Lecture 1: Introduction of Consumer Behavior
Consumer behavior: obtaining, consuming and disposing of products/services
o Understanding and explaining why consumers behave that way, conscious and
unconscious decisions, external influences, customer segments, delivery options,
returns
Consumer & marketing factors are underlying factors that influence factors of obtaining,
consuming, disposing
Consumer: individual/group/organization ABC (affect, behavior, cognition
responses)
o Affect: how consumers feel (emotions)
o Behavior: how consumers act
o Cognition: how consumers think (thoughts, opinions)
Why study consumer behavior? advertising, understand consumers (needs, decisions,
emotions), predict reaction to marketing strategies (product/price changes, change
positioning)
But..
Problem with understanding: not everyone likes you (false consensus)
o False consensus effect: overestimate that you own beliefs are also beliefs of
others
Problem with predicting: you often don’t even know (biases)
o What you would do (affective forecasting: how something makes you feel)
o Why you do what you do
Intuition trap: problems with common sense
We are often wrong
o Projection bias: idea that people project their own attitudes/beliefs onto others
We focus on confirming instances: confirmation bias, cognitive component (focused
attention), motivational component (resistant to changing our prior beliefs)
Our preferences are not representative: projection bias/false consensus bias, people
overestimate extent to which their beliefs are typical of those of others
, Make decisions based on few observations
Infer causality from correlation
Overconfidence
Intuitive ideas are: easy, more vivid, appealing, well-remembered, generic
Scientific ideas are: complex, careful, situational
Marketing organizations
Find out what they care about and provide that (Crest toothpaste)
o Do consumers know what they want? no (preferences flexible, don’t know
what they prefer, don’t know what is possible)
Public policy
Regulate behavior: how will consumers react to regulations?
- Assumption: if people know how bad something is, they will not do it
- Does it work? sometimes they still do it
- How will consumers react to regulations (cigarette warning labels) and to
market changes (recession, tax cuts)?
Change behavior: social marketing
- Encourage/discourage activities
- Effect of advertising on society
Consumer research
Problems interviews/survey: self-selection, self-reports, sensitivity to wording/order
Qualitative: exploratory
Quantitive: test, generalize
Lecture 2: Irrationality
Consumer assumption
Preferences are clear and accessible in consumers’ minds
Consumers make trade-offs between quality and price
Each product is judged on its merits alone
Willingness to pay is the result of evaluating the object we are interested in
Market research instruments accurately tell us what consumers really prefer and how
much they would pay
,Value depends on irrelevant anchors
Willingness to pay increased, when digits of SSN are higher
Value depends on set of alternatives
Compromise effect: share of product increases when it is intermediate option but
decreases when it is extreme option
Value changes with ownership
Endowment effect: owners assign greater value to a product than non-owners
Malleability of preferences
Preferences are typically constructed, not revealed
o Every evaluation is relative reference dependence (toaster)
o People don’t know what they want until they see it in context context
dependence (lamp)
o Preferences change depending on how alternatives are presented to them
description dependence (cup)
Rational consumers:
People take into account the pleasure they obtain from consuming something
Price they pay for it
Consumers want value for money
Free products: consumers prefer this, gives a high trigger to consumers!!
Large assortments & wide product selection: consumers prefer this (desirable)
o More options: more attention + more difficult to make buying decision (choice
overload: demotivating)
Choice overload / hyperchoice: Freedom of choice becomes tyranny of choice more
options, is more difficult, frustrating (fear of making wrong choice, FOMO), lower
satisfaction, lower choice
- Why choice might make us unhappy:
regret and anticipated regret
opportunity costs: the value of the next best choice that one gives
up when making a decision
escalation of expectation
- Example: Jam experiment; consumers had to possibility to taste 6 or 30
types of jam. The result -> people were much more likely to buy a jam
when they had to chose between 6 jams (compared to 30 flavors)
Descriptive research strategy (opinion polls, facts, figures)
Describes individual variables
Obtains snapshot of specific characteristics of specific group of individuals
Data is in form of averages/percentages
, The independent variable causes the effect to a dependent variable, and NEVER the
other way around
Correlational research strategy
Measures 2 variables for each individual
Relationship between advertising expenditures and sales
Form of relationships: Linear and Monotonic:
Correlation vs. causation
Not everything is caused by each other, but can be related
Independent variables (cause), dependent variable (effect)
Correlation coefficient
Measures and describes relationship between 2 variables
Describes direction + consistency or strength
Both variables are non-numerical: chi-square test
Correlational strategy
Predictor variable: 1st variable (simple, well defined)
Criterion variable: 2nd variable (being explained/predicted) (complex, unknown)
Regression: statistical process for using 1 variable to predict the other
o Goal: to find equation that produces most accurate prediction of Y (criterion) for
each value of X (predictor)
Experimental research strategy: answers cause-and-effect questions about relationship
between 2 variables (random assignment)
Consumer behavior: obtaining, consuming and disposing of products/services
o Understanding and explaining why consumers behave that way, conscious and
unconscious decisions, external influences, customer segments, delivery options,
returns
Consumer & marketing factors are underlying factors that influence factors of obtaining,
consuming, disposing
Consumer: individual/group/organization ABC (affect, behavior, cognition
responses)
o Affect: how consumers feel (emotions)
o Behavior: how consumers act
o Cognition: how consumers think (thoughts, opinions)
Why study consumer behavior? advertising, understand consumers (needs, decisions,
emotions), predict reaction to marketing strategies (product/price changes, change
positioning)
But..
