Decision Making: Introduction, Stages and Consumer Judgment

Decision Making: Introduction, Stages and Consumer Judgment

Decision (def): Choice between two or more alternative actions/items/behaviors.

Basic stages of decision making

Problem recognition

Search for alternatives

Evaluate alternatives

Select from among the alternatives

Post-selection evaluation

May not go through each stage, depending on:

Expense

Frequency of decision (habits)

Involvement

Cognitive resources / ability

Certain stages can co-occur (e.g., search and evaluation) Small decisions dont always go through each stepI. Problem Recognition Discrepancy between current state of affairs and ideal state of affairs.

Simple as I need a pack of gum.

Complex as I need to make more money

Triggers action to resolve that discrepancy.

Those actions require decisions.

How do current-ideal discrepancies arise?

Perceived current state may get worse (need recognition).

Ex: losing your job, product could break, run out of a product, getting hungry or sick

Perceived ideal state may improve (and more further from current; opportunity recognition)

New circumstances (life changes)

New desires (new social groups, new products)

How do marketers encourage current-ideal discrepancies?

(Carefully) downgrade perceptions of current state

4 out of 5 women dont get enough calcium

Augment the ideal state- (make them want something more than they did before)

Primary demand as a whole (milk)

Secondary demand Specific brand

Most ads are secondary demand

Need to use primary demand if you are trying to get people excited about a new product (ex: TiVo)

Problem Recognition

Perceived discrepancy is one trigger.

Awareness of future potential discrepancy is another.

Pre-need goods

Got Milk? They did research to figure out how to get people to buy more milk. They decided to advertize GOT MILK instead of it being healthy because people already knew it was healthy.

Once them problem is recognized, consumers then try to solve it.

II. Search for Alternatives What information do we need?

Available alternatives

Quality

Price

How might we find it?

Internal search

External search

Internal Search searching your mind Retrieve information from long-term memory about products or services to help with problem solving.

Two musts

Correct categorization-be in right place in mind Correct retrieval

(Good to also have positive associations, etc.)

Categorization and Retrieval

Is your product a member of the right category?

Encourage alternative categorization for your product.

Its not just for breakfast anymore Orange Juice

Waffle House- Consumer like waffle house but may not categorize it as dinner.

Will your product be retrieved?

Internal search may not be enough, however.

External Search Where do consumers get information?

Marketer-controlled:

Commercials/Ads

Packaging/Store displays

Websites

Non-Marketer-controlled:

Friends/Family

Media

Neutral sources like consumer reports

Reviews

How much do consumers search? Economic model of information

Search until rewards of more searching are less than the expected costs of searching.

But, this doesnt seem to always hold:

Lower-income (most at risk) search less.

Searching probably not completely determined by cost.

Consumers dont actually search all that much.

Search behaviors

Surveys like this may under-state the amount of search, but still few searchers are exhaustive.

What leads to external search?

Involvement:

Product important to consumer/values

Moderate product knowledge:

Why?

Low-involvement: Usually dont know where to start

High-Involvement: Usually dont search either because they already know what they want/are looking for.

Risk:

Large purchases, purchases that require commitments

Many stores in proximity

These people search more:

Young People

Educated People

Women

People with favorable attitudes towards shopping

Results of Searching- Where to go to nice Dinner? Evoked/ Consideration set (3-7 things) (Ballyhoo, Bonefish, Chilis)

Actively considered during the choice process

Inept Set

Aware of, but considered unacceptable.(Nos) (Swamp, Dennys, Five Guys)

Inert Set

Indifferent towards; may not be aware of.

Maximize your chances of being in the evoked set!

III. Evaluation of Alternatives Rational Theory of Choice

Choose to maximize utility.

We get an unbiased sense of how much utility each option will bring us.

We choose the option that is expected to bring us the most utility.

Implications of the Rational Theory If we get an unbiased sense of utility, then

Judgments should not be swayed by irrelevant factors.

Choices should not be affected by irrelevant changes in the description of the choice (invariance criterion). EX: 20% Fat free or 80% fat. We shouldnt be swayed by the difference because we can do the math!

The utility of one option should not be affected by adding/deleting another option (regularity criterion).

EX: You should never choose Laffy Taffy (your preference by 70%) over Sweet Tarts just because another option was introduced.

But do we uphold these criteria?

Does the rational theory describe how people actually make decisions?

No, sometimes we are biased (heuristics, framing, status-quo, mental accounting, sunk costs)

We do care about how things are described, it does affect our decisions

IV. Consumer Judgment

A judgment is an estimate (of likelihood, of quality, ect.)

Heuristics are used to simplify judgments (and decisions)

Usually helpful

Can be over-applied and mislead us.

Short- Cuts

Rule of Thumb

Availability of Heuristic

Judge the frequency of something by the ease with which instances of it can be brought to mind.

Example: Whats more common?

UF students from South Florida?

UF students from North Dakota?

Example: Whats more common?

Words that start with N?

Words that have N as their third letter?

Ease (availability) does not always reveal frequency)

Example: Do you have a Greater chance of death doing:

Peanut allergies or accidental poisoning (56%)

Falling airplane parts or shark attacks (69%)

You hear a lot about one instance and you tend to think it happens more)

Why are certain events more available?

Some are inherently more vivid

Some receive more attention/press coverage

A new danger on the rise? Stay tuned for details!

