INDIVIDUAL DECISION MAKING

The Purchasing ProcessWhy do we buy anything?

A Rational Problem Solver?

PROBLEM RECOGNITION

INFORMATION SEARCH

EVALUATION OF ALTERNATIVES

PRODUCT CHOICE

CONSUMPTION & LEARNING

How do we solve our Problems – What’s the process?

CONSUMER EFFORT INMAKING DECISIONS

Your car is now 12 years old and in need of constant repair. What decision process do you go through in purchasing a new one?

Extended Problem Solving

collect as much info as possible evaluate each product alternative carefully decision perceived to carry a fair degree of risk initiated by a motive central to the self-concept

engaged in when trying to satisfy an important need or when we 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 generally unaware of 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

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

The Feelings Economy in a market category oversupplied with interchangeable products or services customer feelings drive purchase decisions and profitability

customers can easily switch from you to a competitor and get just about the same benefits

Competition frequently based on price

The marketer’s imperative is to assess and appeal to customers’ feelings

The goal is to to increase customers’ pleasant feelings while minimizing their unpleasant ones.

PROBLEM RECOGNITIONHow 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?

Marketing is all about creating a need in the mind of the customer and then satisfying

that need.Philip Kotler

The total demand for all brands in a product category.

E.g. for specialty coffee shops = Starbucks + Second Cup + Grabbajabba + etc.

What is primary demand?

When breaking open a new product category the marketer’s 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.•I.e. it is to educate a market about a product category - expensive

Primary Demand StimulationMarketing activity intended to increase demand for the product category

Primarily a possibility in new product categories

in mature product categories advertising most appropriately used by trade associations

Primary demand

stimulation

Secondary demandthe demand for a given brand in a category

UK Grocery stores

Secondary (or Selective) Demand StimulationMarketing activity intended to increase demand for one organization’s product or services over those of competitors. I.e. competitive position

Acquisition of new customers strategies– Head-to-head positioning

Superior qualityPrice/cost leadershipPrice promotions

– Differentiated positioningCustomer-oriented nichesBenefit positioning

Retention strategies– Maintenance of customer satisfaction– Meet competition– Relationship marketing

Product line strategies– Line extensions– Bundling– Systems selling

Secondary (or Selective) Demand Stimulation

WHAT ARE WE SEARCHING FOR?

INFORMATION SEARCH

Existence of alternatives

Evaluative criteria

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

WHAT DETERMINES THE EXTENT OF THE SEARCH?

– Range of prices– Number of alternatives– Store distribution– Information availability

Cost of Search vs. Benefits

– Price– Product Differentiation

Market Characteristics

Product Characteristics

DETERMINANTS CONTINUED

– Time Availability– Purchase for Others– Pleasant Surroundings– Social Surroundings

Situational Characteristics

Consumer Characteristics– Experience/Knowledge– Shopping Orientation– Perceived Risk– Social Status– Age and Household Life Cycle– Physical/Mental Energy

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 that doesn’t do the job or meet the need.

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

Do consumers always search rationally?

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 $100 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 $90 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

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 Memory Express 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

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) 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?

inept set brands which consumer is unaware of

inert set brands which person is aware of but considers unacceptable

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. http://edsel.net/multimedia/tv.html

MARKETING STRATEGIES– Habitual decision, brand in evoked set

Maintenance of this behaviour– Habitual decision, brand not in evoked set

Disrupt existing decision pattern – Limited decision, brand in evoked set

Capture when making purchase decision– Limited decision, brand not in evoked set

Intercept during information search– Extended decision, brand in evoked set

Preference based on features and benefits– Extended decision, brand not in evoked set Acceptance of our brand

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

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

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 consumers that the product should be considered within a given category. Which is the sports car?

Porsche Mercedes Cadillac

Positioning is the centerpiece of Marketing Strategy– The positioning identifies the way a firm wants

customers to think about their product/brand to maximize their product interest

– The positioning defines how the product will be differentiated to compete in an increasingly competitive marketplace

A Typical Positioning Has Several Pieces...

Actual Product or Service DescriptionTarget MarketBenefitsCompetitive Context and Advantage

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?

