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Decision Making

By Christian Dy

+Introduction

(Q20) Some analysts argue that consumers really do not pursue any kind of decision process but make their selections more or less randomly without any apparent reasoning. What is your position on this issue? Give examples.

+Contents

Stages In Consumer Decision Making Perspectives of Consumer Making Biases Accounting: Biases in the Decision-Making

Process Conclusion

+Problem

Recognition

Information Search

Evaluation Of

Alternatives

Product Choice

Beliefs, Personality,

Attitudes, Memory,

Experiences

DMU

• Decision Making Unit

DMP• Decision

Making Process

DMD• Decision

Making Difficulty

Uncertainty

External Influences

Friends Sales

People Media

And tell OthersComplainBad -SatisfactionGood-

Consumer Behaviour, Ray Wright, tenth edition, Page 30, Figure 1.5

Internal Influences

+Stages in Consumer Decision Making Process

Problem Recognition

Information Search

Evaluation Of

Alternatives

Product Choice

A need has to be filled or a problem has arisen

Do market research on relevant information towards your problem

Consumers compare and contrast products on the market

Consumer chooses one which sits above the rest

Consumer Hyperchoice “Condition in which the large number of available options forces us to make repeated choices that may drain psychological energy while it saps our abilities to make smart decisions.” (Solomon, Tenth Edition)

DMP•Decision Making Process

Overview

+Decision Making Unit (DMU)

The concept that one, two or more people may be involved in the purchase of a product or service, and that the customer might be different from the consumer

Usually the more complex the purchase the more people will be involved in the buying process.

DMU•Decision Making Unit

+Example of DMU,

• Suggester• Father And MotherS• Purchaser• UncleP• Advisor• Sales Advisor,A• Decision-Maker• Father, Mother and Grand

fatherD• End-User• GrandfatherE

Table 1.1 (Consumer Behaviour, Ray Wright, Chapter 1, Page 26)

Example of DMU in terms of purchasing for a family's grandfather

+Decision-Making Difficulty (DMD) Extensive Problem Solving (High Levels)

- When consumers have no established criteria for evaluation a product category or specific brands in that category or have not narrowed the number of brands they will consider to a manageable subset.- Occurs when the decision we have to make relates to our self

concept.- Collect as much information as possible from both our internal

search and external search.- Occurs when buying products that are expensive or we do not buy

on a regular basis

- E.G. investing into a business, trading shares, buying a house, buying a car.

DMD•Decision Making Difficulty

+ Limited Problem Solving (Medium Levels)

-Consumers have already established the basic criteria for evaluating product category and various brands in the category.

- Have not fully established preferences concerning a select group of brands

-Customer/Consumer may have a set of guidelines or decision rules in place rater than having to start a search all over again.

-This level of problem solving occurs when we are deciding whether to buy an updated version of a product we already have or replacing old items we have purchased before

-Buying an updated phone, TV, games console, lamp

Decision-Making Difficulty (DMD) DMD•Decision Making Difficulty

+ Routinised response behavior/Habitual Decision Making (Small levels)

- Consumers have experience with the product category and have a well-established set of criteria with which to evaluate the brands they are considering.

- Consumers make choices with little or no conscious effort.

- As they are routinised we process our decision making habits automatically.

May be seen as dangerous it does make sense as our habitual, repetitive behavior minimises time and energy spent on mundane purchase decisions.

-E.g. Grocery Shopping, Filing up Car, Buying Drugs if we have a long-lasting illness.

Decision-Making Difficulty (DMD) DMD•Decision Making Difficulty

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Unfamiliar Product Class and Brands

Familiar Product Class and Brands

Continuum of Buying Decision Behavior

Routine Response Behaviou

r

Limited Problem Solving

Extensive Problem Solving

Infrequent PurchasingFrequent Purchasing

Low-Cost Products More Expensive Products

Low Consumer Involvement

High Consumer Involvment

Little Thought, Search or Time given to

PurchaseExtensive Thought, Search and Time

given to purchase

Figure 8.2 (Solomon, tenth edition, Section 3, Chapter 8, Page 322)

