MADISON, Wis. (8/31/12)--Credit unions may better serve their members by promoting a smaller, targeted menu of products and services, according to a new Filene Research Institute report.
The report, The Psychology of Choice Overload, questions the assumption that offering credit union members more choices in the form of ever more products and services is better than offering fewer, more curated choices.
Rather than reducing the number of available options offered, the report suggests credit unions consider promoting a smaller number of options. As a result newer members are less likely to feel overwhelmed by the number of choices. "Sometimes just telling consumers which option is
the most popular is enough to help them make a decision," the report suggests.
Although conventional wisdom suggests that offering more options always benefits consumers, recent research shows consumers experience information and decision overload, and feel more pressure to choose the 'ideal" option.
Sales data obtained from the grocery industry show that a dramatic reduction of assortment size--an average of 54% across most product categories--increased sales by 11%, with about 75% of customers spending more money.
Consumers' reaction to assortment size is a function of their knowledge of features and benefits among different products, according to the report. For this reason, a company might choose to promote a subset of products that would most likely appeal to member/customers while providing options that are competitive or superior to the company's competitors.
The report offers two strategies for making an assortment more appealing to consumers: a best- seller strategy and a customization strategy.
The best-seller strategy involves carrying only the most popular options that are attractive to most target members. Despite its intuitive appeal, this strategy has two drawbacks. First, the needs of consumers with nonmainstream preferences are unlikely to be met. Second, focusing only on the most popular options limits a credit union's ability to differentiate itself from its competitors.
Customization helps companies offer smaller assortments while still offering a fit for different consumer preference. In industries where the degree of commoditization of products is relatively high--as is the case with many financial products--customization is also a means of strategic differentiation, according to the report.
For example, because of their close relationship with their members, many credit unions are in a position to offer payday/alternative loans in a way that benefits both the credit union and the member, the report suggests.
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