Variety Is Shallow

I haven’t read that much in the field of marketing, but what I have read so far has tended to confirm what I’ve read and taught in economics industrial organization: firms try hard to make products have distinctive feature packages in order to gain market power over customers whose ideal product is closer to that package. Even if some of those features are symbolic and created via how ads make people see products.

Reading the book How Brands Grow: What Marketers Don’t Know, by Byron Sharp, leads me to doubt this usual story. Sharp presents a lot of data (some shown in these figures for the Audible version) in support of these points (from this summary):

1. Penetration is key .. all brands have similar levels of loyalty.
2. Light users are as or even more important as heavy ones
3. Leading brands are distinctive, not different
4. Create memory structure to build “mental availability”
5. The power of “physical availability”
6. People don’t want a love affair with most brands

Most price promotions, and ads that don’t reinforce easy-to-recall product cues, are wasted money. We can model the distribution of purchase choices pretty well via these assumptions:

A. People vary a lot in how often they buy from any given product category; most buys are from very infrequent buyers, who mostly buy from other brands.
B. People have a some “loyalty” in having a better than random (but far from certain) chance to buy the same brand choice as last time.
C. If they don’t pick the same brand as last time, buyers pick a brand at random in proportion to product popularity.

Product categories are surprisingly large. For example, to a first approximation all fast food competes nearly equally with all other fast food. It isn’t that pizza places compete mainly pizza places while burger places compete mainly with other burger places. There are some exceptions, such a rich people tending more to buy expensive brands, or people with kids tending to buy books for kids, but these are rare and weak. Mostly there is no “space” of product features; there is just a set of distinct but equally different options, some more popular than others.

Over the last century consumers have moved to choosing a LOT more product variety, which ends up being expensive because of all the fixed costs to support all those different products. We like to tell ourselves that we do this because the new products we pick are closer to the ideal points of our complex authentic identity. Marketers like to tell the same thing to us, and to the firms who buy marketing services. But in fact we just want the appearance of having specific feature packages we like that fit who we are; we mostly don’t actually have coherent identities, but instead just wander around in the space of available products.

This greatly strengthens the welfare case for reducing product variety, in order to reduce unit costs. It seems we are mostly trying to gain a zero-sum status via showing off our wealth and not-actually-there distinct identity.

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  • Matt M

    “This greatly strengthens the welfare case for reducing product variety, in order to reduce unit costs.”

    Or it would, it we could effectively design such an intervention using observable information.

    Even then, I would contend that there would be a near-equal amount of waste spent on lobbying for preferred permitted varieties.

    • http://overcomingbias.com RobinHanson

      See my response to Andrew above.

  • Don Reba

    Over the last century consumers have moved to choosing a LOT more product variety, which ends up being expensive because of all the fixed costs to support all those different products.

    Sorry, you lost me in this paragaph. I would appreciate an example or a short explanation in more concrete terms.

  • Robert Koslover

    I am often disappointed with the lack of variety in products available, even on the vast internet. Yes, there is unquestionably a huge variety of brands. But often those different brands are actually the same products (coming from a handful of big assembly lines, typically in foreign countries with cheaper labor than the US), just with different labels. Consider appliances, for example. Most manufacturers aim their product line at some amorphous middle-ground of the consumer-world, to get the most customers. In electronics, they use the same internal specialized IC chips, with all the same functions, as their competitors. They even use the same plastics and metals, etc. If you want something especially well-made, or unusual, good luck with that. You’ll need to pay 5-10x more for something less than 2x as good, if you can find such a product at all. The net result, for example, is that even an enormously-rich person can’t actually buy a truly significantly better clock radio (for example) than a “poor” person can. If you think about it, modern manufacturing itself is actually a kind of “great equalizer,” for better or worse.

    • Faze

      Good example with the clock radio. I make it my personal policy to get “the best product that money can buy” in relatively inexpensive categories like clock radios, towels, kitchen appliances, etc., and often find that the major difference between the mid-price product and the more expensive product is a greater array of sure-to-be-unused features, or some embarrassingly status-signally glitz. This either confirms your observation about the sameness of things, or it shows that pretty much all manufactured goods available to most people nowadays are all pretty much pretty good.

      • ScottH3

        Look at how much better a smart phone functions as an alarm clock than an actual alarm clock. I think that shows what could have been done in the alarm clock arena that was never done.

        Volume potential, interface ease, and radio functions seem to be inferior to models produced 30 years ago.

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    People like variety, or it wouldn’t be there. One can’t entirely know what a product will deliver until using it, or what various features are worth.

    I usually try the least expensive product which I think will work for me, and sometimes more expensive or different ones. Often, the other product is better for me. I also wonder why anyone buys some of those other products, which seem obviously badly designed to me. Each to his own.

    It is a common complaint by socialists that we “as a society” could save much money if we could only impose some order on people’s wants. Bernie Sanders has complained about the hundreds of breakfast cereals and dozens of deodorants available, as a cause of global warming!

    The choice is not wasteful variety compared to frugal standardization. It is variety driven by people’s personal whim and freedom, compared to standardization imposed by a committee of socialists dedicated to helping people. Helping people by limiting what they can do and taking the “freed up” resources to buy at whim what the socialists want.

    More simply put, personal and market freedom compared to the Consumption Police and hidden taxes. To borrow a meme, you can’t know how expensive reducing costs can be until you put the government in charge of it.

    • http://overcomingbias.com RobinHanson

      I have not chosen nor am I supporting any particular regulatory regime, and there may ben such satisfactory regime, to reduce variety. I’m just analyzing existing markets.

      • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

        Robin Hanson above:
        “This greatly strengthens the welfare case for reducing product variety, in order to reduce unit costs. It seems we are mostly trying to gain a zero-sum status via showing off our wealth and not-actually-there distinct identity.”

