MKT201 – Buyer Behavior
Chapter 9&11
Supplementary Examples
1
Decision Making Games (1)
1.
Let's assume, for example, you decide to buy the
television after all. But just before paying $500 for it, you
realize it's $100 cheaper at a store down the street. Will
you make that trip down the street and buy the less
expensive television.
2.
If, however, You're buying a new set of living room
furniture and the price tag is $5,000. It is $100 cheaper
at a store down the street, selling it for $4,900. Will you
make that trip down the street and buy the less
expensive furniture?
2
Decision Making Games (2)
if you purchased expensive theater tickets only to learn prior
to attending the performance that the play was terrible.
Will you attend the play?
Assume the expensive ticket was given to you by a friend,
will you attend the play if you learn prior to attending the
performance that the play was terrible.
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Decision Making Games (3)
Imagine that Hong Kong is preparing for an outbreak of a disease which
is expected to kill 600 people. Given the choice between two
vaccination schedules,
1.
Program A which will save 200;
Program B which will save all 600 with probability 1/3
If you are the decision maker, which program will you
choose?
2.
Program C which will allow 400 people to die;
Program D which will let no one die with probability 1/3
and all 600 will die with probability 2/3
Which program will you choose?
4
Biases in Decision Making Process
1.
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Mental Accounting (framing effect)
Let's assume, for example, that we decide to buy that television after all.
But just before paying $500 for it, we realize it's $100 cheaper at a store
down the street. In this case, we are quite likely to make that trip down the
street and buy the less expensive television. If, however, we're buying a
new set of living room furniture and the price tag is $5,000, we are unlikely
to go down the street to the store selling it for $4,900. Why? Aren't we still
saving $100?
Unfortunately, we tend to view the discount in relative, rather than absolute
terms. When we were buying the television, we were saving 20% by going
to the second shop, but when we were buying the living room furniture, we
were saving only 2%. So it looks like $100 isn't always worth $100
depending on the situation.
The best way to avoid the negative aspects of mental accounting is to
concentrate on the total return of your investments, and to take care not to
think of your "budget buckets" so discretely that you fail to see how some
seemingly small decisions can make a big impact.
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Biases in Decision Making Process
2.
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Sunk cost fallacy
Another factor driving loss aversion is the sunk cost fallacy. This theory
states that we are unable to ignore the "sunk costs" of a decision, even
when those costs are unlikely to be recovered.
One example of this would be if we purchased expensive theater tickets
only to learn prior to attending the performance that the play was terrible.
Since we paid for the tickets, we would be far more likely to attend the play
than we would if those same tickets had been given to us by a friend.
Rational behavior would suggest that regardless of whether or not we
purchased the tickets, if we heard the play was terrible, we would choose
to go or not go based on our interest. Instead, our inability to ignore the
sunk costs of poor investments causes us to fail to evaluate a situation
such as this on its own merits. Sunk costs may also prompt us to hold on
to a stock even as the underlying business falters, rather than cutting our
losses. Had the dropping stock been a gift, perhaps we wouldn't hang on
quite so long.
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Biases in Decision Making Process
3.
•
Loss Aversion
Imagine that your country is preparing for an outbreak of a disease which
is expected to kill 600 people. Given the choice between two vaccination
schedules, Program A which will save 200 and Program B which will save
all 600 with probability 1/3, most will choose Program A.
However, if the question is framed as:
•
Imagine that your country is preparing for an outbreak of a disease which
is expected to kill 600 people. Given the choice between two vaccination
schedules, Program C which will allow 400 people to die and Program D
which will let no one die with probability 1/3 and all 600 will die with
probability 2/3, most people will choose option D.
•
This is an example of loss aversion: the two situations are identical in
quantitative terms, but in the second one the decision maker is losing
instead of saving lives, thus setting 0 lives lost as the status quo from
which losses are measured, making the sure loss of 400 people more
loathsome than the probable loss of 600.
7
Discussion Question
If a consumer has already rejected a product from his/her evoked
set, how hard would it be for a marketer to place it back in
there and how would they go about it?
It is difficult to place it back because consumers are “cognitive misers”.
This means that people conserve their mental resources and
expend only a minimum effort required to solve a problem. Once a
product has been eliminated from consideration on the basis of
some evaluation process, consumers are not likely to expend
additional cognitive resources to re-evaluate that product.
Promotional strategies can be used to get consumers to reconsider
product, e.g., price discount, coupons, special offers, rebates, or
free samples will increase the possibility of reconsideration by the
consumers.
8
Strategic Implications of Product Categorization
Product categorization is how consumers organize their
beliefs about products or services.
1. Product positioning – the conception of the product relative
to other products in the consumer’s mind; convincing consumers
that product should be considered within a given category;
comparative ad is a good way to position
- Orange juice: “it is not just for breakfast anymore” reposition
orange juice as a drink tat could be enjoyed all day long.
- Pepsi A.M. contains more caffeine than a regular Pepsi; was
positioned as coffee substitute. The company successfully
categorized the drink as a morning beverage that consumers
wouldn’t drink it at any other time and the product failed.
- Sunkist lemon juice attempts to establish a new category,
reposition it as a salt substitute.
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Strategic Implications of Product Categorization
2.
Identifying competitors – Products/services different on the
surface can actually compete on super-ordinate level for consumer
dollars
- Entertainment memberships for bowling or ballet; they are
substitutes at the superordinate level
3.
Exemplar products – means the most known, accepted
product or brand; brand strongly associated with a category get to
“call the shots” by defining evaluative criteria (for imitator, copycat
to follow); but “moderate unusual” products may stimulate more
information processing and positive evaluations
- Locally micro-brewed beers – a distinct position within the
category (small surprise, small discrepancy is good)
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Strategic Implications of Product Categorization
4.
Locating products – Consumers often expect to find certain
products within certain places within the store environment;
products that do not fit clearly into categories confuse consumers
- Frozen dog food – consumers could not adapt to the idea of
buying dog food in the “frozen food for people” section in the
grocery store, the product failed.
11
Decision Rules
Compensatory Decision Rules: Give a product a chance to make up for
its shortcomings; Evaluate all attributes, give weight for each
attribute. (Fishbein Model)
Non-compensatory Decision Rules: A product with a low standing on one
attribute cannot make up for this position by being better on
another attribute.
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