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© 2008 by Nelson, a division of Thomson Canada Limited 1 Customer Behaviour A Managerial Perspective First Canadian Edition Jagdish N. Sheth Emory University.

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Presentation on theme: "© 2008 by Nelson, a division of Thomson Canada Limited 1 Customer Behaviour A Managerial Perspective First Canadian Edition Jagdish N. Sheth Emory University."— Presentation transcript:

1 © 2008 by Nelson, a division of Thomson Canada Limited 1 Customer Behaviour A Managerial Perspective First Canadian Edition Jagdish N. Sheth Emory University Banwari Mittal Northern Kentucky University Michel Laroche Concordia University

2 © 2008 by Nelson, a division of Thomson Canada Limited 2 CHAPTER 8 Individual Customer Decision Making

3 © 2008 by Nelson, a division of Thomson Canada Limited 3 Conceptual Framework Payer UserBuyer UNDERSTANDING CUSTOMER BEHAVIOUR Individual Decision Making Process Problem Recognition Information Search Alternative Evaluation Purchase Post-Purchase Experience

4 © 2008 by Nelson, a division of Thomson Canada Limited 4 Location and Cost of an Individual Decision Individual consumption can occur in three places: Individual consumption can occur in three places:  Home  Business organizations  Public places The values of the three customer roles interplay, and trade-offs become integral to the decision process The values of the three customer roles interplay, and trade-offs become integral to the decision process

5 © 2008 by Nelson, a division of Thomson Canada Limited 5 Customer Decisions Decisions customers make in the marketplace as buyers, payers, and users, include: Decisions customers make in the marketplace as buyers, payers, and users, include:  Whether to purchase  What to purchase  When to purchase  From whom to purchase  How to pay for it

6 © 2008 by Nelson, a division of Thomson Canada Limited 6 Mental Budgeting Customers mentally set aside budgets for product categories Customers mentally set aside budgets for product categories

7 © 2008 by Nelson, a division of Thomson Canada Limited 7 Customer Decision Process Purchase Post-purchase Experience Alternative Evaluation Information Search Problem Recognition

8 © 2008 by Nelson, a division of Thomson Canada Limited 8 Step 1: Problem Recognition A customer problem is any state of deprivation, discomfort, or wanting A customer problem is any state of deprivation, discomfort, or wanting Problem recognition is a realization by the customer that he or she needs to buy something to get back to the normal state of comfort physically and psychologically Problem recognition is a realization by the customer that he or she needs to buy something to get back to the normal state of comfort physically and psychologically

9 © 2008 by Nelson, a division of Thomson Canada Limited 9 Stimuli for Problem Recognition Stimuli for Problem Recognition Internal stimuli / Problem stimuli Internal stimuli / Problem stimuli  Perceived states of physical or psychological discomfort that causes problem recognition External stimuli / Solution stimuli External stimuli / Solution stimuli  Marketplace information that causes problem recognition

10 © 2008 by Nelson, a division of Thomson Canada Limited 10 Four Situations for Problem Recognition VIVIDLATENT FAMILIARStockDepletion Educational Marketing NOVEL Life Stage Change New Product Technology

11 © 2008 by Nelson, a division of Thomson Canada Limited 11 Step 2: Information Search Three elements of the information-search phase are: Three elements of the information-search phase are:  Sources of information  Search strategies  Amount of search

12 © 2008 by Nelson, a division of Thomson Canada Limited 12 Awareness, Evoked, and Consideration Sets Awareness Set (All the brands in the Awareness) Brands NOT recalled Brands NOT considered (foggy, reject, or hold) Consideration Set (Brands considered) Evoked Set (Brands recalled)

13 © 2008 by Nelson, a division of Thomson Canada Limited 13 Sources of Information for Customers Advertising Salespersons Product/service brochures Store displays Company web sites PERSONAL Friends and other acquaintances Past experience INDEPENDENT SOURCES Public information (e.g., Consumer Reports, Better Business Bureau, news reports in media, government publications, such as The Census of Canada) Product or service experts: (e.g., auto critic, home appraiser, pharmacist) Internet (bulletin boards) MARKETER SOURCESNONMARKETER SOURCES

