Chapter 8 Decision Making CONSUMER BEHAVIOR, 9e Michael R. Solomon

For many modern consumers problem is not too few choices rather too many of them

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Figure 8.1 Stages in Consumer Decision Making When consumers make decisions, they go through a series of steps. These include problem recognition, information search, evaluation of alternatives, and product choice.

Decision-Making Perspectives Are consumers rational when they make purchase decisions? What is purchase momentum? What cognitive processing styles affect consumer decision making? Sometimes consumers are rational and sometimes they are not. We buy things at times with no advance planning, on an impulse, or do something different from what we intended. We also react to purchase momentum which is when an initial impulse purchase increases the likelihood that we will buy even more. People do have different cognitive processing styles. Some tend to have a rational system that processes information analytically and sequentially using roles of logic while others rely on an experiential system of cognition that processes information more holistically and in parallel.

Figure 8.2 Continuum of Buying Decision Behavior It can help us to understand the decision-making process when we think about the amount of effort that goes into a decision each time we must make it. Consumer researchers think of decision effort on a continuum. On one end we have habitual decision making and at the other, there is extended problem solving. Many decisions fall somewhere in between, which we refer to as limited problem solving. Habitual or routine response behavior is for low involvement products and these decisions are made mostly out of habit. Limited problem solving involves using decision rules to make choices. Extended problem solving is for high risk choices.

Steps in the Decision-Making Process Problem recognition Information search Evaluation of alternatives These are the basic four steps in the decision making process shown in Figure 8.1. The next several slides provide more details on these four steps. Product choice

Stage 1: Problem Recognition Occurs when consumer sees difference between current state and ideal state Need recognition: actual state declines Opportunity recognition: ideal state moves upward Problem recognition is the first stage. It can occur when a consumer’s state of being declines (which then triggers a desire to return to normalcy) or when a consumer recognizes an ideal state he or she wishes to achieve. In this Dutch ad, the child’s parents recognize a need to go to the movies.

Figure 8.3 Problem Recognition This figure illustrates the two causes of problem recognition.

Stage 2: Information Search The process by which we survey the environment for appropriate data to make a reasonable decision Prepurchase or ongoing search Internal or external search Online search Once we know we have a problem, we search out how we can solve the problem. These searches will typically take place before purchase (prepurchase). However, many people just enjoy searching information and they conduct ongoing searches even if a purchase is not immediately forthcoming. Internal searches are based on our own memory banks while external sources come from other sources. Search engines have made vast amounts of information available to us as we search out product information. Sometimes we just browse information out of interest/habit!!

Table 8.2 A Framework for Consumer Information Search Prepurchase versus Ongoing Search Prepurchase Search Ongoing Search Determinants Involvement with purchase Involvement with product Motives Making better purchase decisions Building a bank of information for future use Outcomes Better purchase decisions Increased impulse buying This framework explains the differences between prepurchase and ongoing searches. The motives are entirely different as are the outcomes. However the determinants are quite similar.

Deliberate versus “Accidental” Search Directed learning: existing product knowledge obtained from previous information search or experience of alternatives Incidental learning: mere exposure over time to conditioned stimuli and observations of others Directed learning means we know about a product because we have previously sought out information about that product. Accidental search means that we are more passive. We learn about information because over time we experience exposures to brand information. This is sometimes called low-dose advertising.

Do Consumers Always Search Rationally? Some consumers avoid external search, especially with minimal time to do so and with durable goods (e.g. autos) Symbolic items require more external search Brand switching: we select familiar brands when decision situation is ambiguous Variety seeking: desire to choose new alternatives over more familiar ones Clearly we don’t always engage in rational search processes to identify each alternative before we make a choice. In fact, the amount of external search we do is surprisingly small. In addition, low-income shoppers who have the most to lose for making poor purchase decisions do the least amount of information search. The more symbolic of our identity a product is, the more search we will tend to do. Sometimes we switch brands, even if the brand we formerly chose still meets our needs. This may be related to variety seeking, a desire to choose new alternatives over more familiar ones.

Biases in Decision-Making Process Mental accounting: framing a problem in terms of gains/losses influences our decisions that is Sunk-cost fallacy: We are reluctant to waste something we have paid for e.g. Football ticket Loss aversion: We emphasize losses more than gains The way people adjust decisions based on the cost of the product and the situation can be explained using the principles of mental accounting. We frame our problems in ways that influence whether we perceive our possible decisions as gains or losses. People are prone to a bias called the sunk-cost fallacy. If we’ve paid for something, we are more reluctant to waste it, even though the value of the item does not change whether it was given to us or we paid for it. Loss aversion is another bias. It means that losing money is more painful to us than gaining money is pleasant. Prospect theory describes how people make choices. It defines the utility in terms of gains and losses.

Figure 8.5 Amount of Information Search and Product Knowledge This figure shows us that there is an inverted-U relationship between knowledge and external search effort. People with very limited expertise may not feel they are competent to search extensively. Experts have a better sense of what information is relevant so they engage in selective search. Novice consumers tend to process information in terms of the big picture instead of detailed information. Who searches the most? Moderately knowledgeable consumers.

