Individual Decision Making

Chapter 9

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
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Decision-making Process
Problem Recognition Richard realizes that he dislikes his B&W TV Information Search Richard surfs Web to learn about TVs Evaluation of Alternatives Richard compares models on reputation and features Product Choice Richard chooses a TV with an appealing feature Outcomes Figure 9.1 (Abridged) Richard brings home and enjoys his TV
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Decision-making Perspectives
Rational perspective
Purchase momentum Constructive processing

Behavioral influence perspective Experiential perspective

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Types of Consumer Decisions

Continuum of Decision Making

Figure 9.2

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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)

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Limited Problem Solving

More straightforward/simple Simple decision rules to choose among alternatives
Cognitive shortcuts

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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

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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

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Information Search
Consumers need information to solve problem
We survey our environment for appropriate data to make decision

Prepurchase search vs. ongoing search

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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?
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Internal vs. External Search

Internal search
Scanning memory to assemble product alternative information

External search
Obtaining information from ads, retailers, catalogs, friends, family, peoplewatching, Consumer Reports, etc.
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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

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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

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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
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Do Consumers Always Search Rationally? (Contd)

Brand switching
Variety seeking: unpredictability can be rewarding to consumers
When in good mood or little stimulation elsewhere (sensoryspecific satiety)

We select familiar brands, when decision situation is ambiguous or when there is little information about competing brands
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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

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Biases in Decision-making Process (Contd)

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
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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
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Consumers 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

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Perceived Risk
Belief that product has negative consequences
Expensive, complex, hardto-understand products Product choice is visible to others (risk of embarrassment for wrong choice)

Risks can be objective (physical danger) and subjective (social embarrassment)

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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?
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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 Cokes 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!

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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

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Identifying Alternatives (Contd)

Evoked set vs. consideration set
We usually dont 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?
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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
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Levels of Categorization
Figure 9.7

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

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Strategic Implications of Product Categorization

Product positioning
Convincing consumers that product should be considered within a given category
Orange juice: Its 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)
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Strategic Implications of Product Categorization (Contd)

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)

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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)
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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
Pepsis freshness date stamps on cans
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Evaluative Criteria (Contd)

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

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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

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Forms of Cybermediaries
Directories/portals
YAHOO!

Web site evaluators

WORLD BEST WEBSITES

Forums, fan clubs, and user groups

ABOUT.COM

Financial intermediaries
PAY PAL
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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
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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
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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)
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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

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Country-of-Origin
Overall, we tend to rate our own countrys 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
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Country-of-Origin (Contd)
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-oforigin effects Ethnocentrism (buy American)

Backlash against American-made products as a result of war in Iraq
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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

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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)

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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?
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Decision Rules
Noncompensatory: shortcuts via basic standards
Lexicographic rule Elimination-by-aspects rule Conjunctive rule

Compensatory
Simple additive rule Weighted additive rule
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