Availability and Marketing People act on the basis of availability, not actuality.

Cars vs. flying More apt to die in a car (37X safer in a plane)

Parents flying separately

Your friends car vs. Consumer Reports

More sensitive to their friends experience with a car then the reports

Product quality and safety perceptions

The Linda Problem Linda is 31 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

What is more probable?

Linda is a bank teller. 15%

Linda is a bank teller and is active in the feminist movement 85%

More specific is less likely Representativeness Heuristic

Judge the probability that an item is a member of a class by the degree to which the item is representative of (resembles) the class.

In Linda problem, people use resemblance to judge probability.

How much does she resemble a bank teller?

How much does she resemble a feminist bank teller?

May also use resemblance to judge quality.

How do Consumers use Representativeness?

Does this resemble a high-quality item?

Price and quality

Country of origin and quality

Brand and quality

EX: Vacuume cleaner: Dont want it too cheap, so you wont buy a $20 one, but the $300 is too expensive, so you settle for the $40 one. Only use PRICE to determine.

Anchoring and Adjustment Heuristics Are there more or less than 5000 marketing majors?

How many are there? 1500

Are there more or less than 50 marketing majors?

How many are there? 399

Start estimate at an initial value (anchor) and then adjust accordingly. But: Anchors are sticky

Adjustment is often insufficient.

Anchors are often irrelevant.

Can happen for many types of estimates

Even with extreme, impossible anchors.

Anchors and Pricing Real-Estate Study

All agents are shown identical house, listing price is manipulated, asked to give recommended price. As the Listing price goes up the recommended price goes up as well.

Even experts are influenced by anchors.

Pricing:

What might you expect to pay for such a quality product?

EX: Mattress store place has cheaper mattresses in back so consumers pass by all the expensive ones till they go to the $500 ones which then seem like a deal!

How much are you willing to give?

1000? 500? 250? 100? 50? ($50 now seems better)

Negotiations

Importance of the first offer.

Setting the anchor- Starting Salaries

Consumer ChoiceOutline: Influences on Consumer Choice Framing

Status Quo bias

Mental Accounting (and sunk costs)

Conflict

Fairness

Evaluability

Self-Gifts

Decision Rules

From Judgment to Choice

Judgments may often be biased:

Natural consequences of information processing.

Satisficing- Giving up on perfection to reduce effort

Recall rational model

We assess the utility we get from any option

Judgment findings suggest we may be biased here

We choose the option with the most utility

Examine choice behavior

Even if utility assessments are biased. Rational model requires that they be relatively stable.

Example: Imagine that the US is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows:

67% If Program A is adopted, 200 people will be saved

If Program B is adopted, there is a 1/3 probability that 600 people will be saved, and a 2/3 probability that no people will be saved.

Alternative Framing:

14% If Program A is adopted, 400 people will die.

86% If Program B is adopted, there is a 1/3 probability that nobody with die, and 2/3 probability that 600 people will die.

Choices are the same The risky option is chosen when it seems like a choice among losses.

The sure option is choices when it seems like a choice among gains. I. Framing Effects

Changes in choices that arise when irrelevant aspects of the choice description are changed. The acts, outcomes, and contingencies of the choice do not change. And yet the preference itself changes.

Whats going on?

Framing Effects and Risky Choice: Prospect Theory

We value outcomes as gains and losses relative to a reference point.

There is diminishing sensitivity to gains and losses.

Losses have a bigger impact than an equivalent gain We are risk-averse when choosing among two gains that have equal expected value.

Get $50 for sure (pv $50)

50% chance at $100, 50% chance at nothing

Sure thing has greater expect psychological value

Most people will lock secure thing over gambling.

We are rick-seeking when choosing among two losses that have equal expected value.

Lose $50 for sure (pv $50)

50% chance at losing $100, 50% chance of loosing $0

Risk has greater (less negative) expected psychological value.

People want to take the risk

Gains and losses are not absolutes

Danger of thinking in terms of gains and losses.

Disease Problem

200 people will be saved vs. 1/3 change 600 people will be saved(choice among gains) *Sure Thing

400 people will die vs. 1/3 chance nobody will die(choice among losses) *Gamble

The preference for an option will depend on how its described because risk preferences are sensitive to whether things seem like gains or losses.

Another Example:

Imagine you are $300 richer than you are today. What would you prefer?

Gaining $100 for sure (Most people prefer- risk averse option)

50% chance at gaining $200, and %50 change at gaining nothing.

Imagine you are $500 richer than you are today. What would you prefer?

Losing $100 for sure

50% chance at losing $200, 50% chance at losing nothing. (this was preferred option)

But, both amount to a choice between $400 for sure vs. a gamble between $300 and $500. It is the way the questions are worded is what determines the choice.

Framing and Perceptions of Quality Ground beef that is:

25% fat

75% lean

How greasy do you think it was taste (1-7 scale)?

25% fat: 4.9 greasy

75% lean: 3.6 greasy

How would you rate the quality (1-7 sale)?

25% fat: 3.6

75% lean: 4.6

Where else to do we see framing effects?

How much did you save?

Otarian- Saved 1.02 grams of carbon

Price Tags You saved 199 trees

Discussions of the economy

Jobs saved

Rate of economic growth (vs)

2 for 1

II. Status-Quo Bias

(A close cousin to Framing) Given two options, people elect to stay with whichever is described as the status quo.

