Consumer Bahavior: Decision Making process

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  • The buying decision process can be presented in a five stage model. This depicts the basic psychological processes involved in making a buying decision. It its evident that the buying process begins, not at the actual purchase but much earlier.It is critical that a marketer understands every aspect pertaining to buying decision of a consumer such as choosing, using and disposing.e.g.Analysing videos of shoppers , loading groceries in to their car trunks helped engineers at Honda to create solutions for design problems in their cars.
  • It has to be noted that the degree of influence of an information source depends on the buyer's characteristics and product category.Although commercial sources have more information, information received from independent ,public or personal sources are considered more credible by consumers .e.g. consumer reports is consulted by over 40% of all car shoppers. Thereby making it the largest source of information.The four sources of information have a role to play in the decision making process. Usually commercial sources act as the provider of information and personal sources function is to justify or evaluate.The integration of internet in to day to day lives of consumers has impacted ,how they search for information. The availability and access to information regarding products and services has greatly increased.In this stage of the consumer decision making process, consumers gather information products of competing brands and compare. Knowledge about the sources of information and their relative influence are used by markets in developing their marketing campaigns.
  • The evoked set is a key concept in identifying alternatives. Basically, the evoked set consists of brands that a consumer remembers as well as major brands in the retail environment. e.g. if your friend asked you to name a shampoo ,there are about five brands that immediately come to mind.Inept set is the list of brands that a consumer would not buy even though he or she is aware of the brandInsert set are the brands consumer is unaware of therefore not part of the ‘game’A marketer wants to place his product in the evoked set of as many potential consumers as possible. Because it is unlikely that a product will enter the evoked set after being rejected, it is critical that ,the product performs well from the introductory stage.
  • Note: Each attribute is rated from 0 to 10,where 10 represents the highest level expect for price. For price ,10 represents the lowest price.A clear answer is not evident by comparing the ratings in this way. Therefore a weight is given to each brand based on the importance Zoe gives to each attribute.Touch screen-40% camera-30% price-20% memory%-10%The perceived value of each value to Zoe can be calculated as follows:A :- (40%× 4 ) +( 30%× 3 ) +( 20%× 10 ) +( 10%× 5) = 5B :- (40%× 10) +( 30%× 8 )+( 20%× 6 )+( 10%× 4 ) = 8C :- (40%× 8 ) +( 30%× 9) +( 20%× 7 ) +( 10%× 3 ) = 7.6D :-(40%× 6 ) +( 30%× 8) +( 20%× 5 ) +( 10%× 6 ) = 6.4According to the expectancy value model,we can predict that Zoe will chose Brand B.The abilty to predict consumers prefernces is helpful to a marketer to design a strategy to attract the consumers interest.
  • In procedural learning process, an individual goes through several cognitive steps before arriving at the decision of which attributes to use as evaluative criteria .Identifying important attributes ,knowing the differences in these attributes between rival brands are some such cognitive steps.Marketers too have a the ability to influence consumers on which criterion should be determinant. They need to communicate three factors;1.The significant differences in the attribute among competing brands.2.Provide the consumer with a decision making rule. e.g.if you are trying to select a shampoo then use ‘not tested on animals’ as a the determinant criteria3.Can be incorporated conveniently with decisions the consumer made in the past. If not the marketers recommendation might be ignored because it requires too much mental work.
  • Noncompensatory modelsConsumers tend to get the assistance of choice heuristics or mental short cuts(these areas will be discussed in more detail later in this lecture note)Conjunctive heuristic- consumer chooses the fist alternative that meets his or her minimum acceptable cut off level for the determinant attributesLexiographic heuristic- purchase decision is made on the basis of what is perceived as the most important attributeElimination by aspects heuristic-the decision is made on a attribute selected probabilistically. The probability is related to the perceived importance of the attribute
  • There are some other considerations that affect the conversion of the purchase intention into purchase decision. These are called intervening factors. The first intervening factor is attitudes of others.Attitudes of others-The level of influence others can have is based on two things1.The intensity of their negative attitude about the preferred choice2. The willingness to comply with other persons expectationsFor example if the other person is a close friend of Zoe’s and the friend was against the idea of a Nokia phone ,Zoe is likely to change her purchase intention. Consumers purchase intention is also influenced by reviews by peers e.g. Tripadvisor and experts e.g. movie reviews.The second intervening factor is unanticipated situational factorsUnanticipated situational factors are unforeseen events or circumstances that will change the purchase intention. e.g. Zoe loses her job which makes her postpone a new expenditure
  • Perceived risk is another key factor that will influence an individuals decision to modify, postpone or avoid a purchase decision. Perceived risk is related to consumer self confidence, price of the product and attribute uncertainty. The marketers job is to determine what triggers perceived risk and take measures to reduce it. There are several types of perceived risk.1.Functional risk -the product is not performing the required function at the desired level2.Physical risk - product is a risk to the physical health and well being of consumer and others3.Financial risk -the price paid is more than the actual worth4.Social risk -owning, purchasing or using the product will cause consumer negative reactions from society5.Psychological risk - product is a risk to the mental health of the consumer.6.Time risk – if the product is a failure, consumer incurs an opportunity cost when trying to find a suitable replacement.
