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Could Fewer Products Lead to More Profits?

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Cross-posted in Harvard Business Online

Unless you're planning to spend the holidays curled up under your bed, you've probably been participating in this year's shopping season. Although dampened somewhat by the economic climate and job uncertainty, the five weeks from late November through the end of the calendar year represent more than $500 billion in sales -- or approximately 40% of the entire year's retail revenue in the U.S. -- and even more for some kinds of businesses.

To take advantage of this surge in shopping interest, most companies traditionally add to or modify their product offerings at this time of year. The assumption is that buyers want as much choice as possible, individuals want customization, and different consumer segments want unique things. But what if these assumptions no longer hold?

Recent evidence suggests that the paradigm of "variation is value" may be shifting. More and more, consumers are conveying their preference for fewer choices and simpler customer experiences. For example, a Forester Research survey earlier this year noted that consumers are foregoing unlimited choices in the computing world in exchange for more "curated" choice, where providers sort through the possible applications for individuals and recommend a limited subset. Similarly, at a Future Agenda Conference in August, much of the conversation was about "less variety." As one professor noted,"... fewer choices provide higher levels of satisfaction."

The common thread across these views and others is that product proliferation triggers what Princeton philosopher Walter Kaufmann called "decidophobia" (the fear of making a decision). For some people, the complexity of choices becomes so overwhelming that they shut down.

To help customers reduce decision-anxiety, some firms are building their business models around fewer and simpler choices. For example, food retailer Trader Joe's, one of the most profitable retailers in the U.S., carries 80% fewer items than most large grocery stores and still has a loyal following of customers. Other retailers are embracing simplicity, too: Office furniture maker Herman Miller has actively reduced the variations on its iconic Aeron chair. Clorox deploys cross-functional teams to continually prune its product portfolio, insuring that remaining products meet their volume targets. And Dell strictly limits the number of components in its computers as a way of controlling its customized assembly operations.

The narrowing of choices by these companies has not only made it easier for their customers but has also increased revenues and margins. With fewer products or services to promise, all of the associated supply chain, facility, and support processes can be slimmed down, saving considerable money and energy. Even automobile companies and airlines seem to have learned this lesson. General Motors' process of shedding brands and narrowing down their product portfolio may have been painful, but this made it easier for buyers to understand the new GM and for the company to focus its resources on producing better cars. Similarly many airlines have cut routes and frequency of flights, giving them fuller planes and more efficient use of their assets (although not improving the customer experience, but that's a topic for another post).

As the holiday shopping season nears its end, it might be timely for companies to not only tally their sales but also to reassess their product and service portfolios. If consumers indeed are looking for a simpler and more focused array of choices, then perhaps the first challenge for companies in 2011 is to resolve to do the same as many of their customers -- go on a diet.

What's your view? As a consumer, do you want fewer (and better) choices? And is your company thinking along these lines?