14 © 2008 by Nelson, a division of Thomson Canada Limited 14 Low Cost of Information Search The Internet The Internet  Democratization of information The growth of Interactive Home Shopping (IHS) is dependent on: The growth of Interactive Home Shopping (IHS) is dependent on:  Selection  Screening  Reliability  Product comparison

15 © 2008 by Nelson, a division of Thomson Canada Limited 15 Search Strategy The pattern of information acquisition customers utilize to solve their decision problems The pattern of information acquisition customers utilize to solve their decision problems  Customer decision strategies  Routine problem solving  Extended problem solving  Limited problem solving  Systematic vs. heuristic search strategies

16 © 2008 by Nelson, a division of Thomson Canada Limited 16 Systematic versus Heuristic Search Systematic search consists of a comprehensive search and evaluation of alternatives Systematic search consists of a comprehensive search and evaluation of alternatives Heuristics are quick rules of thumb and shortcuts used to make decisions Heuristics are quick rules of thumb and shortcuts used to make decisions

17 © 2008 by Nelson, a division of Thomson Canada Limited 17 Strategies Used for Handling Missing Information Interattribute inference Interattribute inference Evaluative consistency Evaluative consistency Other-brand averaging Other-brand averaging Negative cue Negative cue

18 © 2008 by Nelson, a division of Thomson Canada Limited 18 Determinants of the Amount of Search Perceived risk Perceived risk Involvement Involvement Familiarity Familiarity Expertise Expertise Time pressure Time pressure Functional versus expressive nature of the product Functional versus expressive nature of the product Information overload Information overload Relative brand uncertainty Relative brand uncertainty

19 © 2008 by Nelson, a division of Thomson Canada Limited 19 Perceived Risk Performance risk Performance risk Social risk Social risk Psychological risk Psychological risk Financial risk Financial risk Obsolescence risk Obsolescence risk

20 © 2008 by Nelson, a division of Thomson Canada Limited 20 Involvement Purchase-decision involvement is the degree of concern and caring that customers bring to bear on the purchase decision Purchase-decision involvement is the degree of concern and caring that customers bring to bear on the purchase decision Enduring involvement is on-going interest in the product Enduring involvement is on-going interest in the product

21 © 2008 by Nelson, a division of Thomson Canada Limited 21 Illustrative Measures of Consumer Involvement This product is Unimportant_______________Important Means a lot to me_______________Means nothing to me* Unappealing _______________Appealing Valuable _______________Worthless* Unexciting _______________Exciting PRODUCT INVOLVEMENT OR IMPORTANCE: Cars offer me relaxation and fun when life’s pressures build up. I prefer to drive a car with a strong personality of its own. To me, a car is nothing more than an appliance.* I enjoy conversations about cars. ENDURING PRODUCT INVOLVEMENT: (Example: consumer involvement with cars) In buying this product, I would not care at all/would care a lot about the brand, make, or model I choose. How important would it be for you to make a right choice of this product? Not at all/Extremely Important It is/it is not a big deal if I make a mistake in choosing _____(the product name). PURCHASE INVOLVEMENT: * Reverse scored

22 © 2008 by Nelson, a division of Thomson Canada Limited 22 Familiarity and Expertise A Classification of Shopping Types on the Internet Harris Interactive Shopping Type Description % of Total Online Shoppers 1.eBivalent NewbiesNewest to the Internet; does not spend a lot online and likes online shopping the least 5% 2.Hooked, Online and Single Likely to be young males; has been online the longest; banks, invest, and ships online the most often 16% 3.Time-Sensitive Materialists Most interested in convenience and saving time; wants fast check-out and one-stop shopping 17% 4.Brand LoyalistsGo directly to the site of the merchant they know; spend the most online 19% 5.Hunter-GatherersAges with two children; utilize sites that compare and provide analysis 20% 6.Clicks and Mortar Group Shops online but prefers to buy offline; concerned with online privacy and security; visits shopping malls the most 23%

