Chapter 8 Decision Making CONSUMER BEHAVIOR, 10e Michael R. Solomon Chapter 8 explains how consumers go about making decisions. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

When you finish this chapter, you should understand why: Chapter Objectives When you finish this chapter, you should understand why: Consumer decision making is a central part of consumer behavior, but the way we evaluate and choose products varies widely. A decision is actually composed of a series of stages that results in the selection of one product over competing options. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Chapter Objectives (continued) Decision making is not always rational. Our access to online sources is changing the way we decide what to buy. We often fall back on well-learned “rules-of-thumb” to make decisions. Consumers rely upon different decision rules when evaluating competing options. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Objective 1 Consumer decision making is a central part of consumer behavior, but the way we evaluate and choose products varies widely. 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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

For Reflection Is it a problem that consumers have too many choices? Would it be better to have less choices? How does it affect consumer decision-making? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Objective 2 A decision is actually composed of a series of stages that results in the selection of one product over competing options. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Figure 8.1: 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 Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Figure 8.3 Problem Recognition This figure illustrates the two causes of problem recognition. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Search for Information Internal search: Retrieving knowledge from memory or genetic tendencies External search: Collecting information from peers, family, and the marketplace

Need Recognition Internal Search Search Stimuli Comprehension CDP Model Need Recognition Internal Search Search Stimuli Exposure External Search Attention M E MORY Comprehension Peers Family Marketplace Acceptance Retention

Internal Search

External Search When motivated by an upcoming purchase decision, external search is known as pre-purchase search When information acquisition takes place on a relatively regular basis, regardless of sporadic purchase needs, it is known as ongoing search

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

What to Search? Which choice alternatives should the consumer search? Those choice alternatives that consumers gather information about during pre-purchase search are referred to as the external search set

Where to Search? Different informational sources are available to the consumer

Where to Search? Consumers are more likely to rely upon the opinions of other individuals than information sources with vested interests in their decisions Other consumers respected for their expertise in a particular product category are referred to as opinion leaders or influentials

Consumer Search on the Internet Consumers are increasingly turning to the Internet for their search needs

Consumer Search on the Internet Particular search words or phrases used by consumers fall into three categories 70% Generic terms; representing product categories 20% Specific retailers; e.g., Best Buy, Gateway.com 10% Specific products; e.g., Canon digital camcorder, HP notebook

How Much to Search? Cost versus benefit perspective: people search for decision-relevant information when the perceived benefits of the new information are greater than perceived costs of acquiring the information

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Decision making is not always rational. Learning Objective 3 Decision making is not always rational. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Biases in Decision-Making SEARCH Process Mental accounting: framing a problem in terms of gains/losses influences our decisions Sunk-cost fallacy: We are reluctant to waste something we have paid for Loss aversion: We emphasize losses more than gains Prospect theory: risk differs when we face gains versus losses 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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Figure 8.6 Five Types of Perceived Risk Monetary risk Functional risk Physical 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. Psychological risk Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

An Appeal to Social Risk Social risk is the risk of losing social status. This RightGuard ad points out the social risk of underarm odor. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Alternatives Complete Market Set Awareness Set Evoked Set (all available alternatives for problem/need) Awareness Set (all available alternatives aware of from internal/external search) Evoked Set (comes to mind for problem/need from internal & external search) 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. Consideration Set (actually considered to solve problem/need) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Constructing the Consideration Set Primarily from Memory Retrieval set: consideration set that depends on recall of alternatives from memory Not all alternatives retrieved from memory will be considered Consumers limit their consideration to those alternatives toward which they are favorably predisposed

Alternatives & Evaluation Criteria Internal & External Search Pre-purchase Evaluation “EVOKED SET” Alternatives & Evaluation Criteria from Internal & External Search

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. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Implications of Product Categorization Position a product Identify competitors Create an exemplar product Locate products in a store The way we categorize products has a lot of strategic implications. That’s because the process affects which products consumers will compare to our product and also the criteria they use to decide which brand they like. The success of a positioning strategy hinges on the marketer’s ability to convince the consumer to consider its product within a given category. At the abstract, superordinate level, many different product forms compete for membership. The characteristics of category exemplars tend to exert a disproportionate influence on how people think of the category in general. The brands that are strongly associated with a category get to define the criteria we use to evaluate all category members. Product categorization can affect consumers’ expectations regarding the places they can locate a desired product. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

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) Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Rely on preexisting product evaluations stored in memory Deciding How to Evaluate Choice Alternatives Rely on preexisting product evaluations stored in memory Direct Experience: prior purchase or consumption experiences with product Indirect Experience: experiences or impressions gained second-hand Construct new evaluations based on information acquired through internal or external search

