INDIVIDUAL

DECISION MAKING

The Purchasing ProcessWhy do we buy anything?

Purchases are made in response to a problem

Consumers are therefore problem solvers

Most research has viewed consumer as a rational decision maker trying to maximize utility of purchases

Why is it important to know this?

Products and services can be developed to solve consumers problems

The attributes that are important to consumers can be emphasized

Promotional strategies can be tailored to provide the types of information most likely to be effective

And in the right format

CONSUMER EFFORT INMAKING DECISIONS

You’ve had your car now for 7 years and it’s in need of constant repair. What decision process do you go through in purchasing a new one?

Extended Problem Solving consumer tries to collect as much info as possible each product alternative is carefully evaluated initiated by a motive central to the self-concept decision perceived to carry a fair degree of risk

engaged in when you are trying to satisfy an important need or if you have limited knowledge of the product or service

Your toaster is now toast. What process do you go through in purchasing a new one?

Limited Problem Solving Moderate amount of time and effort spent on information search and evaluation buyers aware of product class but not brands and their features. people use decision rules to chose among alternatives some prior experience or knowledge of the product or service Most purchases fall into this category.

Your at the gas station paying for your gas when you have an uncontrollable urge to buy a chocolate bar. How do you decide which one to buy?

Habitual Decision Making

Only minimal search for, and evaluation of, alternatives.

Little or no conscious effort

Decisions are routine Brand Loyalty: consistently buy the same things Store Loyalty: consistently shop at same store

Stages in Consumer Decision Making Stages in Consumer Decision Making

PROBLEM RECOGNITIONPROBLEM RECOGNITION

INFORMATION SEARCHINFORMATION SEARCH

EVALUATION OF ALTERNATIVESEVALUATION OF ALTERNATIVES

PRODUCT CHOICEPRODUCT CHOICE

CONSUMPTION & LEARNINGCONSUMPTION & LEARNING

PROBLEM RECOGNITION

How do you recognize a need for a product?

when there is a difference between an actual state and a desired state and that requires resolution.

In this case it was need recognition – something was lacking

opportunity recognition - something to be gained

how big the difference is between the desired and actual states

the relative importance of the problem

Once You’ve recognized you have a problem what motivates you to resolve the problem?

The total demand for all brands in a product category. E.g. for specialty coffee shops = Starbucks + Second Cup + Grabbajabba + etc.

Can marketers stimulate consumers’ recognition of needs?

What is primary demand?

When breaking open a new product category your first job is to create primary demand

E.g. at one time there were no personal data assistants Then Apple introduced its Newton MessagePad. The task of Apple at that time was to create primary demand, not secondary demand because nobody knew what a PDA was or how it could be used to help them

the demand for a given brand in a category brand competition Eg. Demand for AT&T = Market share

Secondary demand

FOR WHAT ARE WE SEARCHING?

INFORMATION SEARCH

Evaluative criteria

Existence of alternatives

Performance of alternatives on the criteria

WHERE WILL WE SEARCH?

– Previous searches

– Personal experiences

– Passive, low-involvement learning

–Personal sources

–Independent sources

–Marketing sources

–Experiential sources

(e.g. sales people, packaging)

Internal Sources

External Sources

CLASSIFYING SEARCHERS

Nonsearchers– Use little to no information– “one-store” shoppers

Information Searchers– Use three types of information– Visit four stores

Extended Information Searchers– More than information searchers!

WHAT DETERMINES THE EXTENT OF THE SEARCH?

Range of pricesNumber of alternativesStore distributionInformation availability

Benefit vs. Cost of Search–Market Characteristics

DETERMINANTS, CONTINUED

Experience/KnowledgeShopping OrientationPerceived RiskSocial StatusAge and Household Life Cycle

–Consumer Characteristics

physical risk - to health - drugs, potentially dangerous items

financial risk - high priced items

social risk - to social status, symbolic products

functional risk - picking the wrong product and can’t then afford to buy alternative

psychological risk - to self esteem, feeling guilty

RISK FACTORS

More time and effort is spent in the buying process when there is a high risk factor

DETERMINANTS, CONTINUED

– Price– Product Differentiation– Positive/Negative Products

Product Characteristics

DETERMINANTS, CONTINUED

– Time Availability– Purchase for Others– Pleasant Surroundings– Social Surroundings– Physical/Mental Energy

Do consumers always search rationally?

Situational Characteristics

Biases in Decision MakingLoss aversion1. You've just been given $1,000 -- and two options.

• Option A guarantees you an additional $500. • Option B lets you flip a coin: Heads, you get another $1,000; tails, you get nothing more.

Which would you choose?

2. You've been given $2,000 -- and two options.

• Option A guarantees that you will lose $500.

• Option B lets you flip a coin: Heads, you lose $1,000; tails, you lose nothing.

Which would you choose?

People feel the pain of a loss more strongly than the pleasure of an equal gain.

Sunk cost fallacy As the president of an airline company, you have invested $10 million of the company's money into a research project. The purpose was to build a plane that would not be detected by conventional radar. When the project is 90 percent completed, another firm begins marketing a plane that cannot be detected by radar. Also, their plane is much faster and far more economical than the plane your company is building. The question is: should you invest the last 10 percent of the research funds to finish your radar-blank plane?

NO - It makes no sense to continue spending money on the project.

