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TOO MUCH CUSTOMIZATION
If you want to buy a Daihatsu Copen car in Japan, you can choose from one of 15 “effect skins,” decorative panels with intricate patterns in different colors. You can arrange these panels to create the look you want, and your custom car will be printed using thermoplastic materials on 3D printers (Print My Ride, 2016). Not just cars, we can customize many other products and services online. Jimmy Choo allows customers to create their own shoes by mixing and matching different styles, heights, and colors. If you’ve been to a McDonald’s lately, you’ll have noticed the touchscreen terminals where consumers can create custom meals by selecting their favorite filling, bread, toppings, fries, and drinks. The Internet has made it easy for consumers to tailor products to their unique tastes and preferences.
Firms can also use the Internet to customize advertising, product recommendations, and product offerings. Google’s business model is based on serving up advertising relevant to our recent online behavior. Facebook tailors advertising to our personal profiles, social media postings, and behavior of our online friends, while Amazon and Netflix use algorithms to make individualized recommendations for books, movies, and music. In the past, firms could not afford to stock too many types of products in stores because of the high cost of manufacturing, inventory, and distribution associated with product variety. Now, with 3D printing, online ordering, and just-in-time inventory, firms can offer a huge variety of products online at competitive prices. This growth of product customization on the Internet is sometimes called the “long tail” effect, which refers to the ever-extending “tail” or variety of products being offered by firms online (Anderson, 2006).
The ability to customize is helpful in many ways. The more we can customize a product, the more likely it is that it will fit our unique needs and wants. Customized advertising should be more useful to us than mass advertising because the advertised product is something we are interested in. In fact, Facebook encourages users to set their ad preferences so that only advertising for personally relevant products is shown to them. Customized pricing on travel websites such as Expedia can lead to lower prices as a reward for past customer loyalty. In a win-win, customized pricing is also good for firms; research indicates that firms offering customized prices reap higher profits, especially when there are opportunities to add new services to the offering (Acquisti & Varian, 2005). Other research has shown that online advertising tailored to customer behavior attracts more attention than generic advertising (Hauser, Urban, Liberali, & Braun, 2009), and customization of Web interfaces to user preferences increases browsing time and customer satisfaction (Chung, Wedel, & Rust, 2016).
Although online customization can benefit both customers and firms, what is less well known is that customization can also hurt us in a number of ways. In particular, research shows that customization can have negative effects in terms of attitude formation, creativity, risky behavior, product attachment, product assembly, product co-creation, product pricing, and online advertising.
Attitude Formation
We often form our attitudes about products and people when we go online. Every time we see an online advertisement for a smartphone, a customer review of a hotel, or a news article about a politician, our attitude towards the product or person in question is influenced one way or the other. An important bias during this attitude formation process is the “echo chamber effect” (Jasny, Waggle, & Fisher, 2015). Just as echo chambers reflect our own voice back to us, the Internet creates an echo chamber that reflects and reinforces our existing attitudes. Suppose you have a strong conviction – say global warming is a hoax, household cleaning products are carcinogenic, nefarious people are conspiring against your kind, or vaccines lead to autism. Chances are that you can easily find support for these or any other belief on the Internet simply by googling relevant search terms. The sheer number of people online makes it likely, statistically, that supportive posts for beliefs held by even a small percentage of the population can be found on the Internet. Improvements in search technology also mean that it is now easier to find information we are looking for online. For example, we will get very different perspectives on the same issue depending on whether we search for #ACA and #BlackLivesMatter, compared to #Obamacare and #AllLivesMatter. The Internet makes it easy to segregate ourselves into echo chambers, each sealed off from the other and populated with like-minded people who simply reinforce our existing opinions.
