Consumer decision making
Consumer decision making
A set of patterns in behaviour exhibited by consumers just before they make a decision to
acquire either goods or services that would satisfy their own wants and needs
Models of decision making:
Models are representations of some aspect of reality, created for a specific purpose.
Utility theory - Neumann and Morgernstern (1953):
Consumers make rational decisions based on expected outcomes. The better the outcome
for the consumer the more likely it is they will want to purchase an item. The higher the utility
used for the consumer, the more likely they will decide to make a purchase.
Consumers make rational decisions; ‘Choose the [product] with the highest utility’.
Satisficing theory - Simon (1956):
Satisficing is where the consumer satisfies their needs and searches amongst available
products until they find an acceptable product. They get approximately where they want to
go and then stop. If you were shopping for a new dress, you would try on a few and then buy
the one that seems ‘good enough’
We select the first option that appears to meet our needs (it is sufficient enough to satisfy our
needs). ‘Why continue searching when this will do?’
Prospect theory - Kahneman and Tversky (1979):
People think in terms of expected utility (value) relative to a reference point (e.g. current
wealth) rather than actual outcomes. Prospect theory indicates that people are loss-averse;
since individuals dislike losses more than equivalent gains, they are more willing to take
risks to avoid a loss. “I’m not going lower on spec, even if the price is brilliant!”
Added the ideas of value and endowment. Consumers value gains and losses in different
ways and make their decision on the likelihood of gain rather than the likelihood of loss.
Endowment is when a product is more precious when you own it rather than someone else.
Strategies:
A strategy is a specific course of action that will take you from where you are now to where
you want to be.
Compensatory –
The consumer weighs up the various features of some products and decides to buy the one
that has the most features that they want. Purchasing depends on which attributes of a
product are valued more by the individual consumer.
Non-compensatory –
Each feature of the product is evaluated individually by the consumer rather than allowing
one to compensate for the other.
,Each attribute is evaluated individually. Even if there are five positive and only one negative
attribute, the product may not be chosen. Three strategies are used to decide:
Strategies used include satisficing (the first product meeting basic requirements is chosen),
elimination by aspects (considers any product that has the most important feature and then
assesses those that remain under the next most important feature until a decision is
reached) and lexicographic (the most important feature is evaluated and the item that is the
most superior on that feature is selected, if some products are equal, then the second most
important feature is considered).
Partially compensatory –
Majority of conforming dimensions – evaluate two products against all relevant features and
choose the best one to purchase.
Frequency of Good and Bad features – All potential products are compared and the one that
is the most positive so long as it meets the minimum requirement, it is chosen.
Marketing theories:
Consideration –
The consumer will create a short list of products for consideration and then make the
decision about which product to buy.
For example, the consumer won’t consider all available restaurants but will make a shortlist
of restaurants and make their decision using this shortlist.
We consider a small subset of items.
Involvement –
The amount of effort applied to decision-making. This is directly related to the level of
importance the consumer places on acquiring a specific product. The degree of involvement
is not necessarily a function of price but is instead related to the perceived impact the
purchasing of the product will have on the quality of life of the consumer.
Choice heuristics
Availability and representativeness:
An availability heuristic is a mental shortcut that relies on immediate examples that come to
mind when evaluating a specific topic, concept, method or decision. People tend to use a
readily available fact to base their beliefs about a concept.
Hoyer et.al. (2009) suggests that if we buy a DVD player that breaks down, our ‘available’
perception of that brand is likely to be a negative one, so we are unlikely to buy from that
company again. This is because we ignore how often something actually occurs in favour of
readily available information.
Representativeness heuristics are mental shortcuts that allow us to make a decision based
, on comparing available information with a mental ‘prototype’ or stereotype we have about a
product.
Anchoring and purpose quantity decisions (Wansink et al):
"Anchoring bias" is a heuristic which describes the common human tendency to rely too
heavily on the first piece of information offered (the "anchor") when making decisions.
