Individual Decision Making

Question 1

Decision Making is Everywhere

Answer 1

• Decision making is a cornerstone of marketing.
• It is also very difficult to understand because:
  * Decision making is multifaceted.
  * Consumers are sometimes irrational.
  * Marketplace options are prolific.

Question 2

Basic Decision Making Model: Example- Steps from Chart

Answer 2

1. Problem Recognition: Richard realizes he’s fed up with a black-and-white TV that has bad sound reproduction
2. Information Search: Richard surfs the Web to learn about TVs
3. Evaluation of Alternatives: Richard compares several models in the store in terms of reputation and available features
4. Product Choice: Richard chooses one model because it has a feature that really appeals to him
5. Outcomes: Richard brings home the TV and enjoys his purchase

Question 3

Step 1: Problem Recognition

Answer 3

Occurs when consumer sees a difference
between current state and ideal state.

But:
* Consumers often can’t identify needs, or
opportunities (especially innovative ones)
* Consumers misidentify problems
* Consumers overestimate the degree to which products will solve problems

Question 4

Step 2: Information Search

Answer 4

Process by which consumers survey their environment for appropriate data to make reasonable decisions.

Internal search
* Scanning memory to assemble product alternative information

External search
* Obtaining information from ads, retailers, friends, family, people-watching, internet, reviews, etc.

But…
* Some consumers avoid external search and don’t do enough research.
* Don’t seek out unbiased information (or ignore it).
* Satisficing ~ Find adequate, but not best information, and solution.

Question 5

Alternative Sets: Diagram

Answer 5

All Alternatives: -Evoked Set -Inert Set
|-Consideration Set
|-Inept Set
But:
* Miscategorize products (e.g., water ≠ coke, but both quench thirst)
* Compare only similar products
* Recall bias
* Framing effects (i.e., how we think about a category).

Question 6

Decision Rules

Answer 6

1. Heuristics
   * Simple decision short-cuts
2. Non-compensatory
   * Simpler decision models
   * Cannot compensate for low standing on one
   attribute by being better on another
3. Compensatory
   * Cost/Benefit analysis
   * Excelling at one dimension can make up for being
   poor or other dimensions

Question 7

Heuristics

Answer 7

• Heuristics: mental rules-of-thumb that lead to a
  speedy decision (i.e., mental shortcuts)*

Fits Like a Glove

Familiar Brand Name

Market Beliefs

Country of Origin

Product Signal

Brand Loyalty

Inertia

Question 8

Non-Heuristic Strategies: Attributes Matter

Answer 8

Evaluative criteria:
Dimensions used to judge merits of
competing options – what is important
to the consumer.

Determinant attributes:
Features we use to differentiate among
our choices.
* Criteria on which products differ carry
more weight.

Question 9

Non-Compensatory

Answer 9

Non-compensatory:
A product with a low standing on one attribute can’t compensate for this flaw by
doing better on another attribute

Different ways to evaluate products based on attributes (all based on cutoffs):

1. Set cutoffs for attributes:
   - E.g., set a minimum level of performance on each attribute and eliminate all options that don’t met that level; or choose any option that surpasses the levels.
2. Rank attributes: - E.g. rank attributes and choose the option that performs best on the top attribute.

Question 10

Compensatory

Answer 10

Compensatory decision rules:
High performance on one attribute can compensate
for low performance on another.

• Types of compensatory decision rules:
  ** Simple additive rule:*
  Choose the alternative that has the largest number of positive
  attributes (pro/con list!)
• Weighted additive rule:
  Considers the relative importance of positive attributes, essentially
  multiplying ratings by importance weights

Question 11

Step 5: Outcomes

Answer 11

Things to Consider:

* Satisfaction:
* Disconfirmation Paradigm – the difference between a consumers
pre-purchase expectations and their post-purchase experience.
* Post-purchase dissonance:
* Does the consumer feel regret over their purchase?
* Role in consumers’ life:
* How do consumers use the product in their day to day lives. What
does the product mean to the consumer?

Question 12

Decision Biases

Answer 12

Social Proof: The assumption that actions and attitudes of other people signal correct behaviour.

Scarcity: We place higher value on something judged to be rare or scarce.

Reciprocity: A feeling of obligation to return a favour.

Anchoring: Over-reliance on a single piece of information.

Framing: The context in which the choice is presented impacts consumers’ decisions.

Question 13

Decision Biases

Answer 13

Mental Accounting: Consumers carry around different running tabs in their heads. Compartmentalizing income and spending into different mental accounts violates one of the basic rules of economics – that money is fungible, or interchangeable.

Sunk Cost Fallacy: Consumers are reluctant to waste something for which they have
already paid.

Prospect Theory: Consumers act differently when something is framed as a loss vs. a gain. They are risk-seeking for losses and risk-averse for gains (losses loom larger than gains). Consumers evaluations are also driven by individual events, not total outcomes.

Question 14

Prospect Theory

Answer 14

Different Sensitivity to Losses versus Gains

** Rule #1:* People act
differently when something
is framed as a loss vs. a
gain
** Rule #2: Losses loom larger
than gains
** Rule #3: Evaluations are
driven by individual events,
not total outcomes