Consumer Bahavior: Decision Making process

Lesson 2Consumer Decision Making

Process

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Learning Outcomes

This lecture note covers the following learning outcome:

LO2 - Outline and explain the steps in a range of consumer decision making processes.

Agenda

• Consumer Decision Making Process

• Alternative forms of decision making

• Heuristics

• Decision rules

Consumer Decision Making Process

Problem Recognition

Information Search

Information Evaluation

Purchase Decision

Post Purchase Evaluation

Consumer Decision Making Process

Example: Zoe is a junior executive in her twenties working in a prominent sportswear company. She has decided to purchase a new mobile phone. Let’s look at a potential decision making process for her.

•Zoe feels her mobile phone is outdated to match her needs and wants to buy a new one

Problem Recognition

•Zoe talks to some of her friends about buying a new phone and types of phones

Information Research

•Zoe goes online and compares several models in terms of price, features and user ratings

Information Evaluation

•Zoe makes her choice based on features that she was looking for

Decision

•Zoe makes the purchase and enjoys her new mobile phone

Post Purchase Evaluation

Consumer Decision Making Process

Problem Recognition

• This is the first step in the process. The buying process is initiated when the consumer identifies a problem or need that has to be fulfilled. Needs can be triggered from either internal or external stimuli.

• Internal stimuli arises from an individual’s average need e.g. hunger and then becomes a drive. External stimuli comes from the environment we live in, e.g. When a colleague buys a new car it can act as a external stimuli.

• By identifying the circumstances and stimuli that create needs in consumers, marketers can generate a need with marketing strategies. To understand what triggers a need, consumer behaviours has to be studied. Specially for discretionary products or services(vacations, luxury products, entertainment)

• To get consumers to consider such items, marketing strategies need to be carried out to enhance motivation.

Consumer Decision Making Process

Information Search

• When a consumers interest is aroused by stimuli, they normally try to look for information. Two levels of interest can be identified:– Heightened attention - It is a milder state of arousal where consumers

receptiveness is increased– Active information search - at this stage consumer engages in the search for

information more actively using various sources such as friends, internet and reading materials.

• From a marketers perspective these sources of information are very important. There are four main categories of information sources:– Personal: Family, friends, neighbours, acquaintances– Commercial: Advertising, websites, sales persons, dealers, packaging, displays– Public: Mass media, consumer rating organisations– Experimental: handling, examining, using the product

Consumer Decision Making ProcessInformation Search contd..

Successive sets involved in consumer decision making

Total set

•Total number of brands available in the market

Awarene

ss set

•The number of brands the consumers knows about

Consideratio

n set

•Brands that meet the initial buying criteria

Choice set

•The preferred set of brands

Decision •Final

selection

Consumer Decision Making Process

Evaluation of alternatives

• During this stage consumers usually compare products based on their various features and benefits using the information from the previous stage.

Identifying alternatives

Alternative sets (1)

All Alternatives

Inert SetInept SetEvoked

Set

Retr

ieve

d se

t

Consumer Decision Making Process

Evaluation of alternatives contd..

Expectancy value model

This is a model that explains how attitudes and beliefs are formed. We take the example of Zoe’s mobile phone. There are four brands in the choice set. There are four attributes that she's looking for. The table below shows her beliefs on how each brand scores on the four attributes. As demonstrated in this example a single brand does not dominate, e.g. If Zoe wants best price its brand A and, if its touch screen its brand B.

Computer Attribute Touch Screen Camera Price MemoryA 4 3 10 5B 10 8 6 4C 8 9 7 3D 6 8 5 6

Consumer Decision Making Process

Evaluative Criteria

• Evaluative Criteria are the dimensions a consumer will use to evaluate the features of the alternative choices.

• Some consumers would compare based on functional criteria. For others, style, ease of operation, related services, or prestige may be important. The criteria will depend on factors such as product under consideration and consumers beliefs and attitudes. Another important factor is perceived reliability .

• Consumers usually assess goods and services by the features or benefits that are important to them. Through their activities marketers try to influence the type of criteria that consumers use in their product evaluations. Typically with commercials that compare the features of their brand with those of their rivals. Determinant attributes are those used to differentiate between alternative products.

Consumer Decision Making Process

Purchase Decisions

When making the purchase decision, a consumer makes up to five sub-decisions: We will take the previous example of Zoe choosing a new phone:

• Brand : Nokia• Dealer : Local Nokia outlet• Quantity : one• Timing : weekend• Payment method : credit card

• Characteristics of the consumer, the circumstances of the decision and social context all play a part in the decision making process. Everyday purchases do not require such a formal process, e.g. Buying a regular FMCG good like flour.

Consumer Decision Making ProcessPurchase Decisions contd..

Intervening factors

Steps between Evaluation of Alternatives and a Purchase decision (2)

Purchase Decision

Attitudes of others

Unanticipated situational factors

Purchase intention

Evaluation of alternatives

Consumer Decision Making Process

Purchase Decisions contd..

Perceived risk

This is a belief held by the consumer that he or she will have to face negative consequences by purchasing a particular product.

There are several types of perceived risk:

1.Functional risk2.Physical risk3.Financial risk4.Social risk5.Psychological risk6.Time risk

Consumers have strategies to deal with perceived risk such as decision avoidance, preference for warranties and seeking advice from friends.