Example: Inherited money

Some told the money is in stocks.

Some told the money is in bonds.

More likely keep money in stocks/bonds to maintain status quo

Example: Enrolling in retirement (401K) plans:

If status quo is youre not enrolled 39% elect to enroll If status quo is youre automatically enrolled 86% remain enrolled Implications for brand switching etc.

III. Mental Accounting

Money is technically fungible.

Any money could theoretically be spent for any purpose.

People dont treat money as fungible.

People are sensitive to the source of money.

People set up mental sub-accounts and budgets, and allocate spending based on those sub-accounts.

Entertainment account comes from Job$, Food account comes from Moms $, Something Special for me comes from $ Grandma sends for birthday.

Lost Ticket Problem

Imagine you are about to attend a concert. As you go to enter, you see you have lost you $50 general admission ticket.

Do you buy another ticket? 54% yes. There is a sense of Now Im spending $100 on a concert

You do not yet have a ticket. As you go to enter, you see that you have lost $50.

Do you still buy a ticket? 70% yes I still planned on going to the concert. In both cases, people lost something worth $50. People seem to consider the balance in the entertainment account not simply whether they have $50 to spend.

People tend to think logically- How much you are spending on a ticket, rather than globally- how much $ you have.

Jacket/Calculator Problem

Imagine you are about to purchase a jacket for $125 and a calculator for $25the calculator is on sale for @12 at the other branch, located 20 minutes away.

Would you make the trip? 66% yes Seems like savings of 50%

a jacket for $25 and a calculator for $125the calculator is on sale for $112 at the other branch, located 20 minutes away.

Would you make the trip? 22% yes

Seems like savings of a little more than 10%

Save the same AMOUNT of money with either option

IV. Sunk Costs Sunk costs: Prior investment of time, money, or effort That investment is gone and can never be recovered.

And yet, the fact that weve spent it leads us to make choices we otherwise wouldnt have made.

Airplane Example: With sunk cost: 87% invest in doomed plane

Without sunk cost: 12% invest in same project.

Season Tickets

Customers are randomly divided into three groups: 1/3 bought tickets for $15 each. 1/3 given a surprise $2 discount on each. 1/3 given a surprise $7 discount on each. People who paid more for the tickets have a higher attendance

Amount paid shouldnt impact willingness to attend Health Club Payments

Attendance greater right after payment/renewal. Overall attendance greatest if on 12 month payment plan.V. Conflict

Example:

Buy a Sony stereo for $99 (one-day sale)? 66% yes 34% wait

Buy a Sony stereo for $99 (one-day sale)?

Buy a top-of the line Aiwa stereo for $169?

27% Song 27% Aiwa 46% wait (makes decision harder)

Why? There was a conflict introduced by Aiwa. Conflict increases the likelihood of deferring decision.

Example:

Complete a questionnaire for $1.50

After completion:

1.50 vs. metal pen (25% take cash)

1.50 vs. metal pen vs. two plastic pens (53% take cash)

Adding an alternate pen introduced conflict.

Violates Regularity

Adding an alternative similar to the target alternative decrease the likelihood of the target being chosen.

A default option becomes more likely to be chosen.

Reducing Conflict In Special circumstances, adding an option can reduce conflict, increasing preference for target.

If new option is of clearly inferior quality:

$6 vs. elegant pen 36% take elegant pen

$6 vs. elegant pen vs. cheap pen- 46% take elegant pen

Asymmetric Dominance/Attraction Effect

If new option has a much higher price:

Williams-Sonoma bread maker- Introduced new, expensive bread maker, make other (original) bread maker seem like a better deal- they sold more.

Compromise Effect

VI. Fairness

Willingness to pay for a beer From a nice hotel? $2.65

From a run-down grocery store? $1.50

Fair price may be determined by non-economic considerations.

When is a price increase seen as fair by consumers?

Fair to protect profit or prevent loss

NOT to make a bigger profit. NOT because others are making bigger profit. NOT because of shortage, NOT because the customer can may more than before

Must select the right reference profit when explaining pricing decisions.

Fairness is more important then economic soundness

EX: Pepsi/Coke charges more on hot days VII. Evaluability EX: Dictionaries

One group sees dictionary A: 20,000 entries, torn cover

One group sees dictionary B: 10,000 entries, new cover

One group sees both dictionaries

When people only see B, they are willing to pay more

Joint evaluation vs. Separate evaluation

Evaluability: how easy it is to tell whether an object performs well on a certain attribute?

Certain attributes are easier to assess when objects are evaluated together (jointly) than when each object is evaluated on its own.

Often these attributes represent things like quantity, frequency. (also food portion size).

Those attributes will only have an effect under joint evaluation.

Even if those attributes are seen as more important overall.

VIII. Self Gifts Generally premeditated and indulgent, people like to treat/reward themselves. Some paradoxical patterns

People will pre-commit to luxuries (and constraint their options) to ensure self gifts.

Want to lock in gifts

$200 in cash vs. $200 dinner for two

In future: Take dinner

In Present: Take Cash

IX. Decision Rules Non-compensatory: One strike and youre out. Deal-Breaker

Dell: 750GB hard drive, 2.6 GHz processor, 21 monitor, $699

HP: 650GB hard drive, 2.7 GHz processor, 19 monitor, $650

Gateway: 700GB hard drive, 2.7 GHz processor, 19, $699

Lexicographic Rule: Determine the most important attribute and select the brand that does best on it.

