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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.

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INDIVIDUAL DECISION MAKING

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Individual decision making

INDIVIDUAL

DECISION MAKING


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


Individual decision making

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


Individual decision making

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?


Individual decision making

  • 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


Individual decision making

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


Individual decision making

  • 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.


Individual decision making

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?


Individual decision making

  • 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


Individual decision making

CONSUMPTION & LEARNING

Stages in Consumer Decision Making

PROBLEM RECOGNITION

INFORMATION SEARCH

EVALUATION OF ALTERNATIVES

PRODUCT CHOICE


Individual decision making

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


Individual decision making

opportunity recognition - something to be gained


Individual decision making

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


Individual decision making

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.


Individual decision making

  • 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


Individual decision making

  • the demand for a given brand in a category

  • brand competition

  • Eg. Demand for AT&T = Market share

Secondary demand


Individual decision making

INFORMATION SEARCH

FOR WHAT ARE WE SEARCHING?

  • Evaluative criteria

  • Existence of alternatives

  • Performance of alternatives on the criteria


Individual decision making

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)


Individual decision making

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!


Individual decision making

WHAT DETERMINES THE EXTENT OF THE SEARCH?

  • Benefit vs. Cost of Search

    • Market Characteristics

  • Range of prices

  • Number of alternatives

  • Store distribution

  • Information availability


Individual decision making

  • Experience/Knowledge

  • Shopping Orientation

  • Perceived Risk

  • Social Status

  • Age and Household Life Cycle

DETERMINANTS, CONTINUED

  • Consumer Characteristics


Individual decision making

  • 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


Individual decision making

DETERMINANTS, CONTINUED

  • Product Characteristics

  • Price

  • Product Differentiation

  • Positive/Negative Products


Individual decision making

DETERMINANTS, CONTINUED

  • Situational Characteristics

  • Time Availability

  • Purchase for Others

  • Pleasant Surroundings

  • Social Surroundings

  • Physical/Mental Energy

Do consumers always search rationally?


Individual decision making

  • 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.


Individual decision making

  • Sunk costfallacy

  • 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


Individual decision making

  • 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


Individual decision making

EVALUATION OF ALTERNATIVES

How do consumers narrow down the alternatives and choose one?


Individual decision making

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


Individual decision making

  • 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


Individual decision making

  • 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.


Individual decision making

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


Individual decision making

What is it?

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


Individual decision making

  • Product Categorization

  • Consumers tend to put all productsinto 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

.


Individual decision making

Laundry Detergent

Liquid

Powder

Super-ordinate level

Tide

Wisk

Tide

Wisk

Sunlight

Basic level

Subordinate level

Products are categorized in levels


Individual decision making

PRODUCT POSITIONING

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

Which is more prestigious?


Individual decision making

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


Individual decision making

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


Individual decision making

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


Individual decision making

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?


Individual decision making

EVALUATIVE CRITERIA

When comparing products or services what criteria do you use?

functional attributes


Individual decision making

Which margarine do you buy? And Why?

  • determinant attributes

    • differentiators

How can Marketers influence what attributes are important


Individual decision making

  • "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

HEURISTICS


Individual decision making

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


Individual decision making

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


The purchase environment

Non-Store

Shopping

Retailing

as Theater

Sales

Person

Key

Elements

of Purchase

Place-Based

Media

Spontaneous

Shopping

Store

Image

The Purchase Environment


Individual decision making

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


Individual decision making

Retailing as Theatre


Individual decision making

Store Image


Individual decision making

Colorful point of purchase displays can increase sales


Individual decision making

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 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.


Individual decision making

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.


Individual decision making

  • 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.


Individual decision making

MARKETING LESSON

UNDER PROMISE AND OVER DELIVER


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