Individual Decision Making

Consumers as Problem Solvers Consumer purchase = response to problem Decision-making process After realization that we want to make a purchase, we go through a series of steps in order to make it Can seem automatic or like a full-time job Complicated by consumer hyperchoice

Decision-making Process Problem Recognition Information Search Evaluation of Alternatives Product Choice Outcomes Richard realizes that he dislikes his B&W TV Richard surfs Web to learn about TVs Richard chooses a TV with an appealing feature Richard compares models on reputation and features Richard brings home and enjoys his TV Figure 9.1 (Abridged)

Decision-making Perspectives Rational perspective Purchase momentum Constructive processing Behavioral influence perspective Experiential perspective

Types of Consumer Decisions Continuum of Decision Making Figure 9.2

Extended Problem Solving Initiated by self-concept motive Eventual purchase decision is perceived as a risk Consumer collects extensive information Internal and external search Careful evaluation of brand attributes (one at a time)

Limited Problem Solving More straightforward/simple Simple decision rules to choose among alternatives Cognitive shortcuts

Habitual Decision Making Automaticity: choices made with little/no conscious effort Efficient decisions: minimal time/energy Challenge for marketers… Consumers must be convinced to “unfreeze” their former habit and replace it with new one

Problem Recognition Occurs when consumer sees difference between current state and ideal state Need recognition: actual state moves downward Running out of a product, buying a deficient product, or creating new needs Opportunity recognition: ideal state moves upward Exposed to different/better quality products (standard of comparison) Marketers: primary and secondary demand

Information Search Consumers need information to solve problem We survey our environment for appropriate data to make decision Prepurchase search vs. ongoing search

Silent Commerce Enables transactions/information gathering without intervention by consumers or managers Smart products RFID tag stores information and has an antenna to communicate with computer network Discussion: silent commerce has the potential to automate many of our decisions Do you see any downsides to this trend?

Internal vs. External Search Internal search Scanning memory to assemble product alternative information External search Obtaining information from ads, retailers, catalogs, friends, family, people-watching, Consumer Reports, etc.

Deliberate vs. “Accidental” Search Directed learning: existing product knowledge obtained from previous information search or experience of alternatives Incidental learning: mere exposure over time to conditioned stimuli and observations of others

The Economics of Information Consumers will gather as much data as needed to make informed decisions We continue to search until costs exceed utility of information search (as long as process is not too onerous/time-consuming) We will collect most valuable information first

Do Consumers Always Search Rationally? Some consumers tend to avoid external search, especially with minimal time to do so and with durable goods (e.g. autos) Symbolic items = more external search High perceived risk

Do Consumers Always Search Rationally? (Cont’d) Brand switching Variety seeking: unpredictability can be rewarding to consumers When in good mood or little stimulation elsewhere (sensory-specific satiety) We select familiar brands, when decision situation is ambiguous or when there is little information about competing brands

Biases in Decision-making Process Mental accounting Framing a problem in terms of gains/losses influences our decisions Sunk-cost fallacy: We are reluctant to waste something we have paid for Study: football ticket vs. storm

Biases in Decision-making Process (Cont’d) Loss aversion: We place more emphasis on loss than on gain Prospect theory Gambling study Extraneous characteristics of the choice situation can influence our selections “Beer on the beach” study

How Much Search Occurs? Search activity is greater when… Purchase is important There is a need to learn more about purchase Relevant info is easily obtained/utilized One is younger, is better-educated, and enjoys shopping/fact-finding One is female (compared to male) One places greater value on own style/image

Consumer’s Prior Expertise Moderately knowledgeable consumers tend to search more than product experts and novices Experts: selective search Novices: others’ opinions, “nonfunctional” attributes, and “top down” processing Figure 9.5

Perceived Risk Belief that product has negative consequences Expensive, complex, hard- to-understand products Product choice is visible to others (risk of embarrassment for wrong choice) Risks can be objective (physical danger) and subjective (social embarrassment)

Evaluation of Alternatives Choosing a brand/product among available alternatives requires much of the effort that goes into a purchase decision Just think about how many brands or different brand variations there are! Discussion: Do you agree that having too many choices is a bigger problem than not having enough choices? Is it possible to have too much of a good thing?

“Buy Button” in Your Brain Neuromarketing f.M.R.I. used to measure consumers’ reactions to various products/services DaimlerChrysler confirmed that sports cars activated reward center in male brains Coke’s strong brand identity was actually displayed as unique in f.M.R.I. studies What we say and how our brain reacts can be two different things!

Identifying Alternatives Extended problem solving = evaluation of several brands Occurs when choice conflicts arouse negative emotions (involving difficult trade-offs) Habitual decision = consider few/no brand alternatives

Identifying Alternatives (Cont’d) Evoked set vs. consideration set We usually don’t seriously consider every brand we know about In fact, we often include only a surprisingly small number of alternatives in our evoked set Marketers must focus on getting their brands in consumers’ evoked set We often do not give rejected brands a second chance. Discussion: Why?

