Can you reduce inventory?

CHALLENGE:
Pressure from the poor economy is forcing some stores to reduce costs, including inventory. But does inventory reduction lead to lower sales and worsen our business situation? Do consumers really want more choices? The empirical answer may surprise you.

How They Researched It:
University marketing professors wanted to find out if “more choice is better” in the retail setting. They set up a tasting booth of exotic jams in an upscale grocery store. The booth had only 6 choices to taste part of the time, and 24 choices the rest of the time. Shoppers were invited to taste as many of the jams as they wished and were then given a $1 coupon for any of the jams.

What Happened?
What happened? 260 shoppers passed by the 6-choice booth, 40% stopped and an average of 1.4 jams were tasted. For the 24-choice booth, 242 shopped passed by, with 60% stopping and an average of 1.5 jams were tasted.

The surprising result was that 30% of total shoppers bought a jam when they had only 6 choices from which to choose, whereas only 3% of the shoppers bought a jam after being exposed to 24 possible choices.

In an attempt to understand the mechanism underlying this behavior, the researchers repeated the study with students and used chocolates as choices. A questionnaire was also administered to get at underlying motivations. The behavioral results were consistent with the jam study. But the researchers also found that the choosers with many options enjoyed making the choice more and felt more responsible for their choices, apparently leading to more frustration with the choices made, and greater dissatisfaction and regret over their choices.

Why Managers Should Care:
It may not be necessary to overwhelm consumers with a wide array of different configurations of products or services in a merchandise category in order to achieve a relatively high level of sales. More on-shelf inventory of a particular merchandise category does not necessarily lead to greater sales of that category. An expert clerk with reassurances about the fit of the product to the shopper’s needs may help consumers feel good about the available (few) options, while leading to greater satisfaction and less regret after purchase.

Iyengar, Sheena S. and Mark R. Lepper (2000), “When choice is demotivating: Can one desire too much of a good thing?” Journal of Personality and Social Psychology, Dec., Vol 79(6), 995. You can read the original study here:
http://www.columbia.edu/~ss957/whenchoice.html