Consumer Behavior Test 2 Material:

what are the Decision Making Process?

 Decision Making Process:

-Evaluate and compare choices.

-Consumers need to make choices among alternatives -Consumers are always searching ways to satisfy utility

o Judgments: Evaluation or estimates regarding the  

likelihood that something will happen. Judgment does not  require the consumer to make a decision (choice).  

 Three Types of Decision Making: Cognitive, Habitual,  Affective  

o The decision process: starts with problem recognition and  finishes with outcomes.

 Cognitive: Deliberate, Rational, Sequential

 Habitual: Behavioral, Unconscious, Automatic

 Affective: Emotional, Instantaneous  

 Decision-Making Process: Problem recognition, Search,  Evaluation, Choice, Outcomes.

 o Problem Recognition: Occurs when consumer sees  difference between current state and ideal state.

what are the Three Types of Decision Making?

-Need Recognition: Actual State Declines We also discuss several other topics like mgmt 3320 midterm

-Opportunity Recognition: Ideal state moves upward

o Secondary Demand Strategy: Focuses on selective problem recognition ( I want Horizon, organic, 2% milk)

o Primary Demand Strategy: Focuses on the generic problem  recognition (I want milk)

o INTERNAL & EXTERNAL SEARCH FOR INFO:

∙ Internal Search: The process of recalling  

stored information from memory

∙ External Search: The process of collecting  

info from outside sources.  

- Pre-purchase vs. Ongoing search.

∙ What leads to search?  

-Involvement: Is the decision important to  

consumer’s self-concept

-Ease: Access to information

-Young people search more

-Educated people

-Woman

-People w/ favorable shopping attitudes

 5 types of Perceived Risks:  

problem recognition occurs when?

-Financial (money)

-Performance (Functional Risk)

-Physical Risk

-Social Risk

-Psychological Risk

 Results of Searching: If you want to learn more check out physics midterm study guide

-Retrieval Set (vs. Universal Set)

-Evoked Set: Actively considered during the choice process -Inept Set: Aware of, but considered unacceptable

-Inert Set: Indifferent Towards

-Maximize your chance of being in the evoked set We also discuss several other topics like disadvantage of npv

 Decision Rules:  

-Strategies used by consumers to guide decision-making. -Some decision rules use product characteristics to guide  decisions

-Some decision rules rely on stored information in consumers’  memories to guide decisions

o Evaluative Criteria

o Determinant Attributes

 Lexicographic Decision Rule: The consumer ranks the  attributes according to importance and then selected the brand  that is superior on the most important attribute.

-If one brand ranks sufficiently high on just one attribute, it will  be selected regardless of how it scores on other attributes.  Elimination-by-aspect Decision Rule: Consumer sets a  minimum standard for each attribute and if a brand fails to pass  any standard, it is dropped from consideration. We also discuss several other topics like hphy uo

-Reduces a large consideration set to a manageable size. -Cutoffs can be adjusted

 Conjunctive Decision Rule: Consumer sets a minimum  acceptable standard as the cutoff point for each attribute-any  brand that exceeds the cutoff point is accepted.

-Reduces large consideration set to a more manageable number  of alternatives  

-Consumer may settle for the first satisfactory brand as final  choice or may another decision rule. If no satisfactory brand exist may adjust cutoffs or delay choice.

FEB 22 & FEB 27

DECISION MAKING APPROACH: The decision process starts with  recognition and finishes with outcomes.  

o Problem Recognition: Occurs when consumer sees  difference between current state and ideal state.

- Changed circumstances We also discuss several other topics like mat102 utm

- Product acquisition

- Product consumption

- Product innovation

- Marketing influence

 Problem Recognition: Two Strategies:

- Secondary Demand Strategy: Focuses on  

selective problem recognition  

- Primary Demand Strategy: Focuses on generic  problem recognition

 Need Recognition: Actual state declines

 Opportunity Recognition: Ideal state moves upward

o Searching for Alternatives: Available alternatives,  ttributes for available alternatives (Quality, Price, etc.),  Importance of various attributes.

