ConsumerConsumerDecision MakingDecision Making

Chapter 9

Consumer Decision Making

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

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

Consumers are limited in their skills Consumers are limited by their existing

values and goals Consumers are limited in the extent of their

knowledge Doesn’t take into account the impacts of

advertising and marketing

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

Programmed decisions

Decisions we make without much thought (habitual)

Brand loyalty is related because it is another method to minimize effort

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

A consumer decision-making model John Dewey identified five stages in the

decision-making process

1. Problem/need recognition

2. Search activity

3. Identifying and evaluating solutions

4. Purchase or commitment

5. Post-purchase considerations

1. Problem/Need Recognition

Sometimes arises from changes in circumstances

Sometimes arises from marketing Two different need recognition styles

1. Desired state: consumers whose desire for something new triggers the decision process

2. Actual state: consumers who believe they have a problem/need when a product fails

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 consumer’s

level of experience with the product Two types of searches

1. Internal

2. External

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

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)

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

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

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

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 people’s decisions are based on how they value the potential gains and losses that result from making choices

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

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

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

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

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

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

Table 16.6 Hypothetical Ratings for Security Systems

ST. LOUIS ALARM SYSTEM

CLAYTON SECURITY SERVICES

FEATURE

System Price 10 1

Number of entry doors protected

1 10

Monthly monitoring fee 4 6

Number of keypads included

3 10

MISSOURI BUGLARY

5

5

5

6

Price for each additional keypad

3 10

Number of included smoke detectors wired to system

3 2

6

1

How home is protected

2 10 6

27 56 34

Non-compensatory decision rules A negative evaluation in one category

eliminates the brand from consideration

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

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 consumer’s experience and may affect future related decisions

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