INDIVIDUAL DECISION MAKING

1. INDIVIDUAL DECISION MAKING

2. The Purchasing Process Why do we buy anything? A Rational Problem Solver?

3. PROBLEM RECOGNITION INFORMATION SEARCH EVALUATION OF ALTERNATIVES PRODUCT CHOICE CONSUMPTION & LEARNING How do we solve our Problems – What’s the process? What are the Implications for Marketers?

4. CONSUMER EFFORT IN MAKING DECISIONS Your car is now 7 years and is in need of constant repair. What decision process do you go through in purchasing a new one?

5. Extended Problem Solving • collect as much info as possible • evaluate each product alternative carefully • decision perceived to carry a fair degree of risk • initiated by a motive central to the self-concept • engaged in when trying to satisfy an important need or when we have limited knowledge of the product or service

6. Your toaster is now toast. What process do you go through in purchasing a new one?

7. Limited Problem Solving • Moderate amount of time and effort spent on information search and evaluation • buyers aware of product class but not brands and their features. • people use decision rules to chose among alternatives • some prior experience or knowledge of the product or service • Most purchases fall into this category.

8. Your at the gas station paying for your gas when you have an uncontrollable urge to buy a chocolate bar. How do you decide which one to buy?

9. Habitual Decision Making • Minimal search for, and evaluation of, alternatives. • Little or no conscious effort • Decisions are routine • Brand Loyalty: consistently buy the same things • Store Loyalty: consistently shop at same store

10. PROBLEM RECOGNITION How do you recognize a need for a product? • when there is a difference between an actual state and a desired state and that requires resolution. In this case it was need recognition – something was lacking

11. opportunity recognition - something to be gained

12. Once You’ve recognized you have a problem what motivates you to resolve the problem? • how big the difference is between the desired and actual states • the relative importance of the problem

13. Marketing is all about creating a need in the mind of the customer and then satisfying that need. Philip Kotler

14. What is primary demand? The total demand for all brands in a product category. E.g. for specialty coffee shops = Starbucks + Second Cup + Grabbajabba + etc.

15. Primary Demand Stimulation • Marketing activity intended to increase demand for the product category • When breaking open a new product category your first job is to create primary demand • E.g. at one time there were no personal data assistants • Then Apple introduced its Newton MessagePad. • The task of Apple at that time was to create primary demand, not secondary demand because nobody knew what a PDA was or how it could be used to help them

16. Primary demand stimulation • only a possibility in new product categories • no evidence–scientific or anecdotal–that advertising can affect primary demand in mature product categories • advertising most appropriately used by trade associations

17. Secondary demand the demand for a given brand in a category

18. Secondary (or Selective) Demand Stimulation Marketing activity intended to increase demand for one organization’s product or services over those of competitors. I.e. competitive position • Acquisition of new customers strategies • Head-to-head positioning • Superior quality • Price/cost leadership • Differentiated positioning • Customer-oriented niches • Benefit positioning

19. Secondary (or Selective) Demand Stimulation • Retention strategies • Maintenance of customer satisfaction • Meet competition • Relationship marketing • Product line strategies • Line extensions • Bundling • Systems selling

20. INFORMATION SEARCH WHAT ARE WE SEARCHING FOR? • Evaluative criteria • Existence of alternatives • Performance of alternatives on the criteria

21. WHERE WILL WE SEARCH? • Internal Sources • Previous searches • Personal experiences • Passive, low-involvement learning • External Sources • Personal sources • Independent sources • Marketing sources • Experiential sources • (e.g. sales people, packaging)

22. WHAT DETERMINES THE EXTENT OF THE SEARCH? Cost of Search vs. Benefits • Market Characteristics • Range of prices • Number of alternatives • Store distribution • Information availability • Product Characteristics • Price • Product Differentiation

23. Experience/Knowledge • Shopping Orientation • Perceived Risk • Social Status • Age and Household Life Cycle • Physical/Mental Energy DETERMINANTS CONTINUED • Situational Characteristics • Time Availability • Purchase for Others • Pleasant Surroundings • Social Surroundings • Consumer Characteristics

24. RISK FACTORS More time and effort is spent in the buying process when there is a high risk factor • physical risk - to health - drugs, potentially dangerous items • financial risk - high priced items • social risk - to social status, symbolic products • functional risk - picking the wrong product that doesn’t do the job or meet the need. • psychological risk - to self esteem, feeling guilty

25. Do consumers always search rationally?

26. Biases in Decision Making • Loss aversion • 1. You've just been given $1,000 -- and two options. • Option A guarantees you an additional $500. • Option B lets you flip a coin: Heads, you get another $1,000; tails, you get nothing more. • Which would you choose? • 2. You've been given $2,000 -- and two options. • Option A guarantees that you will lose $500. • Option B lets you flip a coin: Heads, you lose $1,000; tails, you lose nothing. • Which would you choose? People feel the pain of a loss more strongly than the pleasure of an equal gain.

