Consumer Decision-Making

Question 1

utility theory

Answer 1

when making a decision, consumers make the decision rationally

the decision is based on optimising the likely outcomes of their actions.

Question 2

strength of utility theory

Answer 2

it explains how people make best choices, given enough useful information

demonstrates validity

Question 3

weakness of utility theory

Answer 3

it’s reductionist

it ignores other factors that’s important to us when we decide to buy a product

you may make a rushed decision during a sale

Question 4

satisficing theory

Answer 4

alternative to utility theory

decision is made based on finding an option that is “good enough” and then stopping

Question 5

aspiration level

Answer 5

the level at which we will be satisfied varies from person to person according to our personalities and experiences

Question 6

strength of satisficing theory

Answer 6

it has clear application to everyday life.

if everyone examined all information available, it would take many hours and a lot of effort, we would instead choose something good enough.

Question 7

weakness of satisficing theory

Answer 7

someone’s aspiration level is rather vague and difficult to predict

how and why one person is satisfied with a product when another would want something different means that the theory cannot accurately account for all consumers.

inability to have a more precise definition of aspiration level means that this part of the theory lacks validity.

Question 8

prospect theory

Answer 8

value rather than utility

people consider that an item is more precious when they own it, and that gains and losses are considered differently

Question 9

endowment

Answer 9

when an item is more precious when owned than when owned by someone else

Question 10

strength of prospect theory

Answer 10

it has clear application in everyday life

people will engage in risk seeking behaviour in order to avoid a loss.

advertisers frame their marketing campaigns to focus on how their products could protect consumers from potential losses.

Question 11

weakness of prospect theory

Answer 11

inability to account for cultural differences in levels of loss aversion

Question 12

compensatory strategy

Answer 12

used when you have to consider only a few alternative products.

u weigh the positive and negative attributes of the different products.

allow for positive attributes to compensate for the negative ones

Question 13

strength of compensatory strategy

Answer 13

it uses detailed comparison to result in maximising the utilitarian value of a choice.

little effort needed because of websites and online decision making tools

enables to find sufficient information and compare products easily and quickly

Question 14

weakness of compensatory strategy

Answer 14

• it is reductionist
• it reduces the product to the numerical value of its attributes and the decision making process to a mathematical calculation
• increases the time and effort needed to make a decision.

Question 15

non compensatory strategy

Answer 15

each attribute evaluated individually, rather than allowing one variable to compensate for another.

used when there is a large choice of products and lack of full info or lack of time to process avaliable info

involves using heuristics:

conjunctive heuristic
lexicographic heuristic
elimination by aspects heuristic

Question 16

conjunctive heuristic

Answer 16

you set a minimum acceptable cut off level for each positive attribute and choose the first product or several products that meet this criterion

Question 17

lexicographic heuristic

Answer 17

you decide on a particular product on the basis of its perceived most important attribute.

Question 18

elimination by aspects heuristic

Answer 18

we select according to a sequence, eliminating choices that do not have our most important attribute, then our second most important and then our third most important attribute and so on, until we are left with one choice.

Question 19

strength of non compensatory strategy

Answer 19

it allows quick decisions when faced with many choices.

Question 20

weakness of non compensatory strategy

Answer 20

it can exclude product that would have been suitable

choice of attributes is personal and can be easily influenced by friends, family and advertising

Question 21

partially compensatory strategy

Answer 21

this is when we make our decision in a serial fashion, rather than in a “one off” way.

there are two partially compensatory strategies

majority of conforming dimensions

frequency of good and bad features

Question 22

majority of conforming dimensions

Answer 22

when we take the first two possible products and evaluate them across all attributes, keeping the one that scores more highly across more attributes and dismissing the other.

Question 23

frequency of good and bad features

Answer 23

all possible products are compared regarding the cut off values for their relative attributes and those having most attributes that meet or exceed the cut off values are chosen.

