Business Life: Jam Tomorrow

28th November, 2007

First published in Business Life Magazine, June 2007

Whoever would have thought the world contained so many types of jam? Even my local corner shop offers thirty-five varieties. A supermarket offers hundreds. The choice can be dizzying.

Some social scientists argue that this sort of choice is actually a bad thing because these choices are stressful without being useful. Certainly, when my wife asks me to run an errand for her and buy some unfamiliar product, stress is exactly what I feel.

More formal studies back up those instincts. Psychologists Mark Lepper and Sheena Iyengar set up a jam tasting stall in a posh supermarket in California. Sometimes they offered six varieties of jam, at other times 24 flavours. The bigger display attracted more customers but very few of them actually bought jam. The display that offered less choice made many more sales.

Fascinating research, but I don’t get as worried about this as the psychologists do. They perhaps forget that the choice between Robertson’s Jam and Wilkin and Son’s Jam might seem irrelevant to the customer, but it’s not irrelevant to Robertson, nor Wilkin and Son. We are often offered an apparently-pointless choice between two equally good products, not appreciating that they are only good because we have been offered the choice.

I am less concerned about the proliferation of choice in supermarkets – which, after all, we usually take in our stride – and more about what those choices sometimes do to prices. The differences between innumerable products are a great way of charging some customers more, because more varieties allow supermarkets more options for carefully-aimed prices.

And surprisingly, sometimes choice does not foster competition at all. When a few large companies pour forth a huge variety of brands, some economists believe that this is an attempt to stake out territory and keep out new competitors.

The resulting variety is still useful, especially if you have unusual tastes or needs (my corner shop offers four jams for diabetics). Yet there is clearly a cost. The more types of jam there are, the more expensive each one is likely to get, because of higher production, marketing and distribution costs. Is it worth it?

The most famous analysis of such a situation says “no”. In the 1970s, economist Richard Schmalensee devoted himself to the other side of the breakfast table, and argued that the American cereal market was full of unnecessary brands. That meant, said Schmalensee, that prices were higher than they needed to be. But such studies are expensive to conduct, so whether this is true today, and for other products, is something we can only guess. It is all worth pondering over breakfast – perhaps just a grapefruit and a cup of coffee?

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