The market economy is changing every customers life. That includes the principles of entrepreneurship, diversity of ownership on the means of production forms, market pricing, contractual relations between economic entities (people, businesses, etc...), limited government intervention in economic activity. The new economic conditions create more choices for consumers in products and services. However, while the increased number of production types improves entrepreneurship and competitiveness, it may adversely affect consumer satisfaction. The purpose of the paper is to investigate and critically evaluate the concept of customer choice and prove that too many options adversely influence customers choosing experience. An excessive number of choices is bad for customer as it contradicts human psychology, takes too much time and leaves people equally dissatisfied when they make a choice and when they do not.
The Concept of Consumer Choice
Consumer choice is the consumers decision to purchase and use goods or services, which in turn forms a market demand of consumers exercising choice of benefits, taking into account current prices (Foxall 2005).
Some economists believe that the behaviour of consumers (consumer behaviour) in dealing with the use of good explains the preferences of the consumer, considering that the actual decision clearly identifies the consumer and his preference (Schwartz 2006). That means that consumers pick what they actually prefer and thereby make the consumer choice. Other economists criticize this view, pointing out that when there is a shortage of certain goods then consumer choice is forced, as preferred goods cannot be purchased, and does not reveal true preferences (Willcox 2015).
The basis of consumer choice theory is the theory of marginal utility. That means that consumer behaviour in the market of goods or services depends on the utility of a product or service for the consumer. Consumer choice is closely related to the budget constraint, which is a limit when selecting combinations of consumer goods, determined by income of a consumer and goods prices. Thus, consumers preferences, their budgetary constraints, good price, and the degree of development of the market mentioned above all affect consumers. The decision of a consumer is closely bound by its assessment of marginal utility and total utility (Waldfogel 2005).
A consumer maximizes the utility of goods set for a given budget constraint, if the ratio of the marginal utilities of goods to their price is the same for all goods (Cowell 2006). The psychological aspect of consumer choice can be reduced by the conformity of consumers, if, trying to keep up with the others, they get what others are buying. However, there may be those consumers who are dominated by the desire to stand out from the crowd. There is a concept of the prestigious or demonstrative status consumption (Rich & Erb 2005).
There are several basic principles of consumer behaviour on the market in the making of consumer choice (The Economist 16 December 2010). Firstly, while choosing a products consumers are primarily guided by their preferences for one or the other product. Therefore, consumer behaviour is rational because it is guided by self-interest. Moreover, a consumer seeks to maximize total utility as they try to select a set of benefits that bring the greatest utility. The next principle is that a consumer choice affects basic provisions of the law of diminishing marginal utility. Lastly, when choosing a good, the consumers capabilities of buying are limited by product prices and consumers income.
Based on these principles of consumer behaviour, it is possible to form a simple model of consumer behaviour on the market. Model of consumer behaviour includes the common principles of consumer behaviour on the market, including maximizing total utility, the law of diminishing marginal utility and budget constraints (Berliant & Raa 1988). The consumer selects those products that meet his needs from the best possible set of benefits. At the same time, if increasing the purchase of goods, they must give up other products, as their resources (income) are limited.
Consumer choice is the best combination of benefits (or consumption bundle) of all possible combinations, i.e. the choice that brings the buyer the highest (total) utility. Marketing research has found that the behaviour of customers and the pricing policy of the company are strongly influenced by psychological and social factors (Palmquist 2010). However, the connection between the consumer response to price and the classical theory of prices has not been established yet (Palmquist 2010).
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The study based on the theory of prices behaviour pays special attention to several factors, especially consumer behaviour depending on the price. The first one is the interest in the price. Under the interest in the price, or under the motivation of price behaviour, the buyer understands the need and obtains information on prices and takes them into account when making purchasing decisions. Second is the knowledge of the price. Knowing the price refers to all information received by the consumer for assessment of significant bargain purchase of the desired product in terms of price. The last one is the evaluation of the price. While deciding whether to purchase a product, the importance is not in the objective price of the product but the subjective assessment of the proposed price of the product. There are distinguished judgments (opinions) about the "supportive price" and "decent price" (Raab, Gernsheimer & Schindler 2009). The judgments about the "supportive price" are based on the fact that consumers estimate price exclusively and do not take into account the quality of the product (Rigoglioso 2006). This behaviour can be observed when evaluating the price of products that are perceived by consumers as interchangeable and are available in different places at different price purchases. The judgments about the "decent price" are assessed by the "price - quality" ratio of goods (Iyengar & Botti 2006). "Decent price" describes the relationship between the perceived customer benefit (value) of the product and the price paid. In this regard, "worthy of the price" is influenced by the size of the perceived benefit (value) of the product.
The fourth factor is the analysis of the price. This factor of consumer behaviour based on price assumes that consumers classify products by quality based on the price level. Thus, consumers think that the higher the value is, the higher the quality of the product. The following features can explain this behaviour. Assessment of the quality of the consumer price is one-dimensional, but quality is a multi-dimensional value. Consumers perceive the cost of production as a factor affecting quality, i.e. high quality, in their opinion, is accompanied by high costs and correspondingly high prices (Iyengar & Kamenica 2010). While buying certain products, the consumer is guided by the experience of the presence of high prices due to high quality.
