Consumer Decision Making

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Chapter 9
ConsumerDecision Making

• Consumer Decision Making

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The Decision Process

• Every day we make numerous decisions concerning
  every aspect of our daily lives
• Particularly in American society, we are rarely
  put in a position where we have no choices

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Rational decision-making

• In economic theory, consumers are portrayed as
  making rational decisions
• Consumers attempt to maximize their utility
  continuously within the constraints of limited
  resources
• Consumers must
• Be aware of all available product alternatives
• Be capable of correctly ranking each in terms of
  benefits and costs
• Be able to identify the one best alternative

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• Consumers are limited in their skills
• Consumers are limited by their existing values
  and goals
• Consumers are limited in the extent of their
  knowledge
• Doesnt take into account the impacts of
  advertising and marketing

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Effort Variation in Decision Making

• The amount of effort a consumer puts into a
  decision varies depending on how involved the
  consumer is with the purchase
• In low involvement purchases, consumers view the
  purchase as unimportant and the outcome of the
  decision inconsequential
• High involvement purchases are those that are
  important from a financial, social or
  psychological standpoint

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Programmed decisions

• Decisions we make without much thought (habitual)
• Brand loyalty is related because it is another
  method to minimize effort

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Non-programmed decisions

• Decisions that are new or occur infrequently
  enough that consumers have to undertake more of
  an effort to obtain information
• May involve extended problem solving where the
  consumer has no established criteria for
  evaluating a product category or specific brands
  in the category
• May involve limited problem solving where the
  consumer has established the basic criteria but
  has not yet established preferences among brands
• Impulse purchases require little or no cognitive
  effort on the part of the consumer

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A consumer decision-making model

• John Dewey identified five stages in the
  decision-making process
• Problem/need recognition
• Search activity
• Identifying and evaluating solutions
• Purchase or commitment
• Post-purchase considerations

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1. Problem/Need Recognition

• Sometimes arises from changes in circumstances
• Sometimes arises from marketing
• Two different need recognition styles
• Desired state consumers whose desire for
  something new triggers the decision process
• Actual state consumers who believe they have a
  problem/need when a product fails

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2. Pre-purchase Search Activity

• Begins as soon as the problem/need is identified
• Extent of search depends on degree of involvement
• Nature of search depends on consumers level of
  experience with the product
• Two types of searches
• Internal
• External

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Internal search

• Consumer will search his/her memory before
  seeking external sources
• The greater the past experience, the less
  external information needed
• Many decisions are based exclusively or primarily
  on internal information
• Level of risk perceived is a major factor in
  determining extent of search

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External search

• Shopping (in a very broad sense)
• Advertising and promotion
• including point of purchase and internet
• Store visits
• Objective sources (Consumer Reports, e.g.)
• Friends and family (word of mouth)

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Interesting facts about shopping

• In general, women enjoy shopping and men do not
• Even for high priced durables, many consumers do
  minimal comparison shopping
• Low-income shoppers, who have more to lose,
  search less before making a purchase than do more
  affluent consumers

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3a. Identifying alternatives

• Consumers consider only a limited number of
  alternatives
• Referred to as the evoked set
• Small number of brands the consumer is familiar
  with, remembers, and finds acceptable

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Implication for marketers

• They need to make sure their products are
• Positioned properly
• Advertised and promoted
• Readily available
• Supported by service, financing, etc.
• Building customer loyalty is critical

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3b. Evaluating alternatives Prospect Theory

• Based on the notion that consumers have to give
  up something in order to get something back in
  the marketplace
• Proposes that peoples decisions are based on how
  they value the potential gains and losses that
  result from making choices

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• Based on the value function theory, which
  reflects consumers anticipation of the pleasure
  or pain associated with a specific decision
  outcome
• Value function explains the difference between
  the psychological valuation of gains and losses
  and the actual value of those gains and losses
• the value function for losses is different for
  that for gains
• In practical terms, this means that consumers
  resist giving up things that they already own

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Endowment effect

• This phenomenon is referred to as the endowment
  effect
• This means, for example, that when consumers are
  asked to name a selling price for something they
  own, they often require more money than they
  would pay to own the same item

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Framing

• Prospect theory predicts that preferences will
  depend on how a problem is framed
• In other words, the same decision can be framed
  from either a gain or loss perspective
• Marketers sometimes make use of consumers
  differing perceptions about gains and losses

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4. Purchase or commitment consumer decision rules

• Purchase decision is the outcome of the search
  and evaluation process
• In reaching a decision, consumers use a number of
  decision rules
• Rules reduce the burden of making complex
  decisions by providing guidelines or routines

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• Rules have been broadly classified into two major
  categories
• Compensatory decision rules
• Non-compensatory decision rules

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Compensatory decision rules

• A consumer evaluates brand options in terms of
  each relevant attribute of the product and
  computes a weighted or summated score for each
  brand
• Presumably the consumer chooses the brand with
  the highest score
• Allows a positive score/evaluation on one
  attribute to cancel a negative score on another

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Table 16.6 Hypothetical Ratings for Security
Systems
ST. LOUIS ALARM SYSTEM
CLAYTON SECURITY SERVICES
FEATURE
MISSOURI BUGLARY
System Price
10
1
5
Monthly monitoring fee
4
6
5
Number of entry doors protected
1
10
5
Number of keypads included
3
10
6
Price for each additional keypad
3
10
6
Number of included smoke detectors wired to system
3
2
1
How home is protected
2
10
6
27
56
34
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Non-compensatory decision rules

• A negative evaluation in one category eliminates
  the brand from consideration

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Implication of decision rules for marketers

• A marketer familiar with these rules will use
  promotional messages that highlight product
  attributes that consumers are most likely to
  evaluate in deciding on what brand to purchase

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5. Post-purchase evaluation

• As consumers use a product, they evaluate its
  performance in light of their expectations
• The extent of the evaluation depends on the
  importance of the product decision
• The product may
• Meet expectations
• Exceed expectations
• Fall short of expectations
• Post-purchase evaluation becomes part of the
  consumers experience and may affect future
  related decisions

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Instrumental vs. expressive performance

• Product performance is evaluated on a limited
  number of product attributes
• These include
• Instrumental performance the utilitarian
  performance of the physical product itself (a
  means to a set of ends)
• Expressive performance social or psychological
  attributes of the product (an end in itself)
• Which aspect is dominant depends on the nature of
  the product and its purchase