23 © 2008 by Nelson, a division of Thomson Canada Limited 23 Time Pressure Time is scarce due to: Time is scarce due to:  Both spouses working  Many customers employed in more than one job  Many customers re-enrolling in school  New leisure activities enabled by technology

24 © 2008 by Nelson, a division of Thomson Canada Limited 24 Brand Uncertainty Relative brand uncertainty is the uncertainty about which brand is best among a set of brands Relative brand uncertainty is the uncertainty about which brand is best among a set of brands Individual brand uncertainty is the uncertainty about what each brand offers Individual brand uncertainty is the uncertainty about what each brand offers

25 © 2008 by Nelson, a division of Thomson Canada Limited 25 Functional Versus Expressive Nature of Products And Services Information Processing Mode (IPM) Information Processing Mode (IPM)  Some people buy primarily for their physical performance Affective Choice Mode (ACM) Affective Choice Mode (ACM)  Some people buy primarily or significantly for their social image or for their sensory enjoyment

26 © 2008 by Nelson, a division of Thomson Canada Limited 26 Information Overload Customers are exposed to so much information that they are unable to process it to make a decision Customers are exposed to so much information that they are unable to process it to make a decision

27 © 2008 by Nelson, a division of Thomson Canada Limited 27 Step 3: Alternative Evaluation Choice Models Choice Models  Compensatory  Noncompensatory

28 © 2008 by Nelson, a division of Thomson Canada Limited 28 Use of the Compensatory Choice Model by a Business Customer Poor (1) 4Average (2) Excellent (4) VENDOR 3WEIGHTVENDOR 1VENDOR 2 Excellent (4) 1Poor (1) Good (3) 3 Poor (1) 4(1) + 3(3) + 1(4) + 2(1) = 19 4(2) + 3(3) + 1(1) + 2(3) = 24 4(4) + 3(1) + 1(3) + 2(2) = 26 Poor (1) 2 Good (3)Average (2) Quality ATTRIBUTE Customer support Fit with desired performance standards Total Price VENDOR RATINGS

29 © 2008 by Nelson, a division of Thomson Canada Limited 29 Noncompensatory Models Conjunctive model Conjunctive model  The minimum cutoffs on all salient attributes are set Disjunctive model Disjunctive model  Entails trade-offs between aspects of choice alternatives Lexicographic model Lexicographic model  Attributes of alternatives are rank-ordered in terms of importance Elimination by aspects model Elimination by aspects model  Attributes of alternatives are rank-ordered in terms of importance, and cutoff values are defined

30 © 2008 by Nelson, a division of Thomson Canada Limited 30 How and When Models Are Used Concepts Concepts  Processing by brand/supplier or by attribute  Comparative features of various choice models  The two-stage choice process  Rapid heuristics  Satisficing

31 © 2008 by Nelson, a division of Thomson Canada Limited 31 Step 4: Purchase Choice Identification Choice Identification Purchase Intent Purchase Intent Purchase Implementation Purchase Implementation

32 © 2008 by Nelson, a division of Thomson Canada Limited 32 Delay in Implementation REASONS FOR DELAY CUSTOMER ROLEREASON MEAN IMPORTANCE User Needed more information 3.43 User, payer, buyerTime Pressure--To busy to devote the time3.91 User Not sure if needed the item 2.75 PayerCouldn’t afford at the time3.19 User Felt another product at home would do 2.70 UserSocial and psychological risk if a wrong choice were made2.70 User, payer Expected price reduction or product modification in the near future 2.52 User, payerPerformance and financial risk if a wrong choice is made2.65 Buyer Find shopping unpleasant 2.34 User, payerNeeded others’ consent2.41

33 © 2008 by Nelson, a division of Thomson Canada Limited 33 Delay in Implementation (cont’d) REASONS FOR DELAY CLOSURE CUSTOMER ROLE REASON MEAN IMPORTANCE User, buyer Found the time 3.62 UserDecided on another alternative3.84 Payer Lower price became available 3.10 UserNeed had become passing3.51 Buyer Found a good store 2.41 BuyerTired of shopping further2.70 User, payer Obtained the advice and consent I needed 2.14 PayerWas able to justify the expense2.32 UserDue to good word-of-mouth2.01

