INDIVIDUAL

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INDIVIDUAL DECISION MAKING
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• The Purchasing Process
• Why do we buy anything?

A Rational Problem Solver?
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How do we solve our Problems Whats the process?
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CONSUMER EFFORT IN MAKING DECISIONS
Your car is now 12 years old and in need of
constant repair. What decision process do you go
through in purchasing a new one?
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• 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

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Your toaster is now toast. What process do you go
through in purchasing a new one?
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• Limited Problem Solving
• Moderate amount of time and effort spent on
  information search and evaluation
• buyers generally unaware of 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.

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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?
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• 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

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The Feelings Economy

• in a market category oversupplied with
  interchangeable products or services customer
  feelings drive purchase decisions and
  profitability
• customers can easily switch from you to a
  competitor and get just about the same benefits
• Competition frequently based on price
• The marketers imperative is to assess and appeal
  to customers feelings
• The goal is to to increase customers pleasant
  feelings while minimizing their unpleasant ones.

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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
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opportunity recognition - something to be gained
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Once Youve 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

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Marketing is all about creating a need in the
mind of the customer and then satisfying that
need. Philip Kotler
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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.
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• Primary Demand Stimulation
• Marketing activity intended to increase demand
  for the product category

• When breaking open a new product category the
  marketers 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.
• I.e. it is to educate a market about a product
  category - expensive

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Primary demand stimulation

• Primarily a possibility in new product
  categories
• in mature product categories advertising most
  appropriately used by trade associations

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Secondary demand
the demand for a given brand in a category
UK Grocery stores
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• Secondary (or Selective) Demand Stimulation
• Marketing activity intended to increase demand
  for one organizations 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
• Price promotions
• Differentiated positioning
• Customer-oriented niches
• Benefit positioning

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• Secondary (or Selective) Demand Stimulation

• Retention strategies
• Maintenance of customer satisfaction
• Meet competition
• Relationship marketing
• Product line strategies
• Line extensions
• Bundling
• Systems selling

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INFORMATION SEARCH
WHAT ARE WE SEARCHING FOR?

• Existence of alternatives
• Evaluative criteria
• Performance of alternatives on the criteria

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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)

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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

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DETERMINANTS CONTINUED

• Situational Characteristics

• Time Availability
• Purchase for Others
• Pleasant Surroundings
• Social Surroundings

• Consumer Characteristics

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• 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
  doesnt do the job or meet the need.
• psychological risk - to self esteem, feeling
  guilty

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Do consumers always search rationally?
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• 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.

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• Sunk cost fallacy
• 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

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• 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

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HEURISTICS
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• EVALUATION OF ALTERNATIVES

• How do consumers narrow down the alternatives and
  choose one?

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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

• inept set
• brands which consumer is unaware of
• inert set
• brands which person is aware of but considers
  unacceptable

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• 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
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• 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.

http//edsel.net/multimedia/tv.html
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MARKETING STRATEGIES

• Habitual decision, brand in evoked set
• Maintenance of this behaviour
• Habitual decision, brand not in evoked set
• Disrupt existing decision pattern
• Limited decision, brand in evoked set
• Capture when making purchase decision
• Limited decision, brand not in evoked set
• Intercept during information search
• Extended decision, brand in evoked set
• Preference based on features and benefits
• Extended decision, brand not in evoked set
• Acceptance of our brand

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What is it?
HP OfficeJet G85 All-in-one scanner/copier/fax/pri
nter
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• Product Categorization
• Consumers tend to put all products into 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 dont have an established
  category for multifunction devices, so they just
  stick the new product in the phone category

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Products are categorized in levels
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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

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PRODUCT POSITIONING

• The place a product or service occupies in
  consumers' minds on important attributes relative
  to competitive offerings.

Which is more prestigious?
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• 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

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A Typical Positioning Has Several Pieces...

• Actual Product or Service Description
• Target Market
• Benefits
• Competitive Context and Advantage

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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
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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?
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EVALUATIVE CRITERIA
When comparing products or services what criteria
do you use?
HP Dell
IBM Compaq
functional attributes
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• determinant attributes
• differentiators

How can Marketers influence what attributes are
important
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• Situational Influences on Consumer Behaviour
• Antecedent states
• Purchase task
• Physical surroundings
• Social surroundings
• Temporal effects

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Situational Effects

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

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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.

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Why do consumers shop?