  • Routine consumer decision making happens in situations where the consumer buys out of habit.For example you are out of toothpaste, and next time you go to the store you will purchase the your regular brand.In such instances all the steps in the decision making process are not followed. The consumer spends very little time in shopping for this type of items and usually repurchases the same brands over and over.Products that fall under routine decision making are items with which the buyer has a significant amount of prior experience. Frequency of buying for these products are high and perceived risk is minimal. Prices tend to be relatively low. A repurchase is made afterthe consumer recognises the need to replenish the depleted good or service.
  • Limited consumer decision making occurswhen a consumer follows all the steps in the purchase process but does not spend a lot of time on any of them. Few brands will be considered based on a limited set of criteria. Usually the consumer would have purchased the good or service few prior occasions , but not regularly. Perceived risk is moderate. For this type of decision making the consumer will probably spend a certain amount of time shopping.
  • Extended consumer decision making takes place when a consumerutilises each step in the decision process. This form of decision making is required for expensive products with which the consumer has had minimum or no experience .A significant amount time is spent on information search ,evaluation of alternatives and post purchase evaluation .
  • The Representativeness Heuristic The representative heuristic is widely used when making decisions. Consumersmake a decisions based on the probability of a sample to occur in the population. If an outcome is a result of a random process it is more acceptable than outcome from a orderly process. e.g. Coin toss, rolling dice, etc. The Availability Heuristic A major role in decision making is played by memory. Particularly when a consumer is making judgments about frequency and probability. Decisions are made based on how easy it is to think of examples from memory. It should be noted that this heuristic can lead to incorrect decisions.The Anchoring and Adjustment Heuristic This heuristic is similar to the availability heuristic. Sometimes this heuristic is based on previous knowledge. The initial judgment ,where an approximation is made, is the anchoring. Once it’s anchored, adjustments may be done according to additional information that is received.
  • Compensatory Decision RulesConsumers assesbrands under consideration, based on each attribute and produces a weighted score for each brand. The calculated score represents a brand’s merit as a potential purchase choice. It is assumed that the brand with the highest score will be selected. Positive and negatives attributes of one brand can balance each other out.Noncompensatory Decision RulesThis is the opposite of compensatory Decision Rules. It does not allow a brand’s positive evaluation of one attribute to compensate for a negative evaluation on some other attribute. Three noncompensatory rules can be identified.Conjunctive Decision Rule Disjunctive Rule Lexicographic Decision Rule 
  • Consumer Bahavior: Decision Making process

    1. 1. Lesson 2 Consumer Decision Making Process
    2. 2. Disclaimer • Kindly note, LCM study materials are available FREE of charge to students and are intended to be used ONLY as supplementary reference material. They do not in any way replace the recommended books that students are advised to use to supplement knowledge and understanding of the module. • Students can purchase the recommended reading books from a retailer of their choice. However, students experiencing problems in obtaining books independently can contact us to make a purchase using LCM’s account with Amazon.
    3. 3. Learning Outcomes This lecture note covers the following learning outcome: LO2 - Outline and explain the steps in a range of consumer decision making processes.
    4. 4. Agenda • Consumer Decision Making Process • Alternative forms of decision making • Heuristics • Decision rules
    5. 5. Consumer Decision Making Process Problem Recognition Information Search Information Evaluation Purchase Decision Post Purchase Evaluation
    6. 6. Consumer Decision Making Process Example: Zoe is a junior executive in her twenties working in a prominent sportswear company. She has decided to purchase a new mobile phone. Let’s look at a potential decision making process for her. • Zoe feels her mobile phone is outdated to match her needs and wants to buy a new one Problem Recognition • Zoe talks to some of her friends about buying a new phone and types of phones Information Research • Zoe goes online and compares several models in terms of price, features and user ratings Information Evaluation • Zoe makes her choice based on features that she was looking forDecision • Zoe makes the purchase and enjoys her new mobile phone Post Purchase Evaluation
    7. 7. Consumer Decision Making Process Problem Recognition • This is the first step in the process. The buying process is initiated when the consumer identifies a problem or need that has to be fulfilled. Needs can be triggered from either internal or external stimuli. • Internal stimuli arises from an individual’s average need e.g. hunger and then becomes a drive. External stimuli comes from the environment we live in, e.g. When a colleague buys a new car it can act as a external stimuli. • By identifying the circumstances and stimuli that create needs in consumers, marketers can generate a need with marketing strategies. To understand what triggers a need, consumer behaviours has to be studied. Specially for discretionary products or services(vacations, luxury products, entertainment) • To get consumers to consider such items, marketing strategies need to be carried out to enhance motivation.
