Consumer Decision Making Chapter 9 Consumer Decision Making Consumer Decision Making

The Decision Process Every day we make numerous decisions concerning every aspect of our daily lives Particularly in American society, we are rarely put in a position where we have no choices Examples? What to put on in the morning What to have for breakfast Do we give a lot of thought to how we make those decisions and in what is involved in the process? In order to make a decision, how many choices must we have? We must have at least two choices Do we always have at least two choices? E.g., if there is only one drug store in town and we have a prescription drug--but even there we can drive to another town or order online What about other countries?

Rational decision-making In economic theory, consumers are portrayed as making rational decisions Consumers attempt to maximize their utility continuously within the constraints of limited resources Consumers must Be aware of all available product alternatives Be capable of correctly ranking each in terms of benefits and costs Be able to identify the one best alternative What does that mean? In order for that to happen, what must happen first?

Consumers are limited in their skills Consumers are limited by their existing values and goals Consumers are limited in the extent of their knowledge Doesn’t take into account the impacts of advertising and marketing In the real world, is that the way it works? Why not? A number of reasons: Book gives examples of high percentages of people who make major purchases based on visiting a single store and/or obtaining no information before making a purchase Likewise, substantial minority of purchases are impulse purchases

Effort Variation in Decision Making The amount of effort a consumer puts into a decision varies depending on how involved the consumer is with the purchase In low involvement purchases, consumers view the purchase as unimportant and the outcome of the decision inconsequential High involvement purchases are those that are important from a financial, social or psychological standpoint Examples? Book example is a candy bar; others include brand of napkin, paper towel, tissue Automobile, house, vacation, college

Programmed decisions Decisions we make without much thought (habitual) Brand loyalty is related because it is another method to minimize effort Another classification of decisions (in addition to high or low involvement) is whether the decision is programmed or un-programmed What are they? Examples? Toothpaste, milk E.g., I buy Hondas and I buy them from Automaster I know I’m getting a good car from a good dealer; maybe I could get a slightly better car, but is it worth my effort?

Non-programmed decisions Decisions that are new or occur infrequently enough that consumers have to undertake more of an effort to obtain information May involve extended problem solving where the consumer has no established criteria for evaluating a product category or specific brands in the category May involve limited problem solving where the consumer has established the basic criteria but has not yet established preferences among brands Impulse purchases require little or no cognitive effort on the part of the consumer What are they? Examples? Buying a new house, making a major investment, buying life insurance For example, the consumer only knows he wants a computer, but doesn’t know if he wants a laptop, flat screen, amount of memory, etc. Vs. A situation where the consumer knows he wants a laptop, knows he wants to a certain minimum speed and memory, etc. and the only question is which brand provides the most for the money Impulse: I’ve always wanted a convertible sports car, I like the Mazda, so off I go to buy one

A consumer decision-making model John Dewey identified five stages in the decision-making process Problem/need recognition Search activity Identifying and evaluating solutions Purchase or commitment Post-purchase considerations There are a number of such models See if these are consistent with what you do when making a purchase decision

1. Problem/Need Recognition Sometimes arises from changes in circumstances Sometimes arises from marketing Two different need recognition styles Desired state: consumers whose desire for something new triggers the decision process Actual state: consumers who believe they have a problem/need when a product fails Example? A couple moves into their first home; they both travel a lot, so decide they need a home security device Also, new job, move, product depletion/obsolescence Desire for phone with latest technology (e.g., digital camera; a cell phone with a digital camera) Your printer fails v. You want a faster, better printer for the photos you take with your new digital camera

2. Pre-purchase Search Activity Begins as soon as the problem/need is identified Extent of search depends on degree of involvement Nature of search depends on consumer’s level of experience with the product Two types of searches Internal External Recall high and low involvement processes

Internal search Consumer will search his/her memory before seeking external sources The greater the past experience, the less external information needed Many decisions are based exclusively or primarily on internal information Level of risk perceived is a major factor in determining extent of search Example? Buying a new house/investing money in stocks/choosing a college vs. buying a bag of chips

External search “Shopping” (in a very broad sense) Advertising and promotion including point of purchase and internet Store visits Objective sources (Consumer Reports, e.g.) Friends and family (word of mouth) What are some of the external sources of information consumers rely on? Web is becoming an increasingly important resource

Interesting facts about shopping In general, women enjoy shopping and men do not Even for high priced durables, many consumers do minimal comparison shopping Low-income shoppers, who have more to lose, search less before making a purchase than do more affluent consumers Here are some interesting facts, as an aside, just FYI These facts are based on research, not mythology or stereotyping

3a. Identifying alternatives Consumers consider only a limited number of alternatives Referred to as the evoked set Small number of brands the consumer is familiar with, remembers, and finds acceptable Do consumers evaluate every available brand? Some consumers are even more limited; e.g., some only buy appliances, tools, etc. at Sears

Implication for marketers They need to make sure their products are Positioned properly Advertised and promoted Readily available Supported by service, financing, etc. Building customer loyalty is critical What is the implication for marketers here? If consumers are only going to look at a handful of brands (or fewer) a marketer has to do what it can to make sure it’s one of them!