Consumer Decision Making Process

Post Purchase Behaviour

The involvement of marketing in the decision making process continues even after the purchase. After buying a product consumers may observe negative features or hear of a good product review that justifies the purchase. The marketer has to ensure that the consumer feels good about the brand in the post purchase phase.

• Post purchase satisfaction

• Post purchase actions

• Post purchase use and disposal.

Consumer Decision Making Process

Post Purchase Behaviour

• Post purchase satisfaction

• Consumer satisfaction can be defined as how well the products actual performance met the perceived expectations. A satisfied consumer is likely to become a regular and help in creating a positive word of mouth reputation for the product. Three possible outcomes are possible with regard to satisfaction

– Disappointed : when product fails to match the expectations

– Satisfied : performance meets the expected level

– Delighted : performance is beyond the expected level

• The actual performance level has to be communicated accurately to avoid misleading and ultimately dissatisfying consumers.

Consumer Decision Making Process

Post Purchase Behaviour

• Post purchase actions

• If the consumer is satisfied he or she will talk favourably about the brand with friends, colleagues and family. A satisfied consumer may become a repeat purchaser, e.g.75% of Toyota buyers were highly satisfied and they expressed an interest in buying a Toyota again.

• On the other hand, dissatisfied consumers can decide to stop buying, warn friends, complain to regulatory and government bodies, bring lawsuit against the company etc.

• Keeping the communication with the consumer even after the purchase, helps to minimise dissatisfaction. For example, marketers can encourage buyers to make suggestions for improvement, provide ‘how to use’ booklets etc.

Consumer Decision Making Process

Post Purchase Behaviour

• Post purchase use and disposal

• Products are disposed of in a number of ways, e.g. Sold, thrown away, rented, converted to a another purpose. Marketers have to understand consumer behaviour in this stage and communicate to consumers. e.g. Batteries need to be disposed in a environmentally acceptable manner.

• From an organisational perspective, the importance of product disposal is that it is linked with product consumption rate. i.e. the faster the buyer consumes the product the faster they need to repurchase another one. Marketing strategies can be designed to attract consumers to repurchase their brand.

Alternative forms of decision making

The three main alternative forms of decision making methods of a consumer are:

• Habitual/routine decision making• Limited decision making• Extended decision making

The factors that differentiates these methods are level information search, degree of prior experience, amount of perceived risk, time pressure and frequency of purchase.

Habitual Decision Making

Limited DecisionMaking

Extended Decision Making

Low involvementIn the purchase

High involvementIn the purchase

Alternative forms of decision making

Habitual/routine decision making

Examples of routine purchases are the daily newspaper, weekly groceries, regular coffee order:

• Decision is make quickly

• Level of involvement in the selection process is minimum

• Product is evaluated after the purchase

• Low cost goods

• High frequency of buying

• Consumer is likely to stay with one brand.

Alternative forms of decision making

Limited Decision making

Clothes, gifts, home furnishings, and vacations are examples of items where consumers would typically use limited decision making:

• Involvement level is comparatively low

• Prices of products range between low to moderate

• Few brands are evaluated before the purchase decision is made

• Moderate amount of time is spent to make a decision

Alternative forms of decision making

Extended Decision Making

• Purchasing a house, selecting a college, a first car, or a location for a wedding are examples of extended decision making:

• High degree of involvement

• Product Prices are high

• Many brands are evaluated before the purchase decision

• Considerable amount of time is spent to make a decision

Heuristics

• Day to day life is filled with decisions ,whether it is your breakfast cereal or what radio station to listen to. In decision making consumers seek the assistance of heuristics.

• Researches have identified that in low involvement decision making consumers rely on heuristics. i.e. rules of thumb or mental short cuts.

• For example, Bob has decided to buy a shirt at his usual store named X .This decision is driven by his belief that this store thinks it has the best range and its brand gives him confidence. Therefore Bob is ignoring any information search about competitors or substitute products. His assumption about X acted as a shortcut that removed a few steps from the decision making process.

Heuristics

For a marketer, understanding heuristics is an advantage that helps them forecast consumers behaviour when purchasing their brand. In this lecture note three main heuristics are described:

• The Representativeness Heuristic

• The Availability Heuristic

• The Anchoring and Adjustment Heuristic

Decision rules

• Information processing strategies of consumers are called decision rules. These help a person in the decision making process by providing guidelines for complex decisions.

• They can be used to evaluate various options and reduce the risk involved in the decision. Decision rules can be classified into two categories :

– Compensatory Decision Rules

– Noncompensatory Decision Rules

Decision rules

• Noncompensatory Decision Rules

• Conjunctive Decision Rule Here consumers form a different, minimally acceptable cut off level for each attribute. If a particular brand does not meet the cut off level of any attribute that brand is removed from consideration.

• Disjunctive Rule It is the opposite of conjunctive rule. In this the consumer decides a separate minimally acceptable performance level for each attribute. The brand is accepted if any of the attributes meets or exceeds the cut off level.

• Lexicographic Decision Rule The attributes are ranked according to perceived relevance or importance to the consumer. Then different alternatives are compared in terms of the single attribute that is believed to be most important. If one brand out of the group scores an acceptable score it will be selected, regardless of the score on any other attribute.

References

1. Hawkins D.I., Best, R.J. and Coney K.AConsumer Behavior: Building Marketing Strategy.;Tata McGraw-hill ;2003.

2.Kotler, P. and Keller, K.L. Marketing Management. Pearson Education 2006; Fig 6.6. Steps between Evaluation of Alternatives and a Purchase decision,p197