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When we discuss decisions in detail we will discuss the importance of filtering out the relevant information from the irrelevant. As I’ve written about before, people today are overwhelmed with information but the cognitive ability to process information is pretty much where it was 100 years ago.

This leads us to a strategy+business piece posted today that takes the position that limiting choices to customers can be a successful strategy for businesses:

Consumers have grown accustomed to having a lot of choice, and many people still express a strong desire for having more options. But that doesn’t make it a good idea. There are neurological limits on humans’ ability to process information, and the task of having to choose is often experienced as suffering, not pleasure.

That is why, rather than helping consumers better satisfy their preferences, the explosion of choice has made it more difficult overall for people to identify what they want and how to get it. Thus, if the market for your product is saturated with choice, you can’t gain a competitive edge by dumping more choices into the mix. Instead, you can outthink and outperform your competitors by turning the process of choosing into an experience that is more positive and less mind-numbing for your customers. You can design a more helpful form of choice.

Even limiting choices internally to employees can have benefits, even in the case of investment options in retirement plans that, at least to me, seems counter-intuitive (I would think that more choices would equal more participation)

We see this frustrated response to “choice overload” even when the decision has serious consequences. For example, in 2001, at the request of Steve Utkus, the director of the Center for Retirement Research at the Vanguard Group, Iyengar and her collaborators, Wei Jiang and Gur Huberman, tried to determine why so few of the 900,000 employees covered by Vanguard were participating in their defined-contribution retirement savings plans — also known as 401(k) plans. Analysis of the data revealed that participation fell significantly as the average number of funds in a plan rose. By controlling for individual-level variables such as age and income, as well as plan-level variables such as the size of the company and the extent of employer matching contributions, Iyengar and her collaborators showed that the decline in average participation rates was due to an increase in choice. When plans offered only two funds, 75 percent of the relevant employees participated; when plans offered 59 funds, the percentage of participants fell to 61 percent.

Read more of this long piece at:

A Better Choosing Experience. When consumers are overwhelmed with options, marketers should give them what they really want: ways of shopping that lower the cognitive demands of choosing. By Sheena Iyengar and Kanika Agrawal. strategy+business.  September 27, 2010