Lecture 2 PDF

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consumer beliefs...

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Lecture 2 5/03/19 Learning objective Chapter 9: -

The three different type of consumer decisions: extended, limited and habitual The three roles consumers take indecision making: emotion experiencers, habitual actors and problem solvers Consumer decision-making theories to explain why consumers exert effort or look for convenience Mental bias in consumer decisions

Internal factors Influences behaviours such as learning, personality, motivation, self and attitudes Factors come together to influence the way consumer make buying decisions Three main approaches Emotional Cognitive Behavioural Conusmers follow limited problem solving process and in other adopt a more extended process 5 stage-buying process Consumers use different processes for different products in different contexts Some decisions may be conscious and deliberate eg getting a tattoo for the first time Some are more habitual and subconscious eg getting another tattoo in response to an environmental source of influence such a price discount Milliman (1986) identified unconscious influences on consumers’ behaviour To draw customers into a store use warm colours such as yellow and red Customers spend longer (eat and drink slower) in restaurants with slower music Type pf consumer decisions Extended problem solving Decisions correspond most closely to the traditional decisions making perspective There is fair degree of risk Consumer tries to collect as much information as possible

Product alternative are evaluated EG buying a house or car Sometimes consumers may suffer post-purchase dissonance where they question the decision made Limited problem solving Is usually straightforward and simple. Buyers are not as motivated to search for information or to evaluate as rigorously Simple decisions rules are used You make usually a decision to buy the cheaper brand and therefore have no post-purchase consideration

Habitual decision making Where choices are made with little or no conscious effort Characterised by automaticity where is minimal effort and an absence of conscious Example buying food Perspectives on consumer choices People calmly integrate as much information as possible with what they already know about a product painstakingly weigh the pros and cons of each alternative and arrive at a satisfactory decision However consumers do not go through the process each time they make a decision some purchases are irrational and impulsive Researchers are begging to realise that consumers have many strategies for making decisions This is called constructive processing Consumers evaluate the effort required to make particular choices and then choose a strategy best suited to the level of effort required Eg this decision is not really important so I will buy X because I have already learned it suitable Problem solver, habitual actors and emotion experiences Consumer switch between these roles depending on the context and the product Eomtion based decisions have been considered non-rational, but they can be just as rational and valid information processing based decisions.

Affective events theory says that experiencing an affective event can create an emotion that leads to an affect-driven attitude and behaviour. Our thoughts drive our emotions and this influences our decisions Emotions as information Approach explains that decisions are sometime made on the basis of how we feel about an item Consumers as habitual actors Because some purchase decisions are more important than other the amount of effort we put into each differs; sometimes the decision is almost automatic and sometimes the decisions is on where a great deal of thinking and analysis is required Behavioural influence perspective is the concentration on these low involvement decisions Design the environment so the right choice is made easier Modelling the behaviour of habitual consumers Consumer as problem solvers A consumer purchase is a response to a problem Most consumers go through a series of steps when they make a purchase, which we see here in the EKB model of consumer behaviour Occurs when a consumer perceives a significant different between their current state and desired or ideal state Two options Need recognition: When the actual state moves downward Opportunity recognition: When the ideal state moves upwards Types of information search Internal info search: External info seach Search activity is greater when Purchase is more important Perceived risk may be present if the product is expensive or is complex and hard to understand Herusits = mental rules of thumb, which aid speedy decisions

Such as shortcuts Decisions rules: process used by consumers to make decisions in different situations Lexicographic rule: the product that is best on the most important attribute is selected. Elimination by aspects rule: products are eliminated based on specific cut-offs for predetermined attributes conjunctive rule: the brand is selected if it meets all of the cut offs Compensatory Rules: Simple additive rule: consumer chooses the alternative with the greatest number of positive attributes (or simply add up all attribute ratings) Weighted additive rule: consumer takes into account the relative importance of positively rated attributes and multiple rating by importance before adding up Mental accounting: biases in decisions-making process Mental accounting: process in which decisions are influenced by: -

The way the problem is posed (called framing) and Whether it is put in the terms or gain or loss

For instance, we may be more likely to go to a concert in a thunderstorm if we paid for the ticket rather than if we won the ticket. If we paid for something, we are more reluctant to waste it- this is the sunk-cost fallacy Loss aversion is another bias where people place more emphasis on the loss than any gains, for example losing money is more unpleasant than gaining money is pleasant Prospect theory finds that utility is a function of gains and losses and that risk differ when the consumer faces options involving gains and versus those involving losses Key Point: not all decisions are the same and not all decisions are rational. Quotes from Hidden trap in decisions making -

In making decisions, your own mind may be your worst enemy Some examples: anchoring trap, status-Quo, sunk-cost trap, confirming- evidence trap and framing trap What makes these traps so dangerous is their invisibility. The best defence is awareness

Anchoring trap What is it? -

Giving disproportionate weight to the first information you receive

Examples

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A marketer projects future product sales by looking only at past sales figures

Avoiding the trap -

Pursue other lines of thoughts (example: different perspective) in addition to your first one Seek information from a variety of people

Status-Quo trap What is it -

Favouring alternatives that maintain the existing situation. We look for reasons to do nothing

Examples -

When people inherits shares of stock, most of them don’t sell the shares and put the money into a different investment

Avoiding the trap -

Ask if the status quo really serves your objectives Ask if you’d chose the status if it weren’t the status quo

Sunk cost trap What is it? -

To make choices in a way that justifies past choices, even when the past choices no longer seem valid

Examples -

Old investments of time or money that are now irrecoverable When a borrowers business runs into trouble, a lender will often advance additional funds to protect his/her earlier decisions

Avoiding the trap -

Get view of people who weren’t involved in the original decisions Examine why admitting to a mistake distresses you. Warren buffet says ‘when you find yourself in a hole, the best thing you can do is top digging.”

Confirming evidence trap What is it? -

Seeking information that supports your existing point of view

Examples -

A ceo considering cancelling a plant expansion asks an acquaintance, who cancelled such an expansion, for advice. They of course say cancel

Avoiding the trap -

Get someone you respect to play devils advocate, to argue against the decision you’re contemplating

Framing trap What is it? -

The way a problem is framed can profoundly influence the decision we make

Examples -

95% fat free, vs. 5% fat Gain vs loss frame You will live longer if you quit smoking (Gain frame message) vs. you will die sooner if you do not quit smoking (loss frame message)

Avoiding the trap -

Reframe the problem in various ways Look for distortions caused by the frames

Summary -

We make consumption decisions in different ways (Extended , limited and habitual) There are five stages of the (cognitive) decision making model What are evoked and inept sets Perceived risk influences decision making Some decision rules to evaluate alternatives There are biases in the decision making process...