34 © 2008 by Nelson, a division of Thomson Canada Limited 34 Deviation From the Identified Choice The preferred brand may be out of stock The preferred brand may be out of stock New in-store information may reopen the evaluation process New in-store information may reopen the evaluation process Financing terms may render a purchase infeasible Financing terms may render a purchase infeasible

35 © 2008 by Nelson, a division of Thomson Canada Limited 35 Step 5: Postpurchase Experience Decision Confirmation Decision Confirmation Experience Evaluation Experience Evaluation Satisfaction/Dissatisfaction Satisfaction/Dissatisfaction Future Response Future Response  Exit  Voice  Loyalty

36 © 2008 by Nelson, a division of Thomson Canada Limited 36 Measuring Satisfaction in Terms of Expectations How did we do? How was our: Fell Below Expectations Met Expectations Exceeded Expectations Room appearance Room cleanliness Registration speed Friendliness of staff Room service promptness

37 © 2008 by Nelson, a division of Thomson Canada Limited 37 Complainin g Behaviour Determinants of Complaining Performance expectation gap Product importance Dissatisfaction Salience Aggressiveness Self-confidence Personality Traits Failure controllable by the marketer Marketer likely to repeat the failure Redress is likely Attribution to the Market

38 © 2008 by Nelson, a division of Thomson Canada Limited 38 Individual Customer Decision Making and the Three Customer Roles Problem recognitionAwareness of better price value from competitors causes payer role problem recognition. Buyer dissatisfaction with service, convenience and personalization values can cause problem recognition. New delivery channels serve as solution stimuli to cause problem recognition by buyers. Users are the most frequent problem- recognizers. INDIVIDUAL DECISION MAKER Role convergence sometime causes sacrifice in weak user values With someone else as payer, users tend to consumer more; also user evaluation is less stringent. User in control of buying role as well; strong user values rule over payer/buyer values. DECISION PROCESS CONCEPTSBUYERPAYER USER

39 © 2008 by Nelson, a division of Thomson Canada Limited 39 Individual Customer Decision Making and the Three Customer Roles (cont’d) Information searchInadequate buyer motivation to expend search efforts constrains user and payer desire for more information. Payer role seeks information about competitors’ prices. Information pertaining to user values is sought Search determinants: Perceived riskBuyers lean on trustworthy sources. Payers willing to pay more to avoid user risks. User-felt risk causes more information search. CONCEPTSBUYERPAYERUSER InvolvementInvolved buyers do extensive information search. User involvement may demand sacrifice in buyer/payer values. FamiliarityFamiliarity lulls buyers into less search effort. User familiarity enables greater use of available information. Time pressureTime pressure affects buyers the most who seek efficient exchanges. Users seek time-saving features in products/ services.

40 © 2008 by Nelson, a division of Thomson Canada Limited 40 Alternative evaluationFor parity products, buyer values become important criteria. For parity products (i.e., with user indifference), payers seek to maximize price value. Users’ values most important evaluation criteria. Decision models: CompensatoryUsers participate actively. NoncompensatoryTo minimize cognitive effort, buyers like to use noncompensatory model. Payer value may be exercised through use of some noncompensatory model. One or the other role may play a major role. Functional/expressive product For expressive products, users must participate in evaluation. CONCEPTSBUYERPAYERUSER Individual Customer Decision Making and the Three Customer Roles (cont’d)

41 © 2008 by Nelson, a division of Thomson Canada Limited 41 Individual Customer Decision Making and the Three Customer Roles (cont’d) PurchaseThis stage is most relevant to the buyer role. Lack of agreement on financing may hinder purchase. Post-choice processes: Buyer’s remorse/decision confirmation Buyer role subject to remorse; seeks more favorable information to ward decision confirmation. CONCEPTSBUYERPAYERUSER Experience evaluationProduct use experience by the user role. Satisfaction Determined largely by satisfaction of user values. Exit, voice, loyaltyLoyalty simplifies buyer’s task. User satisfaction leads to loyalty. Users spread word-of-mouth. ComplaintBuyer aggressiveness determines if complaint will be made. User dissatisfaction motivates complaints.


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