Marketing Exam 2

Consumer Decision Process Steps

1. Need recognition

2. Information search

3. Alternative evaluation

4. Purchase and consumption

5. Post-purchase

Consumer Decision Process Definition

The steps that consumers go through before, during, and after making purchasing decisions

Need Recognition

• First step in Consumer Decision Process

• Consumer decision process begins when consumers recognize they have an unsatisfied need, and they would like to go their actual needy state to a different desired state

• The greater the discrepancy between these two states, the greater the need recognition will be.

Want

Goods or services that are not necessarily needed but are desired

Functional Needs

Pertain to the performance of a product or service

Psychological need

Pertain to the personal gratification consumers associate with a product or service

Information Search

• Second step in Consumer Decision Process

• After a consumer recognizes a need, he or she must search for information about the various options that exist to satisfy that need

Internal search for information

the buyer examines his or her own memory and knowledge about the product or service gathered through past experiences

External Search for Information

buyer seeks information outside his or her personal knowledge base to help make the buying decision

Factors affecting consumers’ search processes

Perceived Benefit Vs. Perceived Cost

Another factor affecting consumer search process

Locus of control

Locus of Control Definition

indicates how much control people think they have over the outcomes of various activities, such as purchasing a product or service

Internal Locus of Control

Refers to when consumers believe they have some control over the outcomes of their actions, in which case they generally engage in more search activities.

External Locus of Control

Refers to when consumers believe they have some control over the outcomes of their actions, in which case they generally engage in more search activities.

What can delay or discourage a purchase?

Risk

Performance Risk

involves the perceived danger inherent in a poorly performing product or service

Financial Risk

is associated with a monetary outlay and includes the initial cost of the purchase as well as the costs of using the item or service

Social Risk

involves the fears that consumers suffer when they worry others might not regard their purchases positively

Physiological (or safety) Risk

refers to the fear of an actual harm should the product not perform properly

Psychological Risk

are those risks associated with the way people will feel if the product or service does not convey the right image

Evaluation of Alternatives

• Third step

• Once a consumer has recognized a problem and explored the possible options, he or she must sift through the choices available and evaluate the alternatives.

• Alternative evaluation often occurs while the consumer is engaged in the process of information search

Universal Sets

Include all possible choices for a product category

Retrieval Set

• Subset of the universal set

• brands or stores that can be readily brought forth from memory

Evoked set

comprises the alternative brands or stores that the consumer states he or she would consider when making a purchase decision

Evaluative Criteria

consists of a set of salient, or important, attributes about a particular product

Determinant attributes

are product or service features that are important to the buyer and on which competing brands or stores are perceived to differ

Consumer Decision Rules

set of criteria that consumers use consciously or subconsciously to quickly and efficiently select among several alternatives

Compensatory Decision Rules

assume that the consumer, when evaluating alternatives, trades off one characteristic against another, such that good characteristics compensate for bad characteristics

Multi attribute model

A compensatory model of customer decision making based on the notion that customers see a product as a collection of attributes or characteristics. The model uses a weighted average score based on the importance of various attributes and performance on those issues

Non-compensatory decision rules

which they choose a product or service on the basis of one characteristic or a subset of a characteristic, regardless of the values of its other attributes

Choice Architecture

When evaluating alternatives, the influence that the design of the environment has on how consumers make choices

Impulse Products

Products that are purchased without planning, such as fragrances and cosmetics in a department store and magazines in supermarkets

Nudge

One element of the choice architecture (environment) that alters behavior in a predictable way, without forbidding other options or significantly changing any economic incentives

Default

deals with a “no-action” condition by imposing a choice on a person who fails to make a decision or does not actively opt for a different alternative

Opt out

have to choose not to be a part of it

opt in

have to choose to be a part of it

Conversion Rate

A measure that indicates wat percentage of visitors or potential customers click, buy, or donate at the site

Components of Postpurchase outcomes

• Customer Satisfaction

• Post purchase cognitive dissonance

• Customer Loyalty

post purchase customer satisfaction

• Setting unrealistically high consumer expectations of the product can lead to dissatisfaction if the product fails to achieve high performance expectations.

• Marketers can take several steps to ensure postpurchase satisfaction such as

  • building realistic expectations

  • demonstrating correct product use

  • standing behind the product or service by providing a money-back guarantee or warranty

  • encouraging customer feedback

  • periodically making contact with customers.

