Why more is sometimes too much
Economists still often argue that being able to choose from many products is the best guarantee of prosperity for citizens. But too much choice can also paralyse consumers and make them dissatisfied. In an increasingly complex world, they often need clarity and simplicity. Companies that respond to this need and simplify their product range usually manage to win the favour of customers and are more successful. Even at the macro level, less product variation and complexity translates into a more sustainable economy and society. In concrete terms, this manifests itself, for example, in more efficient companies, less regulation and a smaller amount of waste.
More and more consumer goods are coming onto the market and their lifespan is getting shorter and shorter. Based on figures on the number of patents granted, the World Intellectual Property Organisation estimates that the diversity of products worldwide has doubled in the last 15 years. According to a study by Roland Berger Consultants, the average life cycle of products over the same period has decreased by a quarter. There are several reasons for this development. On the one hand, it is a consequence of accelerated technological progress and globalisation. These factors increase the potential to produce new products and market them more widely worldwide. On the other hand, increased international competition means that companies are doing everything they can to retain existing and new customers by constantly differentiating their offerings. They often use product differentiation as a strategy to increase their market share and profits.
The more choice, the more indecisive
Being able to choose between different products is in itself a good thing. It offers consumers the freedom to satisfy their individual preferences and is therefore a source of prosperity. Nevertheless, the principle of ‘the more choice the better’ is increasingly being questioned by economists. After all, the link with consumer satisfaction is more complex than is often thought. Studies indicate that consumers can be deterred by too much choice. Not infrequently, they show avoidance behaviour: they postpone the purchase or buy nothing at all. Moreover, product variation feeds product complexity. As a result, consumers are often no longer able to make the right choice or are more likely to regret their choice. For example, consumers who are faced with the purchase of a new car today often no longer know which engine to choose: diesel, petrol or natural gas, or will it be hybrid, electric or hydrogen?
The problems were first raised in 2004 by the American psychologist Barry Schwartz under the name ‘choice paralysis’. In economic terms, this implies an ever decreasing and even negative marginal utility of having additional options. The stress associated with the abundance of choices and the fear of making wrong choices is sometimes also referred to by the acronym FOBO (Fear of Better Options). Over the past decade and a half, numerous experiments have been described in the literature that show that an excess of choice actually has a negative influence on decision making and buying satisfaction.
Consequences at the macro level
For an individual retailer, too many products on the shelves can therefore have a negative impact on sales figures. However, there is no convincing evidence that the sharp increase in the number of goods across the economy would limit overall household consumption. There are several possible explanations for this. To the extent that new innovative products are unique and meet new consumer needs, they will increase consumer satisfaction. There is no problem then. Moreover, in the event of choice stress, consumers will often fall back on their basic choice (default choice) and thus actually buy a product after all (e.g. if the restaurant visitor cannot chose between the wide range of wines on the menu, he may opt for the house wine). Furthermore, as already mentioned, a certain freedom of choice is a good thing in itself, because it ensures that the individual needs of the consumer are met.
Nevertheless, excess choice can have socio-economic consequences at the macro level. To the extent that consumers regularly make sub-optimal choices in their purchases, this will generate feelings of dissatisfaction. We will not notice this in the overall consumption or GDP figure, but we will do so in the satisfaction that those concerned derive from consumption. On the other hand, when choice paralysis leads to the postponement of consumption, it can effectively lead to greater fluctuations in real GDP. When consumers fall back on default choices, this moreover can have more structural economic effects by slowing innovation. If too many (variations of) new products come onto the market and are perceived as difficult to understand or use, consumers will be more likely to hesitate, and product adoption and diffusion may be slower.
For companies, large product variety and complexity make it more difficult for them to control their production and distribution costs. Adding new products, or variations of existing ones, to the range has a major impact on costs for administration and processes. Moreover, the increasing complexity created in companies by the multitude of products is often an important killer of their efficiency, competitiveness and innovation. For companies as a whole, large product variety and complexity also give rise to an increasing volume of government regulation and legislation (e.g. on packaging or safety), which exacerbates the problem. From a macroeconomic point of view, this can slow down productivity growth.
Finally, the increasing variety of products combined with their shorter lifespans also has important ecological consequences. They mean that exhaustion, waste and pollution nowadays occur on a large scale and affect the environment, with damage that is often irreparable or in danger of becoming so (e.g. loss of biodiversity). The main cause is that most companies are still active in traditional production chains where raw materials are converted into products that become waste at the end of their lifespan. This so-called ‘linear economy’ is based on selling as many products as possible, preferably with a short lifespan in order to be able to quickly sell products again. This model is unsustainable in the long run. In a recent report (What a waste, 2018), the World Bank points out that if we do not intervene, the global waste mountain will grow by 70% by 2050. Simplifying the product range allows processes to be standardised and the same basic components to be used more often. This will facilitate the transition to a ‘circular economy’ in which products and raw materials are reused as much as possible and value destruction is minimised.
Simplicity as a success factor
Freedom of choice is both a blessing and a curse. Consumers should have the freedom to make choices that best meet their personal needs. But in an increasingly complex world, they also need overview and simplicity. Companies that respond well to this need usually win the favour of the customer and are more successful. For example, many restaurants already embrace the less is more-principle by only putting a limited number of dishes on the menu. At the macro level, this also translates into a more sustainable economy and society. Although necessary, simplification itself is not easy. Above all, it requires companies to have good knowledge of how (relevant) customers experience new (variants of) products. What and how many products companies ultimately produce should be left to the market. However, the government should take a guiding role by correcting undesirable market outcomes, such as excessive waste production or the production of non-sustainable goods.