Consumer Decision making process: Consumer Decision Making Models, Strategies and Theories by Michael Richarme Decision Making

Process: The first formal explanation of consumer decision making is believed to have been given by Nicholas Bernoulli about 300 years ago which was later extended by John Von Neumann and Oskar Morgenstern and was called as the utility theory. This theory suggested that the decisions made by the consumers were actually based upon the expected outcomes of their decisions. The consumers according to this model were believed to be as rational actors who were able to estimate the probabilistic outcomes of uncertain decisions and select the outcome which maximized their well being. This model although was viewed as a dominant decision making paradigm but had serious shortcomings like: Consumers are not typically not completely rational or consistent or even aware of the various elements that enter into their decision making. Also consumers are good at estimating the relative frequencies of events but they have difficulty in translating these frequencies into probabilities.

Nobel Laureate Herbert Simon in the mid 1950s proposed an alternative, simpler model called Satisfying. According to this model the consumers got approximately close to where they wanted to go decision making process. According to utility theory the consumer would evaluate every product in the market in his allocated product category and form a linear equation based upon all the pertinent variables and then select the product with highest utility score in the linear equation. Whereas in the case of satisfying theory he would come close to t he product in the allocated product category which can be regarded as good enough he would stop looking for options. This theory was although robust enough to encompass many of the shortcoming of the utility theory but still left a significant room for improvement in the area of prediction. In the late 1970s two leading psychologist Daniel Kahneman and Amos Tversky deveopled the Prospect theory which encompassed the best aspects of both the theories ( Utility and satisfying theory) by extending beyond the mathematical optimization of utility theory and satisfying theory. The two major elements that were two major elements that were added by Kahnoman and Twersky were the concepts of value and endowment, in which an item is more precious if one owns it than if someone else owns it. Value provided that reference point. Additionally gains and losses have a marginally decreasing increase from the reference point. Decision Making Strategies: A series of seven decision making strategies have been developed which can be used by marketers on the basis of their product and these can then be used for positioning of the products. These strategies are:

The first two strategies are called as compensatory strategies in which the consumers allow a higher value of another attribute to compensate for a lesser value of another attribute. The attributes might have equal weights under the Equal Weight Strategy of have different weights under the Weighted Additive Strategy. The next three strategies are called the Non Compensatory Strategies. According to these strategies each attribute of a specific product is evaluated without respect to the other attribute of a specific product is evaluated without respect to the other attributes and even though a product may have a very high value on one attribute, if it fails on another attribute, it is eliminated from consideration. The first strategy of these is Satisfying in which the first product evaluated to meet the cut off values for all attributed is chosen even if it not the best. The second of these is Elimination by Aspects which sets a cut off value for the most important attribute and allows all competing that meet that cut off value. The third Lexicographic strategy evaluates the most important attribute and if a product is clearly superior to other products according to that attribute it selects the product and stops the decision process otherwise it moves to the next important attribute. The next two strategies are called Partially Compensatory Strategies in this the products are evaluated against each other in serial fashion and higher values for the attribute are considered. The first of these strategies is the Majority of conforming Dimensions strategy in which the first two competing products are evaluated across all attributes and the one that has higher values across more dimensions attributes is retained. This winner is than evaluated against the next competitor and the one that has higher values across more dimensions is again retained. The second partial compensatory strategy is called Frequency of good and bad features in which all products are simultaneously compared to the cut off values for each of their relevant attributes and the product that has the most good features that exceed the cut off values is the winner.

Marketing Theories of Decision Making

The first Marketing Theory called as Consideration which suggests that consumer tend to form a subset of brands while selecting a brand and over which the decision making strategies are applied for the final solution. For example if a consumer is asked to enumerate all brands of mobile phones that he can recall then a quite extensive list can come out but if he is asked to which mobile phone brands are under his consideration for purchase then a list of mobile phone brands actively being considered would come out. Allen Shocker summarizes these multi stage decision making models as those in which the increasing complexity of a decision produces more steps in the decision process. Thus more cognitive effort would be expended in evaluating the members to the consideration set and reducing that numbers to an eventual choice.

The second Marketing theory is called Involvement in which the amount of cognitive effort applied to the decision making process is directly related to the level of importance that the consumer places on the acquisition of the specific product. For example there is rarely a significant amount of decision making applied to the selection of a cold drink bottle but a much greater effort is applied to the purchase decision of mobile phone. This degree of involvement is not necessarily a function of price but is more related to the quality of life of the consumer.

Traditional Models of Consumer Decision Making

Howard developed the first consumer decision model in 1963. Nicosia model 1966. Howard Sheth 1969. Engel, Kollat and Blackwell 1968. Anderson 1965. Hanson 1972. Markin models (1968/1974).

The Anderson Model

This was one of the earliest model representations of Consumer Behaviour. This model incorporates in itself the importance of information in the consumer decision making process. It also emphasized upon the fact that the processing of information and its filtration are important for the formation of the consumer attitudes.