Post-purchase cognitive dissonance definition

The psychologically uncomfortable state produced by an inconsistency between beliefs and behaviors that in turn evokes a motivation to reduce the dissonance; buyer’s remorse

postpurchase cognitive dissonance occurs when products are

• expensive

• infrequently purchased

• do not work as intended

• associated with high levels of risk

Firms attempt to reduce dissonance by reinforcing the decision:

Return policies.

Thank-you letters.

Congratulations letters.

Tags on garments.

Postpurchase customer loyalty

Marketers attempt to solidify a loyal relationship.

Firms use analytics software and customer relationship management (CRM) programs to acquire and retain loyal customers.

negative word of mouth

Occurs when consumers spread negative information about a product, service, or store to others

Factors influencing the consumer decision process

• Psychological Factors

• Social Factors

• Situational Factors

• Marketing Mix

Psychological Factors include

• Motives

• Attitudes

• Perceptions

• Learning and memory

• Lifestyle

Psychological Factors: Motives

A need or want that is strong enough to cause the person to seek satisfaction

Maslow’s hierarchy of needs

• Physiological

• Safety

• Love

• Esteem

• Self-actualization

Psychological Factors: Attitude

person’s enduring evaluation of his or her feelings about and behavioral tendencies toward an object or idea

Types of Attitude

• Cognitive

• Affective

• Behavioral

Cognitive Component

reflects our believe system, or what we believe to be true

Affective Component

involves emotions, or what we feel about the issue at hand, including our like or dislike of something

Behavioral Component

pertains to the actions we undertake based on what we know and feel

Psychological Factors: Perception

the process by which we select, organize, and interpret information to form a meaningful picture of the world

Psychological Factors: Learning

refers to a change in a person’s thought process or behavior that arises from experience and takes place throughout the consumer decision process

Psychological Factors: Memory

involves encoding, storage and retrieval

Psychological Factors: Lifestyle

refers to the way consumers spend their time and money to live

Social Factors include

• Family

• Reference groups

• Culture

Social Factors: Family

Firms must consider how families make purchase decisions and understand how various family members might influence these decisions.

When families make purchase decisions, they often consider the needs of all the family members.

Social Factors: Reference Groups

one or more persons whom an individual uses as a basis for comparison regarding beliefs, feelings, and behaviors.

A consumer might have various reference groups, including family, friends, coworkers, or famous people that the consumer would like to emulate. These reference groups affect buying decisions by (1) offering information and (2) enhancing a consumer’s self-image.

Social Factors: Culture

defined as the shared meanings, beliefs, morals, values, and customs of a group of people. Like reference groups, cultures influence consumer behavior

Situational Factors

factors specific to the situation that override, or at least influence, psychological and social issues. These situational factors are related to the purchase and sensory situation as well as to temporal states

Situational Factors include

• Purchase situation

• Sensory situation

• Temporal state

Situational Factors: Purchase Situation

Customers may be predisposed to purchase certain products or services because of some underlying psychological trait or social factor, but these factors may change in certain purchase situations.

Situational Factors: Sensory Situation

When a consumer enters a store, various sensory aspects influence his or her decisions. When leveraged in concert with other aspects of the retail environment and retail strategy, the five senses can strongly influence consumer decision processes. We discuss each of the five senses and their main impacts on consumer choice

Sensory Situation includes

• Visual (seeing)

• Auditory (hearing)

• Olfactory (smelling)

• Tactile (touching)

• Taste (tasting)

Situational Factors: Temporal State

A purchase situation may have different appeal levels depending on time of day and the type of person a consumer is.

Mood swings can alter consumer behavior.

Our state of mind at any particular time can alter our preconceived notions of what we are going to purchase.

Consumers make two types of buying decisions, depending on their level of involvement

extended problem solving (high involvement) or limited problem solving (low involvement, which includes impulse purchases and habitual decision making).