Question 24

strength of partially compensatory strategies

Answer 24

they combine the rationality of compensatory strategies with the heuristics of noncompensatory.

they take a more holistic approach to the choice by weighing up all the possible attributes but also including individual preference in the weighing of these.

less reductionist than compensatory strategies

Question 25

weakness of partially compensatory strategies

Answer 25

they can be as time consuming as compensatory strategies as you compare your choices either one by one or across many different attributes before making a decision

Question 26

AIM of jedetski et al (2002)

Answer 26

investigate if consumer decision making strategies are affected by whether a website allows for comparison with alternative and the number of alternative.

prediction 1: when websites allow for comparison of alternatives, participants will use compensatory decision making strategy, but if there was no comparison of alternatives permitted, they would use non compensatory

prediction 2: non compensatory strategy would be more commonly used when the number of potential products was 100 or more compared with 30 or less.

Question 27

INDEPENDENT VARIABLE of jedetski et al (2002)

Answer 27

IV: whether the website allowed for comparisons of alternatives

Question 28

METHODOLOGY of jedetski et al (2002)

Answer 28

• used independent measures design

1. each of the 24 participants was asked to read a document about the decision - making strategies (3 compensatory and 3 noncompensatory) and then given a quiz to test their understanding.
2. participants then went to one of two websites, each with quite different designs and were shown how lists of alternatives could be found, refined and so on, and we’re asked to speak aloud their process as they made a decision on which item they would buy.
3. the participants would then be given a questionnaire about their decision-making strategy how satisfied or frustrated they were and how confident they felt about their decision.
4. the experimenter recorded information about which item was selected, how many alternatives there were and how long the decisions took.

this was repeated for four different items for each participant (although each participant used only one website.)

Question 29

RESULTS of jedetski et al (2002)

Answer 29

• participants used significantly more compensatory strategies on CompareNet (a website design that used technology allowing comparisons of items to be made) and more non-compensatory strategies on Jango (a website design that does not allow comparisons of items).
• there was not a significant difference between compensatory and concompensatory strategies in terms of confidence, satisfaction, frustration, perceived time or actual time.
• participants were more satisfied when using CompareNet than when using Jango; suggesting that website designs that use technology for comparisons are more satisfying for consumers.

Question 30

strengths of jedetski et al. (2002)

Answer 30

• use of independent measures design is that there is no risk of order effects.

○ it is less likely the participants will work out the aim of the experiment

○ this would both increase the validity of the experiment.

○ when there are many difficult to compare alternatives and a site with a comparison tool that lacks filters, then consumers choose a noncompensatory strategy, using heuristics to quickly reject as unacceptable products that have negatives for them personally.

• this is deterministic explanation of how we come to choose by the product brand, main attribute or acceptable price.

Question 31

weakness of jedetski et al (2002)

Answer 31

• one group of participants is compared to another group or participants, instead of being compared to themselves.

○ this means that participant variables could affect the results; it could be that the participants in one condition just happen to be different in terms of their decision making styles.

• there is a lack of explanation of why the online tool that allows easy comparison and rational choice does not result in any more consumer satisfaction.

○ there was no relationship between the strategy used and self reported confidence or overall satisfaction with purchases from two online sites.

Question 32

heuristics

Answer 32

methods or techniques that we use to help us make a decision or solve a problem more quickly.

Question 33

five main heuristics used to explain consumer decision making

Answer 33

availability

representativeness

recognition

take the best

anchoring

Question 34

availability heuristic

Answer 34

this is mental shortcut that is based on how quickly something comes to mind

Question 35

representativeness heuristic

Answer 35

based on comparing a product with how it represents an image we have of ourselves or an image it represent of how we may benefit by using it

Question 36

recognition heuristic

Answer 36

simplifies our choices when we are faced products or brands that are largely unfamiliar to us.

Question 37

take-the-best heuristic

Answer 37

we base our decision on a single important reason. we decide on the attribute that is most important to us and ignore all others.

Question 38

anchoring heuristic

Answer 38

used when a consumer uses prior knowledge of a similar product to act as a standard against which to measure other options.

Question 39

strength of choice heuristic

Answer 39

• they have application to everyday life. we all have favourite brands and we all tend to go for the familiar or the one that seems good enough choice when faced with too many alternatives.

Question 40

weakness of choice heuristic

Answer 40

• how we decide to buy one product and not another is that while heuristics exist, as Del campo found there is cultural variation in how they are used. therefore the definitions of when they might be used cannot be generalised to all cultures untul there has been more cross cultural research .

