decision making michael j. kalsher mgmt 4460/6962 summer 2014
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Decision Making
Michael J. KalsherMGMT 4460/6962 Summer 2014
Chapter ObjectivesWhen you finish this chapter, you should
understand why:1.Consumer decision making is a central part of
consumer behavior, but the way we evaluate and choose products varies widely.
2.A decision is actually composed of a series of stages that results in the selection of one product over competing options.
3.Decision making is not always rational.
Chapter Objectives (continued)4. Our access to online sources is changing the
way we decide what to buy.
5. We often fall back on well-learned “rules-of-thumb” to make decisions.
6. Consumers rely upon different decision rules when evaluating competing options.
Objective 1 – Consumer decision making is a central part of
consumer behavior, but the way we evaluate and choose products varies widely. No advance planning Impulse Different from what we intended
Objective 2 – Stages in Consumer Decision Making
Problem Recognition
Information Search
Evaluation of Alternatives
Product Choice
Outcomes
Richard is fed up with his old B&W TV
He surfs the Web to learn about TVs
He chooses a TV with features appealing to him
He compares models on reputation & features
Richard brings home the TV & enjoys his purchase
Decision-making Perspectives Rational perspective
Carefully weigh pluses/minuses
Purchase momentum Initial impulses increase likelihood of buying more
Constructive processing Satisficing
Behavioral influence perspective Environmental influences Learning principles
Experiential perspective Gestalt; affective responses
Continuum of Buying Decision Behavior
Selection Stages A decision is actually composed of a series of
stages that results in the selection of one product over competing options.
Steps in the Decision-Making Process
Problem recognition
Information search
Evaluation of alternatives
Product choice
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
Example: running out of a product or buying a deficient product.
Example: exposed to a different or better quality product; changes person’s standard of comparison.
Stage 2: Information Search The process by which we survey the
environment for appropriate data to make a reasonable decision Intentional search (pre-purchase) vs. Ongoing
search (browsing) Internal (memory banks) vs. External search Directed Learning vs. Incidental learning (low-dose
advertising)
Learning Objective 3 Decision making is not always rational. Utility Model suggests that consumers will
continue to search for information as long as the benefits of doing so exceed the costs.
Overall, the amount of external search for most products is surprisingly small.
Symbolic items produce more external search (clothing), because of the high perceived risk.
Rational Search Processes and Brand Switching
Variety seeking: unpredictability can be rewarding to consumers
Brand switching tends to occur:• When people are in a good mood• As a form of stimulation when bored• In response to sensory-specific satiation
Brand switching is least likely when a decision situation is ambiguous or when there is little information available about competing brands
Biases in Decision-Making Process Mental accounting:
Framing problems as 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 Losing is more painful than gaining
Prospect Theory We value gains that are more certain than larger gains
that are less certain, even when the expected value of each is the same.
The opposite is true for losses: we clutch at straws to avoid a certain loss even if it means taking even greater risks.
Research on Prospect Theory
Participants told to assume there is a disease affecting 600 people and they have two choices: • Program A, where 200 of the 600 people will be saved . • Program B, where there is 33% chance that all 600 people will be saved, and 66% chance that nobody will be saved.
Most people selected A, showing a preference for certainty.
They then offered them another choice:• Program C, where 400 people will die. • Program D, where there is a 33% chance that nobody will die, and 66% chance that all 600 people will die.
Most people now selected D, seeking to avoid the loss of 400 people.
Framing makes the difference. A and C are the same, and B and D are the same.
Prospect Theory: An Analysis of Decision under Risk Daniel Kahneman, Amos Tversky, Econometrica, Vol. 47, No. 2 (Mar., 1979), pp. 263-292
So what? How can we use it?
To get people to adopt a product or idea, focus on the gain.
To get them to reject something, focus on what they might lose.
Defending Self-Interests
In your own choices, beware of words leading you astray. Think in a balanced way about potential gains and losses.
Figure 8.6 Five Types of Perceived Risk
Monetary risk
Functional risk
Physical risk
Social risk
Psychological risk
Identifying and Considering Alternatives
Evoked Set Alternatives a consumer
knows about (mental models, schemas)
Consideration Set Alternatives actually
considered.
Marketers must focus on getting their brands in consumers’ evoked set We often do not give
rejected brands a second chance. Why?
Because it’s effortful!
Levels of Categorization
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)
Learning Objective 4 Our access to online sources changes the way
we decide what to buy.
Cybermediaries The Web delivers enormous amounts of
product information in seconds Cybermediary: helps filter and organize online
market information Examples: Shopping.com, BizRate.com
Which online sources of information are affecting your choices as a consumer? Online reviews and ratings Comments on social networks Other?
Learning Objective 5 We often fall back on
mental “rules-of-thumb” that lead to speedy decisions General: “higher-priced
products are higher-quality products”
Specific: buying the same brand your mother bought
Can lead to bad decisions due to flawed assumptions (especially with unusually named brands)
Heuristics
Product Signals
Market Beliefs
Country of Origin
Shortcut #1: Over-reliance on Product Signals
Observable product attributes are assumed to accurately predict underlying qualities Clean and shiny car = good mechanical
condition
Covariation (“halo” again!) We perceive associations among events
even if they are not really present. Product type/quality and country of
origin Consumers are poor estimators of
covariation, which leads to “self-fulfilling prophecy”: we see what we are looking for regardless of the reality.
Shortcut #2: Market Beliefs
Consumer hold assumptions about companies, products, and stores that become shortcuts for decisions Price-quality relationship: “We get what we pay
for” Other common marketing beliefs (see Table 9.3 for full
list): All brands are basically the same Larger stores offer better prices than smaller stores Items tied to “giveaways” are not a good value
Shortcut #3: Country-of-Origin
We tend to rate our own country’s products more favorably than do people who live elsewhere
Industrialized countries make better products than do developing countries
Attachment to own vs. other cultures Nationalists Internationalists Disengaged
Other Notable Shortcuts Zipf’s Law
Our tendency to prefer a number one brand to the competition
Consumer inertia (laziness) The tendency to buy a brand out of habit merely
because it requires less effort Can be offset by noticeably cheaper prices, point-
of-purchase displays, and extensive couponing Brand loyalty:
repeat purchasing behavior that reflects a conscious decision to continue buying the same brand
Learning Objective 6 Consumers rely on different decision rules
when they evaluate competing options. Compensatory vs. Non-Compensatory
Decision Rules
Noncompensatory Decision Rules 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 Conjunctive rule:
Entails processing by brand
Compensatory Decision Rules 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
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
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