Decision Making II

Habitual Decision Making

Sometimes we don’t go through this elaborate sequence when we make decisions

Habitual decision making describes the choices we make with little or no conscious effort

Sometimes we don’t realize we’ve made a decision until afterwards

Snap decisions can actually be quite efficient and accurate

Repeat Purchases

When we buy the same brand over and over, does it mean it’s just a habit or are we truly loyal to the brand?

The answer: it depends

Inertia > involves less effort to throw a familiar package into our shopping cart

Brand loyalty > repeat purchasing involving conscious decisions to continue buying from the same brand

• This is harder to achieve than inertia and represents true commitment

How could we test whether a consumer is using inertia or brand loyalty?

Framing

Often times, it’s just a matter of framing that biases our decisions

Loss Aversion = people hate to lose things more than they like getting things

How might brands benefit from knowing this about consumers?

Prospect Theory

Prospect theory analyzes how the value of a decision depends on gains or losses

Two important concepts are:

Mental Accounting – the way we frame the question and external issues that shouldn’t influence our choices but do regardless

Sunk-Cost Fallacy – if we’ve paid for something, we’re more reluctant to waste it

Behavioral Economics NOT ON TEST

Behavioral Economics is a growing field in CB; it doesn’t look at the consumer as rational like traditional economics

• Focuses on the effects of psychological and social factors on economic decisions

• Holds enormous implications, especially for public policy; the way organizations frame their messages can have a huge influence on how consumers will react

Priming and Nudging

Priming = cues in the environment that make us more likely to react in a certain way even though we’re unaware of these influences

• A prime is the stimulus that encourages us to focus on a specific aspect

Nudge = a deliberate change by an organization intended to modify behavior

• Can result in dramatic effects

• Default bias – we’re more likely to comply with a requirement than make the effort to not comply

Heuristics

Many times, we’re quite content to exert less mental effort and simply receive an adequate outcome (satisficing solution)

This “good enough” perspective on decision making is called bounded rationality

We often fall back on shortcuts to simplify our choices

Heuristics = mental rules-of-thumb that can range from general (e.g., higher price means higher quality) to specific (e.g., buy Pillsbury cake mix because my mom always bought it)

Covariation

When we only have incomplete product information, we often base our judgments on our beliefs about covariation

If one aspect of the product is good, the others must be good too

e.g., if a used car is squeaky clean on the outside the engine must be equally as good

Country of Origin (COO)

Consumers strongly associate certain items with specific countries

• Brands/products from these countries often use this to their advantage

Marketers go out of their way to make clear linkages between products and COO

e.g., Italian leather in shoes

Familiar Brand Names

Familiar brand names must be better brands (mental shortcut)

Higher Prices

Higher-priced alternatives are better quality than lower-priced options

Based off of the assumption: you get what you pay for

Collective Decision Making

Many decisions we make are collaborative

But different people have different levels of

• investment in the outcome

• taste

• preferences

• consumption priorities

Collaborative decision making = situations in which more than one person chooses the products/services that multiple consumers will use

Roles

Depending on the decision, the choice may include some or all of the group members in a unit

Initiator – person who brings up the idea or identifies a need

Gatekeeper – person who conducts information search and controls the flow of information available to the group

Influencer – person who tries to sway the outcome of the decision (different people have different levels of investment and power)

Buyer – person who actually makes the purchase

User – person who actually consumes product/service

Family Decision Making

The decision process within a household unit resembles a business conference

In just about every living situation, group members assume different roles just like you would in a company

Reflect…

What types of “business meetings” do you hold in your family? What about in your “college family”?

How Families Decide

Families make two basic types of decisions:

1. Consensual purchase decision – members agree on a desired purchase but disagree only in terms of how they’ll make it happen

• Families will likely engage in problem solving and consider alternatives until they satisfy everyone in the group

• E.g., getting a dog for the family

2. Accommodative purchase decision – members have different preferences/priorities and can’t agree on a purchase that satisfies everyone’s needs

• Use bargaining, coercion, and compromise tactics

• Conflict occurs when there’s incomplete correspondence in members’ needs/preferences

• E.g., watching TV (disagreeing on what to watch)

How much conflict is in the family?

Interpersonal need – a person’s level of investment in the group

e.g., concern when you’re a teenager vs. when you’re in college

Product involvement and utility – degree to which a person will use the product to satisfy a need

e.g., different levels of caring about a coffee machine purchase

Responsibility – for procurement, maintenance, payment, etc.

e.g., more concern if you’re the one paying

Power – degree to which one family member exerts influence over the others

e.g., who’s the boss?

How do marketers interact with families?

Marketers and researchers pay special attention to which spouse plays the role of family financial officer (FFO)

Traditionally, this was one individual

Today, many couples use the synoptic ideal, which calls for both spouses acting as joint decision makers

To avoid conflict, many couples use heuristics to reach a decision

Who calls the shots?

Autonomic decision = one family member makes the decision

e.g., simple purchase decisions, clothing or grocery shopping

Syncretic decision = both partners make the decision

e.g., family vacation, buying a home, furniture, etc.

Mom

Traditional perspective vs. modern-day perspective

Affects family spending habits and who makes decisions

Working moms tend to experience the juggling lifestyle

Many wives are responsible for kin-network system (organizing kids lives)

Dad

The roles of dads are changing as well

Many companies benefit from “dadvertising”

Group Shopping

We shop differently when we’re shopping in a group

We tend to

• Make more unplanned purchases

• Buy more

• Cover more areas of a store than when we browse solo

Home shopping parties capitalize on group pressures to boost sales
(If everyone’s buying something, you should too)

Can be translated to social shopping with e-commerce also