Question 41

AIM of Del campo et al (2016)

Answer 41

investigate whether the use of the recognition or take the best heuristic depends on individual decision making styles.

Question 42

METHODOLOGY of Del campo et al (2016)

Answer 42

lab experiment-

based on a choice problem, where different heuristics usually lead to different choices.

participants were randomly allocated to a time pressure (40 seconds) or no time pressure condition and asked to make one purchase from five different choices eggs. -

after their decisions, the participants had to explain why they had chosen these eggs and were also asked to complete 25-item questionnaire on their decision making style.

Question 43

what were the 5 decision making styles developed by Scott and Bruce for Del Campo et al. (2016)

Answer 43

○ rational: making decisions in a logical and systematic way by considering various options.

○ intuitive: using intuition to make decisions that “feel right”, by relying on instincts and not conscious reasoning

○ dependent: preferring to consult others before a decision.

○ avoiding: delaying making decisions until the very last moment

○ spontaneous: making quick and impulsive decision. -

Question 44

hypothesis of Del Campo et al (2016)

Answer 44

they said that consumers would score differently on each of the different decision making styles, but nobody would have only one style. in that, they are different dimensions of a decision making process. -

Question 45

results of Del campo et al (2016)

Answer 45

• found that time pressure increased participants’ use of the take the best heuristic in austria, but not in spain.
• no significant correlation was found between dependent or avoiding decision making styles and use of the recognition heuristic, which might have been expected, as those who are uncertain regarding decisions are supposed to prefer this heuristic.
• a significant positive correlation was found in austria, but not in spain, between the spontaneous decision making style and using the recognition heuristic.

Question 46

conclusions of Del campo et al (2016)

Answer 46

• that the distribution of decision making styles was similar across the two cultures and there was some correlation between decision making styles and the recognition or the take the best heuristic.
• there were also large differences between the results in the two countries, which suggest that cultural factors might also be important in which heuristics were used. thus, choice heuristics rely on both individual and situational explanations.

Question 47

strengths of Del campo et al (2016)

Answer 47

researchers manipulated and measured the effect of situational and individual factors affecting a routine decision we all make frequently.

investigated the effect of the situational factor of time pressure and the individual factor of decision making styles on a shopping decision over which eggs to buy in two different cultural contexts. this means it engages in both individual and situational explanations.

Question 48

weakness of Del campo et al (2016)

Answer 48

researchers measured purchase intentions using an online questionnaire, which is not the same as asking people to spend their own money on real products.

• the participants were shown pictures of 5 different cartons of eggs with a description of the product and asked which they would choose and why

○ this is a weakness as in real life participants might have used different strategies due to the distraction of other shoppers, noise in the store and the fact they were shopping for a variety of other items, not just the eggs. this suggest that the findings lack validity.

Question 49

multiple unit pricing

Answer 49

• even though a participant only needs one of the products, they can be persuaded to buy more than one by a display that offers a lower price per item if they buy two or more together.

Question 50

multiple unit packaging

Answer 50

MUP of identical products may encourage consumers to buy more than they need in one go at a reduced price per item.

Question 51

suggestive selling

Answer 51

• when a salesperson asks a customer if they would like to make an additional purchase, they are using suggestive selling. (also known as upselling.)
  
  • items are usually complementary products to the original product.

Question 52

AIMS of WANSINK ET AL (1998)

Answer 52

• to investigate how consumers decide how many of a certain product to buy.
  
  • the researchers proposed an anchoring and adjustment model of how people make such decisions
    ○ anchoring and adjustment is when a person adjusts their estimate of the cost to them, and therefore their decision on whether to buy, based on a specific anchor price.

Question 53

methodology of wansink et al (1998)

Answer 53

• two field experiments and two lab experiments.
  
  • the first 3 experiments tested the impact of external anchors on purchase quantity decisions.
  • the 4th experiment investigated whether internal anchors moderate the effect of the anchor based promotions.

Question 54

field experiment 1 of wansink et al (1998)

Answer 54

• 86 shops took part for one week.
  