The echo chamber effect gets its power from a psychological process called confirmation bias. Confirmation bias is the tendency people have to remember, think, and act in a manner consistent with their preexisting beliefs and attitudes. For example, researchers have found that people are more likely to remember good things about products they like and bad things about products they dislike (Hoch & Deighton, 1989). Similarly, we are more likely to remember positive news reports about products we have already bought – and hence presumably like – compared to products we have not purchased yet (Mukherjee & Hoyer, 2001). Pharmaceutical companies have long known that inert pills described as medicine are often highly effective if patients think they are receiving real medication (Shiv, Carmon, & Ariely, 2005). The reason for this so-called placebo effect is that patients generally believe medicines work, especially when administered by white-coated doctors in a clinical setting. So when we are given a pill described as medicine – even if it is actually an inert pill – our minds interpret random health benefits that occur by chance as evidence of the pill’s efficacy. A useful analogy for confirmation bias is that prior beliefs create a pathway in the mind, and our subsequent memories, thoughts, and actions tend to follow this path.
The echo chamber effect is really the confirmation bias on steroids: our minds seek confirmation, and the Internet makes it easy to surround ourselves with consistent information. This is ironic because the Internet actually offers an unprecedented range of opinions and perspectives from around the world. Unfortunately, this variety is filtered through the distorting lens of our mind’s confirmation bias, which prevents us from appreciating alternative viewpoints. If we wanted to, we could browse online newspapers with political views different from ours, watch movies different from what we normally see, and listen to any genre of music outside our usual style. But how many of us actually do so? Although our options have expanded, our ability to customize has too, and this allows us to live within the silo of our existing preferences.
Confirmation bias also explains the power of fake news as a propaganda tool. The US presidential election of 2016 saw the weapons-grade use of fake news to influence public opinion. From hackers in the Kremlin and fly-by-night websites in Macedonia came sensational but untrue stories of Hillary Clinton’s pedophile connections and Barack Obama saying that Americans deserved to be attacked on 9/11. You may laugh but people clicked on these articles by the millions. In fact, a news analysis by BuzzFeed found that during the last three months of the 2016 US presidential election, fake election news on Facebook outperformed real news from sources like the New York Times on every measure of engagement – clicks, likes, shares, and comments. Facebook’s algorithms further magnify the effect of fake news by prioritizing content in line with what you, or people you know, have clicked, liked, or shared in the past. In this way, Facebook acts as an amplifier of the echo chamber effect. Fake news is most influential when it feeds into existing beliefs, confirming dislike for enemies and cementing affections for friends. As such, fake news finds the most fertile ground in a divided electorate with clear in-groups and out-groups, where people are ready to accept statements without normal standards of proof so long as the claims are consistent with what they already believe in. And the more fake news is forwarded, retweeted, and commented on online, the more credible it becomes through the power of repetition.
The echo chamber effect is now spreading from the online to the offline world. Census data suggests that people are increasingly clustering in neighborhoods and cities dominated by people with similar political, religious, and social views. This combination of online and offline clustering will strengthen the echo chamber effect by ensuring that we are rarely exposed to views that contradict our existing opinions. Even worse, uniformity of information is likely to make us more confident and extreme in our views over time. This is bad news at an individual level because it effectively closes our minds to different points of view. This is also harmful at a broader social level because a polarized country which cannot give a fair hearing to opposite points of view will become politically paralyzed, with each faction being convinced of the superiority of its own cause.
Creativity
Creativity is the ability to “think outside the box,” that is, being able to come up with novel ideas outside the conventional range of options (Dahl & Moreau, 2007). One reason why children are often creative in ways adults are not is that they can let their imaginations run riot. As we grow up, many factors conspire to narrow our thinking – education systems that reward right answers rather than novel answers, social circumstances that favor safety over experimentation, and our increased ability to customize the online environment. These factors, together with our inbuilt confirmation bias, progressively narrow our perspectives on issues and ideas. The narrower the range of information we see on a daily basis, the more we train our minds to think in a restricted range rather than consider “out-of-the-box” possibilities. Over time, this process will reduce our creativity and make it more difficult for us to come up with breakthrough ideas. This will also retard our growth as individuals because going outside our comfort zone is what forces us to reflect and add new layers to our personality.