2 field, 2 lab
Study 1: Field experiment investigating single/multiple unit pricing. 1 week in 86 stores
randomly assigned to single or multiple-unit promotions. The baseline score was calculated
as average weekly sales during the last six months. DV - % change in sales from baseline.
13 items were used, including frozen meals, candy, and tinned soup.
Multiple unit promotions resulted in a 32% increase in sales over the single unit items.
They concluded that multiple-unit pricing can increase sales, although they also stated that
customers may have been unaware that they could buy a single item. As there was no
self-report data, this could not be checked. Also, they did not control the number of
customers.
Study 2:
Investigated the effect of purchase limits (eg. only 4 per customer). Limited previous
research indicates that low numbers may increase sales, but this study investigated high
numbers (eg. 12 per customer).
Field experiment, over three evenings in three US supermarkets. Aisle end display of
Campbell’s soup for 79¢ per tin. The regular price was 89¢, so a small saving of 12%. IV -
Limit of 4 per person/limit of 12 per person. Covert observation of 914 shoppers.
Findings: ‘No limit’’ (control) bought 3.3 cans. 4 limit bought 3.5 cans. 12 limit bought 7 cans
(sales increased by 112%).
Study 3:
Investigated the effect of ‘’anchor-based slogans; ‘Snickers bars- buy them for your freezer!’
‘Snickers bars- buy 18 for your freezer!’ Another IV was the price; No discount, 20% off, and
40% off.
Findings:
Both the suggestive anchor (Buy 18 for your freezer) and the discounts increased sales
intentions. However, they also concluded that we use ‘internal anchors’ to resist
point-of-purchase (anything that customers interact with in-store when they are deciding
whether or not to purchase a product) sales.
Study 4:
139 undergraduates, shopping scenario with 25-30% discount of well-known products such
as Coca-Cola. Can shoppers counter external anchors with internal anchors?
Four purchase limits; no limit (default anchor), 14, 28, 56 items (external anchors)
After studying the promotion, they were asked; (internal anchors)
Consumer decision making
A set of patterns in behaviour exhibited by consumers just before they make a decision to
acquire either goods or services that would satisfy their own wants and needs
Models of decision making:
Models are representations of some aspect of reality, created for a specific purpose.
Utility theory - Neumann and Morgernstern (1953):
Consumers make rational decisions based on expected outcomes. The better the outcome
for the consumer the more likely it is they will want to purchase an item. The higher the utility
used for the consumer, the more likely they will decide to make a purchase.
Consumers make rational decisions; ‘Choose the [product] with the highest utility’.
Satisficing theory - Simon (1956):
Satisficing is where the consumer satisfies their needs and searches amongst available
products until they find an acceptable product. They get approximately where they want to
go and then stop. If you were shopping for a new dress, you would try on a few and then buy
the one that seems ‘good enough’
We select the first option that appears to meet our needs (it is sufficient enough to satisfy our
needs). ‘Why continue searching when this will do?’
Prospect theory - Kahneman and Tversky (1979):
People think in terms of expected utility (value) relative to a reference point (e.g. current
wealth) rather than actual outcomes. Prospect theory indicates that people are loss-averse;
since individuals dislike losses more than equivalent gains, they are more willing to take
risks to avoid a loss. “I’m not going lower on spec, even if the price is brilliant!”
Added the ideas of value and endowment. Consumers value gains and losses in different
ways and make their decision on the likelihood of gain rather than the likelihood of loss.
Endowment is when a product is more precious when you own it rather than someone else.
Strategies:
A strategy is a specific course of action that will take you from where you are now to where
you want to be.
Compensatory –
The consumer weighs up the various features of some products and decides to buy the one
that has the most features that they want. Purchasing depends on which attributes of a
product are valued more by the individual consumer.
Non-compensatory –
Each feature of the product is evaluated individually by the consumer rather than allowing
one to compensate for the other.