 Internal Search: The process of recalling stored  information in memory.

 External Search: The process of collecting info from outside sources. Pre-Purchase vs. Ongoing Search.  We get information from Retailer, Media,  

Interpersonal, Internet.

-What leads people to search? People who search  more: Young people, Educated people, Woman,  

people with favorable attitudes towards shopping.  Involvement: Is the decision important to  

consumer’s self-concept/values.

 Perceived Risk (5 types): Financial (i.e., Monetary) Risk, Performance (i.e., Functional Risk), Physical  Risk, Social Risk, Psychological Risk. Don't forget about the age old question of where is the epithalamus located

 Ease: Access to information

o Determinants for External Search:

- Situational: Time, Information, availability,  

quality, formart.

- Consumer: Knowledge, involvement, beliefs &  attitudes, demographics.  

- Product: Differentiation, Perceived Risk, Price,  Stability

- Retail: Distance, Differentiation.

o The Economics of Information: Consumer will gather as much data as needed to make informed decisions. We  continue to search until costs exceed utility for information  search. We will collect most valuable information first. o Results of Searching:

- Retrieval set

- Evoked set (Actively considered during the choice  process)

- Inept set (Aware of, but considered unacceptable) - Inert Set (Indifferent towards)

- Maximize your chances of being in the evoked set. o Decision Rules: Strategy used by consumers to guide  decision-making. Some decision rules use product  characteristics to guide decisions (compensatory, non  compensatory). Some decision rules rely on stored  information in consumers’ memories to guide decisions.   Compensatory Decision Rule:  

-Select the best overall brand: Consumers evaluates  brand options in terms of each relevant attribute and computes a weighted or summated score for each  brand. The consumer chooses the brand with the  highest score.

-A compensatory model because a positive score on  one attribute can outweigh a negative score on a  negative attribute.  

 Noncompansatory Decision Rules:  

-Lexicographic decision rule: The consumer ranks the attributes according to importance and then  selects the brand that is superior on the most  

important attribute.  

-If one brand ranks sufficiently high on just one  attribute, it will be selected regardless of how it  scores on other attributes.  

 Elimination-by-aspect Decision Rule: Consumer  sets a minimum standard for each attribute and if a  brand fails to pass any standard, it is dropped from  consideration.

-Reduces a large consideration set to a manageable  size.  

-Cutoffs can be adjusted

-Often used in conjunction with another decision rule.  Conjunctive Decision Rule: Consumer sets a  minimum acceptable standard as the cutoff point for  each attribute-any brand that exceeds the cutoff  point is accepted.

-Reduces large consideration set to a more  

manageable number of alternatives.

-Consumer may settle for the first satisfactory brand  as final choice or may use another decision rule. -If no satisfactory brand exist may adjust cutoffs or  delay choice.

 Consumers are “cognitive misers”: Heuristics  are used as shortcuts to decision making.

o Heuristic: Simple, experience-based rules of thumb used  to guide decisions. Highest price=highest quality o Bias: Systematic error in processing/interpreting  information. Overestimate probability of a rare event (e.g.,  plane crash).  

o Types of Heuristics:  

-Availability Heuristic (What comes to find first) If it is easy  to recall, it must be bigger/better/ more likely.  

-Representativeness Heuristic (How similar are prototypes  in your mind) things are naturally correlated in the real  world.

-Effort: What took more effort to make is better/higher  quality/ worth more. Effort is informative.

o Diminishing Marginal Utility: As a person increases  consumption of a product, there is a decline in the  marginal utility that person derives from consuming each  additional unity of that product.

o Anchoring & Adjustments: Start estimate at an initial  value (anchor) and then adjust accordingly. Adjustment is  often insufficient, anchors are often irrelevant.

o Framing Effect (Tversky & Kahneman 1981) - Risk Adverse: People who don’t like risk

- Loss Aversion: People tend to be more sensitive  to losses than gains.