Minolta Understands Perceived Risk As a general rule, purchase decisions that are perceived as risky will involve more extensive searches. Risk is felt whenever there is a belief that there may be a negative consequence associated with the decision. Minolta addresses the fear created by a sense of risk by offering a guarantee.

Figure 8.6 Five Types of Perceived Risk Monetary risk Figure 8.6 reviews the five types of perceived risk and provides examples. Monetary risk occurs when making a poor choice will have a monetary consequence. Any purchase that costs a lot is subject to this risk. Functional risk is the risk that the product may not function as the consumer needs. Physical risk is the risk that the choice may physically threaten the consumer. Social risk is the risk that the choice will reflect poorly on the consumer and damage his or her self-esteem or confidence. Psychological risk is the risk that one may lose self-respect due to making a bad decision. For instance, expensive luxury goods could cause the consumer to feel extensive guilt.

Figure 8.6 Five Types of Perceived Risk Functional risk Figure 8.6 reviews the five types of perceived risk and provides examples. Monetary risk occurs when making a poor choice will have a monetary consequence. Any purchase that costs a lot is subject to this risk. Functional risk is the risk that the product may not function as the consumer needs. Physical risk is the risk that the choice may physically threaten the consumer. Social risk is the risk that the choice will reflect poorly on the consumer and damage his or her self-esteem or confidence. Psychological risk is the risk that one may lose self-respect due to making a bad decision. For instance, expensive luxury goods could cause the consumer to feel extensive guilt.

Figure 8.6 Five Types of Perceived Risk Physical risk Figure 8.6 reviews the five types of perceived risk and provides examples. Monetary risk occurs when making a poor choice will have a monetary consequence. Any purchase that costs a lot is subject to this risk. Functional risk is the risk that the product may not function as the consumer needs. Physical risk is the risk that the choice may physically threaten the consumer. Social risk is the risk that the choice will reflect poorly on the consumer and damage his or her self-esteem or confidence. Psychological risk is the risk that one may lose self-respect due to making a bad decision. For instance, expensive luxury goods could cause the consumer to feel extensive guilt.

Figure 8.6 Five Types of Perceived Risk Social risk Figure 8.6 reviews the five types of perceived risk and provides examples. Monetary risk occurs when making a poor choice will have a monetary consequence. Any purchase that costs a lot is subject to this risk. Functional risk is the risk that the product may not function as the consumer needs. Physical risk is the risk that the choice may physically threaten the consumer. Social risk is the risk that the choice will reflect poorly on the consumer and damage his or her self-esteem or confidence. Psychological risk is the risk that one may lose self-respect due to making a bad decision. For instance, expensive luxury goods could cause the consumer to feel extensive guilt.

Figure 8.6 Five Types of Perceived Risk Psychological risk Figure 8.6 reviews the five types of perceived risk and provides examples. Monetary risk occurs when making a poor choice will have a monetary consequence. Any purchase that costs a lot is subject to this risk. Functional risk is the risk that the product may not function as the consumer needs. Physical risk is the risk that the choice may physically threaten the consumer. Social risk is the risk that the choice will reflect poorly on the consumer and damage his or her self-esteem or confidence. Psychological risk is the risk that one may lose self-respect due to making a bad decision. For instance, expensive luxury goods could cause the consumer to feel extensive guilt.

Discussion What risky products have you considered recently? Which forms of risk were involved?

Alternatives Evoked Set Consideration Set The alternatives a consumer knows about is the evoked set. The ones actually considered make up the consideration set. In this ad for Sunkist lemons, the goal is to illustrate lemons as a possible alternative to salt.

Figure 8.7 Levels of Abstraction We cognitively represent information we have about products in knowledge structures. The term refers to a set of beliefs and the way we organize these beliefs in our minds. These structures matter to marketers because we need to ensure consumers are categorizing product information correctly. We typically represent a product in a cognitive structure at one of three levels. The subordinate category often includes individual brands. The superordinate category is more abstract. The middle level is the basic level. It is the most useful for classifying products. It groups things together based on commonalities but still permit a broad range of alternatives.

Discussion Using the levels of categorization tool, design three levels of categorization for fast food restaurants: What is the superordinate level? What choices are there for the basic level? What choices are there for the subordinate level?

Product Choice: How Do We Decide? Once we assemble and evaluate relevant options from a category, we must choose among them Decision rules for product choice can be very simple or very complicated Prior experience with (similar) product Present information at time of purchase Beliefs about brands (from advertising)

Evaluative Criteria Evaluative criteria: dimensions used to judge merits of competing options Determinant attributes: features we use to differentiate among our choices Criteria on which products differ carry more weight Marketers educate consumers about (or even invent) determinant attributes Pepsi’s freshness date stamps on cans Evaluative criteria are the dimensions we use to judge the merits of competing options. Determinant attributes are the features we actually use to differentiate among our choices.

Table 8.4 Hypothetical Alternatives for a TV Set Lexicographic Rule Elimination-by-Aspects Rule Conjunctive Rule Brand Ratings Attribute Importance Ranking Samsung Philips Sony Size of screen 1 Excellent Stereo broadcast capability 2 Poor Good Brand reputation 3 Onscreen programming 4 Cable-ready capability 5 Sleep timer 6 good We can use the information in this table to decide upon which brand of television to choose using the different decision rules.