    8. 8. Consumer Decision Making Process Information Search • When a consumers interest is aroused by stimuli, they normally try to look for information. Two levels of interest can be identified: – Heightened attention - It is a milder state of arousal where consumers receptiveness is increased – Active information search - at this stage consumer engages in the search for information more actively using various sources such as friends, internet and reading materials. • From a marketers perspective these sources of information are very important. There are four main categories of information sources: – Personal: Family, friends, neighbours, acquaintances – Commercial: Advertising, websites, sales persons, dealers, packaging, displays – Public: Mass media, consumer rating organisations – Experimental: handling, examining, using the product
    9. 9. Consumer Decision Making Process Information Search contd.. Successive sets involved in consumer decision making Total set •Total number of brands available in the market Awareness set •The number of brands the consumers knows about Considerat ion set •Brands that meet the initial buying criteria Choice set •The preferred set of brands Decision •Final selection
    10. 10. Consumer Decision Making Process Evaluation of alternatives • During this stage consumers usually compare products based on their various features and benefits using the information from the previous stage. Identifying alternatives Alternative sets (1) All Alternatives Inert Set Inept SetEvoked Set Retrievedset
    11. 11. Consumer Decision Making Process Evaluation of alternatives contd.. Expectancy value model This is a model that explains how attitudes and beliefs are formed. We take the example of Zoe’s mobile phone. There are four brands in the choice set. There are four attributes that she's looking for. The table below shows her beliefs on how each brand scores on the four attributes. As demonstrated in this example a single brand does not dominate, e.g. If Zoe wants best price its brand A and, if its touch screen its brand B. Computer Attribute Touch Screen Camera Price Memory A 4 3 10 5 B 10 8 6 4 C 8 9 7 3 D 6 8 5 6
    12. 12. Consumer Decision Making Process Evaluative Criteria • Evaluative Criteria are the dimensions a consumer will use to evaluate the features of the alternative choices. • Some consumers would compare based on functional criteria. For others, style, ease of operation, related services, or prestige may be important. The criteria will depend on factors such as product under consideration and consumers beliefs and attitudes. Another important factor is perceived reliability . • Consumers usually assess goods and services by the features or benefits that are important to them. Through their activities marketers try to influence the type of criteria that consumers use in their product evaluations. Typically with commercials that compare the features of their brand with those of their rivals. Determinant attributes are those used to differentiate between alternative products.
    13. 13. Consumer Decision Making Process Purchase Decisions When making the purchase decision, a consumer makes up to five sub-decisions: We will take the previous example of Zoe choosing a new phone: • Brand : Nokia • Dealer : Local Nokia outlet • Quantity : one • Timing : weekend • Payment method : credit card • Characteristics of the consumer, the circumstances of the decision and social context all play a part in the decision making process. Everyday purchases do not require such a formal process, e.g. Buying a regular FMCG good like flour.
    14. 14. Consumer Decision Making Process Purchase Decisions contd.. Intervening factors Steps between Evaluation of Alternatives and a Purchase decision (2) Purchase Decision Attitudes of others Unanticipated situational factors Purchase intention Evaluation of alternatives
    15. 15. Consumer Decision Making Process Purchase Decisions contd.. Perceived risk This is a belief held by the consumer that he or she will have to face negative consequences by purchasing a particular product. There are several types of perceived risk: 1.Functional risk 2.Physical risk 3.Financial risk 4.Social risk 5.Psychological risk 6.Time risk Consumers have strategies to deal with perceived risk such as decision avoidance, preference for warranties and seeking advice from friends.
    16. 16. Consumer Decision Making Process Post Purchase Behaviour The involvement of marketing in the decision making process continues even after the purchase. After buying a product consumers may observe negative features or hear of a good product review that justifies the purchase. The marketer has to ensure that the consumer feels good about the brand in the post purchase phase. • Post purchase satisfaction • Post purchase actions • Post purchase use and disposal.
    17. 17. Consumer Decision Making Process Post Purchase Behaviour • Post purchase satisfaction • Consumer satisfaction can be defined as how well the products actual performance met the perceived expectations. A satisfied consumer is likely to become a regular and help in creating a positive word of mouth reputation for the product. Three possible outcomes are possible with regard to satisfaction – Disappointed : when product fails to match the expectations – Satisfied : performance meets the expected level – Delighted : performance is beyond the expected level • The actual performance level has to be communicated accurately to avoid misleading and ultimately dissatisfying consumers.
