Chapter 2 Consumer Decision-Making Process

Chapter 3 Consumer Decision-Making Process

LEARNING OBJECTIVES
After reading this chapter, students should be able to: Understand how consumers are decision makers, who buy to solve problems Describe the model of consumer decision-making Identify the influences on consumer decision-making Discuss the concept of high and low involvement and how this influences buyer behaviour Explain how customer relationship marketing aims to influence behaviour

CHAPTER TOPICS
1. 2. 3. What is a decision? Needs Types of needs Consumption trends Media consumption trends and marketing communication Case in Point 3.1The Internet persuaders The decision-making process Types of decisions Need recognition Search Evaluation Purchase and post-purchase behaviour Case in Point 3.2The new mail order Case in Point 3.3Click here and drive away a Toyota Customer relationship management Loyalty marketing schemesdo they work? Case in Point 3.4Closing in on customers The Internet revolution and buyer behaviour

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1.

What is a decision?

Consumers make decisions to solve problems. A decision is the choice between alternatives that can potentially solve problems. The decision that consumers make in purchase decisions relates to what to buy or not to buy. Problems are defined as the difference between a consumers actual current state and their desired state. For example, if someone is hungry, they want something satisfying to eat.

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Needs

A need is a feeling that something is missing, and may be emotional or physical in nature. In the context of understanding consumer behaviour, needs and wants are quite similar (text, p. 59). Wants are probably best considered as not having to be metbut we would be far more satisfied if the want was met! Wants reflect emotional needs more than physical. The text gives an example of a designer-brand jumper and the satisfaction we would have wearing the real thing.

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Types of needs Needs can be classified into two broad types: utilitarian and hedonic. Utilitarian needs are based on the functional utility of a product. The brand may not be as important as the performance of the product or service. For example an everyday bank account that offers some interest, and no bank fees, will more likely be referred to here than a well-known bank account with account-keeping fees. Hedonic needs appeal to the emotional benefits of a product. A product will offer some problemsolving function, but the functional needs are only secondary to the hedonic need to which the product is appealing. For example, a well-known brand name for banking might be preferred over no bank fees. Consumption trends The way people consume (or use products) can be affected by a number of variables. The 2002 Annual Eye on Australia report noted some important trends in the consumer decision-making process: Consumers are seeking more information before making [key] purchases. This could be a function of greater access to information because of the growing use of the Internet. Third-party endorsement from friends, those in authority, or reference groups, is more influential than advertising or marketing efforts. This finding could account for the greater use of public relations activities in promotional programs, since this is typically referred to as third-party support, rather than advertising. Other trends include: Males under 35 are more aware of technological advancementsso many innovative products like plasma screens, projection TVs and home theatre systems are targeted towards them. Women still carry out most household chores so advertisers still target women for cleaning products. Phone and Internet banking are growing in popularity. Home services like dog washing, cleaning and ironing are being sought more, with the greatest demand from 3554-year-olds (who have the highest disposable incomes). Relaxation time is important, so time- and labour-saving devices are becoming more popular. The future is more uncertain, so people want their needs satisfied TODAY! Consumers dont trust big bureaucratic organisations, so new ways have to be used to earn trust. Media consumption trends and marketing communication Often the types of shows consumers watch govern the trends in the types of products demanded. For example, renovation shows like Backyard Blitz and Better Homes and Gardens have resulted in phenomenal growth in home improvement products and related services. Reality TV shows like Big Brother, Joe Millionaire and Survivor are also extremely popular, as ordinary people become extraordinary stars. Advertisers pay extra to have their products featured in time slots these programs occupy. Clearly the Internet is an invaluable advertising and information-providing tool, allowing customised and interactive tools, offering new opportunities to break through the clutter. Case in point 3.1The Internet persuaders This case considers the ways in which marketers can combine online communication with mainstream media as part of a total marketing effort. It is important for students to realise that the Internet is PART of a marketing program, not a marketing program unto itself. Support is still needed in the offline environment, to reach all consumers. The case also considers changes in the way online advertising is conducted, with less emphasis on banner ads, and more on pop-ups, search engines and classifieds. These trends are expected to continue as more Australians use the Internet and spend more time online. One big benefit of online advertising is that it is easier to measure exposure (if not effectiveness) of the actual advertisement through online measurement tools. Examples of Australian companies use of the Internet are considered.

