The music industry is disrupted by the introduction of Spotify. Before the introduction of Spotify, people that wanted to listen to music went to the store to buy a CD. In most stores, only the most popular artists were available. When preferring a relatively small music group, consumers had to put a lot of effort in finding the album of that group. With the introduction of Spotify it became extremely easy to find any music group. The effort for finding almost any group dropped dramatically. This was especially beneficial for the customers that want to listen to relatively unknown artists. Also, as it was possible to listen to only one song of an album and then listen to a completely different song. According to monotonicity, “more is better”; having more choices increase the likelihood that you find the product that perfectly suits your needs. Hence, having a wider choice of songs to listen to should improve the utility of customers.
However, this wide choice could also have a negative impact on customers utility as the cognitive costs increase. Customers might have a hard time choosing a song and feel regret for not listening to other songs. Iyengar and Lepper (2000) investigated the effect of choice sets by presenting either 6 or 24 different types of jam. They found that that large choice set attracted more customers while the smaller choice set increased the likelihood with 11 percentage points for people to purchase a product (ibid.). This finding indicates that the wide choice of songs to listen to actually lowers customers’ utility.
An important question to ask is: For customers, is it better if companies follow a long-tail strategy or when giving customers a limited choice set? This might differ across industries and how products are offered. In the experiment from Iyengar and Lepper (2000), the choice for customers is directly visible while in the case of Spotfiy, users might not know the amount of choices offered to them. This might reduce the cognitive effort for customers when choosing the song they want to play, especially because Spotify gives recommendations to its users. Next to this, the costs of choosing a song are much lower than choosing to buy Jam. Therefore, the opportunity costs are lower. Also, because customers themselves chose to use Spotify instead of buying CDs at a store is also a suggestion that, Spotify’s long-tail strategy is better for consumers.
To conclude, a long-tail strategy seems to be beneficial for the demand side when the choice set is not directly shown to customers and when the opportunity costs are relatively low. With the introduction of the internet it is easier for companies to have a wide product range. This can be offered to customers, for example with a recommendation system, in such a way that it does not disproportionally increase their cognitive costs. Also, the combination of changing the pricing scheme (monthly fee instead of paying per product) and unbundling made it possible that the opportunity costs are limited nowadays.
References:
https://neilpatel.com/blog/too-many-choices/
Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating: Can one desire too much of a good thing?. Journal of personality and social psychology, 79(6), 995.
Nice post Jim! Your blog title got me interested as I often ask myself this question as well. Nowadays both the online and offline product offering is huge and delivery is in general so fast that I get a bit upset (it’s a shame), when a package takes more then 2 days to arrive. Furthermore, like you mentioned in the Spotify example, products are handed to us on a silver platter. Often we don’t even need think about what want to look for, It simply gets handed and recommended to us.
I like that the study you refer to in your blog confirms a bit my gut feeling. A big choice set actually lowers customers utility. Personally, I feel like people get stressed out by the wide product offering. Consumers claim that they like customize offerings but in most cases this only results in analysis paralysis or anxiety. Did I purchase the right product, did I overlook a similar product, what if a new version gets released etc.
But I am curious Jim, how do you feel about ‘more is better’? Do you prefer a smaller or a bigger choice set or is that for you dependent on the ‘product’?
Great that the blog caught your interest Max! I think that it canmot be said that one of the two is better. When you don’t know exactly what you want, it might be very bad as, like you say, people might get stressed due to the extreme amount of options. However, when you know what you want it is more likely that you’ll find exactly that when there is a lot of choice. Also, how the amount of product is presented might influence this. But, altough the great amount of choices makes it more likely that all your needs are met, the additional cognitive costs are very high. Therefore I think that less available options might be better in general.
Definitely an interesting read! I personally have never thought about the negative implications on having a wide range of choices. Your post is primarily based on a study published in 2000, do you think customer demands and preferences might have shifted since then?
If you look at Spotify, I agree that they are combining both the long-tail concept with a more curated offering. Their collaborative filtering strategy helps to compose playlists for each individual user, which can combat the feeling of being overwhelmed by the vast collection of songs and artists on the platform. Their long-tail approach helps in being able to offer every single user a great listening experience; not just the users with a preference for popular music. I also think that this is the best approach for new upcoming companies to take, as it is what most customers are seeking after – a wide range of choices to explore their preferences and might go out of their comfort zone a little bit, but at the same time a curated set of playlists/etc that resonates with them without having to put too much effort into compiling these yourself.
Hi Simone, I agree with you that the research might seem outdated. It might indeed be true that consumer today expect that companies have a wide variety. As you describe, companies should definately look at how Spotify limits cognitive costs of its customers.