Most important attribute is price Choose HP

Elimination by Aspects Rule: Determine the most important attribute. Eliminate any brands not meeting a minimum level on that attribute.

Most important is that it needs to be below $800 Eliminate none

Next most important is that it needs to have at least a 21 monitor Eliminate Gateway, HP.

Conjunctive Rule: Go brand-by-brand. Assess whether each brand meets the minimum cutoff on all relevant attributes. Put all important attributes together and eliminate that way

Need a price below $800, a 700+ GB hard drive, and a 2.7 processor

Eliminate Dell, HP. Choose Gateway

Compensatory Rules: Combine across features to decide which is best?

Simple additive: Choose the one with the largest number of positive attributes.

Weighted additive: Assign weights to the attributes and sum across attributes to choose the overall best option.

Example

Car 1: Good color, bad gas mileage, very reliable, nice floor mats Car 2: Bad color, good gas mileage, very reliable, bad floor mats Consumer JudgmentManagerial (and Consumer) Judgment

Managers often need to make decisions

In the face on uncertainty

despite information-processing limitations

Should we run an ad during the Super Bowl?

Many things could bias, including:

Availability heuristic- remember good ads, forget bad ads

Sunk Cost

Consider a few ways in which managerial judgment is especially likely to be biased.

The Case of AOL

1996 Robert Pittman appointed President; he switched to flat-rate pricing (before it was by the hour). They faced a major change in pricing in four weeks.

What will you find out what you need to know?

Scan environment

Crunch #s- Stagger implementation

Faced with a time limit and high uncertainty, what do you do?

They did an aggressive marketing/advertising campaign

Added 1200 modems

Number of login increase 68%. Average session length increase from 14 mins to 32 mins. House online per month increased.

We see a demonstration of overconfidenceOverconfidence Joseph Kidd case, he had a psychological disorder People Learn something about guy, take test, dont do well, but get more confident

Learn something else about the guy, take test, dont do well, but get even more confident

People were given more and more parts of information, then take the test, there was low accuracy, but increased confidence as they were given more info

Rate confidence that each answer is right from 20% (chance) to 100% (certainty) Confidence goes up as they learn more about him.

Another example: 12 childrens drawings: From Europe or from Asia?

Accuracy: 53%

Confidence: 68%

Another example: Reports on 12 stocks: will they rise or fall?

Accuracy: 47%

Confidence: 65%

Another example: Express certainty of answers with odds.

3:1 odds = For every three time Im right, Ill be wrong once = 75% confidence

99:1 odds = 99% confidence

As confidence increased from 3:1 to 100:1, accuracy did not increase

Another way to assess calibration: The Surprise Index

Assessing the surprise index:

Elicit a confidence interval. For example: Give an interval so that youre 90% confident that the distance from London to Tokyo lies within it.

Check: Does the interval include the right answer?

Compute the proportion of times (across many questions) that the right answer is outside of the interval. This is the surprise index

The Surprise index indicated whether people are overconfident If the interval is to represent 90% confidence, what should the surprise index be if people are appropriately confident? (10%)

What would indicate overconfidence? Underconfidence?

Across many studies with a 98% confidence interval:

Every study had a surprise index >2%

Averaging across all studies, surprise index: 32%

Your results: 98% confidence interval for

Walmart 2009 revenue: Actually $408 billion

McDonalds 2009 Revenue: Actually 22.7 Billion

Think back to AOL

Overconfidence- General conclusion

Overconfidence is fairly prevalent

Overconfidence greatest when accuracy near chance.

For every easy tasks, people may be underconfident.

In general, confidence does not indicate accuracy. Escaping Overconfidence Overconfidence can be reduced with regular feedback and when you list reasons why you might be wrong

Correct for other overconfidence. Be wary of 100% confidencePlanning Fallacy

The fallacy is to believe your project will proceed as planned, even though you know that most similar projects have run late. Lab examples

Students completing honors thesis:

Estimate: 33.9 days; Actual 55.5 days

Other short-term academic project:

Estimate: 5.8 days; Actual 10.7 days

Non-academic project:

Estimate: 5 days; Actual 9.2 days

Why does the planning fallacy arise?

People ignore base-rates

All those other times were flukes

People engage in scenario thinking

They construct a scenario in which the task gets done.

Easy-to-imagine events seem more likely

Abolishing the planning fallacy

Focus on relevant past experiences AND think about why this might turn out like before.

Regression to the Mean Ex. Instructors at flight school: a study on how flight school instructors taught training pilots how to land a plane, even if they did a good job he said they did horrible, if you give them positive reinforcement, they are likely to slack off the next time Ex. Sport Illustrated jinx: the madden curse, whenever an athlete was on the cover of sports illustrated or the madden football video game, they were more likely to perform worse Whats happening?

Performance fluctuates- either really great or really poor Eventually, all will regress to the mean, an average performance

By definition, not every performance will be exceptional

The performance following an exceptional performance will almost inevitably be less exceptional!

But, people seek a further explanation, ignoring regression to the mean(oh, it must be because of this) Bad because..ex. sales are low this quarter, manager decides to fire all of his sales staff because he thinks it is their fault when it was really just regression to the mean

Implications:

Measures designed in reaction to a crisis will be judged to have worked

Likely to affect judgment of both managers and consumers. Tyranny of Choice? Take a free sample from a display of: 6 jams vs. 30 jams

Then given a chance to purchase:

More likely to purchase if initially selected from 6 jams than from 30 jams

Further studies showed post-perchance satisfaction greater when choosing from a limited choice set.