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The decision-making process

The consumer decision-making process is really a problem-solving process, bearing in mind that some problems are more important than others. You may decide to build an in-ground swimming pool, because your children like water. But it may be more urgent to actually teach your children how to swim first. Marketers are interested in studying the consumer decision-making process because it enables them to identify leverage points to influence consumer decisions. This means that if a company can learn what factors influence a customers

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decision, they are better able to provide a marketing program that will satisfy their potential customers. There are four main steps in the decision-making process, which will be addressed in turn. Types of decisions There are three types, or levels, of consumer decision-making. Each level has an impact on the length or complexity of the steps in the consumer decision-making process. 1. Extended search decisionsare likely to be [highly] involved, requiring time and effort searching for information and evaluating the different alternatives. The brand name can be quite important for this type of decision. 2. Limited search decisionsinvolve a degree of searching, but the consumer may try a different brand if another brand is not available or cheaper. 3. Habitual or routine decisionsare often made for everyday items such as groceries. Alternatively, a habitual decision can be for a brand to which a customer is loyal. These decisions are usually the hardest to influence because the consumer puts little thought into their purchase or finds no reason to change because the existing brand satisfies their needs. Figure 3.2 (text p. 68) shows the how the decision process is affected by the different types or levels of decision. Need recognition The first stage of the consumer decision process is need recognition. This is based on the recognition that a need must be satisfied. Many factors can influence need recognition. A person may be prompted by an internal need like tiredness or thirst. Alternatively they might be motivated by an external factor like advertising, a friends recommendation, or peer pressure. Often a consumer buys a product or service because they want to achieve a balance between the actual and desired state. For example, someone might buy Bonds underwear because they would like comfortable underwear and Sarah OHare or Pat Rafter says it is comfortable. But in reality they will not talk about someones uncomfortable walking style from ill-fitting underwear in a dressing room, as presented in the advertisement. The humour is there to attract attention. We need to stress that consumers seek a balance between their actual and desired state, but the desired state may not be attainable. We may want to look like a supermodel or a famous tennis star, but that may just be a dream! Still, Bonds underwear which comes in all shapes and sizes helps one feel good (and comfortable too!). A consumers reaction to problem or need recognition is based on the importance of the situation and their current situation. Consider examples here, like power napping when youre tired at work, which may be enticing but not appropriate. Instead a drink like V might be more acceptable. Also note that consumers are faced with numerous problems everyday, but only those that take priority will be acted upon. Unmet needs are those needs for which there is no clear solution. Marketers try to recognise these needs and design their offerings around them. This not only tries to solve a consumers problem, but also to differentiate a company from its competition. Search A need must generally be recognised before an information search begins that is why we dont often notice ads unless we are interested in the offering. This is one of the reasons advertisers try to attract our attention through humour, fear and sex appeals. Information can come from internal and external sources. The degree of search will be based on the involvement level. Involvement is described as the amount of physical and mental effort and search a consumer puts into a decision, and is based on the importance of the decision. There is usually a higher level of involvement for higher priced items, or with items of greater risk (financial or otherwise). Services also have a higher level of involvement and risk, because they are intangible and reliant on the actual provider of the service. It is critical for service marketers to build and nurture relationships to reduce the level of risk for consumers. Consumer Behaviour by Karen Webb
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Involvement on a purchase decision is generally somewhere along a continuum between high and low. In addition, involvement is dependent on the consumer. What might be a highly-involved decision for one consumer may be a relatively habitual decision with low involvement for another. Involvement is likely to be higher when: the decision is meaningful and important to the consumer the purchase is highly visible and a reflection of self image it is an expensive purchase there is greater risk involved, because of the high cost, ease of use of the product, cost of parts, people could be injured, etc. There are two main types of involvement: Situational, which occurs in situations only, like Valentines Day, what to wear to a wedding, or choice of venue for office Christmas party. Enduring involvement, which is more permanent and reflected across all decisions for certain categories. For example, someone may pursue happiness with possessions in their home. So decisions relating to all dcor and bric--brac for their home are an ongoing high-involvement process. Factors influencing involvement-level include: personal importance of the decision the situation you are in at the time social visibility perceived risk of negative consequences previous experience. Low involvement decisions do not require extensive information search because there are many acceptable alternatives, the decision is perceived as low-risk, or the consumer is loyal to their preferred brand. Marketers can still have some influence here, by: using point-of-purchase (POP) displays and in-store promotions at the place of purchase creating an emotional association with the product by using baby animals and other drawcards to attract attention and achieve brand recall at point of purchase. As complexity of purchase decision increases, consumers make less use of a marketers information, an d rely more on previous experience, advice of others, authoritative reports (like Choice magazine), knowledge and attitudes towards the brand. Even price becomes an indicator of quality for consumers who have limited knowledge of a product. The Internet, libraries and government sources provide invaluable and comprehensive coverage of all types of products and services. But at the same time, information overload is just as frustrating for consumers as lack of information. Marketers need to be reliable, accessible and honest in their provision of information to consumers. Consumers are more likely to search for information if: they believe that the current brands in their consideration (evoked) set are inadequate friends or other trustworthy sources provide messages that conflict with existing beliefs there is a high degree of risk and consumers want to confirm their decision. Information obtained from memory is internal search. Sometimes a consumer has enough information in their memory to make a final decision. Internal factors like perception, learning and memory, attitudes and motivation will be covered in Chapters 5 to 9. External search involves gathering information from the consumers environment. External sources of information include (1) the Internet, (2) printed material from the company (brochures, specifications), (3) media information, (4) advertising, (5) friends and family, (6) reference groups and opinion leaders. External sources will be covered in Chapters 10 and 11.