3b. Evaluating alternatives: Prospect Theory Based on the notion that consumers have to give up something in order to get something back in the marketplace Proposes that people’s decisions are based on how they value the potential gains and losses that result from making choices This is confusing in our book; this description taken from “Consumers”

Based on the “value function” theory, which reflects consumers’ anticipation of the pleasure or pain associated with a specific decision outcome Value function explains the difference between the psychological valuation of gains and losses and the actual value of those gains and losses the value function for losses is different for that for gains In practical terms, this means that consumers resist giving up things that they already own

Endowment effect This phenomenon is referred to as the endowment effect This means, for example, that when consumers are asked to name a selling price for something they own, they often require more money than they would pay to own the same item See exhibit 9.2 E.g., if you paid $35 for concert tickets, you might reject an offer of $45 for those tickets, because you value the tickets more after you own them. Giving up the tickets would be viewed as a loss, and losses are felt more strongly than the equivalent gain ($45).

Framing Prospect theory predicts that preferences will depend on how a problem is framed In other words, the same decision can be framed from either a gain or loss perspective Marketers sometimes make use of consumers’ differing perceptions about gains and losses Kind of like the glass is half full or half empty; 75% lean is 25% fat E.g., in credit cards, merchants can either surcharge for use or discount for cash. Does it matter? Even if prices are the same, consumers are going to prefer the cash discount (because it’s perceived as money gained). Rebate is a gain, whereas a price reduction is receiving nothing

4. Purchase or commitment: consumer decision rules Purchase decision is the outcome of the search and evaluation process In reaching a decision, consumers use a number of decision rules Rules reduce the burden of making complex decisions by providing guidelines or routines

Rules have been broadly classified into two major categories: Compensatory decision rules Non-compensatory decision rules

Compensatory decision rules A consumer evaluates brand options in terms of each relevant attribute of the product and computes a weighted or summated score for each brand Presumably the consumer chooses the brand with the highest score Allows a positive score/evaluation on one attribute to cancel a negative score on another E.g., see table 16-6 in Kanuk #3 is important because it is not the case with non-compensatory rules Examples: The energy and cost savings aspect of a compact florescent light bulb would offset an unacceptable assessment in terms of the bulb’s diminished light output In the case of an SUV, the increased safety due to weight would offset an unacceptable assessment in rollover potential

Table 16.6 Hypothetical Ratings for Security Systems FEATURE ST. LOUIS ALARM SYSTEM CLAYTON SECURITY SERVICES MISSOURI BUGLARY System Price 10 1 5 Monthly monitoring fee 4 6 5 Number of entry doors protected 1 10 5 Number of keypads included 3 10 6 Price for each additional keypad 3 10 6 Here’s a hypothetical set of ratings for a home security system. Here, the consumers have placed relative values on each of the important features of each competitor’s products. Number of included smoke detectors wired to system 3 2 1 How home is protected 2 10 6 27 56 34

Non-compensatory decision rules A negative evaluation in one category eliminates the brand from consideration Book example: Any sugared cereal eliminates the brand from consideration High fat content might do the same, so that even a high fiber content wouldn’t offset In automobile buying, might be mpg, seating capacity, etc.

Implication of decision rules for marketers A marketer familiar with these rules will use promotional messages that highlight product attributes that consumers are most likely to evaluate in deciding on what brand to purchase What are the implications of decision rules for marketing? Examples? E.g., car ads: safety (Volvo), mpg (Civic), warranty length (e.g., Hyundai) Of course, first you have to know what attributes consumers are most likely to evaluate (which is where consumer research comes in)!

5. Post-purchase evaluation As consumers use a product, they evaluate its performance in light of their expectations The extent of the evaluation depends on the importance of the product decision The product may Meet expectations Exceed expectations Fall short of expectations Post-purchase evaluation becomes part of the consumer’s experience and may affect future related decisions So, once we buy the product is the decision-making process complete? No… E.g., are you buying bathroom tissue or a new car? E.g., will you buy this model again, buy from this dealer again, etc. This is where customer service becomes critically important; it is much cheaper and easier to keep a customer than to find a new one

Instrumental vs. expressive performance Product performance is evaluated on a limited number of product attributes These include: Instrumental performance: the utilitarian performance of the physical product itself (a means to a set of ends) Expressive performance: social or psychological attributes of the product (an end in itself) Which aspect is dominant depends on the nature of the product and its purchase Last point on post-purchase evaluation: Examples? E.g., purchase of a sports car that is mechanically below average or expensive to repair may still result in satisfaction if desire to own a sports car is the primary motivation for the purchase (e.g., Porsche)