1. CONSUMER DECISION MAKING Lecture 3: Principles of Marketing

2. LEARNING OBJECTIVES: Explain why we should understand consumer behavior. Analyze the components of the consumer decision-making process. Examine the consumer’s postpurchase evaluation process. Identify the types of consumer buying decisions and discuss the significance of consumer environment. Identify and understand the cultural factors that affect consumer buying decisions. Identify and understand the social factors that affect consumer buying decisions. Identify and understand the individual and psychological factors affecting consumer buying decisions.

3. LO#1: The Importance of Understanding Consumer Behavior CONSUMER BEHAVIOR are processes a consumer uses to make purchase decisions, as well as the use and dispose of purchased goods and services. It also includes factors that influence purchase decisions and product use.

4. Consumers’ product and service preferences are constantly changing; Marketing managers must understand these desires in order to create a proper marketing mix for a well-defined market. Thus, it is important to know how consumers make purchase decisions.

5. 1. Through this, marketing managers can determine what important attributes can influence the purchase of the target market and promptly adapt to it. Example: If mileage is important to the target market, they can redesign a car to meet that criterion.

6. 2. If manufacturers can not meet or answer the decision- making criteria of consumers, they can use other means to change the decision-making criteria. Example: If the car can’t be redesigned in the short run, it can use promotion in an effort to change consumer’s decision-making criteria say by promoting style, durability, and cargo capacity.

7. 3. It helps the government make better public decisions and aid in educating consumers against buying and using goods and services that may injure their health or hurt society. Example: Hurtful whitening products from China.

8. LO#2: CONSUMER DECISION-MAKING PROCESS CONSUMER DECISION-MAKING PROCESS is a five-step process used by consumers when buying goods or services.

9. 1. NEED RECOGNITION – is the result of an imbalance between actual and desired states that arouses and activates the consumers decision-making process. WANT is the recognition of unfulfilled need and a product that will satisfy it.

10. NEED RECOGNITION is triggered when a consumer is exposed to an internal or external stimulus. STIMULUS is any unit of input affecting one or more of the five senses: sight, smell, taste, touch, hearing. INTERNAL STIMULI are occurrences you experience – hunger, thirst, boredom, etc. EXTERNAL STIMULI are influences from an outside source such as someone’s recommendation, color, design of a package, a brand name mentioned by a friend, or an advertisement on TV or radio.

11. The imbalance between actual and desired states is sometimes referred to as the WANT-GOT Gap. This gap does not always trigger consumer action. The gap must be large enough to drive the consumer to do something. Example: Just because your stomach growls once does not mean that you will stop what you are doing and eat.

12. The marketer’s objective is to get consumers to recognize this WANT-GOT Gap. Additional Concepts: NEED – can be viewed as ‘JOB Statements’ or outcome statements. JOB – is a fundamental goal that consumers are trying to accomplish or a problem they are trying to resolve. DESIRED OUTCOME STATEMENTS – what consumers are seeking from a job.

13. 2. INFORMATION SEARCH – after recognizing a need or want, consumers search for information about the various alternatives available to satisfy it. Information search can occur internally, externally, or both.

14. Internal Information Search is the process of recalling a past information stored in the memory. External Information Search is the process of seeking information in the outside environment and there are two (2) types of external information sources: a) Nonmarketing-controlled Information Source – is not associated with marketers promoting a product. This includes: Trying or observing a new product; Personal sources (family, friends, acquaintances, co-workers); Public sources (consumer reports, rating organizations that comment on products and services.

15. b) Marketing-controlled Information Source – it is a product information source that originates with marketers promoting the product. This include: Mass media advertising (radio, TV, magazines, newspapers) Sales promotion (contests, displays) Salespeople Product labels and packaging; and The Internet.

16. How extensive should the information search be? Generally, as the perceived risk of the purchase increases, the consumer enlarges the search and considers more alternative brands. Consumer’s knowledge about the product or service will also affect the extent of a search. Confidence in one’s decision- making ability. Product experience. Amount of interest a consumer has in a product.

17. The consumer’s information search should yield a group of brands, sometimes called he buyer’s EVOKED SET or CONSIDERATION SET – which are the consumer’s most preferred alternatives. From this set, the buyer will further evaluate the alternatives and make a choice. Having too many choices can confuse and cause them to delay the decision to buy or sometimes not buy at all.

18. 3. EVALUATION OF ALTERNATIVES – the environmental, internal info., and external info. help consumers evaluate and compare alternatives. There are two general groups of evaluation processes are: Piecemeal Processes and Categorization Process.

