MKT201 - Week 10

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MKT201 - Week 10

• Individual and Organizational Decision Making
• (Ch. 9 12)

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Consumers As Problem Solvers

• A consumer purchase is a response to a problem.
• Steps in the decision process
  (p.304 4 steps only may add one more step)
• (1) Problem recognition
• (2) Information search
• (3) Evaluation of alternatives
• (4) Product choice
• (5) Outcome - satisfactory or unsatisfactory,
  repurchase, loyalty, word-of-mouth
  (Post-purchase behaviour)
• Amount of effort put into a purchase decision
  differs with each purchase.

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Stages in Consumer Decision Making
Figure 9.1
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RECAP Marketing Management BUS205FIGURE 5-1
Purchase decision process of an individual
consumer
Slide 5-7
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Illustrating the Decision-Making Process

• This ad by the U.S. Postal Service presents a
  problem, illustrates the decision-making process,
  and offers a solution.

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Perspectives on Decision Making

• (1) Rational Perspective
• Consumers integrate as much info as possible,
  weigh pluses () and minuses (-), arrive at a
  decision
• How valid is this perspective? Too tedious?
  Think about impulsively grabbing candies while
  waiting to pay at counter.
• Purchase Momentum
• Initial impulses increase the likelihood of
  buying more (NOT rational)
• Constructive Processing
• Sequence of events by which the consumer
  evaluates the effort needed to make a choice and
  then chooses a strategy based on the level of
  effort required

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Perspectives on Decision Making

• (2) Behavioral Influence Perspective
• Buying something on impulse (e.g. surprise
  special in a store)
• Concentration on the types of decisions made
  under low involvement conditions
• influenced by store design, packaging, etc.
• (3) Experiential Perspective
• High involvement
• Stresses the totality (Gestalt) of the product or
  service
• Focuses on consumers affective responses to
  products or services

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Experiential Websites
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Discussion Question
It would seem that it is easy to study how a
consumer makes a rational decision when buying
something, but how would you go about studying an
impulse shopper, or someone who buys an object
just because?
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Types of Consumer Decisions

• Extended Problem Solving
• Corresponds to traditional decision-making
  perspective
• Limited Problem Solving
• People use simple decision rules to choose among
  alternatives
• Habitual Decision Making
• Choices made with little to no conscious effort
• Automaticity Characteristic of choices made with
  minimal effort and without conscious control

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A Continuum of Buying DecisionBehavior (3
types)
Low-Cost Products
More Expensive Products
Frequent Purchasing
Infrequent Purchasing
Low Consumer Involvement
High Consumer Involvement
Unfamiliar Product Class and Brands
Familiar Product Class and Brands
Little Thought, Search, or Time Given to Purchase
Extensive Thought, Search, and Time Given to
Purchase
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Limited vs. Extended Problem Solving
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(1) Problem Recognition

• Problem recognition
• Occurs whenever the consumer sees a significant
  difference between his or her current state of
  affairs and some desired or ideal state
• Need recognition The quality of the consumers
  actual state moves downward
• Opportunity recognition The consumers ideal
  state moves upward
• Primary demand Consumers are encouraged to use a
  product or service regardless of the brand they
  choose
• Secondary demand Consumers are encouraged to use
  a specific brand can only occur if primary
  demand exists

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Problem Recognition
Problem Recognition Occurs Whenever the Consumer
Sees a Significant Difference Between His or Her
Current State and Some Desired or Ideal State.

Need Recognition Occurs By Running Out of a
Product Inadequate Product Creating New Needs
Opportunity Recognition Occurs By
Exposure to Different or Better-Quality Products
Actual state moving downward
Ideal state moving upward
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Problem RecognitionShifts in Actual or Ideal
States
Figure 9.3
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(2) Information Search

• Types of Information Search (a process)
• Prepurchase Vs Ongoing Search
• Prepurchase search Consumer recognizes a need
  and then searches the marketplace for specific
  information
• Ongoing search Browsing for fun or staying
  up-to-date on whats happening in the market
• Internal Vs External Search
• Internal search Scanning our own memory banks
  for information about product alternatives
• External search Obtaining product information
  from advertisements, friends, or by observing
  others
• (Note Types of Information Sources Internal and
  External)

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Consumer Information Search Framework
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Other Types of Information Search

• Deliberate Vs Accidental Search
• Directed Learning Results from existing
  knowledge from previous active acquisition of
  information
• Incidental Learning Passive acquisition of
  information through exposure to advertising,
  packaging, and sales promotion activities
• The Economics of Information (incorporated in
  traditional decision-making perspective)
• Approach that assumes consumers will gather as
  much data as needed to make a decision
• Utility Rewards of continued search (? whether
  exceeding the costs)

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Do Consumers Always Search Rationally?