Risky Behavior
The ability to customize can increase risky financial behavior. The Internet has given us more control over our finances by letting us monitor investments on a daily basis and make complex financial trading decisions that could earlier be executed only by professionals. An unintended consequence of putting such tools in the hands of lay investors is that control over the process of investing can lead people to assume they have control over investment outcomes as well. For example, many investors use online dashboards to track market metrics such as stock prices, historical trends, and financial news. Having access to all this information could give investors a false sense of confidence that they have everything they need to beat the market and make winning investments. Of course, the truth is that stock prices are virtually impossible for lay investors to forecast with any degree of accuracy. But the illusion of control created by online tools can encourage risky financial decisions that put our savings at risk.
The illusion of control over financial decisions is just one example of a more general human tendency to assume more control over their environment than is warranted by the facts. For example, studies have shown that gamblers assume they have greater control over the outcome of a die throw if they personally throw the dice compared to someone else throwing it for them (Taylor & Brown, 1988). Similar illusions of control have been observed in card games and lotteries where outcomes are actually determined by chance but people assume they can influence the outcome by choosing “lucky” numbers. The ability to customize on the Internet can magnify this illusion of control, leading to risky financial decisions and losses in the stock market.
Product Attachment
Let’s return to the example of customizing a car on the Internet. Research on the endowment effect suggests that customization can increase the price people are willing to pay for the car. The endowment effect is the idea that ownership, or even imagined ownership, of a product makes it seem more valuable (Kahneman, Knetsch, & Thaler 1990; Peck & Shu, 2009). This effect was illustrated in a study where researchers showed a coffee mug to two groups of people (Kahneman et al., 1990). One group was asked to state the maximum price at which they would be willing to buy the mug. The other group was told that the mug was theirs to keep and then asked to state the minimum price at which they would be willing to sell the mug. Supporting the endowment effect, it was found that the average selling price – from people who thought the mug was theirs to keep – was more than double the average buying price quoted by people who simply looked at the mug. In a different study, it was found that actual ownership is not required for the endowment effect, and the effect also emerges when people imagine they own a product or even when they simply touch a product (Peck & Shu, 2009).
Customizing products can induce a sense of ownership by making it easy to imagine that the product is already in our possession. This sense of virtual ownership or virtual endowment will increase the price we are willing to pay for a customized product. The increased price of customized products, in turn, can create higher expectations of performance. For example, we expect a pricier car to be more reliable and quieter than a less expensive car. These higher expectations for expensive products, however, can be a double-edged sword. Research on customer satisfaction shows that high expectations are good if the product performs at or above expectations, but the same high expectations can set us up for disappointment if the product malfunctions in even small ways (Szymanski & Henard, 2001). Thus the car we spend a lot of time customizing will carry a heavy burden of inflated expectations, and even small problems that inevitably arise during ownership will loom large, leading to eventual disappointment with our choice.
Product Assembly
Another situation where customization can backfire is during product assembly. Consumers often assemble products and services from their component parts. We design vacations online by combining bookings for hotels, flights, excursions, and restaurant meals; we create online art with a virtual palette of materials; and we play online games where our goal is to create virtual worlds with people, buildings, money, and armies. Research has shown that the ability to customize during product assembly can influence perceived value of the product, depending on the nature of the customization task (Buechel & Janiszewski, 2014). To study this issue, the researchers asked participants to work on a craft project where the objective was to create a decorative figure of a winter elf by cutting out adornment pieces (e.g., ears, mittens, shoes) from holiday wrapping paper and pasting the adornments onto an outline of an elf. After completing the assembly task, participants were asked to estimate the value of the craft kit used to create the elf.
