Research out of the US suggests consumers are more likely to purchase a product if they have multiple options. One adviser is applying the theory to his offering...
If too much choice can put consumers off making a purchase, what effect might too little choice have?
Research published by the University of Chicago Press found that people are far more likely to purchase a product when offered at least two options. The phenomenon has been coined the ‘single-option aversion'.
But is the same true for all retail services?
One adviser – Alan Dick, principal of Forty Two Wealth Management and vice-president of the Institute of Financial Planning – was so intrigued, he has decided to the put the idea to the test.
How much choice do consumers need?
Forty Two typically only offers a single proposition: "Full financial planning or nothing," Dick explained. However, he has decided to introduce a second, scaled-down offering at only a slightly reduced price.
It has been set up to be intentionally unappealing. Dick explained: "The cost to value just shouldn't add up." But, according to the single-option aversion theory, this second option may just "nudge" clients into accepting his initial offering.
"What the research seemed to be implying was that, if you say to people you can have either one thing or nothing, then, very often, they'll opt for nothing. But if you offer another proposition which is cheaper, but for which you don't get half as much, people may go for the first option. I thought it was interesting to try as an experiment."
Dick made clear his experiment was not about changing his firm's proposition, but the way he explains it to prospective clients.
"It's the whole idea from [behavioural finance book] Nudge, where you edge people towards the right answer by making it easy for them to opt in."
Other advisers endorsed the idea of offering consumers a limited number of options to choose from.
Dobson & Hodge financial services director Paul Stocks said: "Not giving people a choice at all could result in them assuming that it's not right for them because it could be the wrong solution."
He added that offering only one solution was a little like asking "do you or don't you want to do it?" as opposed to asking "do you want to do number one or number two?".
Dick does not yet have a plan for what he would actually do with clients if they opted for the scaled-down version.
"We still haven't had to cross that bit yet. We'll see what the discussion brings out," said Dick. "The bottom line is we are only interested in taking on clients where they fit the proposition we deliver and where we know that we can deliver that proposition at good value to them and profitable to us.
"If somebody actually does deem the other alternative decent value, as long as we make a profit on it then I suppose we'd probably be inclined to go ahead, possibly trying to upgrade what we do as a bonus."
He concluded: "Our job is about helping people take action and making sure that they do the things they say they're going to do. This is just a way that we are looking at trying to tweak how we present things to help people actually follow through on the action."
Single-option aversion experiment: how it worked
The experiment presented 129 people with two different DVD players taken from Best Buy's website. The people were grouped in three groups: group one was shown a Sony DVD player, group two a Philips DVD player and group three was shown both.
Each option was presented with a picture and a list of its features.
Participants were then asked to indicate whether they would buy one of the presented options or defer their decision in order to look for more options. The goal was to determine whether participants were less likely to choose a specific option when it is the only option presented than when an attractive alternative is also included in the choice set.
The outcome showed that participants were more likely to pick an option when an attractive competitor was included in the choice set. Importantly, the choice share of both options increased when presented together.
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