Nicosia model (Conflict Model)

Franceso Nicosia presented one of the early consumer behaviour model in the early 1960s which was presented in the form of flow charts whereby the variables involved were viewed as interactive with none being considered as inherently independent or dependent. The model described a circular flow of influences where each component provided an input to the next. The model contained four major fields or components which were: Field I: The firms attribute and outputs or communications and the consumers psychological attributes. Field II: The consumers search for and evaluation of the firms outputs and other available alternatives. Field III: The consumers motivated act of purchase. Field IV: The consumers storage or use of product.

According to Nicosia the consumer seeks to fulfil specific goals by his purchase and he believed that initially there was no history between consumer and the firm and hence no positive or negative predispositions exit in the consumers mind towards the firm. According to the Nicosia model the firm produces some communications in the form of product services, ad etc. to which the consumer is exposed. The attributes of the message and the consumer determine the nature of consumers exposure and its influence on the individual. One consequence is that the message will influence the consumers attitude towards the brand and this act as an input to field II. This will motivate the consumer to carry out an information search which might be internal memory search or an external search involving visits to stores or reading reports. This would lead to evaluation whereby the consumer after processing relevant information starts favouring a firms brand and feels motivated. This motivation leads him to a shopping activity and hence purchase of the brand. Out of a number of possible outcomes from this model one of the possible outcome is that the firm receives as of feedback field iv and other outcome may be that the consumer gains experience towards the brand and his attitude towards the brand may be change during the storage and use period.

Howard Sheth Model (Machine model)

This model was a major revision over the earlier systematic effort to develop a comprehensive theory of buyer decision making. It creates a clear cut distinction between the three stages of decision making: Extensive Problem Solving: This occurs when the consumer actively seeks information about the several alternative brands in the product category about which he has got little or no knowledge and hence does not possess any belief about any specific brand. Limited Problem Solving: The consumers possess limited knowledge about the available brands and he is not in a position to effectively evaluate the brand differences and hence establish a preference. The consumer hence seeks some comparative brand information although the decision criteria are quite likely to be fairly established. Routinised Response Behaviour: This behaviour is depicted when consumer has well established knowledge and belief about the brand and other alternatives in the category and hence is predisposed towards the purchase of a specific brand.

This model has got four major set of variables:

I.

II.

III. IV.

Inputs: These are basically the types of information sources present in the consumers environment which may be Significative representing the brands physical attributes, Symbolic which is in the form of brand information and can be visual or verbal and social which is furnished by the consumers social environment such as family, reference group and social class. Perceptual and Learning Constructs: These are the central elements of the model and include the psychological variables which are assumed to operate when the consumer is involved in the decision making process. Since these are treated as simply ideas and hence not defied operationally or evaluated directly. Some of these variables are perceptual in nature and forces on how the consumer receives and process information received from input and other parts of model. For instance stimulates ambiguity occurs when consumer is not sure about the meaning of information gained from the environment. Perceptual bias occurs in case the consumer distorts the received information as to suit his established needs, wants and experience. Learning constructs perform the function of consumers concept formation and include his/her goals, information about branches, evaluation criteria and intentions to buy. The prom posed interactions between Perceptual constructs and Learning constructs are a characteristic feature of the Howard Sheth model. Outputs: The model has got a series of outputs in the form of Attention, brand comprehension, attributes, intensions and the act of purchase. External Variables: These variables are not directly involved in the decision making process but have an external influence over it. It includes variables like importance of the purchase, consumers personality traits, time pressure, availability of funds etc.

Engel, Kollat, Blackwell Model (Open System)

This model was originally developed in 1968 and was known as EKB model (Engel, Kollat, and Blackwell model). Over the years it has been revised a number of times to take the present shape. The model consists of four sections which are:I. Information input: Information from marketing and non marketing sources come into the system and after passing through the consumers memory which acts as a filter acts as an initial influence in the form of problem recognition and if the information is insufficient may also lead to a more deliberate search for information. This information is then fed for processing. Information processing: This section consists of consumers exposure, attention, comprehension, a acceptance and retention of marketer or non marketer information; before a message can be used by the consumer for decision making he is exposed to that message and then by using his

II.

information processing capacity interpret it, get persuaded by it and retain it in his long term memory. Inorder to be retained in the long term memory The message must pass through the short term memory where the message is analysed for meaning. III. Decision process stages: After a consumer need has been identified by the virtue of a perceived difference between the ideal state and the actual state of the consumer. Steps are then taken in the decision making process which involve information search alternatives evaluation, purchase, consumption and post consumption evaluation by the consumers to reach upon a conclusion. Variables influencing the decision process: There might be certain individual and environmental influences that affect all the stages of decision making process. Individual differences would include motives, values, lifestyle, personality and attitudes. Environmental influences can be culture, social class, and family and reference groups. In addition to these there can also be certain situational influences which can be consumers financial condition etc.

IV.

