1. Chapter 8 Individual Decision Making

2. Consumers as Problem Solvers
Consumer purchase = response to problem
After realization that we need/want to purchase something, we go through a series of steps in order to complete the purchase
Can be instantaneous/automatic or seem like a full-time job
Complicated by consumer hyperchoice

3. Decision-Making Process

4. Decision-Making Perspectives
Rational perspective:
Consumers:
Integrate as much information as possible with what they already know about a product
Weigh pluses and minuses of each alternative
Arrive at a satisfactory decision that maximizes their utility
Act in their own best interest
When/Why are consumers irrational?

5. Decision-Making Perspectives (cont.)
Other models of decision making:
Purchase Momentum: occurs when consumers buy beyond needs satisfaction: “buying begets buying” (buying binges)
Behavioral Influence Model: consumers buy based on environmental cues, such as a sale or because a friend has it
Experiential Model: consumers buy based on the totality of product’s appeal including the “atmospherics”

6. Continuum of Buying Decision Behavior

7. Types of Consumer Decisions
Extended problem solving (home-buying)
Initiated by a motive that is central to self-concept
Consumer usually believes the decision carries a fair amount of personal, financial or social risk
Limited problem solving (computer buying)
Buyers not as motivated to search for information or to evaluate it as rigorously
Buyers use simple decision rules (“heuristics”) to evaluate and choose
Habitual decision making (replacing your laundry detergent)
Choices made with little to no conscious effort

8. Stage 1: Problem Recognition
Occurs when consumer sees difference between actual state and ideal state
Need recognition: actual state moves downward
Opportunity recognition: ideal state moves upward
Either of the above or both together will generate Problem Recognition
Marketers can create:
Primary demand: encourage consumers to use product category (also called “Category Demand”)
Secondary demand: persuade consumers to use specific brand

9. Problem Recognition: Shifts in Actual or Ideal States

10. Stage 2: Information Search
Information search: process by which consumer surveys the environment for appropriate data to make a reasonable decision.
Prepurchase versus Ongoing Search
Prepurchase Search
Ongoing Search
Determinants
Involvement with purchase
Involvement with product
Motives
Making better purchase decisions
Building a bank of information for future use
Outcomes
Better purchase decisions
Increased impulse buying

11. Search & Learning Types
Internal search
Scanning memory to assemble product alternative information
External search
Obtaining information from ads, retailers, catalogs, friends, family, people-watching, social media, the web, etc.
Deliberate learning
When consumers expend conscious effort to learn
Incidental learning
Mere exposure over time to conditioned stimuli and observations of others

12. The Economics of Information Search
Consumers will gather as much data as needed to make informed decisions (is this always true?)
Benefits of search must outweigh costs
Consumers typically collect the most valuable information first (is this always true?)

13. Amount of Information Search and Product Knowledge

14. Do Consumers Always Search Rationally?
Some consumers avoid or minimize external search, especially when time-constrained or lacking knowledge
Symbolic / Self-concept related / Conspicuous items require more external search because they reflect the self-concept
Brand Staying Power: We select familiar brands when the decision situation is ambiguous
Variety Seeking: choosing new alternatives over more familiar ones due to their newness
Why do consumers “Variety Seek”?

15. Common Biases in Decision-Making
Mental Accounting: framing a problem in terms of gains/losses influences our decisions
Segregate gains
Integrate losses
“Piles” of money for different purposes
Sunk-Cost Fallacy
We are reluctant to waste something we have paid for.
We invest more in things we have already invested in
Prospect Theory: risk propensities differ when consumer faces options involving gains versus those involving losses
Gaining $5 is less pleasant than losing $5 is unpleasant

16. Choose an Alternative Option A: Get $5 for sure
Option B: Play a gamble in which you have a 20% chance of winning $25 and an 80% chance of winning $0 (nothing).

17. Choose an Alternative Option A: Lose $5 for sure
Option B: Play a gamble in which you have a 20% chance of losing $25 and an 80% chance of losing $0 (nothing).

