L5+Decision


 * Decision Making** (based on SBAH Chapter 8)

-> Decision making in its basic sence is **problem solving**.

There are three phases of consumer behaviour, the **prepurchase**, the actual **purchase** and the **post-purchase**. Marketers have been focusing in the actual purchase which is directly related to the prepurchase.

__**The decisions are affected by:**__

__Environmental factors__ - As seen in classroom with the example of the Vista in a store (in Vivian's example) also social, physical and financial factors; __Cognitive and affective processes__ (thoughts, emotion); __Behavioural actions.__ Usually it is a group of decisions.

· Problem recognition: to feel a sort of need, lack or tension (How can feel people more needs? What triggers them?) · Search for alternative solutions: collecting information from different sources (What sources do they take? Who do they ask for information?) · Evaluation of alternatives: Comparing brands (What types of criteria do they use? How many criteria do they use?) · Purchase (decision) · Postpurchase use and reevaluation: Changing your mind about the purchase or sharing information about the decision But do consumer really make decision in this way? This depends on the Involvement, as described below. Also often we do not make a decision linear, but often go back to a previous step of the model. Furthermore other decisions may have an influence, which are not included in the model.
 * GENERIC MODEL** of consumer problem solving (5 stages)

Involvement
Depends on:
 * The degree of intrinsic and situational self-relevance - how important is a product to the consumer affects the level of involvement this consumer will have in buying this product. This factor can also be affected by the situation, that means the level of involvement for each product isn't fixed, it can vary;
 * Perceived risks (explained further in this notes).
 * __Perspectives on decision-making__**
 * 1. The rational perspective** - people calmly and carefully intergrate as much information as possible with what they arleady know about a product. Thay weight up the pros and cons of each before making a decision.


 * 2. Behavioural influence perspective** - decisions are made under conditions of low involvement. In this situations, the consumers decisions are learned response to enviromental cues (triggers), e.g. buying something on impulse - "special offer"

3. **Experiental perpective -** When decision making is more based on high-involvement but still not entirely rational.

__**Types of consumer decisions**__

1. **Routine decision-making** - when we don't think much about the purchase;

2. **Extensive decision-making** - When there is a lot of time and effort spent in the purchase;

3. **Limited decision-making** - It lays in the middle of the previous types.


 * INFORMATION SEARCH** (lecture extension)

“Information search is the process by which the consumer surveys his or her environment for appropriate data to make a reasonable decision”.

__There are different types of information search.__

Firstly we can distinguish **pre-purchase search** when we look for the specific information which will help us in the decision. On the other hand we may be involved in **ongoing search**. Here we build a bank of information for future use, we check offers to know what is in, probably we have fun doing window-shopping etc.

Other two kinds of information search depends on the source we use to achieve our goals. We may scan our memory and base only on **internal search**. If we look for the product information outside we are involved in **external search**. Even if we are market-aware, we supplement our knowledge with ads which attack us or friends who made similar decisions already. It’s hard task to base only on internal search.

Last situation leads us also to recognize **incidental learning** when we find and store information even if we are not directly interested in that. Whereas **directed learning** means that we probably searched for relevant information making similar buying decisions in the past. In other words we speak here about **deliberate** and **accidental search.**

Moreover, decisions are always related to & influenced by other dicisions.

__The economics of information__

Just to highlight this issue: “people will put themselves out to collect as much information as possible, as long as the process of gathering it is not too onerous or time-consuming”.

__Biases in the decision-making process__

..:: **sunk-cost fallacy** – if we paid for something already we are reluctant to waste it ..:: **loss aversion** – we used to put much more emphasis on loss than we do on gain

__The consumer’s prior expertise__

“There is an inverted-U relationship between knowledge and external search effort”. It means that consumers who are moderately knowledgeable will spend the longest time looking for information. Novices or experts wouldn’t involve in such way.

