INDIVIDUAL
DECISION MAKING
The Purchasing Process
Why 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 IN
MAKING 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
PROBLEM RECOGNITION
INFORMATION SEARCH
EVALUATION OF ALTERNATIVES
PRODUCT CHOICE
CONSUMPTION & 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
Once You’ve recognized you have a problem what
motivates you to resolve the problem?
 how big the difference is between the desired and
actual states
 the relative importance of the problem
Can marketers stimulate consumers’ recognition of needs?
What is primary demand?
The total demand for all brands in a product category.
 E.g. for specialty coffee shops = Starbucks + Second Cup +
Grabbajabba + etc.
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
Secondary demand
 the demand for a given brand in a category
 brand competition
Eg. Demand for AT&T = Market share
INFORMATION SEARCH
FOR WHAT ARE WE SEARCHING?
 Evaluative criteria
 Existence of alternatives
 Performance of alternatives on the criteria
WHERE WILL WE SEARCH?
Internal Sources
– Previous searches
– Personal experiences
– Passive, low-involvement learning
 External Sources
–Personal sources
–Independent sources
–Marketing sources
–Experiential sources
(e.g. sales people, packaging)
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?
Benefit vs. Cost of Search
–Market Characteristics
Range of prices
Number of alternatives
Store distribution
Information availability
DETERMINANTS, CONTINUED
–Consumer Characteristics
Experience/Knowledge
Shopping Orientation
Perceived Risk
Social Status
Age and Household Life Cycle
RISK FACTORS
 More time and effort is spent in the buying process when
there is a high risk factor
 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
DETERMINANTS, CONTINUED
Product Characteristics
– Price
– Product Differentiation
– Positive/Negative Products
DETERMINANTS, CONTINUED
Situational Characteristics
–
–
–
–
–
Time Availability
Purchase for Others
Pleasant Surroundings
Social Surroundings
Physical/Mental Energy
Do consumers always search rationally?
Biases in Decision Making
Loss aversion
1. 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 the
decision 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?
How Many brands of Mini vans can you think of?
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
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
– Habitual decision, brand in evoked set
Maintenance
– Habitual decision, brand not in evoked set
Disrupt
– Limited decision, brand in evoked set
Capture
– Limited decision, brand not in evoked set
Intercept
– Extended decision, brand in evoked set
Preference
– Extended decision, brand not in evoked set
Acceptance
What is it?
HP OfficeJet G85 All-in-one scanner/copier/fax/printer
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
Super-ordinate level
Laundry Detergent
Liquid
Tide
Powder
Wisk
Tide
Wisk
Basic level
Sunlight
Subordinate
level
PRODUCT POSITIONING
 The place a product or service occupies in consumers' minds
on important attributes relative to competitive offerings.
 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
Which is more prestigious?
Mercedes
Cadillac
The real education problem of companies introducing new
products in generating primary demand is to get customers
to properly categorize the product.
Strategic Implications of Product Categorization
 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
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
REPOSITIONING
 changing the place an offering occupies in consumers' minds
relative to competitive offerings.
Mount Royal College has decided to reposition itself as a premier
business school.
What do you suggest they do to achieve this?
EVALUATIVE CRITERIA
When comparing products or services what criteria do you use?
functional attributes
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 Future Shop 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
Situational effects on Consumer Behaviour
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. Situational self image - who am I right now, feelings, role,
ethnicity
3. Purchasing situation
 store surroundings (smells, temperature, sights, sounds can
significantly influence consumption)
 social surroundings - eg. restaurant seating
4. Usage situation - time of day, in conjunction with other
products
The Purchase Environment
Non-Store
Shopping
Retailing
as Theater
Sales
Person
Key
Elements
Place-Based of Purchase Spontaneous
Media
Shopping
Store
Image
Non-Store Shopping E- COMMERCE
What are some of the advantages 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
What are some of the Disadvantages
competitors can reach customers from around the world
Some products difficult to sell over the Internet. E.g., clothes, food
Retailing as Theatre
Store Image
Colorful point
of purchase
displays can
increase sales
Atmospherics
“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 lowinvolvement 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 Continued
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.
Music
Studies 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.
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