HP Dell IBM Compaq

Which margarine do you buy? And Why?

determinant attributes

• differentiators

How can Marketers influence what attributes are important

Situational Influences on Consumer Behaviour

Antecedent states Purchase taskPhysical surroundingsSocial surroundingsTemporal effects

Three areas of focus– Antecedent states (situational effects)– Purchase environment– Post-purchase processes and issues

Situational Effects

Antecedent StatesAntecedent States are features of the individual

person that are not lasting characteristics– Moods– Conditions

Moods are temporary feeling states that are generally not tied to a specific event.

Social experience Sharing of interests Interpersonal attraction Instant status “Thrill of the hunt”

Why do consumers shop?

MoodsHow do specific moods affect your

consumptions behaviors?– The Blues– The Blahs– The Bitches– The Bounces

–Economic consumer

Rational, goal-oriented, value maximization

–Personalized consumer

Focus on interpersonal relations with store personnel

–Ethical consumer

Support local stores vs. national chains

–Apathetic consumer

Shopping is not pleasurable, but must be done periodically

–Recreational consumer

Fun, social activity, way to spend leisure time

Shopping orientations

Usage situation (who, what, when, where, how, why)

The Purchase Environment

Spontaneous Shopping

Place-Based Media

Non-StoreShopping

StoreImage

SalesPerson

Retailing as Theatre

KeyElements

of Purchase

Non-Store Shopping - Direct Marketing

Telemarketing

$388

Television Home Shopping

In 1902 the Sears catalog was as revolutionary in marketing as Wal-Mart and the internet are today

Home Catalog

 Non-Store Shopping E- COMMERCE

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

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

Disadvantages

Advantages

Jupiter Research estimates that in 2005 online grocery sales totalled $3.3 billion, up from $1.7 billion in 2003

Retailing as Theatre

West Edmonton Mall

Store Image

Location + Merchandise + Services + Atmospherics + ? Store Image

Colorful point of purchase displays can increase sales

Spontaneous Shopping

According to a 2003 Booz Allen Hamilton study, 85% of brand loyalty is created at the point of sales contact and after;

only 15% is generated by up-front promotions and the quality of the product itself.

Therefore a brand marketer’s greatest (and perhaps most overlooked) asset in creating brand equity and impact is the frontline sales person

The Sales Person

Atmospherics The sum total of

(all) store stimuli, physical & psychological characteristics

The atmosphere can have more influence than the service itself in the purchase decision

Atmosphere Components

Ambient factors LightingSoundsSmells

Floor coverings Ceilings Wall coverings Displays Fixtures Aisles Colors Layout Cleanliness Signage

Design factors

Atmosphere Components

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 increase arousal, pleasure, and approach behaviors of consumers.

Atmospherics Continued

Music 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

ColorWarm 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 colors (blue, green, and violet hues) are favored when customers need time to make decisions.

Children appear to favor brighter colors while adults favor lighter tones.

Courteous Rude behavior Knowledgeable Low information Service Insincere

Personal Service Climate (Calls for a well paid, highly motivated, experienced work force)

Employee dress norms

Social FactorsAtmosphere Components

Social Factors

increasing numbers of consumers increase arousal levels

Post Acquisition Processes and Issues Consumption and Evaluation

Customer satisfaction and dissatisfaction

Product disposal issues

Customer Satisfaction

Does Performance (in terms of quality, functionality, aesthetics etc. )Live up to Expectations?

– Implications of satisfactionRepeat purchasesPositive WOM

– Implications of dissatisfactionNo / fewer future purchaseCost of retaining vs. replacing customersNegative WOMPublic vs. private complaint behaviorLegal or regulatory action

Customer satisfaction and dissatisfaction

POSTACQUISITION

What alternatives are there for disposing of products?

A toxic electronic wastelandIn 2002, Canadians tossed away 155,000 tonnes of high-tech toys

1.958 mil

825,000

1.46 m

1.46m

232.000

575,000523,000

1.7m

223,000

Influences on Consumer Decision Making

Psychologicalinfluences:

•Motivation•Personality•Perception•Learning•Values, beliefs, and attitudes•Lifestyle

Marketing mix influences:

•Product •Price•Promotion•Place (distribution)

Situationalinfluences:

•Purchase task•Social surroundings•Physical surroundings•Temporal effects•Antecedent states

Socioculturalinfluences:

•Personal influence•Reference groups•Family•Social class•Culture•Sub-culture

ConsumerpurchaseDecision-makingprocess