The researchers found that peoples’ valuation of the craft kit depended on whether the customization and assembly phases of the task occurred together or separately. When customization and assembly occurred together (i.e., when participants were told to cut out an adornment they liked and immediately paste it into the outline of the elf), their valuation of the kit was high. In contrast, when customization and assembly was segregated (i.e., when participants were told to first cut out all the adornments they liked and only later to start the process of pasting them onto the elf), valuation of the kit was reduced. The likely reason for these results is that customization is a creative process that people enjoy, but the act of assembly is a more mechanical and tedious task. So when people do customization and assembly at the same time, positive feelings from customization compensate for negative feelings from assembly. However, when these two tasks are done separately, the later assembly task stands out as a separate and more recent negative event that reduces overall valuation of the product.
This study has implications for products such as online craft projects and multiplayer games that involve creation in a virtual world. Designers of such products should ensure that users can customize and assemble at the same time, rather than at different points in time. Similarly, online travel websites should encourage users to select and arrange their itineraries simultaneously, rather than at different times. In the offline world, this research suggests that the Ikea approach – select components in the store and assemble them later at home – may not be the best strategy, since the separate assembly phase at home could create negative feelings about Ikea.
Product Co-creation
Firms sometimes ask consumers to submit ideas for products and services online, with the best ideas being used later by firms to develop new offerings. Such product co-creation between firms and consumers is a type of customization, because products are being tailored to specifications received from consumers. Research has shown that product co-creation can backfire for luxury products such as designer clothes, shoes, and handbags (Fuchs, Prandelli, Schreier, & Dahl, 2013). This is because the value of luxury products is undercut when these products are known to be based on inputs from regular people, rather than professional designers. Product co-creation works better in the case of products intended for everyday use. For example, firms sometimes organize contests to pick the brand name for a new type of yogurt or the flavor of a new line of potato chips, and research suggests this type of product co-creation is likely to be more successful. Firms offering luxury products, in contrast, should use the services of professional designers rather than inputs from lay customers when designing new products.
Product Pricing
Pricing is yet another area where customization can have negative effects (Kannan, Pope, & Jain, 2009). Modern retailing replaced haggling in bazaars and souks by introducing the price tag featuring a single price for everyone. Merchants like Roland Macy and John Wannamaker opened the first department stores in the nineteenth century with the principle “one price to all: no favoritism.” But eventually prices started varying because retailers understood that everyone likes a good deal and some customers are more willing to pay a higher price than others. Thus price customization became common for airlines, hotels, sporting events, and car parking. The basic idea in price customization is to charge different prices to different customers at different times, depending on how much the customer in question values the product. For example, airlines often charge higher prices during peak travel times; parking spots are more expensive during the day than in the evening; Uber uses surge pricing on Saturday nights when demand for a ride is high; Coca-Cola has experimented with charging more for a can of Coke on hot days when demand for a cold drink is high; and people living in affluent urban neighborhoods are sometimes quoted higher prices by online retailers than those living in more remote areas.
Although price customization might make economic sense by matching prices to demand, customers sometimes resent having to pay a higher price for the exact same product. This is especially true in markets with less competition, where customers have fewer alternatives if they refuse to buy the product being offered at a customized price (Xia, Monroe, & Cox, 2004). In the long run, customers who think that a firm is being unfair to them in terms of price are defectors-in-waiting, ready to jump ship to a competing firm as soon as a reasonable alternative becomes available.
Online Advertising
Customization is becoming increasingly common in online advertising. Advertising platforms such as Google and Facebook harvest information about our online activities using cookies in our computers, our IP addresses, and the information we post on social media. This information is then used to serve up advertisements that closely match our recent browsing behavior or recent events in our lives. Try searching on Google for a vacation in Jamaica and then observe the ads that pop up. Chances are that you will find at least some of these ads to be for vacation- and travel-related products and services.
A danger with such targeted advertising is that it can easily fall into the “uncanny valley.” Uncanny valley is a term coined by roboticist Masahiro Mori to describe the revulsion people experience when seeing robots that look and act almost, but not exactly, like human beings (Mori, MacDorman, & Kageki, 2012). Advertising that is highly customized to our past behavior can make us feel uncomfortable by giving us the feeling that we are being intelligently followed by technology that is clearly not human.