YES - Since $10 mil. is already invested, I might as well finish it.Rationality - The investment size is irrelevant to thedecision whether to continue or not

Surrogate indicator:

readily observable attribute of a product used to represent the performance level of a less observable attribute e.g., price and brand name are often used by consumers as surrogate indicators of quality

EVALUATION OF ALTERNATIVES

How do consumers narrow down the alternatives and choose one?

evoked set The set of choices/brands that come to mind for purchase

(retrieval set) Plus products prominent in the environment Important for marketer to get into the evoked set - these are the

brands that will be evaluated first

How Many brands of Mini vans can you think of?

inert set brands which person is aware of but considers unacceptable

inept set brands which consumer is unaware of

New brands will be accepted into the evoked set but not brands

which have been rejected. Therefore important that it performs well when first introduced

Ford Edsel

Ford Edsel 1958 (63,110); 1959 (44,891); 1960 (2,846)

Radical styling, chrome-laden and gadget-filled big car in a small

car market

The pre-introduction publicity, which lasted for a year, created a

super-car perception by consumers, which the Edsel failed to live up

to.

gained a reputation as being unreliable, expensive and prone to

breaking down every thousand miles.

MARKETING STRATEGIES Maintenance

– Habitual decision, brand in evoked set Disrupt

– Habitual decision, brand not in evoked set Capture

– Limited decision, brand in evoked set Intercept

– Limited decision, brand not in evoked set Preference

– Extended decision, brand in evoked set Acceptance

– Extended decision, brand not in evoked set

HP OfficeJet G85 All-in-one scanner/copier/fax/printer

What is it?

Product Categorization Consumers tend to put all products into mental categories based on similarities and differences.

.

Categorization is the process of understanding what something is by relating it to prior knowledge

For example, when combination phone/fax/printers came out, they were categorized by customers as a phone – not a multifunction device.

This is because they don’t have an established category for multifunction devices, so they just stick the new product in the phone category

Products are categorized in levels

Liquid

Laundry Detergent

Powder

Tide Wisk Tide SunlightWisk

Super-ordinate level

Basic level

Subordinate level

PRODUCT POSITIONING

The place a product or service occupies in consumers' minds on important attributes relative to competitive offerings.

Which is more prestigious?

Success of a positioning strategy often hinges on the marketers ability to convince consumer that product should be considered within a given category. Which is the sports car?

Porsche Mercedes Cadillac

The real education problem of companies introducing new products in generating primary demand is to get customers to properly categorize the product.

Locating Products• Where do you find wooden matches in the grocery store?• Where do you find soya sauce?

Stimulating Interest

Defining Competitors

•Who are WestJets’ competitors

Positioning and Repositioning

Strategic Implications of Product Categorization

What are some dimensions, or characteristics, that you might use to assess business schools?

On each of these dimensions, where would you position relative to one another

U of Toronto, U of Calgary, U of L, Mount Royal College

changing the place an offering occupies in consumers' minds relative to competitive offerings.

REPOSITIONING

Mount Royal College has decided to reposition itself as a premier business school.

What do you suggest they do to achieve this?

EVALUATIVE CRITERIA

functional attributes

When comparing products or services what criteria do you use?

Which margarine do you buy? And Why?

determinant attributes

• differentiators

How can Marketers influence what attributes are important

HEURISTICS

"rules of thumb" people use to make judgements and decisions. • never buy a car in the first model year (choice heuristic)• if buying a computer, go to Computer World for the best deal

(search heuristic)

Signals - infer hidden attributes from observable ones Covariation - usually vary with quality

• length of time in business• country of origin• price • brand• retail outlet

factors over and above the person and the product i.e the situation can influence purchasing behaviour.

1. Behavioural/social - purchases tailored to specific occasions

2. Usage situation - time of day, in conjunction with other products

3. Situational self image - who am I right now, feelings, role, ethnicity

4. Purchasing situation store surroundings (smells, temperature, sights, sounds can significantly influence consumption) social surroundings - eg. restaurant seating

Situational effects on Consumer Behaviour

The Purchase Environment The Purchase Environment

Spontaneous Shopping

Place-Based Media

Non-StoreShopping

StoreImage

SalesPerson

Retailing as Theater

KeyElements

of Purchase

KeyElements

of Purchase

 

Non-Store Shopping E- COMMERCE

What are some of the advantages and disadvantages of E-commerce?

Advantages can reach customers from around the world cuts out the middleman --- Disintermediated can boost sales by attracting people who don’t normally shop in stores increased convenience Innovative methods

Disadvantages competitors can reach customers from around the world Some products difficult to sell over the Internet. E.g., clothes, food

Store Image

Colorful point of purchase displays can increase sales

“design of space and various dimensions to evoke certain effects in buyers”

The atmosphere has been shown to have more influence than the service itself in the purchase decision

Colour

Warm colours (red, yellow, and orange hue) tend to evoke consumer feelings of comfort and informality. Warm colors encourage quick decisions and work best for low-involvement purchase decisions.Cool colours (blue, green, and violet hues) are favoured when customers need time to make decisions.Children appear to favor brighter colors while adults favor lighter tones.

Atmospherics

Lighting. Consumers examine and handle more items under bright lighting. Consumers spend more time at in-store displays with bright lighting. Increased levels of lighting produce more arousal, pleasure, and increase approach behaviors of consumers.

MusicStudies show background music directly influences consumer buying behavior and affects sales.Background music enhances customer’s perception of store’s atmosphere. Firms that played music in their facilities were thought to care more about consumers.Slow tempo music encourages customers to stay longer.Customers find music distracting in high-involvement decisions and soothing in low-involvement decisions.

Atmospherics Continued

POSTACQUISITION

The consumption, disposition, and postchoice evaluation of goods, services, and ideas.

Consumer satisfaction is the overall attitude associated with a good or service after its acquisition and use.

Satisfaction or dissatisfaction is the difference between what was experienced and what was expected.

A consumer has a level of performance expectations for a product

If, after use, performance is perceived as worse than expected. Then consumer will be dissatisfied.

If, after use, performance is perceived as better than expected.Then consumer will be satisfied.

MARKETING LESSON

UNDER PROMISE AND OVER DELIVER