Week 2 - Customer Decision-Making Process

• Customer Decision-Making Process


  Needs recognition --> Information search --> Evaluation of alternatives --> Purchase --> Post Purchase
• Two main rules of evaluations of alternatives

  1. Compensatory Rule: Balancing strengths and weaknesses of multiple attributes
  2. Lexographic Rule: Prioritizes the alternative that excels in the most important attribute only
• Two types of decision-making:

  Systematic

  Heuristic
• Factors influencing Consumer Decision-Making

  Promotion

  Perception

  Family

  Situational factors (occasion, mood, atmosphere)
• Lee & Ariely (2006) – Shopping Goals, Goal Concreteness, and Conditional Promotions


  “Consumers are less certain of their shopping goals in the first stage of the shopping process”

  “Consumer construct concrete goals as they go through the shopping process, and after constructing these goals they implement them”
• Fedorikhin & Shiv (1999) – Heart and Mind in Conflict: the Interplay of Affect and Cognition in Consumer Decision Making

  Affective vs Cognitive decision-making processes

  Affective: Automatic and emotional

  Cognitive: More deliberate and controlled
• Fedorikhin & Shiv (1999) – Heart and Mind in Conflict: the Interplay of Affect and Cognition in Consumer Decision

  When one alternative is superior in the affective dimension but inferior in the cognitive one, choices are influenced by the level of processing resources allocated to the task and the mode of presentation of the alternatives. Marketers of more emotional/affective products should constrain processing resources such as through distracting music or displays.
• Christensen et al. (2016) – Know Your Customers; “Jobs to Be Done”

  Big Data is useless if only showing correlation. Must shift away from segmenting customers by demographics, and instead look at what ‘job’ they need doing. By figuring out the exact problem, you can then begin to satisfy it perfectly, instead of trying to infer it in data.
• Thaler and Sunstein (2008), Nudge: improving decisions about health, wealth, and happiness


  Any aspect of the choice architecture that alters people’s behaviour in a predictable way, without forbidding any options or significantly changing their economic incentives
• Thaler and Sunstein (2008)

  3 Principles of a good nudge:

  1. All nudging should be transparent and never misleading
  2. It should be as easy as possible to opt out of a nudge
  3. There should be good reason to believe that the behaviour being encouraged will improve welfare
• Unethical Use of Nudging:

  The NY Times Subscription:

  15 day cancellation notice needed
• Petty et al (1983); Central and Peripheral Routes to Advertising Effectiveness

  Central:

  Resulting from careful consideration of information, leading to relatively enduring attitude changes. They are predictive of normal behaviour

  Peripheral:

  Attitude changes resulting from positive/negative cues around the issue/object
• Lahiry (2020): How do brands exploit the connection between product and identity


  "We are what we have and possess"

  Material goods can act as a self-extension to someones experiences, their character, and offer a sense of self through individual expression
• Russel Belk (1988): Possessions and the Extended Self


  A key to understanding what possessions mean is recognizing that, knowingly or unknowingly, intentionally or unintentionally, we regard our possessions as parts of ourselves.
• Russel Belk (1988): Possessions and the Extended Self


  Tribe to consume: Define yourself in a group setting through consumption choices (e.g., football, music)

  The extended self is not limited to external objects, but includes people, places, group posessions.
• Joel Cohen (1989): An Over-Extended Self?

  Comment on Russel Belk's 1988 possessions and the extended self.

  "Such an all-encompassing explanation for behaviour is more likely to obscure rather than reveal"

  Belk uses hyperbole, and his concept lacks meaning. "The extended self" is incredibly imprecise as a concept
• Belk (1988)


  "that we are what we have and that this may be the most basic and powerful fact of consumer behavior."
• Joel Cohen (1989): An Over-extended self?


  The concept is not defined enough theoretically or operationally for it to have any significant explanatory power at this point
• Russel Belk (1989); Extended Self and Extending Perspective


  The exact difference between a product that is important, and one that defines the self.

  Products can define anti-self, e.g., the Nazi flag, and still be important
• Douglas Holt (1995); How Consumers Consume

  Consuming as:

  1. Classification
  2. Integration
  3. Experience
  4. Play
• Douglas Holt (1995)


  Object Actions: Your enjoyment in something yourself

  Interactive Actions: Your enjoyment because you're going with someone else
• Douglas Holt (1995)


  Autotelic Consumption: Done for its own sake

  Instrumental Consumption: Things done for a reason; to talk about it, to fit in, external/internal dialogue
• Dove Self-Esteem Project


  Exploiting consumer identity in marketing

  • Project campaign focusing on low-self worth as a personal characteristic
• 3 ways marketers can strengthen the connection between possessions and identity

  1. Personalisation
  2. Brand Extensions
  3. Culture-links
• Daniel Kahneman (2011); Thinking Fast and Slow


  System 1; Fast, automatic, emotional system

  System 2; infrequent, slow, effortful choices
• Kahneman and Tversky (1974) Heuristics and Biases


  Judgement under uncertainty

  Key Human Biases:

  1. Anchoring
  2. Availability
  3. Framing
  4. Optimism / Loss Aversion
  5. Overconfidence
  6. Status Quo Bias
  7. Safety Bias
  8. Conjunction Fallacy
• The framing effect is when people react differently to the same information depending on how it’s presented.
• The availability heuristic is when we judge how likely something is based on how easily examples come to mind.
• Heuristic is an easy mental shortcut that helps us make judgements or decisions quickly without much thought.
• Loss aversion refers to our tendency to prefer avoiding losses over acquiring gains.
• The anchoring bias occurs when our judgements are influenced by irrelevant or misleading information that comes first.
• The optimism/loss aversion bias means that most people tend to be overly optimistic about their own abilities and outcomes while being risk-averse with losses.
• The conjunction fallacy occurs when people believe that two events are more probable than one event alone even though they cannot occur simultaneously.
• The endowment effect states that once we have possession of something, its value increases dramatically.
• WYSIATI


  What you see is all there is

  When the mind makes decisions, it deals with knowns, and phenomena it has already observed

  Fails to acknowledge known unknowns, even if it knows that they are important
• Hayward and Hambrick (1997); Explaining the premiums paid for large acquisitions


  CEO Hubris: Excessive self-confidence or pride that leads to poor decision-making
• Maslow (1954): Hierarchy of needs

  1. Physiological
  2. Safety and Security
  3. Love and Belonging
  4. Self-Esteem
  5. Self-Actualisation
• Goals


  Dynamic, often conflicting, desired states of self. Unconscious goals can be triggered
• Laran (2016); Goal Pursuit


  Consumers make choices to reach their goals. They also pursue goals unconsciously as suggested by environmental stimuli (e.g., healthy eating adverts, or gym posters)
• Non-compensatory heuristics


  When it takes time to make thought-out, rational decisions, consumers may use heuristics on things they know are important:

  • Brand
  • Price
  • Minimum performance