1 Consumer Decision Making-1 Mishra, S., & Olshavsky, R. (2005). Rationality Unbounded: The Internet and Its Effect on Consumer Decision Making. Chapter 17 of Online Consumer Psychology. Ravi Vatrapu Director, Computational Social Science Laboratory (CSSL) Associate Professor, Center for Applied ICT Copenhagen Business School Howitzvej 60, 2.10, Frederiksberg, DK-2000, Denmark +45-2479-4315 [email protected]http://www.itu.dk/people/rkva/ Monday, 11-April-2011 T14: Human Information Processing: Lecture 21 2A20, ITU, Copenhagen, Denmark
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Consumer Decision Making-1
Mishra, S., & Olshavsky, R. (2005). Rationality Unbounded: The Internet and Its Effect on Consumer Decision Making. Chapter 17 of Online
Consumer Psychology.
Ravi VatrapuDirector, Computational Social Science Laboratory (CSSL)
Associate Professor, Center for Applied ICTCopenhagen Business School
Select most important attribute Select the product with the best value on the attribute Resolve ties by selecting the next important attribute
Select Picture Quality First Alternative A and Alternative C are selected Select Versatility Next Alternative C is eliminated and Alternative A is selected
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Picture Quality Versatility Convenience
Alternative A 4 7 4
Alternative B 2 7 2
Alternative C 4 6 3
WADD & EQW
Compensatory Utility loss in one attribute can be traded off
with utility gain in another attribute of the same product
Alternative-based All alternatives are considered
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EBA & LEX
Non-Compensatory Utility loss in one attribute CAN NOT be
traded off with utility gain in another attribute of the same product
Attribute-based Only specific set of attributes are considered
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Internet’s Effect on Decision Heuristics
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Impact on all Four Components of Consumers’ Choice Space:
1. Evaluation Strategies
2. Evaluative Criteria
3. Consideration Set
4. Image of Alternatives within the Consideration Set
(Un)Bounded Rationality
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Authors’ Claim: The Three main assumptions might not be valid
1. Limited Knowledge
2. Information is costly to collect and store
3. Economic behavior requires trail-and-error search process
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Online Consumer Psychology
Hood, K., & Schumann, D. (2007). The Process and Consequences of Cognitive Filtering of Internet Content: Handling the Glut of Internet Advertising. In D. Schumann & E. Thorson (Eds.), Internet advertising: Theory and Research (pp. 185-202): Lawrence Erlbaum Associates.
Henry, P. (2005). Is the Internet Empowering Consumers to Make Better Decisions, or Strengthening Marketers' Potential to Persuade? . In C. Haugtvedt, K. Machleit & R. Yalch (Eds.), Online consumer psychology: understanding and influencing consumer behavior in the virtual
world (pp. 345-360): Lawrence Erlbaum Associates.
The Internet Revolution
Traditional Media Newspapers Radio Television
SMEs and MNCs Virtual Storefronts Brand Comparisons
Travel and Tourism Government Education Libraries
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Human Information Processing-1Hood, K., & Schumann, D. (2007). The Process and Consequences of Cognitive Filtering of Internet Content: Handling the Glut of Internet Advertising. In D. Schumann & E. Thorson (Eds.), Internet advertising: Theory and Research (pp. 185-202): Lawrence Erlbaum Associates.
Sometimes there can even be too much of a good thing
Limited Cognitive Capacity Information Overload Clutter Effects
1. Accurate targeting of an online consumer’s “in-group” online spaces
2. Online market segmentation
3. Online communities
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Online Consumer Decision-MakingHenry, P. (2005). Is the Internet Empowering Consumers to Make Better Decisions, or Strengthening Marketers' Potential to Persuade? . In C. Haugtvedt, K. Machleit & R. Yalch (Eds.), Online consumer psychology: understanding and influencing consumer behavior in the virtual world
(pp. 345-360): Lawrence Erlbaum Associates.
Two Themes: Is the Internet
1. Empowering Consumers’ Decision-Making?
2. Strengthening Marketers’ Persuasion Potential?
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Henry’s Central Claim
“Despite the impact of innovation on media alternatives, we must realize that we are faced with human characteristics that remain constant over time.” (p. 346)
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Henry’s Four Skepticisms
1. Enhanced Decision Capability
2. Search Patterns
3. New Decision Strategies
4. Consumer Empowerment
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Human Information Processing
Information Overload “Single-Feature Responding” From “product orientation” to “marketing orientation” Online Heath information example
Constraining Factors Limits to Human Information Processing Limited Time Expanded Information More Cognitive Effort Increased Choice but decreased perception of power
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HUMAN DECISION-MAKING
Information presentation and communication requirements
Financial Decisions Kahneman & Tversky’s Prospect Theory
Decision-Making Heuristics Habitual Repurchase Most well-known brand Price as proxy for quality Third party opinions (experts, friends, trusted others)
“Short-cuts have utility” (p. 354)
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HUMAN COGNITIVE VARIABILITY
Different Cognitive Characteristics Knowledge Skills Abilities
“Access is only empowering if one has these prerequisite skills” (p. 354)
• Visual vs. Textual
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TECHNOLOGY CYCLES
Increased Time Pressure
Expanded Access to Information
Greater Range of Choice
Human Cognitive Limitations
Technology cycles that results in the default shortcut to reliance on expert opinion
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HENRY’S CLAIM
If this approximates reality, then the Internet will not change the basic decision strategies, nor it will lead to substantial knowledge enhancement.” (p. 356, emphasis mine)
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RECOMMENDATIONS
Understanding of Consumers’ Decision-Making Processes
Involvement with the category
Identification of current information-search patterns
Alternative evaluation criteria
Duration of the decision process
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THREE APPROACHES TO DECISION-MAKING INSIGHTS
1. Expert questioning Form a panel of prospective customers Facilitate expert questioning sessions
2. Guided Recall Category need identification Subsequent product purchase processes and outcomes
3. Triadic sorting• Sets of three product alternatives• Select one that is most different than the other two