Shopping When Time is Money
Online shopping has made it exceedingly easy to gather product information — but the abundance of information is a mixed blessing for both consumers and sellers, according to research by economist Monic Sun, assistant professor of marketing at the Stanford Graduate School of Business.
Working with colleagues from UC Berkeley's Haas School of Business and the Universidade Católica Portuguesa, Sun recently built a theoretical model that determines how long a prospective buyer should keep doing research about a given product, whether it is a bottle of perfume, a compact digital camera, or a package of diapers. The researchers' model of optimal search by consumers also answers a question sellers may not have considered but really should: When is it a good idea to provide consumers with a lot of product information in the first place?
The basic dynamics of the model are simple, starting with a consumer's initial valuation of a product and fluctuating as the consumer gathers more information. "If I'm looking for a digital camera, and I'm looking for a specific model from Canon, I have a prior impression of Canon as a brand. That’s my initial valuation of the product," Sun explains. Then, each additional piece of information (such as from product photos, specs, or reviews) either raises or lowers your valuation. If the camera comes in silver and you like silver, for example, your valuation goes up. If the camera's resolution is lower than you'd prefer, your evaluation drops — but might rebound if you learn that the camera can store more pictures than you expected.
As you gather information, you must constantly choose from among three courses of action: whether to buy now without reading any more information, to quit searching without buying, or to keep searching. The sensible approach at any given point, in Sun's model, is to compare your current valuation to thresholds you've set for yourself, stopping the search as soon as your current valuation hits your upper bound (at which point you should buy) or reaches your lower bound (in which case you should quit searching without buying). Only if you’re still in the gray area between these two thresholds does it behoove you to do additional research.
Product research can certainly pay off if you do settle on a worthwhile purchase. However, despite the ease of finding information on the internet, the process isn't costless. Even if you're not paying for access to the information, you’re spending your valuable time. That’s why, even when shopping online, it’s a bad idea to keep searching indefinitely, tempting as that is, even if additional research might help you find a bigger bang for your buck.
So how long should you search? That, according to Sun's model, depends largely on your own search costs. "If you’re a highly paid executive," Sun says, "you should do almost no search, and make a decision right away." Her model also points to a second factor to take into account: how quickly you can glean information. A clean, easy-to-understand website, for example, means you take in more information in the same amount of time, so you can afford to search longer than on a cluttered site, which tends to waste your time.
How closely people are already following these stopping rules is an open question. We can all think of people who've erred in either direction, making either hasty decisions or, perhaps more often, spending more time on research than the purchase really warranted. But whether or not consumers are shopping in an optimal manner, Sun believes her model holds a valuable lesson for sellers. "What we find," Sun says, "is the seller should not always encourage search" — a counterintuitive message for the many marketing managers who assume that the more information you give buyers, the better.
The problem with piling on product information, Sun explains, is that such information can actually discourage a purchase, depending on the consumer’s wants. If the perfume you're offering has twenty ingredients, one of which is orange, listing them all might entice people who like the scent of citrus — but will turn off those who hate orange. Since you can't always predict which features will be a turnoff, you can't simply reveal the good and hide the bad. Instead, established brands, for which consumers have a high valuation from the get-go (and therefore have less to gain by providing specifics), would do well to take a minimalist approach, much as world-famous brands such as Chanel already do.
But sellers of lesser-known brands should do the opposite, giving consumers as many reasons to buy as possible. That advice may sound like common sense, yet some sellers don’t heed it. Sun mentions a little-known diaper manufacturer whose adorable website (LoveyBums.com) gives far too little information about why this firm's organic cotton diapers are worth so much more than anybody else's. "Sometimes the smaller brands think, ‘We’re a niche brand, and we know that we’re using high-quality stuff, and people will recognize us at the end of the day,’” Sun explains. “Before you have that attitude and build up your brand, you should maximize the information that you provide,” she says.
"Everybody takes it for granted that as the internet makes the flow of information almost costless, consumers or sellers should maximize the information they gather or provide. We are trying to alert people that it’s not always like that.”