CONSUMER DECISION MAKING

Lecture 7MBA 2K10

Lecture Objectives Consumer decision making is a central part of

consumer behavior, but the way we evaluate and choose products varies widely.

A decision is actually composed of a series of stages that results in the selection of one product over competing options.

Decision making is not always rational. We often fall back on well-learned “rules-of-

thumb” to make decisions. Consumers rely upon different decision rules

when evaluating competing options.

Stages in Consumer Decision Making

Decision-Making Perspectives Are consumers

rational when they make purchase decisions?

What is purchase momentum?

What cognitive processing styles affect consumer decision making?

Sometimes consumers are rational and sometimes they are not. They buy things at times with no advance planning, on an impulse, or do something different from what they intended.

Consumers react to purchase momentum which is when an initial impulse purchase increases the likelihood that we will buy even more.

Some have a rational system that processes information analytically and sequentially using logic while others rely on an experiential system of cognition.

Continuum of Buying Decision Behavior

Steps in the Decision-Making Process

Problem recognition

Information search

Evaluation of alternatives

Product choice

Stage 1: Problem Recognition Occurs when consumer sees difference between current state and ideal stateNeed recognition: actual state declinesOpportunity recognition: ideal state moves upward

Stage 2: Information Search The process by which we survey the environment for appropriate data to make a reasonable decision

Prepurchase versus Ongoing Search

Prepurchase Search Ongoing Search

Determinants Involvement with purchase

Involvement with product

Motives Making better purchase decisions

Building a bank of information for future use

Outcomes Better purchase decisions

Increased impulse buying

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

Internal searches are based on our own memory banks while external sources come from other sources

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

Loss aversion: We emphasize losses more than gains

Prospect theory: risk differs when we face gains versus losses

How much search???? Amount of Information

Search and Product Knowledge

As a general rule, purchase decisions that are perceived as risky will involve more extensive searches.

Risk is felt whenever there is a belief that there may be a negative consequence associated with the decision

Five Types of Perceived RiskMonetary risk

Functional risk

Physical risk

Social risk

Psychological risk

Evaluation of Alternatives

Evoked Set

Consideration Set

Levels of Categorization

Product Choice: How Do We Decide? 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 complicatedPrior experience with (similar) productPresent information at time of purchaseBeliefs about brands (from advertising)

Evaluative Criteria Evaluative criteria: dimensions used to

judge merits of competing options Determinant attributes: features we use

to differentiate among our choicesCriteria on which products differ carry more

weightMarketers educate consumers about (or

even invent) determinant attributes○ Pepsi’s freshness date stamps on cans

Cybermediaries The Web delivers enormous amounts of

product information in seconds Cybermediary: helps filter and organize

online market informationExamples: Shopping.com, BizRate.com MySimon.com NextTag.com, PriceGrabber.com PriceSCAN.com

Heuristics: Mental Shortcuts Heuristics: mental rules-of-thumb for efficient

decisions

Product Signals

Market Beliefs

Country of Origin

Choosing Familiar Brands Zipf’s Law: our tendency to prefer a

number one brand to the competition Consumer inertia: the tendency to buy a

brand out of habit merely because it requires less effort

Brand loyalty: repeat purchasing behavior that reflects a conscious decision to continue buying the same brand

Noncompensatory Decision Rules Noncompensatory decision rules suggest

that a product that is low on one attribute cannot compensate for that weakness with a strength on another attribute.

Lexicographic rule: consumers select the brand that is the best on the most important attribute

Elimination-by-aspects rule: the buyer also evaluates brands on the most important attribute(impose specific cutoff)

Conjunctive rule: entail processing by brand

Compensatory Decision Rules Compensatory models suggest that a strength on

an important product attribute can compensate for a weakness on an attribute of lesser importance.

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