ZHANG Kaifu, PADMANABHAN V. (Paddy)
INSEAD Working Paper 2011/66/MKT
Feature overload refers to the phenomenon wherein consumers purchase feature-rich products but subsequently don’t use all the features. We try to understand why this occurs as an equilibrium outcome. We focus on two aspects of consumer preference: the uncertainty about feature need and the complexity disutility from too many features. We show that consumer uncertainty creates an option value even if the feature is unused ex-post. In a monopoly setting, the firm offers the feature-rich product both to enhance valuation and for pricing reasons. In the latter case, the feature-rich product may be offered even if the overall complexity cost outweighs the option values of additional features. In the competitive case, the feature-rich product may be offered in two types of equilibria: firms may compete with each other on the number of features, leading to a prisoner’s dilemma situation where both firms offer the feature-rich product. Firms may also differentiate on the number-of-feature dimension, thereby engaging in ‘uncertainty-based segmentation’. In the latter case, competing products use ‘functionality’ and ‘simplicity’ as their respective value propositions, and joint profit is maximized. Interestingly, higher complexity disutility lowers profit in the monopoly case but may raise equilibrium profits in the duopoly case. To provide support on our utility function assumptions, we develop a preference measurement methodology and empirically assess feature need uncertainty in a field study. The empirical results point to both the existence of and the heterogeneity in feature need uncertainty.