Understanding Consumer Behavior 1, Appunti di Marketing

Scarica Understanding Consumer Behavior 1 e più Appunti in PDF di Marketing solo su Docsity! Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 1 Understanding Consumer Behavior Module 1 Prof. G. Sarial Abi Sept 7th, 2017 Lesson 1: Introduction Studying consumers’ behavior means studying the value seeking activities that take place as people go about addressing realized needs. By understanding consumers’ needs, we will be able to address them. Every type of behavior influences the consumption pattern. What is consumption? Consumption is the process by which goods, services, information, or ideas are used and transformed into value. (if there were no value, people would not consume anything). This value is created by the interaction between marketers and consumers. Indeed, the aim of marketers is that of increasing the welfare of the society as a whole. Consumption then affects consumer’s well-being by affecting his or her quality of life. The consumption process starts with a need, which has to be translated into a want (e.g. I am thirsty -> I want some water). The want is then transformed into an exchange (I’m going to pay some money to have water and satisfy my thirst). Any exchange is then linked to some costs and benefits, which generate a particular reaction in the mind of the consumer (satisfaction, dissatisfaction, happiness, etc.). Finally, the process ends up with a certain value, which is created to satisfy the customer’s need. If your need has not been satisfied or the transaction has not created added value for the consumer, the process starts over again. Everything can be marketed in the market if you can find a consumer’s need that can be satisfied by your idea. Only as long as you can satisfy a need, you will be able to create value and to capitalize over that value. Consumption, therefore, is deciding what is needed, which options are available for the exchange and which will be the reactions arising from consumption. The consumption process is influenced by both internal and external factors, which will eventually change the behavior of the consumer. Among internal factors we find: 1. Personality; 2. Motivations -> reasons behind the decision to purchase a product vary from a consumer to another. Motivations can be utilitarian (i.e. trying to accomplish things or maintain the current state) or hedonic (i.e. trying to experience something satisfying) -> there are different products and services according to different individual motivations; 3. Emotions -> emotions influence the behavior in the market place. Marketers are actually using emotions to trigger purchase and to shape the way consumer perceive brands and products; Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 2 4. Memory and learning; 5. Perceptions. Among external factors there are: 1. Family -> different families with different sizes have different needs. Moreover, overtime the roles within families have changed a lot (e.g. man’s role); 2. Friends; 3. Social groups -> the groups in which individuals are involved shape the way their members behave; 4. Social Media; 5. Social networks; 6. Culture -> every culture has different norms and expectations. Moreover, also cultures change (even though it is more difficult to change cultures); 7. Sub-culture -> e.g. differences between north and south Italy, or Africans and Americans. • The interaction between internal and external factors influence how consumer behave in the market place. Are really people what they consume? What people consume can somehow tell us who they are and how they behave. However, this is not always true, because there are too many factors influencing consumer behavior. Also brands have personalities (not only consumers). E.g. Apple have an “excitement” (daring, imaginative) personality, while Coca-Cola try to convey a “sincere” personality. There are others, like Jeep, which try to portray a “ruggedness” personality, or a personality based on “competence” like The Washington Post. Sometimes companies have just one personality, while some other times firms may have multiple personalities. A company has to be big enough to just have one single personality. Having one personality may also mean to have one strongest trait among some other weaker ones. For small-to-medium companies it would be a high risk to have a single personality with which compete in the market place. Of course, different personalities target different types of consumers. Each brand targets a different set of consumers or life-style. Life-styles are very important because, even though consumers may have similar personalities, they may have different life-styles. Why do marketers study consumer behavior? Companies need to understand consumer behavior in order to: • Understand and change behavior • Encourage or discourage certain activities • Build competitive advantage • Create value for consumers • Build meaningful relationships with customers How can companies understand consumers? 1. Descriptive information: gathering info about present factual statements or about historical sale trends in the industry -> starting from this information, firms can make inferences about future consumption and about consumer behavior; 2. Diagnostic: explaining the data + impact of a change in packaging on sales; 3. Predictive: “what if” questions. Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 5 The perception process starts with exposure. A consumer needs to be able to experience the product or the service in order to be aware of it. However, just being exposed to a product does not mean that an individual is paying attention. Attention indeed is needed in order to reach comprehension. The main elements of consumer perceptions are: 1. Exposure: is the process whereby the stimulus originating from a product or service is brought to consumers. Exposure implies the consumer to “feel” the product or service through one of the senses. In this way, the individual can become aware of the product. The way the consumer feels the product is very important. In fact, marketers strive to make consumers as much comfortable as they can with their product (the type of feeling associated with a certain product or brand obviously depends on the image that the brand wants to convey and on the kind of personality that a particular product or brand wants to portray). Exposure provides an immediate response of the product/service to the consumers (“sensing”); 2. Attention: allocation of information-processing capacity towards developing an understanding of some stimulus. Once a consumer has started sensing, he or she can start organizing the information gathered through the sensorial experience, i.e. he or she assembles sensory evidence into something recognizable (“organization”); 3. Comprehension: when consumers attempt to strive to derive meaning from information they receive. After organization comes “reacting”, i.e. the physical and mental response to the stimuli. How do people organize? The steps through which an individual go are: (i) assimilation, (ii) accommodation and (iii) contrast. If we do not organize, we won’t be able to find the info needed to make a decision. The perception process is selective: - Selective exposure: screening out stimuli; - Selective attention: paying attention to only certain stimuli; - Selective distortion: interpreting info biased with your previously held beliefs. We as consumers can be exposed to either (i) first hand experience, i.e. first-time experience in person or (ii) second hand experience, i.e. WOM, reviews and advertising. Both first and second hand experiences influence our decisions. E.g. if we want to buy a camera, we rely on ads, ratings, reviews, etc. 1. EXPOSURE It is important to notice that exposure is still controlled by consumers. Indeed, it’s only people themselves that can decide whether to be exposed or not to something. E.g. people can skip the commercials while watching the TV (1/3 commercials are zapped). But how do people detect the stimuli? A stimulus can be detected when it exceeds the lower threshold, i.e. when it is loud enough, large to see, on screen long enough, smell enough, etc. However, if the stimulus is lower than the threshold, then it would be considered as subliminal. Subliminal stimulation works as well. Indeed, marketers use it to change consumers behavior without them being aware of that. E.g. Back in 1957, a study conducted by Vicary showed that by just projecting on the cinema screen Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 6 the phrase “Drink Coke, eat popcorn” before the movie to start, they achieved to increase sales of Coca-Cola by 18% and of popcorn by 58%. The experiment worked especially for those people who already had in their mind the idea of getting something to eat or drink, so that when they saw the phrase, they though “why not?”. However, subliminal persuasion works only under certain conditions: it works only if people recognize to have a certain need to be satisfied -> look at Vicary’s results: • Subliminal exposure can influence people, but within certain limits: - Needs to be in your repertoire of potential behaviors - May affect general liking for or approach/avoid tendencies towards product - For important decisions, careful processing (ATTENTION) would probably over-ride any subliminal influence When do individuals detect a difference? An individual is able to recognize a difference if it exceeds the just noticeable difference (JND), i.e. the threshold above which two stimuli are sufficiently different from each other, that the people seeing it can spot the differences. Sometimes marketers want to stay above the JND to stress quality improvements (so that they can be noticed by customers), while some other times marketers want to stay below the JND (for instance when there are price increases). Sometimes, people do not recognize when the changes occur because they expected that situation to remain the same (this is a psychological bias) -> this phenomenon is called change blindness. • Marketing implications: consumers do not notice small changes (e.g. If price moves from $29.49 to $29.99), consumers have preferences about what they perceive -> don’t assume people see what you do. In order to understand consumers’ perception, marketers can use perceptual maps. Perceptual maps are graphical representations of how different consumers perceive the different available alternatives (the dimensions on which the comparison is to be made are displayed on the axis). They help marketers to visualize how products of a certain brand relate to other competitive offerings in the marketplace. in order to choose the right dimensions, marketers should rely on market research -> you need to make sure that you as a marketer are looking to the same dimensions that consumers have in their mind when perceiving and evaluating a brand’s