Problem with understanding: not everyone likes you (false consensus)
o False consensus effect: overestimate that you own beliefs are also beliefs of
others
Problem with predicting: you often don’t even know (biases)
o What you would do (affective forecasting: how something makes you feel)
o Why you do what you do
Intuition trap: problems with common sense
We are often wrong
o Projection bias: idea that people project their own attitudes/beliefs onto others
We focus on confirming instances: confirmation bias, cognitive component (focused
attention), motivational component (resistant to changing our prior beliefs)
Our preferences are not representative: projection bias/false consensus bias, people
overestimate extent to which their beliefs are typical of those of others
, Make decisions based on few observations
Infer causality from correlation
Overconfidence
Intuitive ideas are: easy, more vivid, appealing, well-remembered, generic
Scientific ideas are: complex, careful, situational
Marketing organizations
Find out what they care about and provide that (Crest toothpaste)
o Do consumers know what they want? no (preferences flexible, don’t know
what they prefer, don’t know what is possible)
Public policy
Regulate behavior: how will consumers react to regulations?
- Assumption: if people know how bad something is, they will not do it
- Does it work? sometimes they still do it
- How will consumers react to regulations (cigarette warning labels) and to
market changes (recession, tax cuts)?
Change behavior: social marketing
- Encourage/discourage activities
- Effect of advertising on society
Consumer research
Problems interviews/survey: self-selection, self-reports, sensitivity to wording/order
Qualitative: exploratory
Quantitive: test, generalize
Lecture 2: Irrationality
Consumer assumption
Preferences are clear and accessible in consumers’ minds
Consumers make trade-offs between quality and price
Each product is judged on its merits alone
Willingness to pay is the result of evaluating the object we are interested in
Market research instruments accurately tell us what consumers really prefer and how
much they would pay
,Value depends on irrelevant anchors
Willingness to pay increased, when digits of SSN are higher
Value depends on set of alternatives
Compromise effect: share of product increases when it is intermediate option but
decreases when it is extreme option
Value changes with ownership
Endowment effect: owners assign greater value to a product than non-owners
Malleability of preferences
Preferences are typically constructed, not revealed
o Every evaluation is relative reference dependence (toaster)
o People don’t know what they want until they see it in context context
dependence (lamp)
o Preferences change depending on how alternatives are presented to them
description dependence (cup)
Rational consumers:
People take into account the pleasure they obtain from consuming something
Price they pay for it
Consumers want value for money
Free products: consumers prefer this, gives a high trigger to consumers!!
Large assortments & wide product selection: consumers prefer this (desirable)
o More options: more attention + more difficult to make buying decision (choice
overload: demotivating)
Choice overload / hyperchoice: Freedom of choice becomes tyranny of choice more
options, is more difficult, frustrating (fear of making wrong choice, FOMO), lower
satisfaction, lower choice
- Why choice might make us unhappy:
regret and anticipated regret
opportunity costs: the value of the next best choice that one gives
up when making a decision
escalation of expectation
- Example: Jam experiment; consumers had to possibility to taste 6 or 30
types of jam. The result -> people were much more likely to buy a jam
when they had to chose between 6 jams (compared to 30 flavors)
Descriptive research strategy (opinion polls, facts, figures)
Describes individual variables
Obtains snapshot of specific characteristics of specific group of individuals
Data is in form of averages/percentages
, The independent variable causes the effect to a dependent variable, and NEVER the
other way around
Correlational research strategy
Measures 2 variables for each individual
Relationship between advertising expenditures and sales
Form of relationships: Linear and Monotonic:
Correlation vs. causation
Not everything is caused by each other, but can be related
Independent variables (cause), dependent variable (effect)
Correlation coefficient
Measures and describes relationship between 2 variables
Describes direction + consistency or strength
Both variables are non-numerical: chi-square test
Correlational strategy
Predictor variable: 1st variable (simple, well defined)
Criterion variable: 2nd variable (being explained/predicted) (complex, unknown)
Regression: statistical process for using 1 variable to predict the other
o Goal: to find equation that produces most accurate prediction of Y (criterion) for
each value of X (predictor)
Experimental research strategy: answers cause-and-effect questions about relationship
between 2 variables (random assignment)
