Strategic Marketing: Individual Decision

Making

Week 5: Lecture A
 Strategic Marketing

Decision-Making Process
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Perspectives on Decision Making

 Rational perspective
– Integrate as much information as possible with what
they already know about a product: Economics of
information
– Weigh pluses and minuses of each alternative
 ‘utilitarian approach’
 Rewards exceed the costs
– Arrive at a satisfactory decision

– Marketing managers need to carefully analyze as to

how do consumers obtain information, make beliefs
and what criteria they use to assess each of the
steps to make a decision.
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Perspectives on Decision Making

 Behavioral Influence Perspective
– Sometimes we buy on ‘impulse’ – Store promotion
– we assess the amount of ‘cognitive effort’ and
choose the strategy to best suited to the level of
effort it requires

 Experiential Perspective
– Sees ‘Gestalt’ or totality of the product or service
appeal
 whole is greater than the ‘sum of its parts’
– no single quality of the product determines the decision
 there are emotional elements involved; no rationality
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TYPES OF CONSUMER BEHAVIOR

 Continuum of Decision Making
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1. 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,

 Opportunity recognition: ideal state

moves upward
– Exposed to different/better quality
products (standards of comparison)
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1. Problem Recognition
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2. Information Search
 Consumers need information to solve
problem
– they survey the environment for appropriate data
to make reasonable decision

 Pre-purchase search vs. ongoing search

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2. Information Search
 Consumers need information to solve problem
 Types of Information Search
Prepurchase versus Ongoing Search
Prepurchase Search Ongoing Search
Determinants Involvement with Involvement with product
purchase
Motives Making better purchase Bank of information
decisions Fun and Pleasure
Outcomes Increased Knowledge Increased Knowledge
Increased satisfaction Future buying efficiencies
with the purchase Increased impulse buying
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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,
neighbors, people-watching,
Consumer Reports, etc
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Deliberate versus “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; we may not need the product yet
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Do Consumers Always Search Rationally?

 Some consumers avoid external search, especially with
little time to do so and with durable goods (e.g. autos)

– Symbolic items require more external search

 mostly asking peer’s opinions

– Brand switching: we select familiar brands when decision

situation is ambiguous
 may have 4-5 brands on the list even if the current brand satisfies
them
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Do Consumers Always Search

Rationally? (Cont’d)
 Variety seeking:

– Trying new things

– unpredictability can be rewarding

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Biases in Decision-Making Process

 Consider a following scenario:
– You have scored a free ticket to a major football
game. At the last minute a sudden snowstorm makes
getting to the stadium somewhat dangerous.
 Would u go?

– What if you had handsomely bought the ticket?

 Would u go?
 ‘sunk cost fallacy’

 Mental accounting: framing a problem in terms

of gains/losses influences our decisions
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Biases in Decision-Making Process

 Loss Aversion is another bias
– For many people losing money is more unpleasant
than gaining money is pleasant

– Option 1: You are given $30 and a chance to flip a

coin. Heads u win $9, tails u lose $9: safe bet or gamble?
– Option 2: You get $30 outright or accept a coin flip
that will win you either $39 or $21:safe bet or gamble?
– Prospect theory:
 risk differs when consumer faces options involving gains
versus those involving losses especially when it becomes
personal
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Perceived Risk
 Belief that product can have
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).
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Perceived Risk
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3. Identifying Alternatives
All potential Alternatives
(Brands/Products)

Awareness/ Evoked Set Unawareness Set

Alternatives the consumer is unaware
Alternative the consumer is aware of

Consideration
Inert Set Inept Set
Set
Backup Avoided
Alternatives given
Alternatives Alternatives
consideration

Specific Alternative
alternative considered but not
purchased purchased
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Product Choice: Selecting Among Alternatives

 Decision rules guiding our choices can range
from very simple and quick strategies to
complicated processes requiring much attention.
– Consumers generally face new products with a
myriad of features – Feature Creep

 Proliferation of Gizmos is counter-productive

 Research has found that a large number of features frustrate
consumers and they end up with much simpler products

 Read: “As I see it” – pg. 368

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Evaluative Criteria
 These are the dimensions consumers use to
judge the merits of competing options.
– Functional Attributes
 Is this jeans durable, comfortable and stylish
– Experiential Attributes
 Will this jeans make me fill with pride and social approval?

