CB Chapter 9

Individual Decision Making

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 Agenda
• Stages in Consumer Decision Making
• Types of Consumer Decisions
• Problem Recognition
• Information Search
– Perceived Risks
• Evaluation of Alternatives
• Product Choice
– Heuristics
– Decision Rules
• Consumption and Learning
• Biases in the Decision Making Process
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 Consumers as Problem Solvers
• Consumer purchase = response to problem
– We are interested in a purchase, and go through
a series of steps in order accomplish it
– Can seem automatic or very complicated
– Complicated by so much consumer choice

• Decision-making process
 Stages in Consumer Decision
Making Process
• A decision is actually composed of a series
of stages that results in the selection of one
product over competing options.
• A typical decision process involves several
steps: problem recognition, search for
information, evaluation of alternatives,
product choice and consumption and
learning.
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Stages
Stages in
in Consumer
Consumer Decision
Decision Making
Making
PROBLEM
PROBLEM RECOGNITION
RECOGNITION

INFORMATION
INFORMATION SEARCH
SEARCH

EVALUATION
EVALUATION OF
OF ALTERNATIVES
ALTERNATIVES

PRODUCT
PRODUCT CHOICE
CHOICE

CONSUMPTION
CONSUMPTION AND
AND LEARNING
LEARNING
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 Perspectives on Decision-Making
• Rational perspective - consumers:
– Integrate as much information as possible with what they
already know about a product
– Weigh pluses and minuses of each alternative
– Arrive at a satisfactory decision

• Other models of decision-making:

• Purchase momentum: Occurs when consumers buy beyond needs
• Behavioural influence perspective: Consumers buy based on
environmental cues, such as a sale
• Experiential perspective: Consumers buy based on totality of
product’s appeal
Continuum of Buying Decision Behavior
Types of Consumer Decision-Making
• Extended problem solving:
– Initiated by a motive that is central to self-concept
– Consumer feels that eventual decision carries a fair
degree of risk
– Consumer collects extensive information (internal and
external search)
– Careful evaluation of brand attributes (one at a time)
• Limited problem solving:
– Buyers not as motivated to search for information or to
evaluate rigorously; straightforward choices
– Buyers use simple decision rules to choose
• Habitual decision making:
– Choices made with little to no conscious effort
 Problem Recognition
• Problem Recognition is the process that occurs
whenever the consumer realizes that some action
must be taken. This realization may be prompted
in a variety of ways, ranging from the actual
malfunction of a current purchase to a desire for
new things based on a exposure to different
circumstances or advertising that provides a
glimpse into what is needed to “live the good life”
– Need recognition: actual state moves downward
– Opportunity recognition: Ideal state moves upward

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 Information Search
• Information Search is the process whereby a consumer
searches for appropriate information to make a reasonable
decision. The search may range from simply scanning
memory to determine what’s been done to resolve the
problem in the past, to extensive fieldwork in which the
consumer consults a variety of sources to amass as much
information as possible. In many cases people engage in
surprisingly little search.

• Types of search
– Internal vs. - External
– Deliberate vs. - Accidental

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 Information
Information Search
Search
Search activity is greater when: - the purchase is important; there is a need to learn
more about the purchase; when relevant information is easily obtained and utilized;
one is younger, is better-educated, and enjoys shopping/fact-finding; one is female
(compared to male); and one places greater value on own style/image.
Amount of Search

Amount of Search
Product knowledge Number of Alternatives

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 Perceived
Perceived Risk
Risk
• Perceived risk – the belief that use of a product has potentially
negative consequences, either physical or social.

Types
Typesof
ofRisk
RiskAffecting
AffectingSearch,
Search, but
but not
notonly…
only…

Monetary
Monetary Psychological
Psychological

Functional
Functional Social
Social

Physical
Physical
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 Five Types of Risk
• Monetary Risk –consists of money and property. People
with relatively little income and wealth are most
vulnerable.
• Functional Risk –consists of alternative means of
performing the function or meeting the need. Practical
consumers are most sensitive.
• Physical Risk – consists of physical vigour, health, and
vitality. Those who are elderly, frail, or in ill health are
most vulnerable.
• Social and Psychological Risks – consist of self-esteem,
confidence, affiliation and status. Those who are insecure,
uncertain, lacking self-respect or attractiveness are most
sensitive.
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 Evaluation
Evaluation of
of Alternatives
Alternatives
All
All
Alternatives
Alternatives
Retrieval

Evoked
Evoked Inept
Inept Inert
Inert
Set

Set
Set Set
Set Set
Set

• Evoked set – those products already in the memory plus thus prominent in the retail
environment that are actively considered during a consumer’s choice process.
• Inert set – the consumer is aware of but would not consider buying
• Inept set – these products are not entering the game at all. 14
 Product
Product Choice
Choice -- Heuristics
Heuristics
• Heuristics are rules of thumb that lead to a speedy decision.
• Very often we use heuristics to simplify the decision making.
• In particular, people develop many market beliefs over time
(i.e., price is positively related to quality).

Country
Country Product
Product
of
of Origin
Origin Signal
Signal

Brand Market
Market
Brand
Loyalty
Loyalty
Common Beliefs
Beliefs
Heuristics

Inertia
Inertia Brand
Brand Price
Price
Names
Names 15
 Product Choice - Decision Rules
• When consumers eventually make a product choice from among
alternatives, they can use any one of a number of decision rules. Non-
compensatory rules eliminate alternatives that are deficient on any of
the criteria the consumers have chosen to use. Compensatory rules,
which are more likely to be applied in high-involvement situations,
allow decision makers to consider each alternative’s good and bad
points more carefully to arrive at the overall choice.

• Compensatory rules – one good attribute can “compensate” for other

poorer attributes: simple additive or weighted additive
• Noncompensatory decision rules – a product with a low standing on
one attribute cannot make up for this position by being better on
another attribute: lexicographic, elimination by aspects, conjunctive,
disjunctive

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 Compensatory Rules
• The simple additive rule – the consumer merely
chooses the alternative having the largest number
of positive attributes.

• The weighted additive rule – the consumer also

takes into account the relative importance of
positively rated attributes, essentially multiplying
brand ratings by importance weights.

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 Noncompensatory Rules
• The Lexicographic Rule – the brand that is the best on the
most important attribute is selected.
• The Elimination-by-aspects Rule – again, brands are
evaluated on the most important attribute, but specific cut-
offs are imposed.
• The Conjunctive Rule – a brand is chosen if it meets all the
cut-offs, while failure to meet any one cut-off means
rejection.
• The Disjunctive Rule – the consumer develops acceptable
standards for each attribute. If a choice alternative exceeds
the standard for any attribute, it is accepted.

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Biases in the Decision-Making Process
• Research in the field of behavioural economics
illustrates that decision making is not always
rational.
• Decisions are influenced by the way a problem is
posed called framing and whether it is put in terms
of gains or losses.
• Sunk-cost fallacy – having paid for something
makes us reluctant to waste it.
• Loss aversion – people place much more emphasis
on loss than they do on gain.
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