We’ve all been tempted by it. We’ve made our pitch to the client, they like our work and want to sign on but just have a small request. “Do you also offer __________?” they ask. It’s not our typical line of work, but in the moment of being asked, it doesn’t seem too difficult. It wasn’t our original intention and yet, somehow we find ourselves offering it as an add-on on to our normal bids. In the short-term, it’s an easy extension of what we’re doing and a chance for quick extra cash. In the long-term, it just might be hurting your value in the market.
There’s an interesting line of research that suggests that offering additional services or expanding to too many products might just reduce a client’s willingness to buy or their willingness to buy at the price you want. To explain this research, we have to leave our studios and take a trip to the supermarket.
It was inside a supermarket in Menlo Park, California that Sheena Iyengar of Columbia and Mark Lepper of Stanford conducted their rather unique and now famous study demonstrating that when more is offered, people tend to buy less. The duo set up two booths at a high-end supermarket offering shoppers free samples of various jams. On some days, the researchers offered a wide selection 24 different jams (the “extensive-choice” condition) and on other days, they reduced the offer to only 6 jams (the “limited-choice” condition). The researchers than followed the shoppers and noted their behavior during and after the offer. No matter which offer was presented, all of the participants tended to sample only one or two flavors of jam. Interestingly though, in one condition, shoppers purchased a jar of their own significantly more. Shoppers in the extensive-choice condition bought a jar of the sampled jam only 3 percent of the time, while shoppers in the limited-choice condition bought a jar 30 percent of the time. Those who were presented less options were more likely to end up spending money, TEN TIMES more likely. The researchers cite “choice overload” as the culprit. Contrary to what they might even believe they want, when consumers are presented with too many choices, they freeze. Too worried about making the wrong decision, they end up making no decision at all.
In more recent experiments of the same phenomenon, Aaron Brough of Pepperdine and Alexander Chernev examined the counter-intuitively negative effect of inexpensive add-on offers. In one study in their recently published paper, participants were divided into two groups and told to imagine that they wanted to learn German. One group was offered a choice between an online German course for $575 or the popular Rosetta Stone software for $449. The second group was offered the exact same choice, except that the $449 Rosetta Stone also included an inexpensive German-English dictionary. In the first group, the no-dictionary group, the participants were divided on which option to purchase, nearly half opted for either choice. In the second group, the dictionary-added group, only 36 percent of participants opted for the Rosetta Stone, despite it being the better value for their money. The researchers didn’t limit their study to language software; they reproduced the study with watches, luggage, grills, shoes and even high-definition televisions. Across the board, their findings showed that when inexpensive add-ons are presented alongside the main offering, the amount people are willing to pay is reduced. They call this finding the “subtraction effect” of adding to the offer.
While most of this research is fairly new, expert consumer product marketers have known this for decades. Nearly twenty years ago, Proctor & Gamble countered the subtraction effect in their Head & Shoulders line by reducing the variations of the shampoo from 31 to just 15. The result? P&G’s total market share in hair care grew by 5 points to 36.5 percent and sales of each version more than doubled (which more than compensated for reducing their offerings by half). In the creative industries, smart companies have been leveraging the power of less for nearly as long.
Renowned software company 37Signals is known for its limited product line, nearly flat pricing and the simplicity of all of its software. Instead of offering ever-expanding product line each with ever-expand features, 37Signals keeps their software simple and charges premium prices for it. It’s a lesson their founder Jason Fried learned early on while they were still just a web design company. Fried took a risk and changed the company’s billing model. Instead of quoting $50,000 for a 15 page website, 37Signals began offering quotes for a page at a time. The pricing was simple, $3,500 bought you one page that would be completed within one week. “If you want another page, it’s another $3,500 and another week,” Fried explains in a article for Inc magazine aptly titled “How to Get Good at Making Money.” By offering limited services at premium prices, 37Signals’ business took off. Fried noted that the pricing established them as premium designers, and took the risk out of buy the site. By leveraging a limited-choice system, Fried’s plan increased the likelihood of prospects making a purchase, just like shoppers buy jars of jam. Examples like P&G or 36Signals and research on the subtraction effect perfectly illustrate a counter-intuitive phenomenon:
less is more money.