Undercover Economist

Why one size doesn’t fit all

‘The most notorious example of this “compromise effect” is our tendency to plump for the second-cheapest bottle on the wine list’

Most Tuesday afternoons, in the lazy late hour between the end of school and the start of Brownies, you can find me ensconced in the café of the local Marks and Spencer, sipping a hot chocolate with the younger Miss Harford.

Recently, the café has taken the unusual step of radically simplifying the drinks menu. All the standards are there, of course: tea, cappuccino, hot chocolate. But the size options have been covered over with masking tape. Gone are the “small” and the “large”. Now you can have any size of hot beverage you like, as long as it’s medium.

I did ponder registering a note of protest, since a medium hot chocolate contains more sugar than any Brownie can handle. (For reasons that escape me, hot chocolate dodged George Osborne’s much-vaunted new tax on sugary drinks.) But when I perused the comments book, I realised that my own complaint would barely register amid pages of objections from the café’s octogenarian customers.

Perhaps M&S hopes to save money by rationalising the crockery. Or perhaps they simply guess that simplicity is attractive. A few years ago, Debenhams, another British household name with a frumpy image, tried the slogan “Say goodbye to coffee confusion”. Debenhams rebranded cappuccino as “frothy coffee” and caffè latte as “really, really milky coffee”, winning headlines for the most patronising publicity stunt in living memory.

But simplicity can sell. A famous study by psychologists Sheena Iyengar and Mark Lepper offered samples of speciality jam to customers of a high-end supermarket. (Loyal readers may recall the column I wrote about this in November 2009.) Offered a choice of six types of jam, a third of customers went on to make a purchase. Offered a choice of 24, almost nobody did. Iyengar and Lepper concluded that choice can overwhelm and discourage us.

Yet it is unclear how widespread this “choice demotivates” effect is. The original Iyengar-Lepper results, like many in psychology, seem to be fragile. Several follow-up studies have failed to find evidence for the effect. (There is no shame in this; that’s science at work.)

Many successful businesses, from supermarkets to Starbucks, offer a vast range without scaring away their customers. A first-time visitor to Starbucks might be confused, but regulars work it out. And clever design can prevent choice seeming overwhelming. Starbucks offers about 100,000 drink combinations — millions, once the syrups are taken into account — but the menu seems much simpler than that.

What surprised me about M&S’s decision to serve only one size of drink was that it was giving up three advantages. The first is the simplest: offering more choice lets people get closer to exactly what they desire. I want a small drink for a small child — why not sell it to me?

The second advantage is subtler: a company can offer drinks with different margins, in the hope that they can present a bargain to price-sensitive customers, while hoovering up more from customers who are more carefree with their cash. Much of the input cost of a pricey large hot chocolate — staff time, rent, space in the dishwasher — is the same for the cheaper small hot chocolate. By offering more profitable larger drinks alongside the small ones, a café can attract bargain-hunters while still profiting from lavish spenders.

There’s a third advantage to offering a wide number of choices: the extreme choices frame the central ones and can influence what customers buy. The late Amos Tversky, an influential psychologist, once pointed to a Williams-Sonoma bread maker that went on sale for $279 and was a flop. When another bread maker hit the shelves, priced at $429, sales of the original model surged. Why? Well, customers weren’t sure that they wanted to buy a bread maker, nor what price might be reasonable, until they had a choice of two. Suddenly the choice became clear: if they did want to buy a bread maker, they wanted the cheaper one.

The pattern behind this behaviour was demonstrated more rigorously in research by Tversky and Itamar Simonson: you can boost demand for a £400 camera by placing it next to a £4,000 camera, or a £200 handbag next to a £1,000 handbag. Offer three options and people choose the middle one. Offer several and people avoid the extremes. The most notorious example of this “compromise effect” is our tendency to plump for the second-cheapest bottle on the wine list.

Starbucks seems to understand the compromise effect very well. Its menu includes the colossal “trente” — that’s 30 US ounces, more than one-and-a-half British pints or nearly a litre. It omits the far more practical 8oz “short” cappuccino. The effect is to change our sense of what the compromise choice is. A16oz “grande”, three times the size of a classic Italian cappuccino, no longer seems like a milky behemoth but a happy medium.

The curious thing is that the short cappuccino is available on request. Starbucks want to be able to offer a drink that is something close to a properly sized cappuccino, but they don’t want that option cluttering up their menu and pulling customers towards smaller, less profitable products.

M&S tells me that medium is the most popular size of drink. Of course it is. They’re experimenting with the simplification in a few locations to see how it works out. Good for them; you never know until you try. But the complaints book suggests the experiment may be short-lived.

Written for and first published at ft.com.

Free email updates

(You can unsubscribe at any time)