The Marginal Utility of Choice

More choice is good. Customers feel happy when they have a choice of brands, choice of flavours, choice of serving size, choice of delivery medium… But ‘choice’ has a diminishing marginal utility. After a point, every additional unit of choice decreases in utility or value to the consumer.

For instance, I drink 2 cups of coffee in the morning. This makes me happy. Three cups would be nice once in a while. But, I might not enjoy the fourth cup as much as the third. Or the fifth cup as much as the fourth. So the value or joy I derive from drinking coffee, keeps decreasing after the third cup.]

Similarly, it adds to my service experience if a bank offers 3 different (like, really ‘different’) types of bank accounts or if while booking a flight, I can choose between a veg/non-veg meal and a fruit platter. But sometimes, companies don’t take into account the basic principle of diminishing marginal utility while offering choice.

Kotak Bank offers 7 types of saving accounts, each of them identical to the other, except some minor differences.

To top this, the names of the accounts (Ace, Pro, Nova, Edge, Classic, Easy…) are hardly descriptive of who the account is for, what’s different about it, why should I choose it.

The multitude of accounts aren’t just bad for customer experience. It adds to the complexity of management, service delivery, back-end software and training for customer-facing staff.

Jet Airways allows you to choose from 27 (yes twenty seven!) types of meals including options like non-lactose, low-purine, bland-soft, low-sodium and a ‘Moslem meal’! I’m not even sure how many of these are actually available.

So why is more choice bad? and what is the ‘right amount of choice’?

1. When faced with too many choices, people prefer making no decision rather than a complicated one.
2. Post-purchase regret is more likely if a consumer feels that he could have fared better by making a different choice.
3. Failure to understand or see the difference between the many choices causes the consumer to get confused and feel vulnerable.
4. Creates unnecessary complexity without adding value to the customer experience.

The right amount of choice differs from service to service. But a simple rule of thumb is that an additional unit of choice should cater to the needs of a large enough customer group, should have 60%+ different features or should have a substantially different customer experience.

Barry Schwartz, an American psychologist has written extensively about this and a few years back published a book titled “The Paradox of Choice: why less is more”. Here he gives a talk about how the increase in choices has made us paralyzed and dissatisfied rather than freer and happier: www.ted.com/index.php/talks/barry_schwartz_on_the_paradox_of_choice.html

31Volts, a Netherlands based Service Design firm, talks about how a multitude of choice in ’service touchpoints’ is not always a good idea: http://www.31v.nl/2009/03/creating-a-better-service-experience-by-providing-less-choice/