  • they were randomly allocated to either a single item promotion price or multiple item promotion price condition.
    a list of 13 products was drawn up and the researchers compared multiple unit pricing with single unit pricing.
  • this is manipulating the anchor: “1 for x amount” is a lower anchor than “3 for x amount” even though per item the promotional price may be the same.
  • sales of these goods were counted and calculated as a percentage increase over the average weekly sales for the previous six months.

Question 55

results for field experiment 1 (wansink et al)

Answer 55

• multiple item promotional pricing resulted in a 32 per cent increase in sales over the single item promotional pricing

Question 56

field experiment 2 for wansink et al (1998)

Answer 56

• observational study conducted in 3 supermarkets on 3 consecutive evenings between 20:00 and 21:00.
  • campbell’s soups were advertised at 79 cents per can. the regular price was 89 cents.
  • a sign was erected in each of the supermarket saying “Campbell soup sale 79 cents a can”
  • in supermarket 1, an accompanying sign said “limit 4 per person”
  • in supermarket 2, this was changed to “limit of 12 per person”
  • the purchase limit condition was rotated every evening, so every supermarket operated every condition.
  • this was another manipulation of the anchor through supermarket purchasing limits.

Question 57

results for field experiment 2 (wansink et al)

Answer 57

• purchasing limits increased sales eve with this small discount of 10 cents per can.
  • shoppers who bought soup from the displays with no limit purchased 3.3 cans of soup.
  • buyers with limits of 4 cans bought an average of 3.5 cans and those with limits of 12 cans bought an average of 7.0 cans.
  • this showed that buyers in the 12 can limit condition purchased significantly more cans than those in either of the other two conditions.

Question 58

laboratory experiment for wansink et al (1998)

Answer 58

• 120 student participants were each offered 6 products at one of 3 price levels: no discount, 20% discount or 40% discount.
  • all of them were also given either suggestive selling claims that included either no product quantity anchor (“buy them for your freezer”) or an explicit product quantity anchor (“buy 18 for your freezer”)
  • they were not told whether the price was a discount and were asked to predict how many they would buy.

Question 59

results for lab experiment 1 (wansink et al)

Answer 59

• both the anchor and the discount level significantly and separately increased purchase quantities even without a discount.

Question 60

laboratory experiment 2 for wansink et al (1998)

Answer 60

• similar to laboratory experiment 1
  
  • 139 students were each given a shopping scenario involving 25-30% discounts on a single units of well known snack products.
  • the external anchor was a no purchase limit, or a limit of either 14,28 or 56.
  • the internal anchor had 3 levels:
    ○ no internal anchor
    ○ default internal anchor - after seeing the product discounts and whichever purchase limit had been allocated, participants were asked, “how many of this product do you usually buy at a time?”
    - after writing down a number, each participant indicated how many they intended to buy this time.
    ○ expansion internal anchor - after seeing the product discounts and limit, participants were asked “on each of the lines below, please write down a different situation in which you might imagine yourself consuming this product.
    - after listing different situations in which they may use the product. they were asked “how many of this product do you think you might use in the next month?”
    - finally they indicated how many they intended to buy this time.

Question 61

results for lab experiment 2 (wansink et al)

Answer 61

• purchase intention in the no internal anchor condition averaged 7.1, though this increased with purchase quantity limits.
  • purchase intentions in the default anchor condition remained fairly steady, at an average of 5.2, regardless of the purchase quantity limits.
  • purchase intentions in the expansion anchor condition averaged 10.3, again with little variation according to the purchase quantity limits.
  • this suggests that the external anchor only had an effect in the no internal anchor condition.

Question 62

overall conclusions for wansink et al (1998)

Answer 62

• point of purchase external anchors, such as multiple unit pricing, purchase quantity limits and suggestive selling, can increase consumer purchasing.
  ○ however this is true only in the absence of individual internal anchors.
  ○ if consumer use individual internal anchors, these can significantly increase or decrease the amount bought.
  ○ this suggest that point of purchase decisions are affected by both individual and situational factors.