• Consumers dont necessarily engage in a rational
  search process
• Brand Switching
• Changing brands even if the current brand
  satisfies the consumers needs (to reduce
  boredom)
• Variety Seeking Desire to choose new
  alternatives over familiar ones
• Sensory-specific satiety (satisfied)
• A cause of variety seeking when there is
  relatively little stimulation in the consumers
  environment and people are in good mood
  (particularly for foods and beverages drop in
  pleasantness of just eaten food/beverages)

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Rational Consumer?

• This Singaporean beer ad reminds us that not all
  product decisions are made rationally.

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Biases in the Decision-Making Process
Mental Accounting Decisions are Influenced by the
Way the Problem is Posed (Framing)
e.g. Gain/Loss for a trip to a place with diseases
Sunk-Cost Fallacy Having Paid for Something
Makes Us Reluctant to Waste It.
Air ticket paid, must go
Loss Aversion People Place More Emphasis on Loss
Than They Do Gain.
Prospect theory
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How Much Search Occurs?
Purchase is Important
Need to Learn More About Purchase
Value Style and Image
Search Activity is Greater When
Information is Easily Obtained
Consumers Are Younger, Better-Educated
Women Shop (Than Men)
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The Consumers Prior Expertise
Search Tends to Be Greatest Among Those Consumers
Who Are Moderately Knowledgeable About the
Product.
Figure 9-5 The Relationship Between Amount of
Information Search and Product Knowledge

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Perceived Risk

• Belief that product has 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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Five Types of Perceived Risk

• Purchase decisions that involve extensive search
  also entail some kind of perceived risk.

Figure 9.6
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Perceived Risk

• Undesirable consequences that consumers want
  to avoid during buying process
• Examples
• Monetary Risk
• Finding that the warranty doesnt cover fixing
  your MP3 player buying new athletic shoes and
  finding them on sale the next day
• Functional Risk
• A painkiller doesnt get rid of headaches very
  well a motor oil additive doesnt really reduce
  engine wear

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Perceived Risk

• Physical Risk
• Side effects of a cold remedy, injury on a
  bicycle, electric shock from a hair dryer
• Social Risk
• I dont feel confident wearing this dress
• Psychological Risk
• My friends might think these sunglasses look
  weird on me (sensitive to peer evaluation)

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Perceived Risk in Advertising

• Minolta features a no-risk guarantee as a way to
  reduce the perceived risk in buying an office
  copier.

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(3) Evaluation of Alternatives

• Identifying Alternatives
• Evoked Set Products already in memory (the
  retrieval set) plus those prominent in the retail
  environment
• Product Categorization
• Categorization Mentally placing a product with a
  set of other comparable products
• Levels of Categorization
• Basic level category
• Superordinate category
• Subordinate category

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Evaluation of Alternatives
All Alternatives
Brands that a consumer excludes from purchase
consideration, may be due to unpleasant
experience or negative feedback from others
Acceptable brands
Indifferent brands
Unacceptablebrands
Evoked Set Actively Considered
Inert Set Aware of, But Would Not Buy
Inept Set Not Entering Consideration
Retrieval Set (already in memory)
Prominent Products in Environment
Brands that a consumer is indifferent toward
because they are perceived as having no
particular advantage.
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Discussion Question
If a consumer has already rejected a product from
his/her evoked set, how hard would it be for a
marketer to place it back in there and how would
they go about it?
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Levels of Product Categorization
People group things into categories that occur at
different levels of specificity. e.g. Ice Cream
Cone - ? Apple pie, dessert, sundae,
fattening
Nonfattening Dessert
Fattening Dessert
Ice Cream
Cake
Diet Ice Cream
Fruit
Pie
Yogurt
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Levels of Product Categorization
2. Superordinate Level Includes Abstract Concepts.
Whats dessert? Definition?
Dessert
Nonfattening Dessert
Fattening Dessert
1. Basic Levels Have Much More in Common, But a
Number of Alternatives Exist.
Most useful in classification.
Ice Cream
Cake
Diet Ice Cream
Fruit
3. Subordinate Levels Includes Individual Brands.
(more specific)
Pie
Yogurt
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Strategic Implications of Product Categorization
Orange juice as a drink Comparative Ad
Product Positioning Conception of the Product
Relative to Other Products in the Consumers Mind
Identifying Competitors Are Different Products
Substitutes?
Superordinate level e.g. entertainment (bowling,
ballet) substituted by symphony
Exemplar Products Most Known, Accepted Product
or Brand
Imitator, copycat
Locating Products Consumers Expectations
Regarding the Places to Locate a Desired
Product.
Frozen dog food (grocery store - failure!)
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Product Positioning