product against competitors’ offerings. When designing perceptual maps it is also important to distinguish Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 7 between the different target groups consuming the product (a certain product may be consumed and perceived differently according to different segments). The assumptions of perceptual maps are: 1. Consumers evaluate all products using the attributes listed along the axis of the PM; 2. These attributes are the most important of all possible attributes consumers might use for comparison; 3. The points depicted on the map are accurate representations of consumers’ view of the marketplace; • Perceptual maps need to be the result of a quantitative research: marketers have to collect ratings for each product for each possible attribute (usually through the use of Likert scale survey instruments). Then the mean of each attribute score for each product/brand/behavior are computed and then each product is appropriately positioned in the map. 2. ATTENTION Attention is the processing of information arising from the stimuli an individual is exposed to -> it is devoting cognitive resources to the stimuli. Attention can be either voluntary or involuntary. Moreover, attention can also be: - Limited: attention is limited because individuals have limited resources; - Selective: individual pay attention to what they decide; - Divided: attention can be divided as humans are multi-tasking. Which are some strategies that can be used to grab attention? In order to promote voluntary attention, marketers should make the ads personal and connected with consumers’ needs. Instead, to promote involuntary attention, marketers can try to increase salience or vividness (e.g. make the ads bigger, use pleasant or surprising stimuli, use less cluttered environments, be different, use vivid imagery, etc.). EXAM’S QUESTIONS • How do we make our consumers to - Perceive - Pay attention To our brands, products, services? BARBIE CASE: “Does Mattel’s iconic Barbie doll need a makeover?” Why did the brand decide to reposition its main product (Barbie)’s perception? The original Barbie’s features were too unrealistic and unhealthy, so that parents would not their children to play with such models. Moreover, little girls could not relate with that particular model, as it was too distant to reality. Mattel, therefore, tried to reposition the image of Barbie in order to getting closer both to parents (the ones actually buying the dolls) and to girls too (as they need dolls who look much more to them and to which they can relate more). Studies also shown that girls playing with Barbies grew up with much lower self-esteem, compared to those who did not used to play with them. Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 10 remember and list all the details of the stimulus they are exposed to. This is why people cannot remember a stimulus as a whole, even though the brain record everything; • Workbench (short-term) memory: information is stored and encoded for long-term memory. However, also workbench memory has limitations. It has limited duration (30 second) and limited capacity (3-7 pieces of information). Remembering can be improved by attributing a meaning to things to be remembered. Other strategies could be repetition, dual coding (i.e. associating 2 different sensory traces/2 messages – e.g. music and slogan or music and brand name), meaningful coding (i.e. use pre-existing knowledge to remember new information), chunking (i.e. grouping stimuli by meaning); • Long-term memory: it works as repository of information. It has unlimited capacity and unlimited duration -> permanent information storage. The reason why we often do not remember things is that information is stored in a messy way. Strategies to retrieve from long-term memory are mental tagging (i.e. mentally labelling and tagging small pieces of information in order to give them a meaningful position in the long-term memory. If not meaningfully tagged, we cannot just find that information) and rumination (i.e. unintentional remembering of past events -> nostalgia plays an important role in the market as it makes people to unintentionally remember things or events from the past). • Marketing implications: Brands strive to be stored in consumers long-term memory, in order to be stored in an associative network. In order to do so, firms try to be the best single representative of some category (in order to be more easily remembered by the consumers). EXAM’S QUESTION: • How a message is comprehended • How a message is stored in memory and remembered Prof. G. Sarial Abi Sept 28th, 2017 Lesson 4: Motivation and emotion 1. MOTIVATION What is motivation? Motivation is what allows people to achieve goals, it is the reason why people behave in a certain way. It is the set of inner reasons or driving forces behind human actions. If you are a consumer, your consumption process won’t start without a motivation, i.e. without a real need to be addressed. Motivation can be either intrinsic or extrinsic. In order to motivation to exist, there must be a need. That need creates a tension. Once there is a tension, that tension creates a desire for the person to meet such need. The desire to fulfill the need turns into a goal. Once you have a goal, product/services allow individuals to reach their goal. Motivation can be oriented around either: 1. Homeostasis: to keep the status-quo (e.g. maintain the living standards, or the ordinary physiological status); 2. Self-improvement: achieve a new ideal state, which is better than the actual one. Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 11 Remember Maslow’s Hierarchy of needs: Psychological needs are related to basic survival. Once psychological needs have been satisfied, people can satisfy their safety and security needs. After that come belongingness and love needs, esteem needs (i.e. being recognized as a worthy person), and finally self-actualization needs (personal fulfillment). According to Maslow, a superior need cannot be satisfied if the inferior need has not been satisfied. However, the order of the needs can change overtime or some needs cannot be satisfied under particular circumstances. • The hierarchy of needs changes also depending on the situations and on the life-cycle stage of a person. For this reason, it is limiting to talk about a “hierarchy” when it comes to individual needs. To avoid this limitation, marketers have divided motivation into two simpler categories: 1. Utilitarian motivation: functional motivation, aimed at maintaining a current state; 2. Hedonic motivation: motivation leads an individual to experience something gratifying. - Example: Instagram Having an Instagram account may have both utilitarian and hedonic motivations. The utilitarian motivation can include being in touch with friends, not getting excluded (since almost everybody has an account), reporting experiences, or following famous people. A hedonic motivation can be just using the app just for fun. The same reasoning can be applied to any kind of activity (e.g. running -> you can do it just because you enjoy it, or because you have to lose weight, recover from an injury, etc.). According to the Regulatory Focus Theory, each individual’s action can have either one of the following purposes: 1. Prevention focus: an action aimed at keeping the status-quo (homeostasis) and avoiding any negative consequence; 2. Promotion focus: an action aimed at pursuing aspirations or ideals -> motivation for self-improvement. Assume, for instance, that you would like to buy a new car. There are some features that you would like your new car to have when thinking about purchasing it. On one hand, you would like your car to have air bags, ABS breakers, traction control and all other features that keep you safe (prevention focus), and on the other hand, you would also like your new car to have sunroof, DVD player, etc. (promotion focus). However, this theory has some limitations as well. Indeed, people can have prevention focus in some situations and prevention focus in some other situations. The focus can also vary depending on the age, gender, income, education, geographical and political condition of the country of residence, etc. • Promotion and prevention focus can be used for advertising purposes -> depending on the focus you choose, messages can be framed differently to better target different segments of consumers. (see example on next page) Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 12 - Example: • When you are communicating with people, the way you frame the message influence differently individuals depending on their orientation. If a person has a more prevention focus, a campaign based on a promotion focus won’t have much appeal on him. Different people with different focuses also have different goals: • Approach goals: things a person wants to achieve; • Avoidance goals: things a person does not want to achieve or to do. Those who are prevention focus are usually more correlated to avoidance goals, but this not necessarily the case. This rule is not rigid -> when we talk about motivation we talk about tension (which may be different across situations and may not follow a rigid rule). Motivation plays a crucial role because it is what allows people to pay attention to the stimuli. High motivation implies higher attention, while low motivation leads to lower attention. In order to increase motivation, a stimulus should be consistent with an individual’s needs and goals, and it must be personally relevant (it must generate involvement). What is involvement? It is the degree of personal relevance a consumer finds in pursuing a value from a given category of consumption. Let’s assume you are going to buy running shoes. How would you decide which one to buy? The decision can be made upon price (meaning that running shoes are not personally important for you -> no involvement), design/brand (brand can be used as external reference point -> low motivation in running), features, etc. You could also ask for experts’ suggestions (higher involvement). • Product involvement depends on the relevance that an individual has towards a particular product category. There are different types of involvement: - Product involvement: product category has personal relevance; - Situational involvement: temporary involvement associated with some imminent purchase intention; - Emotional involvement: how emotional a consumer gets during some specific consumption activity. Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 15 LIFESTYLES Lifestyles are the ways in which consumers live and spend their money and time. Lifestyles are reflected in the activities that consumers engage into and in the way they behave. E.g. Harley-Davidson lifestyle: The outlaw of a typical biker is: “tense for action, long hair in the wind, beards and bandanas flapping, earrings, armpits, chain whips, swastikas, and stripped-down Harleys flashing chrome as traffic on 101 moves over, nervous, to let the formation pass like a burst of dirty thunder”. Lifestyles are measured by psychographics. The scale used to measure lifestyles is the VALS. The VALS survey is able to reveal people personalities. Of course, this method has limitations (quantitative research should be complemented by qualitative research). DEMOGRAPHICS The market can be divided also according to the demographic characteristics of the consumers. Customers can be divided with respect to: - Age -> very difficult to segment the market by age without taking into consideration the lifestyle. People may belong to the same age-segment (e.g. Millennials, Baby boomers, Generation X, Generation Z) but may have very difficult product categories. - Gender - Income Etc. Brands and firms may target different segment (core vs. outreach segment) -> boundaries from a segment to another are very thin. Markets can also be divided with respect to: - Occasion -> e.g. Christmas, Easter, etc. - Benefits sought - User status -> e.g. all babies need diapers, but they are different depending on their age-stage - Usage rate -> e.g. different storage capacity for online storage service providers (Dropbox, iCloud) - Loyalty status • Personality cannot be used alone to target consumers, as it is unique for each individual. Firms need to take into consideration also lifestyle, demographic and behavioral characteristics. Self-concept is the totality of thoughts and feelings that an individual has about him or herself. Our self-concepts influence our behavior. The self-concept can be divided into: • It is very difficult to influence people’s behavior, as it depends on many different things EXAM’S QUESTION: • How personality, lifestyles, demographics, and self-concept influence the way consumers behave in the marketplace Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 16 Prof. G. Sarial Abi Oct 12th, 2017 Lesson 6: Groups and interpersonal influence & culture GROUPS All groups have share common goals and interests. The members of the same group communicate with each other and influence one another, in order to achieve the same goals. They also share the same set of rules and roles, and expectations (members have expectations from the other members). As result, the members perceive themselves as to be a common social unit. There are many different ways to define different types of groups. The first way is to distinguish between ingroup and outgroup: • Ingroup: person identifies with as a member. If a person identifies themselves as to be part of a group (ingroup), he or she will conform with that group (rules, behavior, goals, expectations, etc.); • Outgroup: groups with which a person does not identify. Groups can also be defined as primary vs. secondary: • Primary groups: very frequent and contact direct (see, talk, share something) between the group members -> the social ties are very strong, so that the group influences members’ behavior more than anything else. E.g. your own family can be a primary group to you; • Secondary group: not very frequent contact, influence is not very strong on members, social ties are weaker compared to primary groups (but individuals still identify themselves with the group). E.g. social clubs, brand communities. In brand communities, members share common interests, i.e. the same interest towards a brand or product. Individuals gain benefits by being members of a brand community (help and support, fun, events, competition, information sharing, etc.). Brand communities cannot be defined as primary groups because their members do not influence each other (plus, they don’t know each other). • Both primary and secondary groups are “ingroups” as individuals can identify themselves with them. Academic literature differentiates groups also with respect to: • Formal groups: there is a formal/official procedure to become member of the group. There is a precise and codified set of rules and accepted values. There is a shared code of conduct to be followed for the members of the group (e.g. we as students have applied to become member of the Bocconi university -> we’re members of the Bocconi community; e.g. gym membership). Applications are a sort of restriction -> they are used to define who can belong to the group who cannot. • Informal groups: no formal memberships and no application requirement (e.g. friends, family, sport teams). A further distinction can be made between: • Aspirational groups: the individual desires to become a member -> “ingroup”. They represent how individuals want to be seen by the others (e.g. becoming a member of the master of science students group) • Dissociative group: the individual does not want to belong to a certain group -> dissociative groups are outgroup (e.g. criminals). In consumer behavior, most of the influence on human behavior comes from reference groups. Reference groups are groups of individuals who have significant relevance for a consumer and have an impact on the consumers’ evaluations, aspirations and behavior. Reference groups may influence human behavior in different ways: - Utilitarian influence: conform to expectations to receive reward or avoid punishment; - Informational influence: groups which members can refer to in order to have information (e.g. online forums, doctors); - Value expressive influence: internalize group’s values and express individuals’ own values and beliefs. Reference