Individual Decision Making Chapter 9

1. Individual Decision Making Chapter 9

2. Opening Vignette: Richard • What motivates Richard to begin his quest for a new TV? • What kind of perception does Richard have about salespeople? • What influenced Richard’s choice of brand? • What is the main reason Richard makes his final selection?

3. Consumers As Problem Solvers • A consumer purchase is a response to a problem. • Steps in the decision process: • (1) Problem recognition • (2) Information search • (3) Evaluation of alternatives • (4) Product choice • Amount of effort put into a purchase decision differs with each purchase.

4. Stages in Consumer Decision Making Figure 9.1

5. Illustrating the Decision-Making Process • This ad by the U.S. Postal Service presents a problem, illustrates the decision-making process, and offers a solution.

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

7. Types of Consumer Decisions • Extended Problem Solving: • Corresponds to traditional decision-making perspective • Limited Problem Solving: • People use simple decision rules to choose among alternatives • Habitual Decision Making: • Choices made with little to no conscious effort • Automaticity: Characteristic of choices made with minimal effort and without conscious control

8. Types of Consumer Decisions • Continuum of Decision Making Figure 9.2

9. Problem Recognition • Problem recognition: • Occurs whenever the consumer sees a significant difference between his or her current state of affairs and some desired or ideal state • Need recognition: The quality of the consumer’s actual state moves downward • Opportunity recognition: The consumer’s ideal state moves upward • Primary demand: Consumers are encouraged to use a product or service regardless of the brand they choose • Secondary demand: Consumers are encouraged to use a specific brand – can only occur if primary demand exists

10. Problem Recognition:Shifts in Actual or Ideal States Figure 9.3

11. Information Search • Types of Information Search: • Prepurchase search: Consumer recognizes a need and then searches the marketplace for specific information • Ongoing search: Browsing for fun or staying up-to-date on what’s happening in the market • Internal Versus External Search: • Internal search: Scanning our own memory banks for information about product alternatives • External search: Obtaining product information from advertisements, friends, or by observing others

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. 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?

14. Other Types of Information Search • Deliberate Versus “Accidental” Search: • Directed Learning: Results from existing knowledge from previous active acquisition of information • Incidental Learning: Passive acquisition of information through exposure to advertising, packaging, and sales promotion activities • The Economics of Information: • Approach that assumes consumers will gather as much data as needed to make a decision • Utility: Rewards of continued search • Variety Seeking: Desire to choose new alternatives over familiar ones

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 the Decision-Making Process • Mental Accounting: • Decisions are influenced by the way a problem is posed (framing) • Sunk-cost fallacy: • Having paid for something makes the consumer reluctant to waste it • Loss Aversion: • People place more emphasis on loss than gain • Prospect Theory: • A descriptive model of how people make choices that finds that utility is a function of gains and losses

18. 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

19. 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

20. 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)

21. Perceived Risk • Purchase decisions that involve extensive search also entail some kind of perceived risk. Figure 9.6

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 Implicationsof Product Categorization • Product Positioning: • Success of a positioning strategy depends on convincing the consumer that the product should be considered in the category. • Identifying Competitors: • Many products compete for membership in a category • Exemplar Products: • Products which are a good example of a category • Locating Products: • Categorization can affect consumers’ expectations of where the product can be located • Products that do not fit clearly into categories confuse consumers (e.g., frozen dog food)

29. Product Positioning • This ad for Sunkist lemon juice attempts to establish a new category for the product by repositioning it as a salt substitute.

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. Choosing the Solution • Lava soap lays out the options and invites us to choose the solution.

34. Heuristics: Mental Shortcuts • Heuristics: • Mental rules-of-thumb that lead to a speedy decision • Examples: higher price = higher quality, buying the same brand your mother bought • Market Beliefs: Is It Better if I Pay More For It? • Price-Quality Relationship: Pervasive market belief that higher price means higher quality • Larger stores offer better prices than smaller stores • Items tied to “giveaways” are not a good value

35. 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)

36. Heuristics Simplify Choices • Consumers often simplify choices by using heuristics such as automatically choosing a favorite color or brand.

37. 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

38. 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

39. Macanudo Cigars • This advertisement positions the Macanudo cigar as part of Americana, even though it’s imported from the Dominican Republic.

40. Qibla-Cola

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?