support is much easier. The larger your menu then the more training you have to put in place and the harder (and more expensive) it is to support your customers.

What to do about it

The Pareto analysis is a great start.

Do a root and branch analysis of your sales. Work out where the majority of your sales are coming from. Don’t get distracted by turnover though – as the old maxim goes “Turnover is vanity and profit is sanity” so make sure you also work out which lines are most profitable too.

If you are producing a huge amount of sales from a line that actually costs you money to sell then why are you doing it?

As a business ask why you are listing each line in your offering. If there’s no sensible answer then cut it. Each service or product you provide should contribute to profit in some way. If it doesn’t then don’t do it.

Offer a default choice. As customers we often value the easy option of choosing the default. Sure you can offer a tweak or two but no more than that otherwise you risk forcing your customers to over analyse.

Offer an all in deluxe version. If there are loads of things that the customer could add onto your offer then produce a single all in bells-and-whistles deluxe model. Again sometimes we want the very best and hang the expense – we just don’t want to go through 12 web pages adding in each choice separately.

Offering choice as a business isn’t necessarily a bad thing, everyone likes some choice but make sure that you aren’t offering too many options as a business and you may well find that your sales and customer satisfaction increase.

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