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People who are typically early to adopt conduct research on available choices and have an in-depth knowledge of the market are sometimes termed market mavens. These people serve as opinion leaders in areas that they specialise in, such as computing, audio, movies, and the like. Once armed with all this information, consumers tend to set criteria to help them make decisions. For example, when considering which restaurant to organise for an office function, consumers will have a set of function venues to consider, as well as those venues not to consider. A consideration set comprises the alternatives a consumer will consider when making a decision. In most cases consumers aim to reduce this set to a manageable few, and use criteria that makes it easy to compare one brand against the other. This is the third stage of the decision-making processevaluation. Figure 3.4 (text p. 75) provides a good summary of the internal search process to evaluate the options available. Evaluation Evaluation for consumers is based on how well a brand satisfies a particular need. Marketers want consumers to see differences between brands, and try to shape the criteria that consumers use to choose between brands. This reinforces the importance of marketers understanding consumer behaviour. To find out what is important for consumers, marketers need to conduct research. Critical attributes are those features that consumers seek from various products and perceive as being the most important. Lets refer back to choosing a venue for a business function. Criteria such as location, banquet catering for large groups, price, cuisine and separate function rooms might be considered. But catering for big groups, and location, might be the most critical attributes. Consumers are always looking for short cuts and in Chapter 5 well be considering the importance of brands and customer relationshipswhich reduce the time taken in consumer decision-making. Consumers decide between brands by evaluating their important criteria for each. Two popular methods of evaluation include compensatory and non-compensatory models. Consumers who havent studied buyer behaviour are not aware of the fancy names, but operate by the principles in these models, particularly for high involvement decisions. Compensatory evaluation occurs when a products benefits are assessed against each other. This means that it is not always possible to compare apples with apples, so benefits are compared. One 4WD car may come with airconditioning and power steering, but not a bull-bar. Another car may come with a bull-bar and roof racks, but not the other two attributes. A consumer needs to weigh up what they can do without, and what they must have. Non-compensatory evaluation involves comparisons of alternatives against specific criteria or benefits sought. Using the last example again, a consumer would compare the 4WDs available with all important criteria, weighing up each brands ability to meet the criteria. The factors that determine which model will be used will depend on the information available on each brand. The level of involvement and the importance of the decision will also play a role. Purchase and post-purchase behaviour A purchase decision is not only to buy or not to buy, but also which brand to buy. In addition, decisions on where to buy, when to buy and how to buy must be considered. Where to buy includes decisions on choice of retailer, online or offline (at a store), or direct through a wholesaler/producer. When to buy addresses buying now, for a certain season (Christmas) or post-season sales. How to buy relates to mode of transaction, such as cash, EFTPOS, credit, lay-by, interest-free terms. The terms of purchase may be the way retailers differentiate themselves from competitors.