        I read that to support some sort of regulation to reduce product variety. The case for saving money (to increase our collective welfare) by reducing variety (how?) is strengthened by revealing that the desire for variety is a stupid attempt to show off.

        The “how” is important. Variety has appeared in a free market. Reducing variety can only be done by either appealing to individuals to decide on a common preference (unlikely), or taking state action to limit stupid, individual preference.

        A neutral analysis would be “people are dumb to choose variety”. A collective-good analysis says “The evidence supports collective action to reduce variety and lower costs with little real harm to individuals”. I read your last paragraph to be a call for collective action of some sort, that is, state regulation.

        I apologize if I misinterpreted that.

      • Charlene Cobleigh Soreff

        Very roughly, how much of a reduction in cost would you estimate? Say the number of types of all products in all categories were cut in half? How much of a fractional drop of median living costs would you expect? 1%, 3%, 10%, 30%?

    • http://juridicalcoherence.blogspot.com/ Stephen Diamond

      People like variety, or it wouldn’t be there.

      This, the premise of your argument, is false. Many “market failures” involve what might be called unexpected consequences. [‘People like monoplies or they wouldn’t be there.’]

      • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

        That’s funny. You demonstrate that there is always an unusual way to interpret any statement.

        Yes, the presence of a product doesn’t prove that anyone likes it, for a short while. But, my statement is an observation, almost always true, not a premise for some detailed argument in philosophy.

        A new product is an offering, not a coercion. The only way for the producer to make money is to gain the voluntary cooperation of the purchaser. If no one likes it, it quickly goes away.

        About “market failures” like monopolies. In a monopoly, the customers like the product too much, even at the high price maintained by excluding competition. So, even a monopoly exists only because enough of the public likes the product. The customers often dislike the grant of monopoly, granted usually by government.

        Do you think persistent variety in products does not represent the appreciation of almost all purchasers? I mean, absent being fooled.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Do you think persistent variety in products does not represent the appreciation of almost all purchasers? I mean, absent being fooled.

        Not if, as Robin believes, consumers’ choices favoring variety are driven by social emulation. Then have a prisoner’s dilemma situation. We all might prefer less variety for ourselves but only if there was less variety for others.

      • IMASBA

        This is my theory on fashion (for most people), perhaps it tends to be true for most forms of excessive variety. Still, there’s probably some fitness signalling mixed in there too.

  • J.j. Cintia

    Reducing variety leads to monopolies which lead to reduced innovation, captive consumer markets and eventually price gouging and profiteering due to lack of real competition. You can see this in the cable industry. Started originally as regional utilities to serve markets that had poor reception of over the air TV, they eventually became large conglomerates of monopolies which controlled content reduced quality and eventually raised their prices due to a captive audience that had little or no alternatives. That industry is now dying due to excessive costs low quality of programming and consumer disgust with poor service.

    • anon

      Reduced variety is quite compatible with competition in the case of _pure commodities_, i.e. similar products with no differentiation or private information. Pursuing this would mean mostly increasing standardization, as well as making public/socializing ‘know-how’ info that is now largely tacit, and thus (obviously) private to firms – and not even easily tradable.

      (The latter goal is something that academia could probably work on; it would likely have a lot more value for dollar than most new research.)

    • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

      Yes. As usual, the lack of variety is/was enforced by city and state governments granting monopolies to cable providers. The excuse was always to reduce costs.

  • Lord

    While reducing product variety can reduce unit costs, it generally doesn’t reduce unit prices. Mass brands are never the cheapest and their expenses bloat to consume any savings whether for advertising or salaries.

  • ScottH3

    Wouldn’t choosing variety also mean choosing more income equality? Spreading my money across firms according to how they please my tastes seems like a better plan than giving my money to one firm and hoping for a miraculously appropriate tax and redistribution plan.

    Also, using food as an important example may have backfired for making your case. I have a few opinions about this subject that seem to get stronger the closer they get to food: I like my variety, I don’t mind paying for it, and, don’t start messing with my markets.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    Would you favor less variety in books?

    • http://overcomingbias.com RobinHanson

      Some segments of books plausibly have a large positive info externality, but for other segments yes the variety seems excessive from a customer welfare point of view.

  • http://overcomingbias.com RobinHanson

    As I said in the post, variety is usually thought of as increasing market power, so reducing variety doesn’t need to lead to fewer firms competing to supply, and it definitely doesn’t need to mean a monopoly supplier!

    • Matthew Hammer

      I don’t follow. Are you suggesting that most product variety is within firms rather than between firms? If so then “commoditizing” so that all the firms make only a few interchangeable types wouldn’t necessarily result in fewer firms.
      But if most variety is between-firm, then making products cheaper would require increases in scale, which would in fact indicate fewer producers.

      Also, as an aside, I know you haven’t suggested a scheme that could make this happen, but if you have any thoughts I’d be very interested to hear them.

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    What if variety is indispensible for much conspicuous consumption (“signaling”)?

    Then, would abolishing it require alternative incentives? That is, how do you get people to work if they lack ways to be ostentatious?

  • Pingback: Do consumers have coherent identities? | What is behavioral?

  • http://twitter.com/tonyswish Tony Swish

    While reducing product variety may strengthen the welfare case by reducing unit costs, it also creates an environment where competitors with an innovative feature could be priced out of the market.

    Customer loyalty often is lost when a competitor arrives with a feature that may be desired but not currently available.

    Additionally, the increased desire for variety has been driven more by the ability to access individualized information about a given product. Much of this is status-driven, but much of it is happening because of things like simple preference/taste or a desire to support a local brand where a personal relationship exists with the creator.