Which Option Will People Choose?

Your clients have options. If you were the only option, you wouldn’t need this book—everyone would choose you. Instead, there are probably many options (your “competitors,” in traditional marketing lingo) from whom clients can choose. They need to choose between you versus other service providers. They may also need to choose among your products or services. What are they likely to do?

With more options, people go for the more simple

We’ve discussed how presenting too many options prevented people from making a jam purchase. Too many choices has also been shown to prevent people from taking out a loan and enrolling in a 401(k) plan. One study showed that when 401(k) plans had five funds, 72 percent of people participated, but when plans had 35 funds, participation dropped to 67.5 percent, and with 56 funds, participation went down to 61 percent. For each additional 10 funds, participation decreased by about 2 percent. Extensive choice decreases participation or purchase. But what happens when people are faced with a number of options and do make a decision? What option do they choose?

Contextual inference theory states that people select the simpler option when they are presented with numerous options. Sheena S. Iyengar of Columbia University’s Graduate School of Business and Emir Kamenica of the University of Chicago’s Graduate School of Business set out to further explore this concept. They conducted three studies, which are published in the article “Choice Overload and Simplicity Seeking.” The first study looked at the role of risk and choice. People gambled on either 11 or 3 coin tosses. People would get $4.50 for heads and $7.75 for tails. In each group (11 or 3), 1 toss was a sure thing, where people would automatically get $5. In the 11 tosses, 10 were chance and 1 was a certain $5; in the 3 toss, 2 were chance and 1 was a certain $5. Results were striking: People were more likely to choose the sure bet ($5) in the 11 toss group than in the 3 toss group. People are less accepting of risk when there are more options. In this experiment, the least risky option was also the simplest, so the researchers conducted a second study to discover whether the simplicity or the least risky piece factor was more important.

In the second study, participants received a monetary amount for the number of dots on the die (1–6), so there would be 6 potential outcomes for each toss. For the 11 toss group, 10 tosses resulted in payouts ranging from $0 to $10, and one toss was risky—either $0 or $10. In the 3 toss group, 2 tosses received the range of payouts, and 1 was the risky $0 or $10. So the simpler gamble was also the more risky gamble. Results showed that people chose the simple (and more risky) gamble more often in the 11 choice set (57 percent of the time) than in the 3 choice set (just 16 percent of time), showing that with more choices, people choose the simplest option.

In the third study, the researchers looked at people’s behavior in the real world. They examined employees’ allocation of assets into their 401(k) plans by reviewing data provided by the Vanguard Center for Retirement Research, including 639 defined contribution (DC) pension plans with 588,926 employees ranging in income from $10,000 to $1,000,000. Employers in 538 of these plans offered some sort of contribution matching. Funds per plan averaged 11, with 90 percent of plans having 6–25 fund options. The researchers looked at how people invested in a mix of seven different types: money market, bond, balanced, active stock, indexed stock, company stock, and other funds. They found that as the number of funds increased, people were more likely to contribute to money market or bond funds (seen by consumers as more simple and less risky). For every additional 10 funds, people allocated on average 3.28 percent more to money market and bond funds at the expense of equity funds. These results tell us that in the real world, just as in laboratory experiments, more choices tend to lead to people selecting the simpler options.

What does this mean for you? First, consider the competition in your field. It is likely that your clients have several other service providers from whom to choose. If this is the case, the simpler your services and your message to them, the more likely they are to choose you. Second, if you offer several products and services, people may be more likely to select the simplest one.

With more options, people go for (and stick with) the ideal

Alexander Chernev gave people an option of chocolates from either a set of 4 or a set of 16. He looked at whether someone had an “ideal point” of reference (a predetermined notion of ideal attributes). He found that people choosing from the 16 chocolates were more satisfied and less likely to switch chocolates when given the option if they had an ideal point of reference in their minds. The ideal point may be a way for people to mentally simplify complex information and decisions.

He replicated the study by offering participants a choice of four products (a Caribbean vacation, a couch, a refrigerator, and a computer case). Findings were consistent with the prior study, showing that people tended to be less satisfied with their decision when selecting from a large group unless they had an ideal point of reference in mind. When they had ideal attributes, they were more confident and satisfied with their decisions.

Applying this idea in a service context, if decisions made from a larger assortment of choices can lead to weaker preferences, decisions from a lot of choices could lead to a client’s weaker commitment to staying with you, the service provider. If, however, the client had an ideal point of reference and you were a close fit, the client would be more likely to be satisfied with the decision to stay with you and not make a switch. You can help clients see their ideal attributes (that hopefully you fill and, if not, you can make a referral) by asking them what they are or providing a list from which to choose. If you know your clients’ ideal attributes (fast, thoughtful, thorough, et cetera) in a service provider and can use those in your marketing, they will see how you match their ideal reference point.