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Clearly, less thought and effort go into the purchase stage for low-involvement products like grocery items and low-risk purchases. Consumer decision-making does not end with the purchase. Consumers evaluate how satisfied they are with their decision, which will shape future purchases for that product category and brand. If a customer faces some regret with their purchase, they will experience post-cognitive dissonance. This means that the consumer is not satisfied that the purchase has met their needs. The level of dissonance is likely to be higher if the purchase was expensive or if the product performs poorly compared to others in the consumers reference groups. Marketers can alleviate post-purchase dissonance by providing warranties, money-back guarantees, follow-up letters, call centre service advice, and answers to FAQs. Case in point 3.2The new mail order This case study discussed the growth in catalogue and direct shopping and provides some interesting statistics for students to explore. Direct shopping includes mail catalogues but also direct-response media like television, radio, newspapers and magazines. The Internet is another important growth option to consider here. Case in point 3.3Click here and drive away a Toyota This case study discusses the issues involved in making high-involvement purchases online. However, an Internet site does not just fill the role of e-commerce. It can facilitate the purchase, answer many of the customers inquiries, and build relationships with prospects and existing customers as they explore their purchase options. In this case Toyota provides examples of how their website facilitates the purchase decision.

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Customer relationship management

Relationship marketing is an extension of the marketing concept, and involves nurturing partnerships with parties in the marketing channel, including customers, retailers, suppliers etc. The focus of relationship marketing is to add value beyond competitors and gain customer loyalty. It is five times more expensive to acquire new customers than to retain existing ones. In addition, a 5 per cent increase in loyal customers can double the profits of a business over the lifetime of that business. Relationships with customers enhance profitability, allow the opportunity to cross-sell products and services, or up-sell to more expensive product lines, reduce the impact of competitor activity (thus reducing brand switching) and reduce the steps involved in the consumer decision process (because search and evaluation are no longer important steps due to reduced risk). Relationships with other stakeholders in the marketing channel can produce higher reliability, more secure supply, and cost efficiencies in manufacturing and marketing activities.

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Loyalty marketing schemesdo they work?

Loyalty marketing schemes are designed to encourage repeat businessbut they dont necessarily result in loyalty to a particular brand. They are often based on rewards or benefits accrued over the long term. Some classic examples of loyalty programs include FlyBuys and the Qantas Frequent Flyer program. Research indicates that success in these schemes shouldnt necessarily be measured by loyalty to a brand, since customers repeat purchasing may be a result of the promise of a reward. Purchasing for a reward is based on a type of learning behaviour that will be considered in Chapter 6. Case in point 3.4Closing in on customers This case discusses Sonys efforts to develop meaningful relationships with its customers, although so many of its products are not sold direct, but through selected distributors and agents. Efforts Sony has undertaken to build relationships with end consumers include opening their own retail store in Sydney, building effective databases and having direct communications with consumers, through an interactive web presence.

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Effective relationships through regular communication can provide Sony with access to valuable market intelligence, allowing them to be at the forefront in innovation for their products. Through information technology, Sony is also able to use information from global networks such as the United States.

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The Internet revolution and buyer behaviour

The Internet has probably been the most influential innovation for consumers and businesses of all time. Although the Internet has its shortcomings, such as security concerns and an overwhelming amount of information, two of the key benefits associated with the Internet, which are not necessarily available through other promotional activities, include interaction and customisation. Interaction allows consumers to have a two-way discussion with the company and get involved in forums or discussion groups of key interest. Customisation refers to the Internets ability to allow consumers to tailor the website to their own needs, making it easy to seek the information they require. Again, improving relationships through better service and information availability can shape the influences acting on the decision-making process. Websites can also reinforce the consumers decision, and reduc e the perceived risk of purchase by offering access to information, online assistance and the e-mail addresses of company representatives.

DISCUSSION EXERCISES
1. Look through magazines and choose three very different ads. Discuss: a) the problem the advertiser seeks to solve for the consumer b) whether the needs that the product or service will satisfy are utilitarian or hedonic. What type of search would you expect consumers to follow in an initial purchase of a new product or brand in the following product categories? a) Mens moisturising cream b) Prepared fruit snack for children c) DVD player d) Harley Davidson motor bike e) Full-cream milk Give reasons for your answer. Identify two products or services that require an extensive search of information prior to making a purchase decision. You are thinking of knocking down your existing house and building a brand new home. a) List some attributes you could consider as criteria to use to evaluate the different (brand) options available. For example, rental allowance, nine-month turnaround, quick local council approval. b) Discuss how your evaluation would differ when you used a compensatory decision model as opposed to a non-compensatory model. You are the marketing manager for Miele Australia, responsible for the effective marketing of all kitchen appliances sold in Australia. What measures would you use to reduce potential cognitive dissonance with expensive purchases? How can a marketer of a longer-lasting alkaline battery that gives warning of depleting energy use knowledge of the consumer decision process in designing a marketing strategy?

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