groups have different influences on product selection. According to reference groups, products can be distinguished as follows: - Products as public necessity: e.g. shoes, cars -> considered as a public necessity (seen by the other members of the public). The influence of a reference group on a public necessity product is weak, but it has strong influence on brand selection; - Products as private necessity: e.g. socks -> weak group influence on both product and brand selection; - Public luxury: e.g. jewelry, country club -> reference groups have strong influence both on product and brand selection; Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 17 - Private luxury: e.g. pinball machine -> strong group influence on product selection, but not on brand selection. • (this is a general rule. It does not hold true for every individual) Most of the time, individuals feel the pressure of conforming with the other members of the group -> peer pressure. Peer pressure increases when an individual is not sure about his or her opinion (or decision). Peer pressure also emerges in situations of low self-control, or lack of cognitive resources (e.g. when you are tired or stressed). Individuals can also feel pressure when people are working in group -> chances to conform are higher. In the marketing context, consumers feel this kind of pressure when they have to conform to the expectations. • Social media nowadays play a crucial role on consumer behavior -> they influence consumers a lot. Social media expenditure is predicted to increase from 14% to 22% in the next 5 years. However, the social media strategy is still not well incorporated in companies’ strategies (social media activities are now mainly performed by outside agencies). Facebook is still number one, among all the other social networks. Why? First mover advantage + satisfaction of different needs (chat, pictures, ads, reviews, etc.) + dynamic WORD OF MOUTH (WOM) Word-of-mouth can be either organic and amplified: • Organic WOM: when the consumer truly enjoys the product or service -> customers talk in a good way about a product or a service just because they enjoyed it; • Amplified WOM: marketers attempt to accelerate WOM -> marketers ask people to talk well about their product or services. How to spread WOM? - Blogs - Forums - Social networks - Influencers - Web-sites with reviews (e.g. Yelp, Tripadvisor) - Buzz-agents How to measure the success of WOM? - Google Trends -> see what people search for the most on the web - McKinsey Method -> WOM = volume of messages * impact of communication (see next page)  Consumers like to share information that have social value Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 20 1. HABITUAL DECISION MAKING - Little involvement in selection process: the behavior is always the same - Frequently purchased low cost goods - Low risk - May stick with one brand: no evaluation of different brand (high loyalty) - Buy first/evaluate later: the consumer first takes the choice and then it evaluates the post-purchase experience and, if necessary, he or she starts evaluating the alternatives - Quick decision: very limited period of time 2. LIMITED DECISION MAKING - low involvement in selection process: resources are not exploited fully to maximize the utility; - low-to-moderate cost goods - Evaluation of a few alternatives brands - Short-to-moderate time to decide - Reach decisions based on prior beliefs 3. EXTENDED DECISION MAKING - High levels of involvement - High cost goods - Evaluation of many brands - Long time to decide - May experience cognitive dissonance  Every behavior of any consumer can be classified according to these approaches There are different types of decision making process according to the type of product. There are several types of products: • Convenience products: they are inexpensive products characterized by a widespread distribution, meaning that they are designed for everybody  mass target and mass promotion. The buying behavior of convenience products can be described by frequent purchase, little planning and little comparison (low involvement)  it can be classified as a routine or a limited decision-making process depending on the situations (e.g. think about sales promotions  a consumer may be willing to change brand if he is very sensible to price). Examples of convenience products are toothpaste, laundry detergents, etc. In order to grab attention and influence the behavior of consumers towards convenience products, companies should act on color, text, shape and packaging of the product. In this way, consumers can remember and recognize a particular product; • Shopping products: they are products which are purchased unfrequently and which require much planning and comparison. They are expensive and selectively distributed, meaning that they can be found only in selected places. Moreover, most of the promotion is done through advertising and personal selling. Examples of shopping products are furniture and electronic items. The decision-making process associated to shopping products can be classified as limited or extended behavior depending on the situation and on the person. For instance, if a person is a value-seeker individual and he or she has to buy a piece of furniture, that he or she will engage in an extensive decision-making process; • Specialty products: they are very expensive goods, which are distributed in very exclusive places where the promotion will be