Be wary of trade-offs and the “attraction effect”

When buyers are faced with a trade-off between two options, they tend to get stuck. For example, a trade-off may be that someone needs a new hairdresser for both cut and color and they are trying to decide between someone who is great with color but not with cutting and someone who is great with cutting and not with color. If a third option is introduced who is good (but not great) on a particular dimension, people are more likely to purchase the option that is great on that dimension. If a third hairdresser is good with color but poor with cutting, people will hire the hairdresser who’s great with color. It’s funny because the original two options didn’t change, but the first suddenly seems more attractive when the third is introduced. Psychologists call this the “attraction effect” and theorize that it comes about to lessen someone’s difficulty making a trade-off decision.

Research scientists William Hedgcock and Akshay R. Rao used functional magnetic resonance image (fMRI) scanning to study people’s brain activity as they were engaged in a task in which they needed to choose between trade-offs. They found that when people had to make a choice that did not involve a trade-off (i.e., there was a clearly superior option), they had lower activation in brain areas responsible for negative emotion. When a third choice was introduced to employ the attraction effect, negative emotions were also less likely. Thus, our brains don’t like trade-offs, and the attraction effect may exist to reduce the negative emotion that comes along with having to make a trade-off decision.

We learn a few things from this “attraction effect.” First, do not offer two things that can be seen as a trade-off because people will typically select neither. Second, try to not be compared with another person or business when a trade-off may occur in your client’s mind. Third, introduce a third option that is a little lower on one dimension to influence people to select the option higher in that dimension.

Do people tend to select the middle option?

As you see from the attraction effect previously described, if you have three choices—two trade-off options and one that is good but inferior on a dimension—people will select the option that is superior on that particular dimension. In this case, the order in which you present options is unlikely to be as important. As a general rule, however, people tend to select the middle option when all else is equal or when they don’t have enough information available to make an informed decision. Let’s say that you’re a coach and you offer three coaching programs: the first is a month, the second is three months, and the third is six months. In this scenario, people are most likely to select the middle program. Question what the purpose is of offering three programs. You could simply offer a three-month program that people could extend if they were experiencing benefit. If, on the other hand, people tend to do a month or two of coaching, offering three options including a longer one may influence people to select the middle (three-month) program.

Are people even aware of their choice process?

Numerous studies show that many of the factors that influence our decision making are outside of our conscious awareness. Things such as memories, perception, context or frame of reference, and mood can be out of our conscious awareness.

One interesting study found that the way that information is given impacts behavior, even if the information is presented in the form of a hypothetical question. The researchers presented negative information about a political candidate as fact, and presented others with negative information about the candidate as a hypothetical (“If you learned that Bob Clark had been indicted for fraud, would your opinion of him improve or worsen?”). They measured people’s voting behaviors and found that people who were presented with either information as fact or as a hypothetical question both decreased voting for Bob Clark. In another experiment, they presented positive information: “If strong evidence emerges from scientific studies suggesting that cakes, pastries, etc. are not nearly as bad for your health as they have often been portrayed to be, and may have some major health benefits, what would happen to your consumption of these items?” They later measured how much people chose chocolate cake versus fruit salad, and found that people who had been given this hypothetical question were more likely to choose chocolate cake than fruit salad. Therefore, information presented as a hypothetical had a significant impact on people’s choices—even to the same extent that information presented as fact did. They also found that people were not consciously aware of the impact of the hypothetical question.

Another interesting finding is that when researchers asked participants to think more about the hypothetical question (which we would expect would help them see how it might influence their behavior and enable them to correct the bias), their behavior actually showed more bias based on the hypothetical question. If your company uses focus groups or other such methods of marketing research in which you ask people hypothetical questions, be wary of the results and how likely they are to predict future behavior. When participants’ thought processes are unconsciously contaminated by hypothetical scenarios, their responses may be biases and not predictive of how other people will actually evaluate or purchase products.

No matter what, make it easy to choose you

The other day, I went online to buy a gift certificate for a restaurant. They didn’t have an online purchase form, so I called. The woman who answered the phone told me that I had to download a form online, print it, fill it out with my credit card information, and send it in by fax or scan. Wow, that’s a lot of steps to purchase something. If it weren’t a gift for my sister, I never would have gone through all of that. The smallest things can make a big difference in whether or not people take action to connect with, buy from, refer to, or hire you.

The most important thing that you can do is to make things easy for people. If someone’s about to spend money, the last thing she wants is for it to be a pain to do so. Even if you’re asking someone to do something that doesn’t involve spending money, make it ridiculously easy for them. For example, I am active on the social networking community LinkedIn. I often get long e-mails from people asking to connect and telling me all about themselves. As you now know, short is better than long, so keep your e-mails succinct and to the point. Additionally, if you’re asking someone to do something, such as connect, make it easy. Send the connection request. When someone doesn’t do this, I need to go ahead and send them a request. Sure, this isn’t a big deal, it just takes a minute, but it’s one of those small things that makes a big difference.

We’re almost at the end of our journey into the psychology of how people think, build relationships, and buy. Just one final piece: how do people ultimately decide (to hire you)?