– Criteria
 criteria on which products differ carry more weight in the
decision process rather than in ways they are similar
 marketers’ educate consumers about (or even invent)
determinant attributes
– Pepsi’s freshness date stamps on cans
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Evaluative Criteria

INVIGORATING
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Evaluative Criteria
 These are the dimensions consumers use to
judge the merits of competing options.
Criteria
 Consumers’ renewed interest in the ethical and sustainable
marketing entails that organizations’ reputation can be a
determinant attribute.
– Product: Ingredients
– Pricing: price fixing, price discrimination
– Anti-competitive practices: these include but go beyond
pricing tactics to cover issues such as manipulation of loyalty
and supply chains.
– Packaging: Recyclable
– Advertisements: Comparative ads, subliminal messages,
products regarded as immoral or harmful
– Children and marketing: marketing in schools, kidsvertising
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Evaluative Criteria
 In order for a marketer to effectively recommend
a new decision criterion, it should convey two
pieces of information:
– point out that there are significant differences among
brands on the attribute

– Provide a decision making rule, such as if… (deciding

among competing brands) then… (use the attribute as
a criterion)
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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) and may lead to
cognitive dissonance
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Relying on a Product Signal

 Product signal: observable product attributes
that communicate underlying qualities
– Clean and shiny car = good mechanical condition

 Even though this means that they drive away in a clean,

shiny ‘clunker’
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Relying on a Product Signal

 when consumers have incomplete information,
they often base their judgments on their beliefs
– Covariation: perceived associations among
things/events

– Product type/quality and country of origin

 Well-known brands must be good!

 Judging product quality by the length of time the company

has been in business

 Coffee? Salmon? Olives? Dates? Shoes?

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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; may be they are counterfeits

 Larger stores offer better prices than smaller stores

 Items tied to “giveaways” are not a good value!

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Choosing Familiar Brand Names

– Zipf’s Law: our tendency to prefer a number one
brand to the competition
 Brands that dominate the market are sometimes 50% more
profitable than their nearest competitors

– Consumer Inertia: the tendency to buy a brand out

of habit merely because it requires less effort
 Consumer’s will change their mind if they find something
cheaper – right incentive – ‘unfreezing the habit’

– Brand loyalty: repeat purchasing behavior that

reflects a conscious decision to continue buying the
same brand
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Decision Rules
– Noncompensatory decision rules when we feel that a
product with a low standing on one attribute can’t
compensate for this flaw by doing better on another
attribute

– Types of ‘non-compensatory’ decision rules:

 Lexicographic rule: consumers select the brand that is the
best on the most important attribute
– determinant to second, third and fourth and so on.
 Elimination-by-aspects rule: the presence of the single most
important attribute determines the product choice.

 Conjunctive rule: entails processing by brand instead

– if a brand meets minimum cutoff attributes – ok
– failure to meet the cutoff points will lead to delay in purchase
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Decision Rules (cont.)

 Compensatory decision rules: give a product
a chance to make up for its shortcomings

 Types of compensatory decision rules:

– Simple additive rule: the consumer merely chooses
the alternative that has the largest number of positive
attributes

– Weighted additive rule: the consumer also takes into

account the relative importance of positively rated
attributes, essentially multiplying brand ratings by
importance weights
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Decision Rules
Attribute Importance Brand A Brand B
(1-10) (1-10) (1-10)

Performance 7
Durability 6
Reliability 7
Style 9
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Case Questions: Western Fitness

 Q 1: What Problems or issues does Andrea have to work with?
 Q 2: How would u define Quality, Quantity, Delivery, Service and
Price as per the case study? What is important to fitness class
participants? What is important to Western Fitness in this regard?
 Q 3: Which issues or challenges would u like to solve right away?
How?
 Q 4: Does making class size smaller makes sense?
 Q 5: What is Campus recreation doing to keep participant to
instructor ratios down
 Q 6: Looking into the survey results; what are participants really
looking in for a class?
 Q 7: What is the purpose of participant survey? what could be the
flaws?
 Q 9: What should be the action plan?