Individual Decision Making. 9-2 Consumers as Problem Solvers Consumer purchase = response to problem Decision-making process –After realization that we.

IndividualDecision Making

9-2

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

9-3

Decision-making ProcessProblem 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 TVFigure 9.1 (Abridged)

9-4

Decision-making Perspectives

• Rational perspective– Purchase momentum– Constructive processing

• Behavioral influence perspective

• Experiential perspective

9-5

Types of Consumer Decisions• Continuum of Decision Making

Figure 9.2

9-6

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)

9-7

Limited Problem Solving

• More straightforward/simple

• Simple decision rules to choose among alternatives– Cognitive shortcuts

9-8

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

9-9

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

9-10

Information Search

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

data to make decision

• Prepurchase search vs. ongoing search

9-11

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?

9-12

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.

9-13

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

9-14

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

9-15

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

9-16

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

9-17

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

9-18

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

9-19

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

9-20

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

9-21

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)

9-22

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?

9-23

“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!

9-24

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

9-25

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?

9-26

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

9-27

Levels of CategorizationFigure 9.7

Discussion: Diagram the three levels here for a health club!

9-28

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)

9-29

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)

9-30

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)

9-31

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

9-32

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

9-33

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

9-34

Forms of Cybermediaries

• Directories/portals

• Web site evaluators

• Forums, fan clubs, and user groups

• Financial intermediaries

YAHOO!

WORLD BEST WEBSITES

ABOUT.COM

PAY PAL

9-35

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

9-36

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

9-37

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)

9-38

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

9-39

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

9-40

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

9-41

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

9-42

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)

9-43

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?

9-44

Decision Rules

• Noncompensatory: shortcuts via basic standards– Lexicographic rule– Elimination-by-aspects rule– Conjunctive rule

• Compensatory– Simple additive rule– Weighted additive rule