Summary: Choice can be affected in many ways not accounted for by the normative theory. Managers are also likely to exhibited biased judgments. Too much choice, though, can leave us dissatisfied.

Social Influence and Decisions: Conformity, the Presence of Others, and Power

Outline: Normative Conformity

Informational Conformity

Pluralistic Ignorance

Diffusion of responsibility

Social loafing

Bystander effect

Power

Aschs Study of Perception

In a room with others, asked to judge which comparison line (in B) matched the standard (A).

Suddenly, all others began giving wrong answers!

Really a study on conformity

How often will you go along with group and how often will you stick with your own, right answer.

Results:

When others gave wrong answer:

76% of nave subjects conform at least once.

On average, people conformed on a third of these trials.

One subjects thoughts- Standing out like a sore thumb

If nave subject allowed to give answers privately, conformed on a 12.5%.

People less likely to conform if people cant hear their answers.

Driven by saying answers aloud, not by believability.

Conformity went up with group size (to a point)

I. Normative Conformity Definition: Conformity to meet the expectation of a person or group (Peer pressure- changing what you are doing/thinking in response to a group).

Asch study

May only lead to mere compliance (not private acceptance)

Just going long with it changes behavior but does not necessarily change your thoughts and what you really think about it.

Norms

Definition: information rules that govern behavior Descriptive norms: no pressure to conform How things are- most people east breakfast Prescriptive Norms: Some press to conform How things should be.- expectations in terms of what you should be doing. Consequences of Norm Violations

Johnny Rocco Study Discuss appropriate punishment for Jonny. One group member (deviant) told to always disagree. Deviant received many comments and questions at first, then he was ignored and punished. The group is trying to come to an agreement, and deviant is violating the norm. Violating norms is aversive!

Most people try to not violate norms

Norms work for your favor if everyone needs your product to fit it

Will your consumer be violating norms when they buy/use your product? (cigarettes, certain cloths, porn, Viagra)

Sheriffs Study of Perception

Really a study on conformity Dark room, dot of light 15 feet away.

How much does it move? (several trials)

Autokinetic effect: Dot isnt moving, but you think it is. People generate fairly stable estimates. (how many in? it is moving? Ex: 2-3 inches

Estimates differ person-to-person

Participants return 2 days later to make estimates in a room with 2 others.

Subject start to converge and conform to the same answer. You dont know how much the dot is moving, so you take others answers and use them to make your answer more appropriate (close to the correct answer).

People are then tested a third time, this time by themselves. Their answers reflected those that were learned from the group (informational conformity) used other peoples answers to learn what the correct answer is

II. Informational Conformity Conformity because groups behavior helps you learn whats right or true in an ambiguous situation.

Mimic others behaviors because it seems to be correct

Assume their behavior is a valid indicator.

Sheriff study: Later allowed to re-estimate in private.

Leads to private acceptance (not just mere compliance).

Crime and Suicide

35 suicide stores, for each story an extra 58 people killed themselves. Suicides that got more coverage led to a greater # of follow up suicide deaths.

A strange pattern:

After high-profile suicides: (national news) there was a big increase in accidents that, upon investigations, appear to be masked suicide.

Increase in accidents further investigation showed they were suicides. Only in areas where the suicide was widely-publicized. Was greater when suicide got more coverage.

Effects of similarity of victims:

Suicides led to a spike in single-passenger accidents.

Murder-suicides led to a spike in multi-passenger accidents.

Age- when younger person is in paper for suiced, younger people kill themselves.

Homicides go up after highly-publicized acts of violence.

Heavyweight championship fights that receive evening new coverage increase homicide rate. Copycat crimes

Could theses be cases of information conformity? (learn how people just like me deal with pain/stress. III. Presence of others: Pluralistic Ignorance

Virtually every member of a group privately feels one way, yet believes that virtually everyone else privately feels another way

People mistakenly think that theyre out of step with everyone else.

Looking around in a classroom, I feel confused but everyone else looks like they understand. However, everyone is confused but hiding it (like you).

Discrepancy between peoples private views and their public acts.

Results in conformity from almost everyone

People are conforming to a norm no one is actually happy with!

Examples:

Gang Members

College Drinking

Women own comfort = 4.8, other comfort = 7

Men own comfort = 5.8, other comfort = 7

Will lead to conformity

How to dispel pluralistic ignorance? EDUCATE ABOUT IT Peer session (about pluralistic ignorance) vs. Individual session (about responsible alcohol choices)

Those who were in the peer session (about pluralistic ignorance were less likely to drink (because they realized that less people actually liked to drink than they thought)

Months later: Peer session participants averages 3 drinks per week, and individual session participants averages 4.9 drinks per week

Some products /interventions seem to suffer from pluralistic ignorance problems:

Condoms: I know using condoms is good, but Im worries about what my partner may think (often times partner feels the same way)

You may need to dispel pluralistic ignorance, rather than convince people that your product is good

Ex: you partner wants you to use condoms

IV. Presence of others: Diffusion of Responsibility Social Loafing

Diffusion of responsibility- Responsibility for an action gets spread over the whole group. People dont work as hard when put into a group

Social Loafing As a consequence of DoR, people do not devote as much effort to a task when their contribution is part of a larger group effort.