• Social experience
• Sharing of interests
• Interpersonal attraction
• Instant status
• Thrill of the hunt

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Moods

• How do specific moods affect your consumptions
  behaviors?
• The Blues
• The Blahs
• The Bitches
• The Bounces

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Shopping orientations

• Economic consumer
• Rational, goal-oriented, value maximization
• Personalized consumer
• Focus on interpersonal relations with store
  personnel
• Ethical consumer
• Support local stores vs. national chains
• Apathetic consumer
• Shopping is not pleasurable, but must be done
  periodically
• Recreational consumer
• Fun, social activity, way to spend leisure time

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Usage situation (who, what, when, where, how, why)
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The Purchase Environment
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Non-Store Shopping - Direct Marketing
Telemarketing
Home Catalog
Television Home Shopping
In 1902 the Sears catalog was as revolutionary in
marketing as Wal-Mart and the internet are today
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 Non-Store Shopping E- COMMERCE
Advantages

• can reach customers from around the world
• cuts out the middleman --- Disintermediated
• can boost sales by attracting people who dont
  normally shop in stores
• increased convenience
• Innovative methods

Disadvantages

• competitors can reach customers from around the
  world
• Some products difficult to sell over the
  Internet. E.g., clothes, food

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Jupiter Research estimates that in 2005 online
grocery sales totalled 3.3 billion, up from 1.7
billion in 2003
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Retailing as Theatre
West Edmonton Mall
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Store Image
Location Merchandise Services Atmospherics
? ? Store Image
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Spontaneous Shopping
Colorful point of purchase displays can increase
sales
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The Sales Person

• According to a 2003 Booz Allen Hamilton study,
  85 of brand loyalty is created at the point of
  sales contact and after
• only 15 is generated by up-front promotions and
  the quality of the product itself.
• Therefore a brand marketers greatest (and
  perhaps most overlooked) asset in creating brand
  equity and impact is the frontline sales person

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Atmospherics

• The sum total of (all) store stimuli, physical
  psychological characteristics
• The atmosphere can have more influence than the
  service itself in the purchase decision

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Atmosphere Components

• Ambient factors
• Lighting
• Sounds
• Smells

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Atmosphere Components
Design factors

• Floor coverings
• Ceilings
• Wall coverings
• Displays
• Fixtures
• Aisles
• Colors
• Layout
• Cleanliness
• Signage

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Atmospherics Continued

• Lighting
• Consumers examine and handle more items under
  bright lighting
• Consumers spend more time at in-store displays
  with bright lighting
• Increased levels of lighting increase arousal,
  pleasure, and approach behaviors of consumers.

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Atmospherics Continued

• Music
• background music directly influences consumer
  buying behavior and affects sales.
• Background music enhances customers perception
  of stores atmosphere.
• Firms that played music in their facilities
  were thought to care more about consumers.
• Slow tempo music encourages customers to stay
  longer.
• Customers find music distracting in
  high-involvement decisions and soothing in
  low-involvement decisions.

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• Color
• Warm colours (red, yellow, and orange hue) tend
  to evoke consumer feelings of comfort and
  informality.
• Warm colors encourage quick decisions and work
  best for low-involvement purchase decisions.
• Cool colors (blue, green, and violet hues) are
  favored when customers need time to make
  decisions.
• Children appear to favor brighter colors while
  adults favor lighter tones.

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Atmosphere Components
Social Factors

• Courteous ? Rude behavior
• Knowledgeable ? Low information
• Service ? Insincere
• Personal Service Climate
• (Calls for a well paid, highly
• motivated, experienced work force)
• Employee dress norms

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Social Factors
increasing numbers of consumers increase arousal
levels
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• Post Acquisition Processes and Issues
• Consumption and Evaluation
• Customer satisfaction and dissatisfaction
• Product disposal issues

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Customer Satisfaction
Does Performance (in terms of quality,
functionality, aesthetics etc. )Live up to
Expectations?
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Customer satisfaction and dissatisfaction

• Implications of satisfaction
• Repeat purchases
• Positive WOM
• Implications of dissatisfaction
• No / fewer future purchase
• Cost of retaining vs. replacing customers
• Negative WOM
• Public vs. private complaint behavior
• Legal or regulatory action

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• POSTACQUISITION
• What alternatives are there for disposing of
  products?

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A toxic electronic wasteland In 2002, Canadians
tossed away 155,000 tonnes of high-tech toys
825,000
1.46 m
1.7m
1.46m
232.000
223,000
1.958 mil
523,000
575,000
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Influences on Consumer Decision Making

• Psychological
• influences
• Motivation
• Personality
• Perception
• Learning
• Values, beliefs, and attitudes
• Lifestyle

• Sociocultural
• influences
• Personal influence
• Reference groups
• Family
• Social class
• Culture
• Sub-culture

Consumer purchase Decision-making process

• Marketing mix influences
• Product
• Price
• Promotion
• Place (distribution)

• Situational
• influences
• Purchase task
• Social surroundings
• Physical surroundings
• Temporal effects
• Antecedent states