MADISON, Wis. (8/26/11)--The assumption that consumers always benefit from having more options to choose from does not always hold. In some cases, consumers benefit from fewer, rather than more, options. So says the latest research from the Filene Research Institute, which tells what this means for credit unions and their members. Credit unions need to know how to handle choice overload in their products and services, says "The Psychology of Choice Overload: Implications for Retail Financial Services," a Filene report authored by Alexander Chernev, associate professor, Kellogg School of Management, Northwestern University. "Retail is retail, whether you're selling prom dresses, chocolates, or even checking accounts," says Ben Rogers, Filene research director. "Consumers consider their available options and choose. For retail firms like credit unions, part of your responsibility is to make those choices easier." The research outlines three ways credit unions can make choices easier for members:
* Know that less is more. Interviews with credit union CEOs indicate that many recognize the need to pare their offerings to an efficient core group, said the report. Credit unions should ask themselves why streamlining decisions like those made recently in banking by ING Direct and Ally work. * Actively curate the credit union's offerings. Instead of reducing the number of available options offered by the credit union, consider focusing on a smaller number of options promoted by the credit union. Instead of overwhelming a new member, the credit union may decide to promote only the subset of options that most likely appeal to new members. Sometimes telling the consumer which option is the most popular is enough to help the member decide. * Organize around defaults. Take a cue from the benefits area. The practice of allowing employees to opt out of 401(k)s, rather than asking them to opt in, results in dramatically higher participation rates. Setting default options at a credit union can ease the decision burden on members. Deciding whether each option is better or worse than a default option is easier than evaluating each option against all other options.
"Credit unions have made great strides toward becoming full-service financial institutions. But the urge to be all things to all people has a downside," said Rogers. Instead, offer a well-considered assortment of products--big enough so members have choices, but small enough so the options don't overwhelm.