College students yelling

Louder when thought they were alone

Social loafing eliminated when told that their contribution would be measured

Examples are all around us:

Tipping in restaurants people tip less per person when in a group then if you are along (why many restaurants add gratuity for groups)

Group projects!

V.Presence of others: Diffusion of Responsibility- Bystander Effect

More likely to act/help when fewer people are around!

Kitty Genovese

A woman was attacked, chased around for 30 minutes before being stabbed, 38 neighbors said they heard and saw things but no one called police or helped. No one called b/c there were so many others who could call.

Smoke study

Single subject: 75% reported

Groups of three: 38% reported

VI. Power Taxonomy of Power

Referent Power- (informational conformity) people who you admire. You imitate them, and follow their behavior because you are trying to be like them.

Ex: celebs, parents, mentors

Information/Expert Power (informational conformity) some sort of knowledge you try to learn from someone. Not trying to be like them but follow their advice/behavior because they are experts. (someone knows something you dont) Ex: Accountants

Reward Power (normative conformity) Can reward you in some way

Go along with what someone says/wants to get reward

Ex: Friends- social acceptance

Parents- allowance

Professor- good grades

Coercive Power- (normative conformity) Can punish you (boss or parent)

Go along with what someone says/wants to avoid being punished

Does not lead to private acceptance

Legitimate Power - (informational/normative conformity) Conform because you should

Meter feeding-law enforcement Informative: learning what he/she says must be true

Normative: I might not believe it, but Ill do it anyway

The Power of Legitimate Power: The Milgram Studies Students reads work pairs, has to remember tree, river, etc. If he gets right answer he movies on if not he is shocked. However, no one really gets shocked the student is acting.

2/3 men agree to use highest shock

73% of women went all the way

Experimenter had legitimate power (also has expert power)

Both normative and information conformity at work

When power was removed, no one gave the maximum shock

When a fellow subject was assigned the experimenter role

When the student (but not experimenter) encouraged continuance.

Power can make us do things we wouldnt believe wed do. Social Influence and Decisions: Reference Groups and Word of Mouth

I. Reference Groups

Individual or group that sets standards for appropriate thoughts and behaviors.

Aspirational Groups- not a part of, but we idolize (Referent Power)

Celebrities, sports teams, frats/sororities

Membership Groups

Formal: Club, Team, Frat, Sorority (structured rules/criteria to be a member)

Informal: Circle of friends (more influential) Avoidance Groups (Dont want to be a part of- Anti-Referent)

Antismoking campaigns (see the group, so you do the opposite) What makes some groups more influential than others?

1. Cohesiveness- Close, tightly knit = more influential

2. Unanimity- more agreement, less diversity

3. Group size- bigger group = more influential

4. Power (Expert/Coercive/Reward)

Specific Influential People Option Leaders

Act as information brokers (break down info and filter it for us)

No stake in products success

Celebrities or average people

Often fairly similar to the people theyre influencing

Socially active, well-connected

Experts in one category or several related categories

Evaluate product early (and absorb risk)

Firms sometimes try to reach or even develop opinion leaders.

Market Mavens

Solid overall knowledge

Not specific category expertise

Interested in shopping and staying on top of whats happening in the marketplace

Surrogate Consumers

Paid

Interior decorator, ect.

Word of Mouth (Viral Marketing)

Advertising is good for awareness but WOM is good for product adoption

Is it effective?

Yes, especially in evaluating and adopting new products Influences about 2/3 of consumer-goods sales

More effective than ads?

Why is it effective?

More trustworthy than marketer-controlled sources (informational conformity)

Desire to fit in with friends/family (normative conformity)

Most relied upon when:

Unfamiliar new product (complex, risky)

No clear, objective standard available for judging

People are especially reluctant to use ad to make decision. (you would use WOM for various services more likely than ads)

Marketer unable or unwilling to advertise

Lawyers

Ashley Madison (website where you go to have an affair)

When WOM goes bad

People may be vocal about their negative experiences (homedepotsucks.com)

People may create hoaxes/rumors about you:

Febreze Febreze kills pets

Proctor and Gamble satanic

What do you do?

Nothing: Rumors stay out there

Something locally- small , too small

Something discreetly- never address rumor

Something Big- deny rumor, also spreading it at same time

Belief Perseverance- You cant un-ring a bell Rumors are sticky

Information still exerts influence, even if proven false

Guerrilla Marketing Create perception of buzz or positive WOM

Like guerilla warfare, shun traditional tactics.

Red Bull appearing on campuses- put empty cans all over campus after exam weeks to make people think others use it to study.

Planting products with buzzers- hired to generate buzz about product

Viral Marketing Get customers to sell for you

EX: Hotmail, Yahoo! Every time you send a message using these sites your recipient gets an ad.

