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




A Rational Problem Solver?
How do we solve our Problems – What’s the process?

         PROBLEM RECOGNITION

          INFORMATION SEARCH

      EVALUATION OF ALTERNATIVES

              PRODUCT CHOICE

        CONSUMPTION & LEARNING
     What are the Implications for Marketers?
                CONSUMER EFFORT IN
                 MAKING DECISIONS
Your car is now 7 years and is in need of constant repair. What
decision process do you go through in purchasing a new one?
           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
Your toaster is now toast. What process do you go through
in purchasing a new one?
              Limited Problem Solving

 Moderate amount of time and effort spent on
information search and evaluation
 buyers aware of product class but not 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.
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?
              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
         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
opportunity recognition - something to be gained
Once You’ve 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
Marketing is all about
creating a need in the
mind of the customer
 and then satisfying
      that need.
            Philip Kotler
Can marketers stimulate consumers’ recognition of needs?

 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.
            Primary Demand Stimulation
 Marketing activity intended to increase demand for
 the product category
When breaking open a new product
category your 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
    Primary
    demand
  stimulation
 only a possibility in
new product categories
 no evidence–scientific
or anecdotal–that
advertising can affect
primary demand in
mature product
categories
 advertising most
appropriately used by
trade associations
Primary demand stimulation categories

Increase the number of users


  Increase the willingness to buy

     Demonstrate benefits of the product

     Develop new products with better benefits

     Demonstrate new benefits from existing

     products
  Increase the ability to buy

  Increasing Rates of Purchase

     Broaden use occasions

     Increase consumption levels

     Encourage replacement
       Secondary demand
the demand for a given brand in a category
   Secondary (or Selective) Demand Stimulation
Marketing activity intended to increase demand for one
organization’s 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
    – Differentiated positioning
        Customer-oriented niches
        Benefit positioning
Secondary (or Selective) Demand Stimulation
Retention strategies
  – Maintenance of customer satisfaction
  – Meet competition
  – Relationship marketing
Product line strategies
  – Line extensions
  – Bundling
  – Systems selling
    INFORMATION SEARCH
 FOR WHAT ARE WE SEARCHING?
 Evaluative criteria
 Existence of alternatives
 Performance of alternatives on the criteria
 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)
  WHAT DETERMINES THE
  EXTENT OF THE SEARCH?
Benefit vs. Cost of Search
Market Characteristics
   – Range of prices
   – Number of alternatives
   – Store distribution
   – Information availability
Product Characteristics
   – Price
   – Product Differentiation
DETERMINANTS, CONTINUED
Situational Characteristics
   –   Time Availability
   –   Purchase for Others
   –   Pleasant Surroundings
   –   Social Surroundings
   –   Physical/Mental Energy
DETERMINANTS, CONTINUED
  Consumer Characteristics
  – Experience/Knowledge
  – Shopping Orientation
  – Perceived Risk
  – Social Status
  – Age and Household Life Cycle
                       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 doesn’t do the job
or meet the need.

 psychological risk - to self esteem, feeling guilty
Do consumers always
 search rationally?
               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.
                           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
                   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
                         HEURISTICS
 "rules of thumb" people use to make judgements and decisions.
   • never buy a car in the first model year (choice heuristic)
   • if buying a computer, go to Future Shop for the best deal
   (search heuristic)

 Signals - infer hidden attributes from observable ones
    Covariation - usually vary with quality

              • length of time in business
              • country of origin
              • price
              • brand
              • retail outlet
       EVALUATION OF ALTERNATIVES
How do consumers narrow down the alternatives and
choose one?
    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)
 Plus products prominent in the environment
 Important for marketer to get into the evoked set - these are the
brands that will be evaluated first
inert set
 brands which person is aware of but considers unacceptable

inept set
 brands which consumer is unaware of
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
 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.
MARKETING STRATEGIES
– Habitual decision, brand in evoked set
   Maintenance
– Habitual decision, brand not in evoked set
   Disrupt
– Limited decision, brand in evoked set
   Capture
– Limited decision, brand not in evoked set
   Intercept
– Extended decision, brand in evoked set
   Preference
– Extended decision, brand not in evoked set
   Acceptance
                      What is it?




HP OfficeJet G85 All-in-one scanner/copier/fax/printer
              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 don’t have an established category for
multifunction devices, so they just stick the new product in
the phone category



   .
                Products are categorized in levels



                       Laundry Detergent            Super-ordinate level


       Liquid                               Powder             Basic level


Tide            Wisk                 Tide    Wisk        Sunlight
                                                                    Subordinate
                                                                    level
                 PRODUCT POSITIONING
 The place a product or service occupies in consumers' minds
on important attributes relative to competitive offerings.
 Success of a positioning strategy often hinges on the marketers
ability to convince consumer that product should be considered
within a given category. Which is the sports car?




       Porsche                 Mercedes               Cadillac
  Which is more prestigious?
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
    A Typical Positioning Has
        Several Pieces...
Actual Product or Service Description
Target
Benefits
Competitive Context and Advantage
The real education problem of companies introducing new
products in generating primary demand is to get customers
to properly categorize the product.
   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
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
                     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?
             EVALUATIVE CRITERIA
When comparing products or services what criteria do you use?




  functional attributes
       Which margarine do you buy? And Why?




 determinant attributes
   • differentiators

How can Marketers influence what attributes are important
    Situational effects on Consumer Behaviour
 factors over and above the person and the product
1. Behavioural/social
    – purchases tailored to specific occasions
2. Situational self image
    – who am I right now, feelings, role, ethnicity
3. Purchasing situation
   – store surroundings (smells, temperature,
      sights, sounds can significantly influence
      consumption)
   – social surroundings - eg. restaurant seating
4. Usage situation - time of day, in conjunction with other
products
The Purchase Environment

            Non-Store
            Shopping


   Sales                 Retailing
  Person                as Theater
                Key
             Elements
Place-Based of Purchase Spontaneous
   Media                 Shopping


               Store
              Image
Non-Store Shopping E- COMMERCE
What are some of the advantages of E-commerce?

Advantages
 can reach customers from around the world
 cuts out the middleman --- Disintermediated
 can boost sales by attracting people who don’t normally shop in
stores
 increased convenience
 Innovative methods

What are some of the Disadvantages
competitors can reach customers from around the world
Some products difficult to sell over the Internet. E.g., clothes, food
Retailing as Theatre
Store Image
Colorful point
of purchase
displays can
increase sales
According to a recent
(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
marketer’s greatest (and
perhaps most overlooked)
asset in creating brand
equity and impact is the
frontline sales person
                      Atmospherics
“design of space and various
dimensions to evoke certain
effects in buyers”
 The atmosphere has been
shown to have more influence
than the service itself in the
purchase decision
Colour
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 colours (blue, green, and violet hues) are favoured
when customers need time to make decisions.
Children appear to favor brighter colors while adults
favor lighter tones.
              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 produce more arousal, pleasure, and
increase approach behaviors of consumers.
Music
Studies show background music directly influences consumer
buying behavior and affects sales.
Background music enhances customer’s perception of store’s
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.
                   POSTACQUISITION
 The consumption, disposition, and postchoice evaluation of goods,
services, and ideas.

What alternatives are there for disposing of products?
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



                223,000     232.000

1.958 mil
                                                   523,000
                      575,000
  Customer Satisfaction




Does Performance Live up to Expectations?

								
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