    18. 18. Consumer Decision Making Process Post Purchase Behaviour • Post purchase actions • If the consumer is satisfied he or she will talk favourably about the brand with friends, colleagues and family. A satisfied consumer may become a repeat purchaser, e.g.75% of Toyota buyers were highly satisfied and they expressed an interest in buying a Toyota again. • On the other hand, dissatisfied consumers can decide to stop buying, warn friends, complain to regulatory and government bodies, bring lawsuit against the company etc. • Keeping the communication with the consumer even after the purchase, helps to minimise dissatisfaction. For example, marketers can encourage buyers to make suggestions for improvement, provide ‘how to use’ booklets etc.
    19. 19. Consumer Decision Making Process Post Purchase Behaviour • Post purchase use and disposal • Products are disposed of in a number of ways, e.g. Sold, thrown away, rented, converted to a another purpose. Marketers have to understand consumer behaviour in this stage and communicate to consumers. e.g. Batteries need to be disposed in a environmentally acceptable manner. • From an organisational perspective, the importance of product disposal is that it is linked with product consumption rate. i.e. the faster the buyer consumes the product the faster they need to repurchase another one. Marketing strategies can be designed to attract consumers to repurchase their brand.
    20. 20. Alternative forms of decision making The three main alternative forms of decision making methods of a consumer are: • Habitual/routine decision making • Limited decision making • Extended decision making The factors that differentiates these methods are level information search, degree of prior experience, amount of perceived risk, time pressure and frequency of purchase. Habitual Decision Making Limited Decision Making Extended Decision Making Low involvement In the purchase High involvement In the purchase
    21. 21. Alternative forms of decision making Habitual/routine decision making Examples of routine purchases are the daily newspaper, weekly groceries, regular coffee order: • Decision is make quickly • Level of involvement in the selection process is minimum • Product is evaluated after the purchase • Low cost goods • High frequency of buying • Consumer is likely to stay with one brand.
    22. 22. Alternative forms of decision making Limited Decision making Clothes, gifts, home furnishings, and vacations are examples of items where consumers would typically use limited decision making: • Involvement level is comparatively low • Prices of products range between low to moderate • Few brands are evaluated before the purchase decision is made • Moderate amount of time is spent to make a decision
    23. 23. Alternative forms of decision making Extended Decision Making • Purchasing a house, selecting a college, a first car, or a location for a wedding are examples of extended decision making: • High degree of involvement • Product Prices are high • Many brands are evaluated before the purchase decision • Considerable amount of time is spent to make a decision
    24. 24. Heuristics • Day to day life is filled with decisions ,whether it is your breakfast cereal or what radio station to listen to. In decision making consumers seek the assistance of heuristics. • Researches have identified that in low involvement decision making consumers rely on heuristics. i.e. rules of thumb or mental short cuts. • For example, Bob has decided to buy a shirt at his usual store named X .This decision is driven by his belief that this store thinks it has the best range and its brand gives him confidence. Therefore Bob is ignoring any information search about competitors or substitute products. His assumption about X acted as a shortcut that removed a few steps from the decision making process.
    25. 25. Heuristics For a marketer, understanding heuristics is an advantage that helps them forecast consumers behaviour when purchasing their brand. In this lecture note three main heuristics are described: • The Representativeness Heuristic • The Availability Heuristic • The Anchoring and Adjustment Heuristic
    26. 26. Decision rules • Information processing strategies of consumers are called decision rules. These help a person in the decision making process by providing guidelines for complex decisions. • They can be used to evaluate various options and reduce the risk involved in the decision. Decision rules can be classified into two categories : – Compensatory Decision Rules – Noncompensatory Decision Rules
    27. 27. Decision rules • Noncompensatory Decision Rules • Conjunctive Decision Rule Here consumers form a different, minimally acceptable cut off level for each attribute. If a particular brand does not meet the cut off level of any attribute that brand is removed from consideration. • Disjunctive Rule It is the opposite of conjunctive rule. In this the consumer decides a separate minimally acceptable performance level for each attribute. The brand is accepted if any of the attributes meets or exceeds the cut off level. • Lexicographic Decision Rule The attributes are ranked according to perceived relevance or importance to the consumer. Then different alternatives are compared in terms of the single attribute that is believed to be most important. If one brand out of the group scores an acceptable score it will be selected, regardless of the score on any other attribute.
    28. 28. References 1. Hawkins D.I., Best, R.J. and Coney K.AConsumer Behavior: Building Marketing Strategy.;Tata McGraw-hill ;2003. 2.Kotler, P. and Keller, K.L. Marketing Management. Pearson Education 2006; Fig 6.6. Steps between Evaluation of Alternatives and a Purchase decision,p197

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