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August 24

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How Trader Joe’s uses psychology to perfect their experience

By Jennifer Clinehens

August 24, 2020


“We got to get the values right. If we do, we’ll create a great experience. We’re not selling groceries, we’re selling an experience.”

Joe Coulombe // Founder of Trader Joe’s

Trader Joe’s is an American grocery chain that has more than 500 locations nationwide. But for a grocery store with a comparatively tiny footprint, Trader Joe’s outsells all other grocery stores per square foot in the United States. In fact, it makes 2x more revenue per square foot than Whole Foods and 3.3x more than Walmart.

According to Columbia University researcher Dr. Sheena Iyengar, it’s because Trader Joe’s offers a limited choice — they only have 3000 SKUs compared to the 35,000+ SKUs of a typical American grocery store.

Why does limiting the number of products in their stores actually increase Trader Joe’s sales? It’s down to a behavioral science principle known as Choice Overload.

What is the Choice Overload Effect?

Choice Overload describes the human tendency to be attracted by just enough choice, but then become overloaded if we see too many options. Too much choice can cause anxiety, disappointment, and even depression.

We often assume that giving people more options is better. But to customers, more choice can be paralyzing. According to recent research from Episerver, 46% of customers have failed to complete a purchase due to overwhelming choice.

Too many choices will overwhelm, but just enough will drive sales

In a famous study conducted at Columbia University, a research team set up a booth of jam samples. Every few hours they would switch from a selection of 24 jams to a group of six jams.

When there were 24 jams, 60% of customers would stop to get a sample, and 3% of these customers would buy a jar. When there were six jams on display, only 40% stopped. But here’s the interesting part — 30% of these people bought jam. Lots of options attracted customers to browse, but fewer choices got them to buy.

Lots of options attracted customers to browse, but fewer choices got them to buy - from @choicehacking

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How Trader Joes reduces Choice Overload in their experience

1. Fewer, better options

As we discussed earlier, Trader Joes carries about 92% fewer products in its stores, yet creates 200–300% more revenue per square foot when compared to Whole Foods and Walmart. Not only that, but Trader Joes carries fewer size and flavor options for each product.

It’s obvious from these stats that Choice Overload Effect bears out — fewer options get people in the store, but fewer options also means they convert at a higher rate.

Trader Joes Cheap Bananas

2. The prices you see are the prices you get

Trader Joes doesn’t run sales, have rewards cards, or even have coupons. Week after week, customers know what to expect and they always feel they’re getting value for their dollar.

3. They don’t let brands fight over shelf space at the expense of the customer experience

Much like related grocery chain Aldi, Trader Joes sells almost exclusively store brands. Although these are distributed under the Trader Joes name, most of them are created by well-known brands.

The few external brands in the store have unique nicknames. Charles Shaw wine, for instance, is affectionately called Two Buck Chuck after its original price point.

Why does reducing choice work?

In his book “The Paradox of Choice,” researcher Barry Schwartz explains how people make decisions:

  1. Figure out your goals
  2. Evaluate the importance of each goal
  3. Array the options according to how well they meet each goal
  4. Evaluate how likely each of the options is to meet your goals
  5. Pick the winning option

The problem is, the more options are available, the harder it is to make a comparison across products. If you have to compare an item across 50 dimensions instead of 3, you assume there’s a risk you’re missing out on “the one.” Therefore, you’re less likely to choose an option. And you’re more likely to feel bad about whatever choice you do end up making.

As Schwartz put it:

“The existence of multiple alternatives makes it easy for us to imagine alternatives that don’t exist — alternatives that combine the attractive features of the ones that do exist.
And to the extent that we engage our imaginations in this way, we will be even less satisfied with the alternative we end up choosing. So, once again, a greater variety of choices actually makes us feel worse.

So when Trader Joes reduce not only the number of products, but the sizes, flavors, colors, and brand options that exist they’re actually making customers happier (in addition to selling more products).

The bottom line — how to simplify your experience

If you’re looking to convert more customers from browsers to buyers, consider following these simple guidelines to streamline your experience.

  1. Offer fewer options: It may seem counterintuitive in the age of personalization, options need to be limited to maximize sales. For example, Procter & Gamble found that a decrease in the number of Head & Shoulders varieties resulted in a 10% increase in revenue.
  2. Pinpoint your moments of Choice Overload: Use customer journey mapping to figure out where customers are dropping off, then strip back options and excess information in these moments.
  3. Make it easy to compare features across products: If you want to make it easy for customers to choose between non-equal options, frame the use of each. For example, Calendly uses Basic, Premium, and Pro options to reduce the number of choices. Then, they compare features across products in a table that’s clear and easy to digest.
Choice Architechture Calendly

Image via Calendly

Now instead of feeling confused about which option to choose, customers can easily compare without feeling anxious.


Choice Hacking Book Link

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