Family, Organizational, and Group Decision Making I. Organizational Decision Making

Consumer decisions in organizations (B2B)

More $ than in consumer decision making

Characteristics

Often made by groups or committees

Often involves substantial amounts of money

Often involves personal selling One sales person assigned to your account (builds relationships)

Examples: Raw materials, Supplies, Real estate, Office supplies, Services (Consultants, accountants, ad agencies)

Buy-Class Framework Types of organizational decisions:

Straight Re-Buy (Low effort/risk)- Need thats been filled before refill it same way

Out of ink- order more

Modified Re-Buy (Low to moderate effort/risk)- Need is similar to something bought before, with a slight change

Had a cleaning service before, thinking about upgrading

New Task (High effort/risk)- **This is where its more important to understand group decision-making** - New to organization, never bought before

Decision to carry a whole new product line

II. Family / Household Decision Making

Household (def.) Any occupied unit/dwelling

Family Household (def.) At least 2 people, somehow related

Traditional Households

Extended Families 3 or more generations Nuclear Families Parents and Children Less nuclear families, more single parent, blended, childless, families Contemporary Households

Size- 3.3 in 1960 -> 2.5 today Composition (POSSLQ) People of opposite sex sharing living quarters Trends The new extended family as people are getting older, moving back in with their grown children or when kids move out, more move back in (boomerang kids). Family Life-Cycle Consumption determines in part by place in the life cycle

Consider factors such as: (4 necessary variable)

Age

Marital status

Children at home

Childrens ages

What do people consume?

Without kids- snack foods, restaurants, cleaning/lawn services, entertainment

With kids

Younger: baby food, health food, childcare/healthcare

Older: Junk food, home maintenance

Empty nesters Cars, womens clothing

Seniors Healthcare, travel, entertainment

Types of Decisions Autonomic: Made by one person

More likely for:

Simple (low-involvement) products

Families who endorse gender stereotypes- traditional family

Families with an imbalance of resources- one person makes the $

Families with experience making decisions together

Families who are low or high SEC (socio-economic status)

Husband-dominant products Insurance, law, alcohol

Wife-dominant products Food, cleaning, kids clothing, furnishings

Syncretic: Made by the family (any time decision isnt made by one person) Seen with bigger purchases (car, vacations)

Types

Consensual- All agree about preferences/priorities

Accommodative Preferences/priorities are not aligned and in disagreement

Group Polarization

Discussion typically strengthens the average initial inclination of group members- start out in favor of something, put in group to discuss, come out even more in favor of that thing.

Example: Business students deciding whether to take out a high-risk loan to save an ongoing project (Sometimes called decision polarization)

Pre-discussion: 72% agreed

Post-discussion: 94% agreed

Why does it happen?

Two categories of explanations

Getting extra information (informational influence)

Desire to fit with the group (normative influence)

Groupthink

Agreement-seeking becomes so dominant that alternate courses of action are not examined.

Happens when:

Group is cohesive (close)

Group is isolated from dissent (working in secret)

Arguments are suppressed

Mocking

Mind-guard- takes on role of group protector

Self-censorship- b/c we want to agree

Directive leader signals a preference

Even groups of very smart people make bad decisions

Example: Bay of Pigs Invasion orchestrated by JFK

Secret plan to train 1400 Cuban exiles, launch rebellion to overthrow Castro- DIDNT WORK AT ALL. They looked back at plan and saw numerous faulty assumptions. Preventing Groupthink

Education (about groupthink)

Impartial leader

Encourage doubters

Assign a devils advocate

Break into smaller groups

Example: Challenger explosion

Seals werent meant to hold in cold weather, gasses mixed and shuttle blew up. Months earlier, we dont know if seal will bold in cold weather. Engineer voted not to launch, managers over rode, Nasa launched

Information Sharing in Group Studies on group deliberation

Information was divided across the group

Shared info: known by all members

Unshared info: known by one member

Results:

Shared info discussed more often, discusses sooner

The only way decisions improved though, was when people pooled their unshared information together.

Encourage sharing of unshared!

Consumption, Satisfaction, and Disposal: What happens after purchase?What might we want to manage in consumption?

Amount consumed, Consider:

-When consumed?

Wine- We want consumers to consume on a regular basis as opposed to saving it for a special night.

Orange juice- consume at other times other than breakfast.

-Where consumed?

-import vs. domestic- try to get drinkers to have imports at home

- How consumed?

-Arm & Hammer baking soda- positioned to use as a odor absorber as well as in baking

- How often consumed?

- services- stickers to get oil changed

-How much consumed at once?

-Poptarts, 1 serving of poptarts is one poptart, however they come in two to a package, therefore the consumers tend to consume more than the serving

-detergent caps- bigger than what you need so you use more detergent.

What might we want to manage in consumption?

Satisfaction with consumption. Consider:

Enjoyment

(perceived) Quality (and value)

Do we choose what we will enjoy?

-not always

- choice drivers may differ from enjoyment drivers

Example: River Rafting

how many rivers are we going to do down?

how many amenities?

-Satisfaction has more to do with intangible things- feelings, emotions, harmony with nature.

Preference in Choice vs. Preference in Consumption

-In choice, quantitative differences seem important.

-may choose the item that maxes out on a particular easy-to-quantify dimensions.

-Qualitative differences often end up affecting real experiences more

-Apt complexes draws students in by a long list of amenities; however, whether you like it or not usually depends on experience there.

Feature creep- so many features.

Choice vs. Consumption Experience-People do not predict well that theyll like:

- some attributes loom large in choice, not in experience.

-People arent good at predicting future tastes.

-Plain yogurt- people predicted they would hate it by the end of a week (tasting it everyday for a week), they actually became neutral about it.

- chocolate ice cream- people thought they might get sick of it at the end of the week, but actually they didnt.