- The two problems are essentially identical,  except that the choices are framed  

differently.

o Consequences of Prospect Theory: We are risk-adverse when choosing two gains that have equal expected value. – Taking a $50 bill, or double or nothing.  

-Framing in Companies: Companies do a lot of insensitive  to have a healthy work force.  

-Marketing Implications: Framing Effects: 93% Lean vs. 7%  Fat

-Anchoring & Adjustments: Consumption- large bag of  chips vs. small bag of chips

o Perspectives in decision theory:

-Normative: Focus is on finding rules that lead to the  “best” decision in a given situation. How should consumers choose? Primarily used by economists.

-Descriptive: Focus is on describing how people make  decisions. How do consumers choose? Primarily used by  psychologists.

-Often, normative and descriptive approaches are at odds  in decision science.  

-Context effects: Reflects the influence of particular  values of the objects in particular decision sets.

o Power of Default: Laziness/Ignorance. Suggestive o Query Theory: our preferences are affected by what we  think about first.

o Compromise Effect: People don’t like buying the  extreme. Looking for a “in-between” option for cheapest  and expensive product.

o Decoy-Effects: Adding/Deleting Alternatives.

o Fairness: Willingness to pay for beer (Kahneman, Knetsch, & Thaler, 1986)

o Sunk Cost fallacy: We are reluctant to waste something  we paid for.

-Sunk Cost: Prior investments of time, money, or effort.  Lead us to make choices we otherwise wouldn’t make.

 Why are Heuristics Valuable:

o Simply decision-making: reduces search costs, reduce  thinking costs.

o Reasonably accurate: Based on prior experience

MARCH 1:

 Mental Accounting: Money is fungible, but we don’t treat it  that way. We make separate accounts in our mind, and assign  money to those accounts.

o Spillover Effects: Unexpected changes in the marketing  mix of one product in a retail setting can influence demand for other, unrelated items. (Positive or Negative)

- Positive: Price reductions

- Negative: Price increases, quality shortage

o Contagion Effects

o Payment Method: Cash or Credit. Payment method  influences self-control. People who pay with cash have  more self control

 Post Purchase Experience:  

o Product uses

o Brand extensions

o Future Behavior: Repeat Purchases (Habitual Decision  Making)

 Reducing Dissonance:  

o Make customers feel good about their purchases. -Alumni newsletters

-Salespeople at cash registers

-Follow up mails and thank you notes

 5 Stages of Decision Making: Problem Recognition,  information Search, Evaluation of Alternatives, Choice, Post Purchase  

o Make customers confident about their purchases -Price protection policies

-Warranties

-Return policies  

-Actual is below expectations= Dissatisfied

-Actual is equal to expectations= Satisfied

-Actual is above expectations= Delighted.

 Customer satisfaction plays a big role in our future and is an  important determinant of profits.

-Brand Loyalty

-Word-of-Mouth

o Word of mouth: Influences two-thirds of all sales of  goods.

o WOM is particularly powerful when we are unfamiliar with  product category

o WOM is easy to spread, especially online

 Customer Satisfaction as a competitive advantage: -Both Lexus and Infiniti see the care and feelings of buyers as a  crucial skill which they can use to stand out in the glutted luxury  car market.  

 Dissatisfied Customers:

-Voice Response: Appeal to retailer

-Private Response: Negative (Word-Of-Mouth)

-Need more positive comments to way heavily on the negative  comments.

-Third Party Response: Legal Action

 Spell out clear definitive and simple messages to customers  Set expectations accurately

 Communicate consistent messages  

 Post Purchase Regret: When customers perceive an  unfavorable…. Discovers that their friend has bought a care that  is equally and much more comfortable. You are certain you made the wrong choice.  

 Post Purchase Dissonance: Dissonance exists between their  beliefs that they have bought a good are and that a good care  should be comfortable.  

 Attribution Theory: People want to know who to blame when  something goes wrong with an offering.

