"Providing a large assortment from which to choose creates the perception of higher quality and increases consumer willingness to pay for it," write researchers, Marco Bertini of The London School of Business, and Luc Wathieu of the McDonough School of Business, Georgetown University, in their article: "Choice Helps High End Products, Hurts Low-End Products." in the Harvard Business Review: The Future of Retail.
The research results raise positive aspects of effective assortment planning and management as well as competitive pricing intelligence to deal with the elements I call: Product, Pricing, and Prestige.
The proposition reported by the researchers in the Journal of Marketing Research was: "A crowded product space motivates consumers to better discriminate between options of different quality." In other words, "consumers who are offered a richer array of relevant choices in a given product category grow engaged and interested in quality and are prepared to pay more for the perceived higher quality."
The researchers determined that "a surprisingly large assortment invites people to contemplate and raise their personal interest in quality" within a category, whether talking about candy, musical instruments, cars, golf clubs, dog food, or antiques.
When there is a dense set of alternatives, the consumer concludes that there's a large range of choices because like-minded consumers must care about even small differences in quality. (In one of the experiments, consumers paid 40% more for a high-end chocolate and 33% less for a low-end chocolate when they chose from 21 different pieces instead of only five).
On the other hand, the researchers show that consumers faced with a sparse, or limited assortment take it as a signal that the average consumer is unenthusiastic about quality differences, that there is no real reason to get excited about the purchase -- and expect to pay a low price for it.
Signaling. With signaling, products can be rendered more desirable, such as by using celebrities to endorse a product -- which doesn't mean that they know anything about the product, but it conveys that the company has enough money to pay for the prestigious person, proving, by association, that the company and the product are prestigious and desirable.
Another aspect of signaling takes place when a consumer finds a product that is cheaper in a lesser-known company, but nevertheless chooses to pay more for the same item, for the prestige and security of going to a known company.
Pricing expert, Reuben Swartz, recently wrote in his guest blog (The Surprising Secret to Successful Price Segmentation): If customers can perceive a clear difference in value, they expect a difference in price. "No one expects to pay the same price for a new Hyundai and a new Ferrari," he says, "even though they do about the same thing, and the Hyundai is far more practical." That's the same reason someone chooses a Rolex over a Timex, a Ferrari over a Ford, a Mercedes over a Mercury, or a prestige coffee over a house brand.
Mark Stiving, pricing expert, and another of our guest bloggers, says in his recent post (How To Get Your Customers To Like Price Segmentation): "Use Pricing As An Indicator Of Quality."
And in my previous post (7 Smart Ways Retailers Can Turn "Shoppers" Into "Buyers), I talked about the importance of creating "choosing experiences" for buyers.
Customers like to feel they are in control of what is important to them. The more choices consumers have, the more likely they will choose a higher-priced item -- and loosen the strings on their pocketbooks to buy it.
The findings also highlight the importance of competitive pricing intelligence and assortment planning and management, in order to have the latest real-time information on which to make the best informed, most competitive marketplace decisions.