19. A. PIECEMEAL PROCESS OPTIONS – evaluation using advantages and disadvantages along with attributes. 1.Using the ‘evoked set’, pick a product attribute and then exclude all products in the set that do not have that attribute. 2.Use ‘cut-offs’ to narrow the number of choices. Cut-offs are either minimum or maximum levels of an attribute that an alternative must pass to be considered. 3.Rank the attributes under consideration in order of importance and evaluate the products based on how well each performs on the most important attributes.

20. A. CATEGORIZATION PROCESS – evaluation of an alternative depends upon the particular category to which it is assigned. Categories can be: General – Ex. Motorized form of transportation. Specific – Ex. Harley-Davidson motorcycle. These categories used are associated with some degree of liking or disliking. So, when consumers rely on a categorization process, a product’s evaluation depends on the particular category to which it is perceived as belonging. How a product is categorized can strongly influence consumer’s demand.

21. BRAND EXTENSIONS in which a well-known and respected brand name from one product category is extended into other product categories. This is the answer to categorization!

22. 4. PURCHASE – ultimately, the consumer has to decide whether to buy or not to buy. Specifically, consumers must decide: Whether to buy When to buy What to buy (product type and brand) Where to buy (retailer, online or in store) How to pay.

23. TYPES OF PURCHASE: FULL PLANNED PURCHASE when a person is buying an expensive or complex item which requires a lot of information. PARTIAL PLANNED PURCHASE when consumers know the product category they want to buy but wait until they get to the store to choose a specific style or brand.

24. UNPLANNED PURCHASE which people buy on impulse.

25. 5. POSTPURHASE BEHAVIOR – when buying products, consumers expect certain outcomes from the purchase. {LO#3} For Marketers, an important element of any postpurchase evaluation is reducing any lingering doubts that the decision was sound.

26. When people recognize inconsistency between their values or opinions and their behavior, they tend to feel an inner tension called COGNITIVE DISSONANCE. Consumers try to reduce dissonance by justifying their decision. They may seek new information that reinforces positive ideas about the purchase, avoid information that contradicts their decision, or revoke the original decision by returning the product.

27. Marketing Managers can help reduce dissonance through effective communication with purchasers. Example: Slip a note inside the package congratulating the buyer on making a sound decision. Postpurchase letters Dissonance-reducing statements in instruction booklets Indicating superiority of the product compared to competing brands Guarantees.

28. LO#4: TYPES OF CONSUMER BUYING DECISIONS and CONSUMER INVOLVEMENT: All consumer buying decisions generally fall along a continuum of three (3) categories: 1.Routine Response Behavior 2.Limited Decision Making 3.Extensive Decision Making

29. Goods and Services in these three (3) categories can best be described in terms of five (5) factors: 1.Level of consumer involvement; 2.Length of time to make a decision; 3.Cost of the goods and service; 4.Degree of information search; and 5.The number of alternatives considered. The “level of consumer involvement” is perhaps the most significant determinant in classifying buying decisions. INVOLVEMENT is the amount of time and effort a buyer invests in the search, evaluation, and decision processes of consumer behavior.

30. 1. ROUTINE RESPONSE BEHAVIOR the type of decision making exhibited by consumers buying frequently purchased, low-cost goods and services, requires little search, and decision time. 2. LIMITED DECISION MAKING the type of decision making that requires a moderate amount of time for gathering information and deliberating about an unfamiliar product category.

31. 3. EXTENSIVE DECISION MAKING the most complex type of decision making used when buying an unfamiliar, expensive product or an infrequently bought item; requires use of several criteria for evaluating options and much time for seeking information.

32. Factors Determining the Level of Consumer Involvement: Previous experience. Interest. Perceived risk of negative consequences: – Financial risk – Social risk – Psychological risk Social visibility. ‘High Involvement’ can take a number of different forms. The most important ones are the following:

33. Product involvement – means that a product category has high personal relevance. Situational Involvement – means that the circumstances of a purchase may temporarily transform a low-involvement decision into a high-involvement one. Shopping Involvement – represents the personal relevance of the process of shopping. Enduring Involvement – represents an ongoing interest in some product or activity. Emotional Involvement – represents how emotional a consumer gets during some specific consumption activity.

34. ASSIGNMENT: 1.What are the Cultural Influences on consumer buying decisions? Explain/define briefly each one. 2.What are the Social Influences on consumer buying decisions? Explain/define briefly each one. 3.What are the Individual Influences on consumer buying decisions? Explain/define briefly each one. 4.What are the Psychological Influences on consumer buying decisions? Explain/define briefly each one. You may print your assignment in short bond paper. This is due next meeting.