Customization also happens when we look for information on search engines. Search engines often have access to our search history, that is, the things we have searched for and clicked on in the past. This information is used by the search engine algorithm to generate results judged to be most relevant to us. This kind of personalization can create an incestuous loop: we are shown results that match our existing preferences, which further strengthens those very preferences. In this way, online search reinforces what we currently like or dislike and thereby limits the extension of our mental horizons.
What Can We Do?
One way to reduce the echo chamber effect is by pre-committing to alternative points of view. For example, when we browse news on the Internet, we could establish a habit of alternating between different news sources – one with a political orientation that matches ours followed by one with an opposite orientation. Balancing news across the ideological spectrum will help us better understand the arguments supporting our current opinions and thus help us better debate others with different viewpoints. It would be useful to read discussion websites such as Quora, where people answer hot-button questions from different political, economic, and cultural perspectives. Just like Google has an “I’m feeling lucky” button, news feeds could include a “learn more” button that offers a different perspective on current issues. And one of the most fun ways to break out of the echo chamber is to travel widely. There is no substitute for personal experience, and travel will expose us to new ideas, lifestyles, and cultures in ways no website or book can.
Firms can benefit from customization by designing websites to fit their customers’ information processing style. Research shows that people differ in whether they process information in a visual or a verbal manner (Wyer, Hung, & Jiang, 2008). People with a verbal style are good at processing symbolic information such as words and numbers, while those with a visual style are better at processing pictures and graphs. Firms often have the ability to present information on their websites in verbal or visual form. For example, financial services websites can show the same information either as numerical spreadsheets or pie charts, and fitness tracking software can show workout progress either in visual charts or numerical tables. Customers with a visual processing style will find it easier to absorb information from a visual interface, whereas those with a verbal processing style would benefit from a numerical or verbal interface. Firms could measure the information processing style of their customers using a short online questionnaire (Wyer et al., 2008), and then present either the verbal or visual version of their website to the customer.
Firms could customize their online advertising to the website on which the ad appears. Websites can be broadly classified as either social or commercial depending on their business objective. Those that facilitate connections between people (e.g., Facebook) are social; those that focus on market exchanges (e.g., Amazon) are commercial (McGraw, Schwartz, & Tetlock, 2012). In one of my research projects (Auschaitrakul & Mukherjee, 2017), I studied the effectiveness of online advertising on social versus commercial websites. I asked people from an online research panel to read the mission statements of either Facebook or Amazon and then view a screen capture from one of these websites. As on real websites, the screen capture included online banner advertisements for products in different categories ranging from airlines to shoes. Participants in the study then rated their attitude towards each advertisement on a seven-point scale, with low numbers indicating dislike and high numbers indicating that they liked the ads. I found that people liked ads more when they saw them on a commercial website (e.g., Amazon) and less when they saw them on a social website (e.g., Facebook). The likely reason for this finding is that consumers expect a certain level of advertising on commercial websites but not on social websites, and hence they react negatively to advertising on social websites. The implication for firms is that online banner advertising is likely to be more effective on commercial websites than social websites.
In a follow-up study, I investigated whether the effectiveness of online advertising depends on the product benefit described in the ad. I focused on social websites (e.g., Facebook) in this study and found that advertising that emphasizes social benefits is more effective than advertising that emphasizes individual benefits. For example, advertisements for cars that highlighted social benefits such as having a good time with family and friends worked better on social websites than those emphasizing mileage and reliability. These results can be understood in terms of consistency between product benefit and the type of website: social benefits are more consistent with social websites and are thus more effective on these websites than individual benefits.
Finally, firms can help consumers navigate through the customization process by offering default options. For example, car or travel websites that require customers to choose from a menu of options could present a pre-selected default option at each stage of the customization process. Customers who are less informed about product features can move quickly through the selection process by simply accepting the default options. Other customers who are better informed would be free to reject the default options and proactively make their own unique selections.