• This ad for Sunkist lemon juice attempts to
  establish a new category for the product by
  repositioning it as a salt substitute.

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(4) Product ChoiceSelecting Among Alternatives

• Evaluative Criteria
• Dimensions used to judge the merits of competing
  options
• Determinant Attributes Attributes used to
  differentiate among choices
• To recommend a new decision criteria, a
  communication should
• Point out that there are significant differences
  among brands on the attribute
• Supply the consumer with a decision-making rule
• Convey a rule that can be integrated with how the
  person has made this decision in the past

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Choosing the Solution

• Lava soap lays out the options and invites us to
  choose the solution.

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Cybermediaries

• Cybermediary
• An intermediary that filters and organizes online
  marketing information to aid in evaluation of
  alternatives (one kind of services)
• Cybermediaries take different forms
• Directories and portals (e.g. fashionmall.com)
• Web site evaluators (e.g. Point Communications)
• Forums, fan clubs, and user groups (e.g.
  about.com)
• Financial intermediaries (e.g. PayPal)
• Intelligent agents (e.g. mysimon.com)

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Online Information Search

• Search engines like Ask Jeeves simplify the
  process of online information search.

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Electronic Recommendation Agents

• Intelligent agents and collaborative filtering
• Learn from past user behavior to recommend new
  purchases
• Shopping robots (or bots) filtering
  http//www.mysimon.com/
• 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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Intelligent Agents
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Heuristics
Heuristics are Mental Rules-of-Thumb That Lead to
a Speedy Decision.
Product Signal
Country of Origin
Stereotype, ethnocentrism
Appearance -Quality
Brand Loyalty
Market Beliefs
Specialty shop - better
Common Heuristics
Price/ Quality Relationship
Retail Outlets
Brand Names
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Choosing Familiar Brand NamesLoyalty or Habit?

• Many people buy the same brand every time due to
  Inertia, where a brand is bought out of habit
  merely because less effort is required.
• Brand Loyalty is a form of repeat purchasing
  behavior reflecting a conscious decision to
  continue buying the same brand.
• A brand-loyal customer is actively involved with
  the product for either emotional or objective
  reasons.
• Marketers struggle with Brand Parity, which
  refers to consumers beliefs that there are no
  significant differences among brands.

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Heuristics Simplify Choices

• Consumers often simplify choices by using
  heuristics such as automatically choosing a
  favorite color or brand.

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Heuristics (cont.)

• Country-of-Origin as a Product Signal
• Roper Starch Worldwide categorization of peoples
  level of cultural attachment
• Nationalists (26 of sample) attached to own
  culture
• Internationalists (15 of sample) three or more
  outside cultures
• Disengaged (7 of sample) no attachment to any
  culture
• Country-of-origin Can be an important piece of
  information in the decision-making process
• Stereotype A knowledge structure based on
  inferences across products
• Ethnocentrism Tendency to prefer products or
  people of ones own culture.
• Consumer Ethnocentrism Scale (CETSCALE) Measures
  ethnocentrism

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Discussion Question

• The clothing ad to the right captions, Authentic
  American Clothes Since 1949
• Which of the Roper Starch Worldwide segments is
  this ad designed to appeal to? Is this a product
  where country of origin is typically important?

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Discussion Question

• The clothing ad to the right captions, Authentic
  American Clothes Since 1949
• Which of the Roper Starch Worldwide segments is
  this ad designed to appeal to? Is this a product
  where country of origin is typically important?
• NATIONALISTS
• YES, COO is important here.
• (importance of ethnocentrism
• patriotism)

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Country of Origin

• A products country of origin is an important
  piece of information in the decision-making
  process.
• Certain items are strongly associated with
  specific countries, and products from those
  countries often attempt to benefit from these
  linkages.