mainly targeted promotion. In this case, the buying behavior would be characterized by infrequent purchase, much planning and little comparison. Examples of specialty products are luxury cars or luxury jewelry. This kind of behavior is associated with an extended decision-making process; • Unsought products: they are products for which consumers have very low awareness and, therefore, the buying behavior associated to this kind of product implies no planning and no comparison wanted. Price and Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 21 distribution vary a lot, while concerning promotions, it is very aggressive, so that the moment a consumer experiences the need for a particular unsought product, he or she can easily find it. Examples of unsought products are innovations (brand new products in the market at the beginning of their product life cycle), funeral services, insurances, etc. This kind of behavior can be associated with a limited decision-making process.  Remember that the product classification and the way in which a consumer perceives a product depends on the occasion of purchase and on the type of consumer  the classification is not very rigid (E.g. a product can be considered a shopping product by a consumer, but it can be considered as a specialty product by another consumer). We as consumers engage in different types of decision-making process depending on the type of product or service and the occasion of purchase. Moreover, the type of decision-making process can also be affected by internal and external factors (e.g. groups, culture, preferences, etc.). THE DECISION-MAKING PROCESS The steps of the decision-making process are the following: Remember, however, that this order is not valid for each decision that an individual is going to make in his life. In some cases, the order can change. 1. Need recognition: the consumer realizes that there is a gap between the actual state and the desired state. Most of the time, individuals cannot change their actual state. For this reason, people can act on their desirable state, i.e. on their goals. Reference groups deeply influence the desired state of their members. If people are going to change their desired state, they engage in variety seeking behavior; 2. Information search about the alternatives: information can be searched either internally (from memory) or externally (outside info). Once all information has been gathered, the consumers can form their evoked set (or consideration set), i.e. the set composed by the most preferred alternatives. 3. Alternatives evaluation: once a consideration set has been formed, consumers go through the evaluation of their preferred alternatives. In order to do so, they have to evaluate the product/service attributes using cutoff criteria and ranking the attributes by importance. However, in reality, in most of our decisions we do not go through all these sub-steps. EXAM’S QUESTION: • How consumers make decisions in the marketplace Understanding Consumer Behavior – Module 1 A.Y. 2017-18 Sara Dal Pio Luogo 22 Prof. G. Sarial Abi Nov 9th, 2017 Lesson 8: Irrational consumers Remember the decision -process: The problem is that when it comes to make the purchase decision, consumers do not always choose the option that maximizes their utility. The assumption behind the traditional decision-making process is that consumers are rational (classical economic view), but is this true? In reality, consumers are not always rational. In 1979, Kahneman and Tversky developed the prospect theory, according to which any decision involves risks and the probabilities of any outcome are known. According to their theory, each individual’s goals is to maximize their happiness, given the fact that he or she is going to experience both gains and losses in life. They are the fathers of Behavioral Economics and Finance (they ask themselves why investors behave as they do?). - Example 1: An individual has to choose between two options: A. 50% chance of winning $1000 and 50% chance of winning nothing B. 100% chance of winning $450 for sure Let’s have a look at the expected value of each option: EA = 0.5*1000 + 0.5*0 = 500 EB = 1*450 = 450  the expected value of first choice is higher Even though A leads to a higher expected value, that choice will only be choose by risk-seeking individuals, while risk- averse individuals would always choose option B as they would receive $450 for sure (without any risk). In reality, when it comes to winning, the majority of people is risk-averse. - Example 2: An individual has to choose between two options: A. 50% chance of having to PAY $1000 and 50% chance of having to pay nothing B. 100% chance of having to pay $450 for sure Let’s have a look at the expected value of each option: EA = 0.5*(- 1000) + 0.5*0 = - 500 EB = 1*( -450 )= - 450  the expected value of second choice is higher When it comes to having to pay something, the majority of people is risk-seeking as they would be willing to risk more if there would be the chance of not having to pay. - Example 3: Assume you have just won $1000 and then you win another $100. How much happier does that $100 make you feel than the $1000 did? After having won $1000, that amount becomes an individual’s reference point. Therefore, the additional win of $100 does not make an individual happier compared to the time he or she has earned $1000  there are diminishing return to happiness  it all depends on the reference point a person has.