,Each attribute is evaluated individually. Even if there are five positive and only one negative
attribute, the product may not be chosen. Three strategies are used to decide:
Strategies used include satisficing (the first product meeting basic requirements is chosen),
elimination by aspects (considers any product that has the most important feature and then
assesses those that remain under the next most important feature until a decision is
reached) and lexicographic (the most important feature is evaluated and the item that is the
most superior on that feature is selected, if some products are equal, then the second most
important feature is considered).
Partially compensatory –
Majority of conforming dimensions – evaluate two products against all relevant features and
choose the best one to purchase.
Frequency of Good and Bad features – All potential products are compared and the one that
is the most positive so long as it meets the minimum requirement, it is chosen.
Marketing theories:
Consideration –
The consumer will create a short list of products for consideration and then make the
decision about which product to buy.
For example, the consumer won’t consider all available restaurants but will make a shortlist
of restaurants and make their decision using this shortlist.
We consider a small subset of items.
Involvement –
The amount of effort applied to decision-making. This is directly related to the level of
importance the consumer places on acquiring a specific product. The degree of involvement
is not necessarily a function of price but is instead related to the perceived impact the
purchasing of the product will have on the quality of life of the consumer.
Choice heuristics
Availability and representativeness:
An availability heuristic is a mental shortcut that relies on immediate examples that come to
mind when evaluating a specific topic, concept, method or decision. People tend to use a
readily available fact to base their beliefs about a concept.
Hoyer et.al. (2009) suggests that if we buy a DVD player that breaks down, our ‘available’
perception of that brand is likely to be a negative one, so we are unlikely to buy from that
company again. This is because we ignore how often something actually occurs in favour of
readily available information.
Representativeness heuristics are mental shortcuts that allow us to make a decision based
, on comparing available information with a mental ‘prototype’ or stereotype we have about a
product.
Anchoring and purpose quantity decisions (Wansink et al):
"Anchoring bias" is a heuristic which describes the common human tendency to rely too
heavily on the first piece of information offered (the "anchor") when making decisions.
2 field, 2 lab
Study 1: Field experiment investigating single/multiple unit pricing. 1 week in 86 stores
randomly assigned to single or multiple-unit promotions. The baseline score was calculated
as average weekly sales during the last six months. DV - % change in sales from baseline.
13 items were used, including frozen meals, candy, and tinned soup.
Multiple unit promotions resulted in a 32% increase in sales over the single unit items.
They concluded that multiple-unit pricing can increase sales, although they also stated that
customers may have been unaware that they could buy a single item. As there was no
self-report data, this could not be checked. Also, they did not control the number of
customers.
Study 2:
Investigated the effect of purchase limits (eg. only 4 per customer). Limited previous
research indicates that low numbers may increase sales, but this study investigated high
numbers (eg. 12 per customer).
Field experiment, over three evenings in three US supermarkets. Aisle end display of
Campbell’s soup for 79¢ per tin. The regular price was 89¢, so a small saving of 12%. IV -
Limit of 4 per person/limit of 12 per person. Covert observation of 914 shoppers.
Findings: ‘No limit’’ (control) bought 3.3 cans. 4 limit bought 3.5 cans. 12 limit bought 7 cans
(sales increased by 112%).
Study 3:
Investigated the effect of ‘’anchor-based slogans; ‘Snickers bars- buy them for your freezer!’
‘Snickers bars- buy 18 for your freezer!’ Another IV was the price; No discount, 20% off, and
40% off.
Findings:
Both the suggestive anchor (Buy 18 for your freezer) and the discounts increased sales
intentions. However, they also concluded that we use ‘internal anchors’ to resist
point-of-purchase (anything that customers interact with in-store when they are deciding
whether or not to purchase a product) sales.
Study 4:
139 undergraduates, shopping scenario with 25-30% discount of well-known products such
as Coca-Cola. Can shoppers counter external anchors with internal anchors?
Four purchase limits; no limit (default anchor), 14, 28, 56 items (external anchors)
After studying the promotion, they were asked; (internal anchors)