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Macanudo Cigars S5

• This advertisement positions the Macanudo cigar
  as part of Americans, even though its imported
  from the Dominican Republic.

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Decision Rules
Consumers Consider Sets of Product Attributes by
Using Different Decision Rules, Depending on the
Complexity of the Decision and the Importance of
the Decision to Them.
Lexicographic
Simple Additive
Compensatory Decision Rules
Non-compensatory Decision Rules
Elimination-By-Aspects
Weighted Additive
Conjunctive
the largest no. of ve attributes
brand rating x importance weights
Lexicographic elimination-by-aspects
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Decision Rules
Consumers Consider Sets of Product Attributes by
Using Different Decision Rules, Depending on the
Complexity of the Decision and the Importance of
the Decision to Them.
Lexicographic
Non-compensatory Decision Rules
Elimination-By-Aspects
Based on most important attribute, then 2nd most
important, and so on.
Conjunctive
Based on specific cut-off attribute, e.g. must
have timer function.
Lexicographic elimination-by-aspects
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Hypothetical Alternatives for a TV Set
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Decision Rules
Lexicographic
Non-compensatory Decision Rules
Decision Choice
Elimination-By-Aspects
Precision
Prime Wave, if sleep timer is the specific
cut-off (must have the function, though not
most important)
Conjunctive
May be Precision, depending on cut-off and
criteria
Elimination-by-aspects, then Lexicographic
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Organizational Decision Making (pp. 415-419)

• Collective Decision Making
• A process in which more than one person is
  involved in the purchasing process for products
  or services to be used by multiple consumers
• Organizational Buyer
• A person who purchases goods and services on
  behalf of companies for use in the process of
  manufacturing, distribution, or resale
• Business-to-Business Marketers
• Specialize in meeting the needs of organizations
  such as corporations, government agencies,
  hospitals, and retailers
• The organizational buyers perceptions of the
  purchase situation is influenced by
• Expectations of the supplier (product quality,
  competence, etc.)
• Organizational climate of his own company
  (culture, values, reward system, etc.)
• Assessment of his own performance

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Organizational Decision Makers

• In the Information Age, organizational decision
  makers must stay on top of clients complex needs.

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Advertising to Organizational Buyers

• Advertisements targeting organizational buyers
  such as this CDW ad for technology equipment
  often try to assuage/release the concerns of the
  risk associated with purchase.
• This ad states, At CDW, we know that every day,
  youre asked to do the impossible. From personal
  account managers to custom configuration, you can
  count on us for brand name products, the way you
  need them, when you need them.

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Organizational Decision Making Versus Consumer
Decision Making

• Factors which distinguish organizational and
  industrial purchase decisions from individual
  consumer decisions
• Purchase decisions frequently involve many people
• Products are often bought according to precise
  technical specifications that require a lot of
  product category knowledge
• Impulse buying is rare
• Decisions are often risky
• The dollar volume of the purchase is substantial
• More emphasis on personal selling than advertising

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How do Organizational Buyers Operate?

• Type of Purchase
• The type of item to be purchased influences the
  organizational buyers decision-making process
• Buying Center
• A group of people who make the more complex
  organizational decisions
• The Buyclass Framework
• Straight rebuy A habitual decision
• Modified rebuy Involves limited decision making
• New task Involves extensive problem solving

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Business Buyer Behavior
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Organizational Buying Decision Types
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Participants in Business Buying Process
Initiator
Users
Influencers
Decision-Making Unit of a Buying Organization is
Called Its Buying Center.
Buyers
Deciders
Gatekeepers
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How Organizational Buyers Operate

• Decision Roles
• Initiator The person who brings up the idea or
  need.
• Gatekeeper The person who conducts the
  information search and controls the flow of
  information available to a group.
• Influencer The person who tries to sway the
  outcome of the decision.
• Buyer The person who actually makes the
  purchase.
• User The person who winds up using the product
  or service.
• B2B E-Commerce
• Refers to Internet interactions between 2 or more
  businesses or organizations

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Major Influences on Business
Buyers
Environmental Economic developments Supply
Conditions Technological change Political and
regulatory developments Competitive
Developments Culture and customs
Organizational Objectives Policies Procedures
Organizational Structure Systems
Interpersonal Authority Status Empathy Persuas
iveness
Individual Age Education Job Position Personality
Risk Attitudes
Buyers