1. Individual
Decision Making

2. 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

3. 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)

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

5. Types of Consumer Decisions
Continuum of Decision Making
Figure 9.2

6. 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)

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

8. 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

9. 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

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

11. 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?

12. 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.

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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)

22. 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?

23. “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!

24. 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

25. 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?

26. 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

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

28. 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)

29. 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)

30. 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)

31. 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

32. 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

33. 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

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

35. 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

36. 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

37. 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)

38. 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

39. 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

40. 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

41. 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

42. 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)

43. 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?

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