Consumer Decision Making

The Decision Process

• Every day we make numerous decisions concerning every aspect of
our daily lives
• We are rarely put in a position where we have no choices
Rational decision-making
• In economic theory, consumers are portrayed as
making rational decisions
• Consumers attempt to maximize their utility
continuously within the constraints of limited
resources
• Consumers must
• Be aware of all available product alternatives
• Be capable of correctly ranking each in terms of benefits
and costs
• Be able to identify the one best alternative
• Consumers are limited in their skills
• Consumers are limited by their existing values and goals
• Consumers are limited in the extent of their knowledge
• Doesn’t take into account the impacts of advertising and marketing
Effort Variation in Decision Making
• The amount of effort a consumer puts into a decision
varies depending on how involved the consumer is
with the purchase
• In low involvement purchases, consumers view the
purchase as unimportant and the outcome of the
decision inconsequential
• High involvement purchases are those that are
important from a financial, social or psychological
standpoint
Programmed decisions

• Decisions we make without much thought (habitual)

• Brand loyalty is related because it is another method to minimize
effort
 Non-programmed decisions
• Decisions that are new or occur infrequently enough that
consumers have to undertake more of an effort to obtain
information
• May involve extended problem solving where the consumer
has no established criteria for evaluating a product category
or specific brands in the category
• May involve limited problem solving where the consumer has
established the basic criteria but has not yet established
preferences among brands
• Impulse purchases require little or no cognitive effort on the
part of the consumer
A consumer decision-making model
• John Dewey identified five stages in the decision-making process
1. Problem/need recognition
2. Search activity
3. Identifying and evaluating solutions
4. Purchase or commitment
5. Post-purchase considerations
1. Problem/Need Recognition
• Sometimes arises from changes in
circumstances
• Sometimes arises from marketing
• Two different need recognition styles
1. Desired state: consumers whose desire for
something new triggers the decision process
2. Actual state: consumers who believe they have a
problem/need when a product fails
2. Pre-purchase Search Activity
• Begins as soon as the problem/need is identified
• Extent of search depends on degree of
involvement
• Nature of search depends on consumer’s level of
experience with the product
• Two types of searches
1. Internal
2. External
Internal search
• Consumer will search his/her memory before seeking
external sources
• The greater the past experience, the less external
information needed
• Many decisions are based exclusively or primarily on
internal information
• Level of risk perceived is a major factor in determining
extent of search
External search
• “Shopping” (in a very broad sense)
• Advertising and promotion
• including point of purchase and internet
• Store visits
• Objective sources (Consumer Reports, etc)
• Friends and family (word of mouth)
Interesting facts about shopping
• In general, women enjoy shopping and men do not
• Even for high priced durables, many consumers do minimal
comparison shopping
• Low-income shoppers, who have more to lose, search less
before making a purchase than do more affluent consumers
3a. Identifying alternatives
• Consumers consider only a limited number of alternatives
• Referred to as the evoked set
• Small number of brands the consumer is familiar with,
remembers, and finds acceptable
Implication for marketers
• They need to make sure their products are
• Positioned properly
• Advertised and promoted
• Readily available
• Supported by service, financing, etc.
• Building customer loyalty is critical
3b. Evaluating alternatives: Prospect Theory

• Based on the notion that consumers have to give up

something in order to get something back in the marketplace
• Proposes that people’s decisions are based on how they
value the potential gains and losses that result from making
choices
• Based on the “value function” theory, which reflects consumers’
anticipation of the pleasure or pain associated with a specific decision
outcome
• Value function explains the difference between the psychological
valuation of gains and losses and the actual value of those gains and
losses
• the value function for losses is different than that for gains
• In practical terms, this means that consumers resist giving up things
that they already own
Endowment effect
• This phenomenon is referred to as the endowment effect
• This means, for example, that when consumers are asked to
name a selling price for something they own, they often
require more money than they would pay to own the same
item
Framing
• Prospect theory predicts that preferences will depend on
how a problem is framed
• In other words, the same decision can be framed from either
a gain or loss perspective
• Marketers sometimes make use of consumers’ differing
perceptions about gains and losses
4. Purchase or commitment: consumer decision rules

• Purchase decision is the outcome of the search and

evaluation process
• In reaching a decision, consumers use a number of decision
rules
• Rules reduce the burden of making complex decisions by
providing guidelines or routines
• Rules have been broadly classified into two major
categories:
• Compensatory decision rules
• Non-compensatory decision rules
Compensatory decision rules

• A consumer evaluates brand options in terms of each

relevant attribute of the product and computes a weighted
or summated score for each brand
• Presumably the consumer chooses the brand with the
highest score
• Allows a positive score/evaluation on one attribute to cancel
a negative score on another
 Table 16.6 Hypothetical Ratings for Security Systems
FEATURE
Brand 1 Brand 2 Brand 3

System Price 10 1 5
Monthly
4 6 5
monitoring fee
Number of entry
1 10 5
doors protected
Number of keypads
3 10 6
included
Price for each
3 10 6
additional keypad
Number of included
smoke detectors 3 2 1
wired to system
How home is
2 10 6
protected
27 56 34
Non-compensatory decision rules

• A negative evaluation in one category eliminates the brand from

consideration
Implication of decision rules for marketers

• A marketer familiar with these rules will use promotional messages

that highlight product attributes that consumers are most likely to
evaluate in deciding on what brand to purchase
5. Post-purchase evaluation
• As consumers use a product, they evaluate its performance
in light of their expectations
• The extent of the evaluation depends on the importance of
the product decision
• The product may
• Meet expectations
• Exceed expectations
• Fall short of expectations
• Post-purchase evaluation becomes part of the consumer’s
experience and may affect future related decisions
Instrumental vs. expressive performance
• Product performance is evaluated on a limited number of
product attributes
• These include:
• Instrumental performance: the utilitarian performance of the
physical product itself (a means to a set of ends)
• Expressive performance: social or psychological attributes of
the product (an end in itself)
• Which aspect is dominant depends on the nature of the
product and its purchase