The Endowment EffectGroup 1 (sellers) were given a mug and asked to set a price to sell for it. $6

Group 2 (buyers) shown the same mug and asked to set a price for how much they would purchase it. $1.8

-Both groups have the same task- how much is it worth to you.

-Sellers require more money to part with the mug than the buyers would pay to acquire the mug.

-There is no real reason for the groups to differ in the value of the much

-MERE OWNERSHIP INCREASES PERCEPTION OF WORTH

*Buyers were given candy, and they were allowed to trade for mug. Very few people traded.

Are people aware that their values are so dramatically affected by ownership?

Second part to experiment:

-if you are a buyer, predict sellers valuation of the mug- $4.2

-if you are a seller, predict buyers valuation of the mug- $3.9

-Sellers require more money to part with the mug than buyers would pay to acquire the mug.

-but people dont seem to realize that this will happen

-EMPATHY GAP- cant predict how a certain change will affect you.

More on Empathy Gaps.Example- ordering at a restaurant

-you are starving, so you order a salad, bread, an appetizer and an entre.

*you think you will be hungry still after you eat the bread, salad, and appetizer.

-Can capitalize on empathy gaps:

-Return policy- very few people will actually return online purchases

- encourage pre-commitment-

-telling customers about your chocolate cake that takes a few extra minutes to prepare so you should order it while you are ordering your meal.

-Fridays- 3 course meal for 12.99

-Customers may not always know how they feel or what they will like.

-Enjoyment at consumption may not be well-predicted by choice.

Other Influences on Enjoyment of Consumption

Unforeseen influences

Airplane flights

Happenstance features of the consumption environment- multitasking0 eating while watching tv, etc

-What is the effect of distraction on consumption?

-Background:

-Pain (like from an injection) is actually greater when youre distracted than when youre focusing on it.

- What about enjoyment?

Does Distraction Influence Enjoyment? -Taste Lindt chocolate:

- high distraction: while remembering an eight-digit number.

- low distraction: while remembering a two-digit number.

- Mext choose between Lindt and Godiva chocolate.

-high distraction: 66% choose Lindt

-low distraction: 46% choose Lindt.

-People liked Lindt MORE if distracted while tasting it

Two- Factor theory:

-two things contribute to our enjoyment of an experience:

-affective component

-cognitive component

- with something like chocolate, affective may be more positive that cognitive

Distraction(reduced influence of cognitive component.

Reduced influence of cognitive component(increased enjoyment/liking of product

Distraction and the Cognitive Component-Follow-up: if people are encouraged to focus on affective component, they like chocolate more, even if they arent distracted.

-they tune out the (more negative) cognitive component

-Distraction promotes enjoyment if affective component is more positive than cognitive (like with chocolate)

Choices will not always predict enjoyment: -We may not know what we will like..

-other factors may intervene

-So, you cant be sure consumers will enjoy your product just because they chose it.

-But the enjoyment is only part of the picture.

(Perceived) Quality:

Beyond enjoyment, consumers make judgments about quality.

Acceptable level seems to vary

Expectations determine acceptable level

Expectancy Disconfirmation Model

Expectancy formed when:

-Prior experience with product.

- ad campaigns and packaging

-Word of Mouth

-promises or warnings- out of stock, kitchen backed up, delivered on

Three potential outcomes:

Expectancy met.

Positive disconfirmation.

Encourage

Negative disconfirmation

Avoid!

What if data is ambiguous?

-Cant tell if expectancy is met.

What sorts of products? Vitamins, financial consulting, detergents

-If you have a prior expectancy, odds are youll confirm it.

-perceptual confirmation againAre people satisfied with their products?

-American Customer Satisfaction Index (ACSI)

(all below influence satisfaction, yet expectations influence perceived quality and perceived value.)

-Measures:

Expectations

-experience with product

- information about product

Perceived quality- most important

-overall quality

- overall reliability

- were needs met?

Perceived value:

-overall price given quality

-overall quality given price.

ASCI SCORES

Highest: soft drinks, pet foods, apparel, personal care

Moderate: Gas stations, life insurance, athletic shoes, grocery stores- Publix best ranked.

Lowest: fast food, banks

Really low: IRS

Overall, were satisfied.

Dissatisfaction

When/why do people get satisfied?

How do they respond?

-To store (voiced response)

-To friends/acquaintances (private response)

-third party- Better Business Bureau, writing a letter to the newspaper, reviews on website, blogging

Factors leading to voiced response:

-Awareness of proper channels and ability (including time) to use them.

-Large investment in product.

-expense

-long-standing relationship

-bound to future relationship

-General satisfaction with store.

-Stores likelihood of response.

Managing Dissatisfaction Must do it. Its cheaper to retain old customers than acquire new customers. Three responses: Receive something free- only thing that really helps improve view Receive apology-does nothing Receive nothing- worst option Diposal-May be usable but no longer useful.

-Options: Keep

Temporary disposal-loaning out, rent

Permanent disposal-sell, donate, give.

**each has its own set of options.

Why care about disposal?-disposal may be necessary for re-purchase

-disposal in the form of selling used merchandise may hurt firm.

-disposal of the firms packaging: may be wasteful and may make the firm the target of protests, boycotts.

Ex- mcdonalds- used to be packaged in Styrofoam, however that stirred protests so they switched to plastic and paper even though that generates more energy to produce.