Information Necessary for Recommending a New Decision Criterion It should point out that there are significant differences among brands on the attribute It should supply the consumer with a decision-making rule, such as if, then It should convey a rule that is consistent with how the person made the decision on prior occasions Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Constructing New Evaluations The Categorization Process: the evaluation of a choice alternative based on the evaluation of the category to which it is assigned Categories may be general (drinks) or specific (colas) Evaluation of a category can be transferred to a new product assigned to that category Brand extensions allow firms to use categorization to their advantage

Constructing New Evaluations Noncompensatory Evaluation Strategies: a product’s weakness on one attribute cannot be offset by strong performance on another attribute

Constructing New Evaluations Noncompensatory Evaluation Strategies Lexicographic strategy: brands are compared initially on the one most important attribute, and the winner is chosen. If more than one is evaluated similarly on that attribute, the second most important is considered, and so on, until a winner is identified. Elimination by aspects: similar to the lexicographic strategy; however, the consumer imposes cutoffs Conjunctive strategy: each brand is compared, one at a time, against a set of cutoffs which is established for each salient attribute. If a brand meets the cutoffs for all attributes, it is chosen.

Constructing New Evaluations Noncompensatory Evaluation Strategies

Constructing New Evaluations Compensatory Evaluation Strategies: a perceived weakness of one attribute may be offset or compensated for by the perceived strength of another attribute Simple additive: the consumer counts or adds the number of times each alternative is judged favorably in terms of the set of salient evaluative criteria. The alternative with the largest number of positive attributes is chosen. Weighted additive: judgments about an alternative’s attribute performance are weighted by the attribute’s importance. The alternative with the best overall performance is chosen.

COMPENSATORY DECISION RULES Simple Additive BRANDS PRICE (1-5) QUALITY CONVENIENCE TOTAL A 4 2 5 11 B 9 Weighted Additive BRANDS PRICE (20%) (1-5) QUALITY (50%) CONVENIENCE (30%) TOTAL (100%) A 4 x .2 = 0.8 2 x .5 = 1 5 x .3 = 1.5 3.3 B 2 x .2 = 0.4 5 x .5 = 2.5 2 x .3 = 0.6 3.5

Neuromarketing Uses functional magnetic resonance imaging, a brain-scanning device that tracks blood flow as we perform mental tasks Marketers measure consumers’ reactions to movie trailers, choices about automobiles, the appeal of a pretty face, and loyalty to specific brands Researchers discovered that regions in the brain are dynamic switchboards that blend memory, emotions, and biochemical triggers. These interconnected neurons shape the ways that fear, panic, exhilaration, and social pressure influence our choices. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

What risky products have you considered recently? For Reflection What risky products have you considered recently? Which forms of risk were involved? Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Our access to online sources changes the way we decide what to buy. Learning Objective 4 Our access to online sources changes the way we decide what to buy. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

The Web delivers enormous amounts of product information in seconds Cybermediaries The Web delivers enormous amounts of product information in seconds Cybermediary: helps filter and organize online market information Examples: Shopping.com, BizRate.com Cybermediaries help to filter and organize market information online so that consumers can identify and evaluate alternatives more efficiently. Cybermediaries can take different forms including directories and portals and forums, fan clubs, and user groups. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

We often fall back on well-learned “rules-of-thumb” to make decisions. Learning Objective 5 We often fall back on well-learned “rules-of-thumb” to make decisions. Heuristics help us to make efficient decisions. In this ad, the character is using a heuristic. She wants only yellow items for her party. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Heuristics Product Signals Market Beliefs Country of Origin A product signal infers hidden dimensions of products from attributes we observe. The product signal communicates an underlying quality. For instance, someone selling a used car will try to make the car look clean because cleanliness may be associated with reliability. Market beliefs are assumptions we have about a company or product. The beliefs then guide our decisions. For instance, someone may go to look at televisions at Best Buy instead of Target because he assumes that an electronics store would have a better selection. Country of origin is often a determinant attribute in the decision-making process. Consumers think of Switzerland for precision in watches, Italy for leather goods, and France for wine. Country of Origin Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Choosing Familiar Brand Names Zipf’s Law: our tendency to prefer a number one brand to the competition Consumer inertia: the tendency to buy a brand out of habit merely because it requires less effort Brand loyalty: repeat purchasing behavior that reflects a conscious decision to continue buying the same brand Choosing a well-known brand is a powerful heuristic. People tend to prefer a number one brand to the competition. This is known as Zipf’s Law. Inertia can also explain why people choose a familiar brand. It means that we do so just out of laziness and a desire to expend little effort. Lastly, people may choose the same brands out of brand loyalty. Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall

Decision making is not always rational Chapter Summary Decision making is a central part of consumer behavior and decisions are made in stages Decision making is not always rational We use rules of thumb and decision rules to make decisions more efficiently Copyright © 2013 Pearson Education, Inc. publishing as Prentice Hall