+Internal Influence

Memory Experiences Beliefs Attitudes Personality

Beliefs, Personality,

Attitudes, Memory,

Experiences

+External Influences

Friends Sales People Media

External Influences can cause uncertainty

External Influences

Friends Sales

People Media

+ Good- Satisfaction

And tell OthersComplainBad -Satisfaction

Good

-Repeat Purchase

-Word of Mouth

-Perceptions will be positive Bad

-Complain

-Perceptions will be negative

-No repeat purchase

+Problem

Recognition

Information Search

Evaluation Of

Alternatives

Product Choice

Beliefs, Personality,

Attitudes, Memory,

Experiences

DMU•Decision Making Unit

DMP•Decision Making Process

DMD•Decision Making Difficulty

Uncertainty

External Influences

Friends Sales

People Media

And tell OthersComplainBad -SatisfactionGood-

Consumer Behaviour, Ray Wright, tenth edition, Page 30, Figure 1.5

Internal Influences

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Perspectives On

Decision Making

Cognitive

Behavioral

RationalPurchase

Momentum

+Perspectives on Decision Making Cognitive processing style- a predisposition to process

information. Some of us tend to have a rational system of cognition that processes information analytically and sequentially using roles of logic, while others rely on an experiential system of cognition that processes more holistically and in parallel.

Behavioral influence perspective- The view that consumer decisions are learned responses to environmental cues.

+Perspectives on Decision Making Rational Perspective- A view of the consumer as a

careful, analytical decision maker who tries to maximize utility in purchase decisions.

Purchase Momentum- Initial impulses to buy in order to satisfy our needs increase the likelihood that we will buy even more.

Experimental perspective- an approach stressing the Gestalt or totality of the product or service experience, focusing on consumer’s affective responses in the marketplace

+Biases Accounting: Biases in the Decision-Making Process Mental Accounting- Principle that states that decisions

are influenced by the way a problem is posed (Framing) i.e. in terms of gains or losses influences our decisions.

Behavioral Economics- The study of the behavioral determinants of economic decisions.

-Kahneman gave an example of one type of framing called anchoring. Refers to the fact that when people are given a number, they tend to use that number as the standard for future judgments.

HyperopiaProspect Theory

+Hyperopia

Hyperopia- The medical term for people who have farsighted vision, describes people who are so obsessed with preparing for the future they can’t enjoy the present.

- College students participated in a study in which they reported that they regretted not working, studying, or saving money during their winter breaks.

- When asked about how they will feel about this break a year from now, their biggest regrets were that they didn’t have enough fun or travel enough.

+Prospect Theory

Prospect Theory- A descriptive model of how people make choices.

Option 1- You’re given £30 and a chance to flip a coin: Heads you win £9, tails you lose £9

Option 2- You get £30 outright or you accept a coin flip that will win you either £39 or £21

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70 per cent of those who got option 1 chose to gamble, compared to only 43 per cent who got option 2

We are more willing to play with other peoples resources than our own and value money differently depending on its source

Another example could be when people get large sums of bonuses. More likely to spend bonus rather than initial savings or salary/wages.

+Conclusion

There is a buying process which consumers use and there is research which gives us understanding to how consumers decide on products in which they want to buy.

Rather than some analysts that believe that there isn't any decision making when buying a product/service there are mental processes in which people do on a daily basis which help them understand what they need.

As discussed there are a variety of theories in which it helps marketers understand how consumers process there decisions. Personally I believe that the perspective which consumers are most dependent on are the social factor and economic factor in todays society.

+References Michael R. Solomon,2013, Consumer Behaviour, Tenth

Edition, Other Edition, Pearson, Section 3, Chapter 9 Leon G. Schiffman, Leslie Lazar Kanuk and Havard

Hansen,2012, Consumer Behaviour, Second Edition, Other Edition, Pearson, Chapter 4

Ray Wright,2006, Consumer Behaviour, First Edition, Thomson, Chapter 1

Consumer Decision making process. - YouTube. 2013. Consumer Decision making process. - YouTube. [ONLINE] Available at: http://www.youtube.com/watch?v=ud00Xa3tth4. [Accessed 20 November 2013].

Paul A. Pellémans, 1971, European Journal Of Marketing, Research Paper, 14, Vol. 5, ISSN: 0309-0566

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Thank You For listening