The Law of Diminishing Returns

  |  June 10, 2004   |  Comments

Categorization: when does a Web site have too much of a good thing?

There are many immutable laws of economics any good MBA student can discuss at length. One of the more oft-quoted ones is the 80/20 rule. It originally stated that 80 percent of a country's wealth and land was owned by 20 percent of its people. While this law (credited to Vilfredo Pareto, around 1900) is probably one of the most universal in the economics canon, there's an equally important law that applies to our work as interactive marketers and online user experience creators: the Law of Diminishing Returns.

Let's explore this law, and how it applies to the design of our online user experiences.

The Law of Diminishing Returns (anticipated by Anne Robert Jacques Turgot and implied by Thomas Malthus in 1798) states that increasing one variable of an equation while keeping the rest of the variables constant will eventually yield a result opposite the intended purpose of the variable change. In plain English, it simply means sometimes, you can push an idea too far.

The law originated during an attempt to prove a point about agriculture. The question was: will more crops be harvested if more harvesters are hired to work the land? The answer in the short term was yes, because the quantity of crops harvested was directly related to the manpower behind the harvesting. However, the law of diminishing returns showed that if you hired too many harvesters, productivity and final cost actually worked in an opposing way. Because the amount of land didn't increase, there would be too many harvesters, each doing only a little work. Therefore, productivity actually decreased. Moreover, the cost of hiring all the harvesters was high, especially considering that lowered productivity. The law of diminishing returns proved there's a point at which hiring more harvesters actually hurts the farm's bottom line.

This law applies to how we build product categories and site architecture, how we build product configurators, and how we build search engines.

In the world of product categories and site architecture, the law of diminishing returns can be restated. At some point, increasing the amount of sub-categorization of products or Web pages (without a proportional increase in product/page types) results in a site that's too sectionalized. This leads to user confusion when they must travel too many paths to get to the product or information they seek.

Best Buy, for example, has a product category called "Electronics > Televisions > HDTVs > Flat-Panel Televisions." This makes sense because Best Buy has hundreds of televisions. Even this fourth-level category has 46 items. Best Buy hasn't yet encountered the law of diminishing returns, as its product space has increased proportionately to its subcategories.

Imagine a store that isn't centered around electronics (or televisions), like Staples.com. Staples' category for similar TVs is "Technology > Monitors > Plasma Displays". This third-level category contains only two products. In this case, the law of diminishing returns takes effect. If someone at Staples.com decided to follow BestBuy.com's lead and increase the product hierarchy under Displays, they'd most likely create the following tree:

Technology > Monitors > Plasma Displays > 30"-40"
Technology > Monitors > Plasma Displays > 40-50"
Technology > Monitors > Plasma Displays > Over 50"

They might even go further based on other specifications, like input types. However this level of granularity will lead to what I call the "empty shelf syndrome." This occurs when product categorizations have grown faster than product selection, which leads to the law of diminishing returns.

Overall site architecture can have this problem, too. Examples might be when a company's service offerings are narrowed so much, each requires four clicks to get to. An overview of services would be more effective and efficient.

Product configurators can fall victim to the law of diminishing returns. Anyone who's used an online configurator to assemble a computer or a car understands the problem. With too many options and not enough product variations, there are any number of "illegal" configurator choices.

Configurators have generally become "smart" about this. When you select a specific CD drive for the first bay of the new computer you're building, the configurator updates to show you what options are now available for the DVD drive in the second bay, and which options are no longer available. In this way, smart configurators obey the law of diminishing returns by implementing diminishing options. Only applicable options are displayed.

Search engines are like configurators. Most search engines allow you to "narrow your search" using certain criteria once a search has begun. The problem with many such search engines is they don't know ahead of time if a certain narrowing will actually lead to any selections. It's not good for the user experience to have the ability to narrow a search, then to have the search return "sorry, there are no matching products." The law of diminishing returns takes hold, and makes us realize that perhaps a narrower view of the world is actually a hindrance to the process. The user would have been more fulfilled with a general view of search results.

In personalization, the law of diminishing returns applies in a similar fashion. It's great to have a "my page," or other personalized view of a Web site. Designers must balance this narrowed view with the need to display variety and account for serendipity. Some sites show a user only the five products they'll like, or the five news articles that fit keywords the user has marked as her favorites.

Without including a larger view, sites can become personalized to the point of being too specific, causing what I like to call personalization myopia. A delicate balance of personalized and non-personalized content must be maintained to allow people to navigate around the general site, while still keeping an eye on the content they like the best.

Have you encountered the law of diminishing returns in your work? If so, let me know how you either obeyed or fell victim to it.

Until next time...

jack

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ABOUT THE AUTHOR

Jack Aaronson

Jack Aaronson, CEO of The Aaronson Group and corporate lecturer, is a sought-after expert on enhanced user experiences, customer conversion, retention, and loyalty. If only a small percentage of people who arrive at your home page transact with your company (and even fewer return to transact again), Jack and his company can help. He also publishes a newsletter about multichannel marketing, personalization, user experience, and other related issues. He has keynoted most major marketing conferences around the world and regularly speaks at Shop.org and other major industry shows. You can learn more about Jack through his LinkedIn profile.

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