Consumer Behavior Exam 3

Methods in CB & Prospect + Context Theory

Sources of Secondary Data

• Internal records

• External Source’s — Published Data, Standardized Sources of Marketing Data, the Internet

General Data Rule

Collect secondary data first, then turn to primary data

Advantages of Secondary Data

Time Savings

Low Cost

Disadvantages of Secondary Data

May be out of date

Definitions or categories might not be what you’re looking for

Might not be specific enough for your project

Exploratory Data

qualitative methods are exploratory

generate ideas

• Qualitative - in-depth interviews, focus groups

• Quantitative - observation

Descriptive Data

generate numbers and relationships

• Qualitative - case studies

• Quantitative - surveys, data mining

Casual Data

assess cause-effect

• Quantitative - experiments, test-markets (quasi-experiment)

Test Market

is quasi-experimental because it does not rely on random assignments — instead it is determined by the people’s pre-existing conditions (ex: proximity to story)

Classic Shopping List Study (Haire 1950)

Identified barrier to buying the product — how one is perceived by others

Solution: better to cross-promote the product and advertise it as a product that is not lazy, but a better way to balance your time among responsibilities

Survey Data

the heart of Consumer Behavior (very common!)

Survey Data Advantages

• Useful for measuring lots of things — attitudes, knowledge, intentions, brand awareness

• Easy to execute and analyze

Survey Data Disadvantages

• Subject to sampling bias

• Subject to social desirability bias

• Can measure correlation but not causation

Experimental Research

Objective: test hypotheses about casual relationship between variables

• Look at effect of independent variable (the variable you manipulate/change), on dependent variable (the variable you’re measuring)

• Different groups of consumers get different “treatments”, or versions of independent variable

• Helps determine CAUSALITY

Relationship between Correlation and Causation

correlation DOES NOT EQUAL causation

Correlation

relationship between two variables

Causation

one variable producing an effect in another variable

3 factors necessary for Causation

• Correlation

• Temporal Antecedence — does the cause come before the effect?

• No third factor driving both your supposed cause and effect, called lurking variable

Lurking Variable Example

Do more churches cause more crime? NO, population is the lurking variable because the more people, the more churches, and the more # of crimes

Requirements to establish Casualty

• Control/manipulate the cause (independent variable) and hold everything else constant

• The cause (independent variable) has to precede the effect

• Random assignments - makes experimental groups statistically equivalent

3 Rules of Decision Making

• People act differently when something is framed as a loss vs a gain

• Losses loom larger than gains

• Evaluations are driven by individual events, not total outcome

  • Implication: Separate gains, Aggregate losses

Frame of Questions

decisions are influenced by the way a set of choices is presented

• two versions of a problem — that are essentially the same — can lead to different choices

• Framing should NOT make a difference in choice, but it DOES

Rule #1: Loss/Gain framing changes risk-taking

Consumers sometimes prefer risky options over non-risky options and vice versa

• Risk-Seeking vs Risk-Averse

Risk-Seeking

when the choices are perceived as losses (death)

Risk-Averse

when the choices are perceived as gains (lives saved)

Loss Aversion

people tend to be more sensitive to losses than to gains

Loss Aversion: Endowment Effect

merely possessing something makes it more valuable to you, meaning you perceive it having a higher monetary value simply because you own it

• Seller focus on what they stand to lose — the product

• Buyer focus on what they stand to lose — the money

• Sellers and Buyers set very different prices on goods

Loss Aversion: Status Quo Bias

preference for the current state of affairs over change

• manifests as resistance to change

• when considering change, the risk of loss psychologically outweighs the potential for gains

• encourages brand loyalty — continue using the same product even when other options are available

Sunk Cost Effect

tendency to continue investing resources in an endeavor, even if its no longer favorable, simply because of past investments (that cannot be recovered)

Gain Framing

frame a situation as a gain to make it more favorable (discount vs surcharge)

Prospect Theory (Kahneman & Tversky)

replaces expected utility (objective) with subjective utility (how we see things): incorporates the human element of evaluation

• people don’t follow a traditionally “rational” theory of choice

Prospect Theory: Reference Points

determines whether something is coded as a “gain” or a “loss”

• status quo

• subset: reference prices

  • what we paid last time

  • average price

  • the exemplar

  • salient price or numbers

Integrate Losses

Car dealers list price in one lump sum

Segregate Gains

Car descriptions list out attributes separately

Silver Lining

$500 cashback when you buy a Nissan

Couple Losses with Gains

Paycheck deductions for insurance, parking, investments

Mental Accounting

• money is not 100% fungible ($25 =/ $25)

• Although $ has an objective value, its subjective value changes based on the situation

  • How you spend your paycheck vs tax refund

• We put money into different mental accounts (rent, car, entertainment)

• Situational factors can change what you’re willing to pay

Managerial Implications: Compromise Effect

• important for businesses selling an intangible product that is not easily comparable

  • Sonoma’s $275 bread bakery machine suffered from weak sales -? Introduced a $415 model and sales of the $275 doubled

• Retail Businesses

  • Give customers three related choices at three different prices

  • Avoid one-of-a-kind items sitting on shelves isolated from comparable products