Capital Ideas Blog

more choice for consumers can hurt your bottom line

By Dee Gill

From: Blog

Big retailers typically pack their shelves with competing versions of the same products, but research suggests there’s a fine line between offering consumers choices and creating costly confusion.

Adding more products that use packaging similar to the existing offering’s can dent retailers’ bottom lines, causing employees to make more mistakes and spend extra time on stocking shelves and filling orders, according to Nicole DeHoratius of Chicago Booth, Özgür Gürerk of RWTH Aachen University, and Dorothee Honhon and Kyle Hyndman of the University of Texas at Dallas. Conversely, offering similar products with visually distinctive packaging can dramatically reduce such errors and speed up workflow.

The researchers conducted experiments in a virtual reality lab, in which they asked subjects to sort cubes into one of two bins depending on the objects’ characteristics. The researchers tested four treatments: less-similar colors with a label; more-similar colors with a label; less-similar colors without a label; and more-similar colors without a label.

Increasing the similarity between two products led to a 23.5 percent decline in efficiency. Sorting mistakes and a slower work pace were equally responsible for the fall in productivity. On average, subjects spent about 20 percent more time inspecting products when they were similar.

Overall performance improved 22 percentage points when the researchers added a label in the more-similar-colors scenario (though the team did not observe a difference in the less-similar-colors scenario). Simplifying the task by adding a clear visual cue made it more enjoyable for sorters, and reduced the need for corner-cutting behavior that led to errors, the study finds.

Nicole DeHoratius, Özgür Gürerk, Dorothee Honhon, and Kyle Hyndman, “Understanding the Behavioral Drivers of Execution Failures in Retail Supply Chains: An Experimental Study Using Virtual Reality,” Working paper, October 2015.


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