mba

1. Lecture 7
MBA 2K10

2. Lecture Objectives
 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.
 Decision making is not always rational.
 We often fall back on well-learned “rules-of-
thumb” to make decisions.
 Consumers rely upon different decision rules
when evaluating competing options.

3. Stages in Consumer Decision
Making

4. 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. They
buy things at times with no advance
planning, on an impulse, or do
something different from what they
intended.
 Consumers react to purchase
momentum which is when an initial
impulse purchase increases the
likelihood that we will buy even more.
 Some have a rational system that
processes information analytically
and sequentially using logic while
others rely on an experiential system
of cognition.

5. Continuum of Buying Decision
Behavior

6. Steps in the Decision-Making
Process
Problem recognition
Information search
Evaluation of alternatives
Product choice

7. 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

8. Stage 2: Information Search
 The process by which we survey the
environment for appropriate data to make a
reasonable decision
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

9. 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
 Internal searches are based on our own
memory banks while external sources come
from other sources

10. Biases in Decision-Making
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

11. How much search????
 Amount of Information
Search and Product
Knowledge
 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

12. Five Types of Perceived Risk
Monetary risk
Functional risk
Physical risk
Social risk
Psychological risk

13. Evaluation of Alternatives
Evoked Set
Consideration Set

14. Levels of Categorization

15. 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)

16. 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

17. Cybermediaries
 The Web delivers enormous amounts of
product information in seconds
 Cybermediary: helps filter and organize
online market information
 Examples: Shopping.com, BizRate.com
 MySimon.com
 NextTag.com, PriceGrabber.com
 PriceSCAN.com

18. Heuristics: Mental Shortcuts
 Heuristics: mental rules-of-thumb for efficient
decisions
Product Signals
Market Beliefs
Country of Origin

19. Choosing Familiar Brands
 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

20. Noncompensatory Decision
Rules
 Noncompensatory decision rules suggest
that a product that is low on one attribute
cannot compensate for that weakness with a
strength on another attribute.
 Lexicographic rule: consumers select the
brand that is the best on the most important
attribute
 Elimination-by-aspects rule: the buyer also
evaluates brands on the most important
attribute(impose specific cutoff)
 Conjunctive rule: entail processing by brand

21. Compensatory Decision
Rules
 Compensatory models suggest that a strength
on an important product attribute can
compensate for a weakness on an attribute of
lesser importance.
 Simple additive rule: the consumer merely
chooses the alternative that has the largest
number of positive attributes
 Weighted additive rule: the consumer also takes
into account the relative importance of positively
rated attributes, essentially multiplying brand
ratings by importance weights