The propensity of buyers to assess the quality of a new product by taking into account price only offers producers and traders a considerable scope in the field of prices. This applies specifically to markets in which there are no well-known brands. Making choices is the most important part of customer decision making that consists of several stages (Perreau n.d.). First one is the awareness of the problems (needs), internal and external. The next step is finding information. A consumer can do that by using a variety of sources: private sources, commercial sources, public sources (the media), and the sources of empirical experience. The third step is evaluation of consumer choices done by determining and comparing properties of different goods, the importance of specific properties of the product (soft bread), beliefs about brands (well-known brands), and utility functions of different product variants, which can solve the problem. The next step is the decision to purchase. Last stage is the reactions to purchase (assessment of correctness of choice of goods). It includes a number of actions: awareness of the degree of satisfaction of purchase, after purchase action, a final decision on the fate of purchased goods (Perreau n.d.).
The Variety of Products and Consumer Satisfaction
Marketers believe that a wider range of products is better for consumers. For example, if a store sells fifty models of jeans instead of two, then a person is more likely to buy what he likes. However, recent studies have shown that if the range is too high, the consumer does not buy anything, and if the customer buys something, then he or she will be less satisfied with their choice. Other researchers investigated whether more choices create better choosing conditions for customers (Cartwright 2011). They focused on convenience stores and such products as snacks and drinks (both alcoholic (beers) and soft ones). When stores increased the number of choices, the sales volume decreased and customers were not satisfied with changes (Schwartz 2006). In the case of retirement investments, the increased number of options makes people discouraged because they have to be involved in studying a bigger amount of complicated information. Moreover, in that case people do not take any option at all. That phenomenon is described by the term choice paralysis. Even when consumer makes the best possible choice, it still leaves him dissatisfied (Iyengar & Agrawal 2010).
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In 2000, the researchers Iyengar (Columbia University) and Mark Lepper (Stanford) were trying to support their idea in their article(Iyengar & Lepper 2000). They argued for the idea that the human mind is unlimited and the more opportunities are provided the better (Iyengar & Lepper 2000). Iyengar and Lepper discovered during laboratory and field experiments, that buyers of gourmet chocolate and jam jars are more likely to make a purchase if the number of options is limited to six, than if they had to choose between 24-30 products (Iyengar & Lepper 2000). In the first case, the customers get more pleasure from buying. In the second case, the customers likely were dissatisfied, as they were not able to try everything.
In the Iyengar and Lepper chocolate experiment, the participants of market research decided themselves whether they will taste the products on a table with 6 or 30 varieties (Iyengar & Lepper 2000). Then the subjects were asked if they are satisfied with their choice and feel informed enough. It was found that satisfaction with the selection and evaluation of knowledge does not depend on the number of alternatives. However, those who had to choose from 30 kinds were more likely to experience difficulty with their choice, and the frustration of the huge range of possibilities (Iyengar & Lepper 2000).
Another example is that a wide range of snacks and drinks in small shops decreased sales and customer satisfaction. Excessive choice not only plunges the buyer into a state of confusion, but also gives them a sense of dissatisfaction with their own decisions, even if they were successful (Curry 1998). This is a general rule and it always works, whether it is connected to buying an ice cream or searching for a job. These findings contradict the conventional view of human nature, and the meaning people attribute in the concept of well-being. Moreover, psychologists and businessmen used to believe that the more choices, the better and there does exist a direct relationship. The positive effect of a large selection, according to psychologists, is that people make their own decisions. Businessmen see a large selection as an advantage of a free market. Free choice is good, but its effect on customer satisfaction seems to be more complex than marketers previously thought.
The task of the marketer or business owner is to fully facilitate active selection and balance between reasonable restriction and breadth of proposed range (Khan 2013). There are several ways to improve choices. One way is to work with information about a product. It should contain everything that is important for consumers, such as the principles of pricing advantages over similar products, benefits, composition, etc. Another way is active communication, i.e. information needs to be properly dosed, and it is desirable to avoid comparisons with competitors because it makes customers confused and puts them back to the problem of choice (Margalit 2014). A third method is to make changes to the interface. First of all, sellers should try to limit the number of variations of the same position. For example, if they sell hats, they should not offer one style in 50 colour options. If they sell shoes, then they should not put them in a series of 30 pairs, differing only in the colour of the laces.
In conclusion, modern economics and marketers should take into account psychological peculiarities of consumers. Consumer choice has several stages of gathering information, making decision, buying, making post purchase judgements. However, while modern shops and enterprises are trying to fill the market with as many product varieties as possible, it affects customers adversely. When they see too many choices, it leaves them dissatisfied with their choices because they cannot try others. It discourages customers from making any choice and takes a lot more time to choose the product and find information or compare every available option. Modern marketers should cut the number of options, organize them logically, provide information as simply as possible and encourage confidence among customers.
However, without options to choose from, goods stop being interesting at all. The absence of alternative is the surest way to reduce the quality of a product. Two companies that produce similar goods may improve the quality in both due to competition.