Purchase decisions, especially if they involve extensive search, include kind of __perceived risk__. There are 5 major types of this risk:

- Monetary risk - Functional risk - Physical risk - Social risk - Psychological risk

Elements of Problem Solving:
 * 1) problem representation
 * certain end goals define the focus for the entire process
 * information search (described above)
 * consideration set: The set of products considered when selecting one special product
 * consideration set (depending on how the consumer categorizes my product, I have to set up the marketing strategy. E.g. is salad considered as main dish or not?)

2. integration processes
 * alternatives are evaluated in terms of the choice criteria
 * one of the alternatives must be selected
 * two different integration procedures:
 * formal integration strategies (we'll combine knowledge very systematically): compensatory and non-compensatory integration processes, decision making is in those processes rational and information is gathered and considered
 * simpler procedures called heuristics (shortcuts, we don't think about products properties but act as "we are used to do"): used for routine response behaviour. There are search heuristics, evaluation heuristics and choice heuristics.

3. decision plans (intention)
 * marketers are trying to increase the likelihood that the intended behaviour will be performed. This may include buying big product packages because of the heuristic rule that big packages are cheaper than small ones, even though this may not be true for certain products.

In formal strategies occure two processes involved in evaluating and choosing among choice alternatives:


 * compensatory integration processes
 * non-compensatory integration processes


 * Compensatory proces** give a product a chance to make up for its shortcomings. Consumers who employ these rules tend to be more involved in the purchase and thus are willing to exert the effort to consider the entire picture in a more exacting way. The willingness to offset good product qualities against bad ones can result in quite different choises (the yogurth example - people are reluctant to buy the more expensive one, becouse it is BIO or Organic). There are two basis types of compensatory rules:
 * simple additive rules - consumer merely chooses the alternative having the largest number of positive atributes. This choice is more likely to occure when the ability or motivation to process information is limited;
 * weighted additive rule - the consumer takes into account also the relative importance of positively rated attributes, essencialy multipying brand ratings by importance weights.


 * Non compensatory proces** - product with a low standing on one attribute cannot make up for this position by beeing better on other. Poeple simply eliminate all options that do not meet some basic standards. They are usually applied when people are less familiar with a product category or are not very motivated to process complex information; they tend to use simple rules.



If you want to learn more about **INFORMATION SEARCH** you should read the chapter in the book: pages 265-272.

__IN-CLASS DISCUSSION__ The Paradox of Choice – Schwartz A World of Choices – Freedom? Welfare? / Too many? Bad consequences? •Products (Jeans-variety) •Health Care (shift of the responsibility to the consumer) Variety give consumers the chance to **“reinvent yourself”,** in a world that demand you to be unique and different – **“What kind of person do you want to be?”:** **Consumers even choose their identity, a shift of the burden and responsibility.** Deeply linked to Technology: everything and everybody is now too linked, too close, too easy. •Paralysis: you are not able to make a decision anymore – more offers, less customers •Lower Level of Satisfaction - Regret: the more options there are the easier to regret our decision – opportunity cost: the “pain” of losing the other possibilities. •Raising expectations: hope for perfection => no positive surprises anymore •Decreasing sales •Unsatisfiable expectations •Consumers regret the purchase •Less is more: Simple solutions •After-Sale service •Assistants (helping to make a choice) - Facilitate choices: develop heuristics (emotional, subconscious stimuli that activate the signals we pay attention to. - Explore values like “the simplest”, special services (consulting, research/data collection). There is a point until which more variety is desirable – may depend on the politics and the wealth. Western societies have probably reached already the limit of choice for comfort – “Everybody needs a fish bowl”. In more traditional societies, benefits may still raise with an increase in the possibilities of choice. The play //Fiddler in the Roof// gives us a good example on how traditional societies hang on to tradition, a designed and safe path to keep the balance and look suspiciously towards change and innovation.
 * Examples:**
 * Negative Consequences for consumers:**
 * “Options don’t help, they hurt”** - Self-Blame and Depression.
 * Negative Consequence for marketers:**
 * Marketing Opportunities:**
 * Valid for all societies?**