 Three factors influenced who gets blamed:

o Stability: A stable factor or coincidence

o Locus: Internal (me-consumer)/ External  

(Producer-marketer)

o Controllability: Controllable by marketer or  

not?

 Equity Theory: We want fair exchanges, Inputs should equal  outputs, cost should equal benefits.

 Product Disposal: Marketers may want to shape product  lifespan.

 Consumption as a sequential process

o Other Reasons for product replacement

-Faulty manufacturing

-New customer desire/attribute

-Desire for new features

-Change in personality traits.

o Secondary Markets: Need to understand flow of used goods to  markets that depend on them.  

-Second-hand markets (Ebay, flea markets, student markets) -Self-storage

-Charities

-A threat to marketers

-Additional public policy implications of product disposition  (Environmental Concern)

o People recycled when perceived effort is low

o Hyperbolic discounting: Get discounts upclose rather than in the  future

WHAT IS CULTURE:

-Culture is a society’s personality; it shapes our identities as individuals -The sum of accumulation of shared meanings, rituals, norms, and  traditions.

-The sum total of learned beliefs, values, and customs that serve to  regulate the consumer behavior.  

-Culture is learned and who you interact with.

o Enacted values: formal, documented values. Don’t need any  direct experience to know these culture values. Every law is an  enacted value

o Crescive Norms: Embedded in culture direct experience in culture to know these values

 A Two-Way Street: Products and services the resonate with the  priorities of a culture at any given time have a much better

chance of being accepted by consumers. Whi8ch cultures get  accepted provides insight into the dominant culture.  3 Types of Culture Learning: Formal Learning, Informal Learning  (mimicking someone’s behavior), Technical learning (anyone not  a parental unit example: Teachers)

 Enculturation: Learning about your own culture

 Acculturation: Learning about cultures outside of your own.  Rituals: are sets of multiple, symbolic behaviors that occur in a  fixed sequence and that tend to be repeated periodically  (Tailgating at football games)

o Presentation: Process of gift exchange when recipient  responds to gift and donor evaluates response.

o Reformulation: giver and receiver adjust the bond between  them.

o Right of passage: special times marked by a change in  social status. (Puberty, death, divorce, dating, bar//bat  mitzavah)

- Three Stages:

- Seperation: individual is detached from his original group - Liminality: Person is literally between statuses

- Aggregation: Person re-enters society after right of passage  is complete.

o Sacralization: Occurs when ordinary objects, events, and even  people take on a sacred meaning.

o Gestation: giver is motivated by an event to procure a gift. -Structural event: prescribed by culture (e.g Chrsitmas) -Emergent event: More personal

-Reformulation: Giver and receiver adjust the bond between  them

 Marketers find ways to encourage gift giving.

 Businesses invent new occasions to capitalize on need for  card/ritual artifacts  

 Right of Passage: Special times marked by a change in  social status.  

 Desacralization: When a sacred item/symbol is removed  from its special place or is duplicated in mass quantities  (becomes profane).

o Religion has somewhat become desacralized.  

 A subculture is a group of people within a culture that  differentiate itself from the parent culture to which it belongs,  often maintaining some of its founding principles.

 A counterculture is a subculture whose values and norms of  behavior differ substantially from those of mainstream society,  often in opposition to mainstream cultural mores.  

∙ Symbolic innovation

∙ Technological innovation

 Three major types of innovation:

o A continuous innovation, a modification of an existing product.

o A dynamically continuous innovation: More  

pronounced change in existing product. Has a  

modest impact on the way people do a thing,  

creating some behavioral change.

o A discontinuous innovation: Creates major change in  the way we live.  

 Cross-Cultural Marketing: Products that succeed in one  culture may fail in another if marketers fail to understand the  difference among customers in each place.  

 Advergaming: Refers to online games merged with interactive  advertisements. Advertisers gain many benefits with  

advergames. Plinking is the act of embedding a product in a  video.  

Spring ‘18”

Competitive Dynamics

Marketing Research