27. Sunk costfallacy • As the president of an airline company, you have invested $10 million of the company's money into a research project. • The purpose was to build a plane that would not be detected by conventional radar. • When the project is 90 percent completed, another firm begins marketing a plane that cannot be detected by radar. • Also, their plane is much faster and far more economical than the plane your company is building. • The question is: should you invest the last 10 percent of the research funds to finish your radar-blank plane? • NO - It makes no sense to continue spending money on the project. • YES - Since $10 mil. is already invested, I might as well finish it. • Rationality - The investment size is irrelevant to the • decision whether to continue or not

28. Surrogate indicator: • readily observable attribute of a product used to represent the performance level of a less observable attribute • e.g., price and brand name are often used by consumers as surrogate indicators of quality

29. HEURISTICS • "rules of thumb" people use to make judgements and decisions. • never buy a car in the first model year (choice heuristic) • if buying a computer, go to Future Shop for the best deal (search heuristic) • Signals - infer hidden attributes from observable ones • Covariation - usually vary with quality • length of time in business • country of origin • price • brand • retail outlet

30. EVALUATION OF ALTERNATIVES How do consumers narrow down the alternatives and choose one?

31. How Many brands of Mini vans can you think of? • evoked set • The set of choices/brands that come to mind for purchase (retrieval set) • Important for marketer to get into the evoked set - these are the brands that will be evaluated first inert set • brands which person is aware of but considers unacceptable inept set • brands which consumer is unaware of

32. New brands will be accepted into the evoked set but not brands which have been rejected. • Therefore important that it performs well when first introduced Ford Edsel

33. Ford Edsel 1958 (63,110); 1959 (44,891); 1960 (2,846) • Radical styling, chrome-laden and gadget-filled big car in a small car market • The pre-introduction publicity, which lasted for a year, created a super-car perception by consumers, which the Edsel failed to live up to. • gained a reputation as being unreliable, expensive and prone to breaking down every thousand miles.

34. MARKETING STRATEGIES • Habitual decision, brand in evoked set Maintenance • Habitual decision, brand not in evoked set Disrupt • Limited decision, brand in evoked set Capture • Limited decision, brand not in evoked set Intercept • Extended decision, brand in evoked set Preference • Extended decision, brand not in evoked set • Acceptance

35. What is it? HP OfficeJet G85 All-in-one scanner/copier/fax/printer

36. Product Categorization • Consumers tend to put all productsinto mental categories based on similarities and differences. • Categorization is the process of understanding what something is by relating it to prior knowledge • For example, when combination phone/fax/printers came out, they were categorized by customers as a phone – not a multifunction device. • This is because they don’t have an established category for multifunction devices, so they just stick the new product in the phone category

37. Products are categorized in levels

38. PRODUCT POSITIONING • Success of a positioning strategy often hinges on the marketers ability to convince consumer that product should be considered within a given category. Which is the sports car? Porsche Mercedes Cadillac • The place a product or service occupies in consumers' minds on important attributes relative to competitive offerings. Which is more prestigious?

39. Positioning is the centerpiece of Marketing Strategy • The positioning identifies the way a firm wants customers to think about their product/brand to maximize their product interest • The positioning defines how the product will be differentiated to compete in an increasingly competitive marketplace

40. A Typical Positioning Has Several Pieces... • Actual Product or Service Description • Target Market • Benefits • Competitive Context and Advantage

41. The real education problem of companies introducing new products in generating primary demand is to get customers to properly categorize the product.

42. Strategic Implications of Product Categorization • Locating Products • Where do you find wooden matches in the grocery store? • Where do you find soya sauce? • Stimulating Interest • Defining Competitors • Who are WestJets’ competitors • Positioning and Repositioning

43. What are some dimensions, or characteristics, that you might use to assess business schools? On each of these dimensions, where would you position relative to one another U of Toronto, U of Calgary, U of L, Mount Royal College

44. REPOSITIONING • changing the place an offering occupies in consumers' minds relative to competitive offerings. Mount Royal College has decided to reposition itself as a premier business school. What do you suggest they do to achieve this?

45. EVALUATIVE CRITERIA When comparing products or services what criteria do you use? HP Dell IBM Compaq functional attributes

46. Which margarine do you buy? And Why? • determinant attributes • differentiators How can Marketers influence what attributes are important

47. Situational Influences on Consumer Behaviour • Purchase task • Antecedent states • Social surroundings • Physical surroundings • Temporal effects

48. Situational Effects • Three areas of focus • Antecedent states (situational effects) • Purchase environment • Post-purchase processes and issues

49. Antecedent States • Antecedent States are features of the individual person that are not lasting characteristics • Moods • Conditions • Moods are temporary feeling states that are generally not tied to a specific event.

50. Why do consumers shop? • Social experience • Sharing of interests • Interpersonal attraction • Instant status • “Thrill of the hunt”