Extended Problem solving

common when the customer perceives that the purchase decision entails a lot of risk

Limited Problem SOlving

occurs during a purchase decision that calls for, at most, a moderate amount of effort and time. Customers engage in this type of buying process when they have had some prior experience with the product or service and the perceived risk is moderate

Impulse Buying

a buying decision made by customers on the spot when they see the merchandise

Habitual Decision Making

describes a purchase decision process in which consumers engage in little conscious effort

1) Upscale department stores like Nordstrom or Bergdorf Goodman are more likely to appeal to consumers'________ needs than their economic requirements

psychological

2) When Jane decided to buy a new computer, she thought about all the brands she could recall seeing advertised, but when she visited her local computer store, she limited her search to only those brands she would consider buying. The brands she considered buying represent Jane’s________ set.

evoked

3) Tyler prefers shirts made with 100 percent cotton, but he will sometimes buy shirts with less cotton if they are less expensive. Tyler uses________ to decide which shirts to buy.

compensatory decision rule

Business to business marketing

refers to the process of buying and selling goods or services to be used in the production of other goods and services for consumption by the buying organization and/or resale by wholesalers and retailers

Manufacturers and service providers

Buy raw materials, components, or parts.

Manufacture their own goods and ancillary services

Resellers

• Resellers are marketing intermediaries that resell manufactured products without significantly altering their form.

  • Wholesalers

  • Distributors

  • Retailers

Institutions

Hospitals, educational institutions, and religious organizations

Examples of purchases by institutions:

Textbooks.

Capital construction.

Equipment.

Supplies.

Food.

Janitorial services.

Government

In most countries, government is one the largest purchasers of goods and services.

Local, state, and federal governments.

Government may buy technology, sercurity, office products, tanks, weapons

The B2B buying process

• Need recognition

• Product Specification

• RFP process

• Proposal analysis, vendor negotiation, and selction

• Order specification

  • Vendor performance assessment using metrics

Stage 1: Need Recognition

the buying organization recognizes, through either internal or external sources, that it has an unfilled need. Sellers actively work to prompt such need recognition.

Stage 2: Product Specification

After recognizing the need and considering alternative solutions, create a list of potential specifications.

Used by suppliers/ vendors to develop proposals.

Stage 3: RFP Process

Vendors or suppliers are invited to bid on supplying required components and services.

Purchasing company may simply post its RFP needs on its website, work through various B2B web portals, or inform their preferred vendors directly.

Request for proposal

common process through which organizations invite alternative vendors or suppliers to bid on supplying their required components or specifications

Step 4: proposal analysis, vendor negotiation, and selection

The buying organization evaluates all the proposals received in response to an RFP.

Often several vendors are negotiating against each other.

Considerations other than price play a role in final selection.

Step 5: Order specification

the firm places its order with its preferred supplier (or suppliers).

The order includes a detailed description of the goods, prices, delivery dates, and, in some cases, penalties for noncompliance.

The supplier then sends an acknowledgment that it has received the order and fills it by the specified date

Step 6: Vendor Performance Assessment Using Metrics

firms analyze their vendors’ performance so they can make decisions about their future purchases. The difference is that in a B2B setting, this analysis is typically more formal and objective.

Buying Center Roles

• Influencer

• Decider

• Buyer

• User

• Gatekeeper

• Initatior

Organizational Buying Culture

• Democratic

• Consultative

• Concensus

  • Autocratic

Three Buying Situations

• New buy

• Straight rebuy

  • Modified rebuy

New Buy

• Most likely when purchasing for the first time

• Usually quite involved

• The buying center will probably use all six steps in the buying process and involve many people in the buying decision

Modified Rebuy

• Purchasing a similar product but changing specifications such as price, quality level, customer service level, options, etc.

• Current vendors have an advantage

Straight Rebuy

• Buying additional units of products that have been previously purchased

• Most B2B purchases fall into this category

• Usually, the buyer is the only member of the buying center involved

1) Unlike manufacturers,________ buy products from other businesses but do not significantly alter the form of the products they buy before selling them.

resellers

1)      A university has decided to purchase new computers for its labs. When it explains the terms of the agreement, including penalties for noncompliance, which step of the B2B buying process is it executing?

order specification

3) State University is buying a distance learning system. Previously, the school had no distance learning technology. For State University this represents a(n)________ situation.

new buy

Globalization

The processes by which goods, services, capital, people, information, and ideas flow across national borders

Gross Domestic Product (GDP)

the gross of every product that is made within our borders

Gross National Income (GNI)

GDP added up plus all the income every company makes including income in other countries