Question 63

strengths of wansink et al (1998)

Answer 63

• the findings from the field experiment observations were supported and extended by the findings from the laboratory experiments and subsequent interviews.
  • moreover, under laboratory conditions, the researchers were able to investigate internal anchors separately from external anchors, something that could not have been done just using observation.
    ○ the research has high reliability.

Question 64

weakness of wansink et al (1998)

Answer 64

• the main method used to investigate anchoring and adjustment in consumers is experiments.
  • there is a lack of self reported qualitative data regarding consumers’ point of purchase decisions.
    ○ this means that the reasons for consumer actions are inferred from the quantitative data rather than supplied directly by the study participants.
    ○ this means the findings lack validity.

Question 65

strength of the examples of point of purchase decisions

Answer 65

that examples of point of purchase decision making strategies have an application to everyday life.
○ multiple unit pricing and suggestive selling are not only used in shops but are also common with online shopping.

Question 66

weakness of the examples of point of purchase decisions

Answer 66

it is reductionist by only considering a limited number of factors in consumer decision making.
○ they are just looking at anchoring through multiple unit pricing and suggestive selling and not necessarily considering the economic status or family circumstances.

Question 67

what kind of thinking does “system 1” refer to

Answer 67

intuitive thinking

Question 68

what kind of thinking does “system 2” refer to

Answer 68

rational thinking

Question 69

what are the two ways humans have of tackling cognitive problems and making decisions

Answer 69

system 1 and system 2

Question 70

system 1 thinking

Answer 70

• this is thinking fast and often unconscious.
  • it takes less effort than system 2 and is used far more often, especially when we are under time pressie or faced with the cognitive overload of too many choices and we need to make a decision.
  • heuristics are an example of system 1 thinking.
    this is linked to determinism vs free will debate, as the use of system 1 intuitive thinking by consumers suggests that their purchasing decisions are determined by forces outside their control.

Question 71

consumer decision making and system 1 thinking

Answer 71

• theory of satisficing and concept of bounded rationality that result in “good enough” purchasing decision is close to system 1
  • decision making is speeded up by omitting some analysis of alternatives and we come away happy with our purchase.
  • noncompensatory strategy is explicitly system 1: it involves 3 different heuristics and 5 different choice heuristics that affect consumer decision making.
  • these heuristics can lead to mistakes in decision making: the availability heuristic prevents us from trying new products that do not come to mind as easily as a well known brand; th anchoring heuristic means that we can be overly affected by multiple unit pricing
  • the representativeness heuristic convinces us that if we buy this particular product then we too can look like the people in the advertisements.

Question 72

system 2 thinking

Answer 72

• slower and takes more effort
  
  • only used when there is a need for analytical and rational choices.
    the two systems are parallel but not completely separate

Question 73

consumer decision making and system 2 thinking

Answer 73

• evident in the utility theory model or compensatory strategy.
  
  • we engage in careful statistical comparison between alternative products, eliminating gradually until we have maximised the utility value of our choice.

Question 74

description of shleifer (2012)

Answer 74

• shleifer reviewed kahneman’s book and described some of the economic research that had been developed based on his use of system 1 and system 2 thinking.
  • he points out that system 1 thinking tells us that the fast rising stocks could be the next google, instead of warning us that “what goes up must come down”
  • he suggests that unhealthy consumer behaviour like smoking, overconsumption of alcohol or even not saving enough for our retirement could all be addressed through campaigns that encourages system 2 thinking by using internal anchors.
  • the campaigns would have to appeal to system 1 thinking or they may not capture consumer attention.

Question 75

strength of shleifer (2012)

Answer 75

• it is applicable to everyday life.
  ○ this c be applied to explain why we choose a certain product that is representative of a self-image that we desire and ignore that it has been designed to have a very wide appeal and it is no more representative of us than of many others.
  • has wide empirical support.
    shows how economists have used the concepts of system 1 and system 2 thinking to model consumer decision making regarding financial investments.

Question 76

weakness of shleifer (2012)

Answer 76

• although some economists suggests that system 1 thinking is solely responsible for mistakes in consumer decision making, this is not true.
  ○ system 2 thinking can also lead to wrong decisions.
  • it limits generalisability of the theory is that kahneman’s research was carried out largely in western individualistic cultures.