18. Five Types of Perceived Product Risk

19. Identifying Alternatives
Choice conflicts involving difficult trade-offs can arouse negative emotions.
What do consumers do in these conflict situations?
Delay decisions (i.e. choose not to choose)
Overbuy (i.e. buy “everything”)
Buy with high buyer’s remorse (i.e. cognitive dissonance)
What can marketers do to reduce trade-offs or consumers’ negative perception of them?

20. Identifying Alternatives (cont.)
Evoked Set versus consideration set
Evoked Set = Brands that come to mind
Consideration Set = Brands we’d consider buying
We usually don’t seriously consider every brand we know about
A surprisingly small number of alternatives are usually included in our evoked set (about three, on average)
Marketers must focus on getting their brands into the consumer’s evoked and consideration sets.
We usually refuse to give rejected brands a second chance.

21. Categorizing Products
Basic Fact: We evaluate products in terms of what we already know about similar products (existing schemas)
Marketers want to ensure that their products are correctly grouped in knowledge structures.
Products that do not fit clearly and neatly into pre-conceived categories confuse consumers:
Jell-O gelatin flavors for salads
$100 hamburgers
Frozen dog food
The initial release of DVRs like TiVo
Tablet Computers
Halloween 3 (the greatest horror film ever made!)

22. Levels of Categorization

23. Strategic Implications of Product Categorization
Product Positioning
Convincing consumers that the product should be considered within a given category
Products/services different on the basic or sub-ordinate classification levels may compete better on super-ordinate levels.
Example: Yogurt as a “dessert”

24. Strategic Implications of Product Categorization (cont.)
Exemplar Products
Brands strongly associated with a category “call the shots” by defining the evaluative criteria and making them salient in consumers’ minds
But “moderately unusual” products stimulate more information processing and positive evaluations than standard ones

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

26. Heuristics: Mental Shortcuts
Heuristics: mental rules-of-thumb that help consumers make quicker / less mentally-taxing decisions
Examples:
higher price = higher quality
buy the same brand your mother bought
buy the cheapest
buy the brand with the snazziest packaging
Can lead to bad decisions due to incomplete information and use of neglectful decision rules

27. Consumers’ Marketing Beliefs
Consumer assumptions about companies, products, and stores that become shortcuts for decisions (i.e. heuristics!)
Common Marketing Beliefs
All brands are basically the same (“Brand Parity”)
Price-quality relationship: we tend to get what we pay for
Larger stores offer better prices than smaller stores
Items tied to “giveaways” are not a good value
Over-advertised items are not a good value

28. Country-of-Origin Effects
Ethnocentric Biases: We rate our own country’s products more favorably than foreigners do.
General notion: Industrialized countries make better products than developing countries
Certain countries / regions are known and well-respected for certain products
Croissants and wine in France
German / Japanese cars
American Entertainment and Marketing

29. Choosing Familiar Brand Names
Zipf’s Law: our tendency to prefer a number one brand substantially more than the “inferior” ones (i.e. second and third ranked brands)
Brands that dominate the market are typically substantially more profitable than their nearest competitors (the “80/20 Rule”)
Much bigger profit and reputational gains by moving from 2nd place to 1st place than 3rd place to 2nd place

30. Decision Rules Non-Compensatory Decision Processes
Products with unfavorable evaluations on attributes cannot be compensated for by more favorable evaluations on other attributes
Types of Non-Compensatory Decision Rules:
Lexicographic Rule: consumers select the brand that is the best on the most important attribute
Elimination-by-Aspects Rule: the buyer automatically rejects any brands that do not have certain attributes or levels of the attributes
Conjunctive rule: entails processing by brand

31. Decision Rules (cont.)
Compensatory Decision Processes: product can make up for their unfavorable attributes by doing well on other attributes
Types of Compensatory Decision Rules:
Simple Additive Rule: the consumer merely chooses the alternative that has the largest number of positive attributes
Weighted Additive Rule: the consumer also takes into account the relative importance of positively rated attributes, essentially multiplying brand ratings by importance weights
This is Fishbein’s Multi-Attribute Model
College choice example