Bettmans Information Processing Model

This model was proposed in 1973 and this model assumes that a typical consumer has a limited capacity of information processing. It is believed according to this model that when a consumer faces the situation of making a decision choice, he than rarely undertakes the complex task rarely undertakes the complex took of evaluating all possible alternatives rather he invariably employs a simple decision rule. The Bettmans proposed model of consumer choice process is depicted below Diagram. The model outlines the seven steps involved in the consumer choice process: 1. Processing Capacity: The consumers have a limited information processing capability and hence to make their task of product or brand selection easier they apply strategies. The processing capacity component influences all other major components of the model. 2. Motivation: It is considered as a central component of the Bettmans model and it influences both the direction and intensity of consumer choice and stimulates the consumer to seek particular information and to evaluate alternatives and make a choice. Motivation acts a momentum in the form of hierarchy of goals which takes the form of a series of intermediate sub goals which lead to creation of certain desires and it finally ends up making certain choices. According to this model the goal hierarchy mechanism channelizes the consumers effort in making a choice because as he gives experience in buying a particular product he no longer deploys an elaborate method to arrive at a decision. 3. Attention and Perceptual Encoding: The consumers goal hierarchy influences two components the attention and perception of consumer. Attention refers to the

allocation of processing capacity, it can be classified as voluntary attention (conscious allocation of processing capacity) and involuntary attention (disruptive events) . both of them influence the ultimate choice of consumer. The perceptual encoding refers to the way in which a consumer organizes or interprets a perceive stimuli and hence provides insights into the need for additional information.

BRAND LOYALTY Brand loyalty is the ultimate desired outcome of consumer learning. It represents a favourable attitude towards a brand resulting in the consistent purchase of a brand over time. This means that the consumers not only buy the product out of habit but they also have strong positive attitude towards that product or brand, that a particular brand can satisfy their needs.

Brand loyalty is believed to offer certain advantages such as reduced marketing cost more new customers and favourable trade leverage. It also helps in generating a favourable word of mouth and develops a resistance among loyal customers to the competitive moves. It occurs because the consumers perceive that the brand offers the right product features, images, level of quality at the right price. Basically the consumer makes a trial purchase and if the product meets their expectation they tend to form habits and continue buying the same brand as it than saves both time and effort.

Approaches to study brand loyalty: There are broadly two approaches to the study of brand loyalty. The first one is known as the instrumental conditioning approach. According to this approach the regular purchasing of a brand by the consumer is an indication of brand loyalty. This repeated purchase behaviour by the consumer is assumed to reflect reinforcement and a strong stimulus to response link. In this approach a probabilistic estimate is used to u brand loyalty of the customers. Hence it is also called the stochastic model of consumer behaviour. The second approach for the study of brand loyalty is based upon the cognitive theories. According to this approach the continuous purchase behaviour alone does not implies loyalty rather brand loyalty rather brand loyalty is viewed as a commitment towards a brand on the basis of elaborate cognitive, effective, evaluative and predisposition factors. This approach tends to develop linkages between variables that influence behaviour and attempts to predict behaviour on the basis of these linkages. Thus this approach develops deterministic models of consumer choice.

There are two measures that are used for the l of brand loyalty of the consumers. One measure is the attitudinal measures where the measurement are usually concerned with the overall feelings and evaluation and the purchase intentions of the and towards the or brand by the consumer. Second is the behavioural measures which are based upon the observable responses like repeat purchase behaviour shown by the towards the product.

Marketing implications of Brand Loyalty: Higher Sales Volume: When companies loose customers they have to spend more and put extra effort to get new customers but if old customers are retained it can dramatically improve business growth because of greater sales. Premium Pricing Ability: When the brand loyalty increases among the customers they tend to become all the more less sensitive towards the price changes and they might be generally willing to pay more for the preferred product or brand. Retain Rather Than Seek: The growth of brand loyalty among customers can considerably reduce the advertising, marketing and distribution cost of the organisations. This can be basically attributed to the fact that brand loyal customers become less sensitive towards the competitive promotions.

Makhlish, Safiek and Salleh, Hayatul Safrah(2009): in their paper investigated the differing approaches of Malaysian male and female consumers towards shopping and buying activities. For the purpose they used a self administrated questionnaire consisting of Sproles and Kendalls (1986). 40.item Likert scaled Consumer Style inventory. Out of 400 such questionnaires which were distributed 386 were seemed as usable. This sample of 386 consisted of 31.6 percent of males and 68.4 per cent of females. This over representation of the population was attributed to the fact that female population in Malaysian universities ( where the survey was conducted) was the more as compared to the male population. To understand the decision making styles of both the genders an exploratory factor analysis method was used. The outcome of this research was certain factors which were rendered important for male and female decision making. These factors were classified into three categories: a) Common factors like Quality consciousness, Brand consciousness, Fashion consciousness, Confused by over choice, Satisfying and Value seeking. These factors played a significant role in the decision making styles of both males and females. b) Male factors like Brand loyal and Time energy conserving. These factors in addition to the common factors were important in the male decision making style.

c) Female factors like Price consciousness, Recreational and shopping avoidance were considered important in the female decision making style along with the common factors.

Thus the study was able to confirm a difference in decision making styles of the genders among the young adult consumers. The study identified two new common factors i.e. satisfying and value seeking two male factors brand loyal and time energy conserving and three female factors price consciousness, recreational and shopping avoidance beyond the original Consumer Style Inventory(CSI) factors quality consciousness, brand consciousness, fashion consciousness and confused by over choice.