Download ppt - Copyright 2008 Pearson Education Canada Individual Decision Making Chapter 9 Copyright 2008 Pearson Education Canada

Copyright 2008 Pearson Education Canada

IndividualDecision Making

Chapter 9

Copyright 2008 Pearson Education Canada

9-2Copyright 2008 Pearson Education Canada

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 ProcessProblem Recognition

Information Search

Evaluation of Alternatives

Product Choice

Consumptions and Learning

Bill realizes that he dislikes his B&W TV

Bill talks to his friends to learn about TVs

Bill chooses a TV with an appealing feature

Bill compares models on reputation and features

Bill brings home and enjoys his TVFigure 9.1 (abridged)


Decision-making Perspectives

• Rational perspective– Purchase momentum– Constructive processing

• Behavioural influence perspective

• Experiential perspective


Types of Consumer Decisions• Continuum of Decision Making


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


Individual Decision Making


Information Search

• Consumers need information to solve problem– We survey our environment for appropriate

data to make decision

• Prepurchase search vs. ongoing search


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

• Variety Seeking

• 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: hockey 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?


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?


Identifying Alternative (Cont’d)


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 flavours for salads


Levels of Categorization


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

• 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

• Should convey a rule that can be easily integrated with the way the person has made this decision in the past


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


Electronic Recommendation Agents

• Intelligent agents and collaborative filtering– Learn from past user behaviour 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)


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 favourably 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)

• Country-of-origin effects stimulate consumer interest in the product

• Expertise with product minimizes country-of-origin effects

• Ethnocentrism (“buy Canadian”)– ‘The Rant’ – Molson Canadian


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 Fickle 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 behaviour 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 favourite 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