Product Categorization We evaluate products in terms of what we already know about a (similar) product Evoked-set products usually share similar features When faced with a new product, we refer to existing product category knowledge to form new knowledge Marketers want to ensure that their products are correctly grouped in knowledge structures Jell-O gelatin flavors for salads

Levels of Categorization Figure 9.7 Discussion: Diagram the three levels here for a health club!

Strategic Implications of Product Categorization Product positioning Convincing consumers that product should be considered within a given category Orange juice: “It’s not just for breakfast anymore” Pepsi A.M. Identifying competitors Products/services different on the surface can actually compete on superordinate level for consumer dollars “Entertainment” (bowling vs. ballet)

Strategic Implications of Product Categorization (Cont’d) Exemplar products Brands strongly associated with a category get to “call the shots” by defining evaluative criteria But “moderately unusual” products may stimulate more information processing and positive evaluations Example: locally microbrewed beers Locating products Products that do not fit clearly into categories confuse consumers (e.g., frozen dog food)

Product Choice Selecting among alternatives Once we assemble and evaluate relevant options from a category, we must choose among them Decision rules for product choice can be very simple or very complicated Prior experience with (similar) product Present information at time of purchase Beliefs about brands (from advertising)

Evaluative Criteria Dimensions used to judge merits of competing options Determinant attributes: features we use to differentiate among our choices Criteria on which products differ carry more weight Marketers educate consumers about (or even invent) determinant attributes Pepsi’s freshness date stamps on cans

Evaluative Criteria (Cont’d) Procedural learning: cognitive steps before making choice Marketers often point out significant differences among brands on relevant attribute… Then supply consumers with decision-making rule (“if, then”) that has helped them make previous decisions

Cybermediaries The Web delivers enormous amounts of product information in seconds Problem is narrowing down our choices! Cybermediary: helps filter and organize online market information Consumers can identify/evaluate alternatives more efficiently SHOPPING.COM

Forms of Cybermediaries Directories/portals Web site evaluators Forums, fan clubs, and user groups Financial intermediaries YAHOO! WORLD BEST WEBSITES ABOUT.COM PAY PAL

Electronic Recommendation Agents Intelligent agents and collaborative filtering Learn from past user behavior to recommend new purchases “Shopping robots” filtering Discussion: Will “bots” make our lives too predictable? If so, is this a problem? Electronic recommendation agents Asks user to communicate preferences Recommends list of sorted alternatives Findings associated with such agents

Heuristics: Mental Shortcuts Mental rules-of-thumb that lead to a speedy decision Examples: higher price = higher quality, buying the same brand your mother bought Can lead to bad decisions due to flawed assumptions (especially with unusually named brands) IPARTY.COM

Relying on a Product Signal Observable product attributes that communicate underlying qualities Clean and shiny car = good mechanical condition Covariation: perceived associations among events Product type/quality and country of origin Consumers are poor estimators of covariation (self-fulfilling prophecy: we see what we are looking for)

Market Beliefs Consumer assumptions about companies, products, and stores that become shortcuts for decisions Price-quality relationship: we tend to get what we pay for Other common marketing beliefs (see Table 9.3 for full list): All brands are basically the same Larger stores offer better prices than smaller stores Items tied to “giveaways” are not a good value

Country-of-Origin Overall, we tend to rate our own country’s products more favorably than do people who live elsewhere Industrialized countries make better products than developing countries do Attachment to own vs. other cultures Nationalists Internationalists Disengaged

Country-of-Origin (Cont’d) We strongly associate certain items with specific countries (stereotyping) Irish pubs Country-of-origin effects stimulate consumer interest in the product Origin of product = attribute Expertise with product minimizes country-of-origin effects Ethnocentrism (“buy American”) Backlash against American-made products as a result of war in Iraq

Choosing Familiar Brand Names: Loyalty or Habit? Branding = heuristic for loyal consumers Fierce loyalty to a brand = dominant market share Marketers try to cultivate loyalty Rock band fan packages

Inertia: The Lazy Customer Many buy the same brand every time We buy out of habit because it requires less effort Little/no underlying commitment here Brand switching frequently occurs (cheaper price, original brand out-of-stock, point-of-purchase displays)

Brand Loyalty Repeat purchase behavior reflecting a conscious decision to continue buying the same brand Repeat purchase + positive attitude toward brand Emotional attachment and commitment often result over time (via self-image and prior experiences) Information overload and too many alternatives strengthen reliance on brands for quality We are often less picky about where we buy our favorite brands Discussion: How can retailer compete if we believe we can get the same brands everywhere?

Decision Rules Noncompensatory: shortcuts via basic standards Lexicographic rule Elimination-by-aspects rule Conjunctive rule Compensatory Simple additive rule Weighted additive rule