Decision Making

Consumer choice decisions are at the core of most marketing challenges facing companies, whether they are manufacturers of consumer goods, service providers, or retailers. In product development or upgrade, branding, pricing, merchandising and store design, to list just a few aspects of managerial marketing and retailing, a fundamental goal is to attract and gain more consumer choices over time.

Consumers are required to make many and varied purchase decisions at different frequencies about Lindt Chocolateproducts and services they seek in order to satisfy their regular daily needs, to maintain their prefered lifestyle, and as a means for achieving higher-end personal goals.  Consumers choose what products to acquire, and of which brands and models — from food products like pasta sauce or chocolate, through smartphones and clothing fashion items, to electric home appliances, cars, and so on. In addition consumers make decisions about services they hire or subscribe to like home repairs, telecommunications, health care, air travel, as well as various others. To handle multiple decisions in so many domains consumers allocate time and effort (cognitive, psychic) according to priorities they set between decision tasks, consciously or unconsciously.

The consumer “is apt to prefer shortcuts, follow rules of thumb, and behave in a routine manner. But he is also capable of acting intelligently. When he feels it really matters, he will deliberate and choose to the best of his ability.” (George Katona, 1975, Psychological Economics [Rational Behavior, Ch. 14], p. 218)

In fact, there are multiple reasons or motivations for consumers to alternate between simplified and elaborate decision processes. Firstly, consumers may decide whether to save or invest their time and energy according to the complexity of the product, its purpose or functions, and the risks involved in its purchase or use. The importance of a product to an individual consumer may be particularly subjective when it depends on the role it serves in one’s lifestyle or its symbolic meaning to one’s self-concept. Secondly, when the number of alternative brands becomes very large and the consumer experiences information overload, he or she is likely to apply short-cut rules to reduce the decision problem, such as narrowing down the number of brands to be evaluated subsequently with greater scrutiny. Thirdly, occasionally consumers may voluntarily choose to complicate their decision process and look for new products or less familiar brands in order to introduce variety, novelty or excitement in their lives.

In the course of the past 40 years new perspectives and theories about consumer preferences, choice and decision-making have been developed that counter the economic-driven paradigm of rational behaviour. Accordingly, we have learned about:

  • The constructive view of consumer preferences posits that consumers do not necessarily have ready-made ordered lists or mapping of their preferences for various products that they just need to retrieve from memory when required; rather, on many occasions consumers construct their preferences as they gather information and process it, using various rules and strategies from their ‘toolbox’. They may do so for example when confronting a new domain or in order to facilitate a complex evaluation and choice process (e.g., breaking-down information into compartments). Consumers adapt their decision strategy to the situation at hand.
  • In addition, consumer preferences can be assessed on two critical dimensions: how stable and well-established the preferences are, and the extent to which consumers know their own preferences and are able to utilise them effectively. The more serious problem occurs when consumers do not have a good insight into their own preferences in a particular product domain and therefore are not sufficiently aware when their preferences are unstable and weakly developed — these consumers are more susceptible to manipulation and persuasion by peripheral arguments. However, consumers may experience a weakness on only one of the dimensions (insight or stability). The more sophisticated consumers have well-established preferences and have good insight to apply them, making them more independent and judgemental of offers made to them by companies. (This distinction has been discussed in particular with respect to consumer response to customized offers.)

 

  • Bias, error and the use of heuristics —  Limitations of human short-term memory and computation capacities, but nonetheless also laziness to deliberate and an inclination to jump to conclusions, make consumers subject to biases and errors in their judgements and decisions. The consequence is often a distraction from the outcomes that rational models predicate. The views on heuristics are mixed, however. In many cases, taking short-cuts can be a blessing as it simplifies and quickens decision processes while the deviations from ‘optimum’ are tolerable or excusable. There are cases, however, when reliance on unjustified assumptions and the use of short-cut rules or heuristics may inflict painful financial losses and other forms of damages on consumers. It has been argued and demonstrated that the use of heuristics is not destined to lead to failure and underperformance of decisions but actually may produce better results than rational strategies at lower costs (money, time and computational effort). This has been shown for example in problems of geographic profiling (e.g., locating criminals). It is greatly the context, purpose and manner in which heuristics are employed that determine their efficacy.
  • Consumers make judgements about changes or deviations from a known state or a status quo, used as a reference point. It is not the final state that counts but a gain or loss from the reference point the consumer regards for a given property or attribute.  As such, we appreciate the extra GB of memory storage a retailer awards as bonus to our mobile device (not total memory size) and we respond negatively to an increase in the price we pay for a snack compared to the price we paid last week (not current price). But a loss hurts more than the extent to which a gain of the same magnitude pleases the consumer. Thus, a last-minute surcharge of €5 added to a train ticket fee would upset a traveller at the railway station more than a discount of €5 would delight that traveller.

 

  • Cognition and emotion frequently are intertwined when consumers make decisions. Every decision is likely to have an element of emotion that is necessary for committing to a chosen course of action (e.g., purchasing a specific brand). People who exhibit emotional deficiencies have been found to experience difficulties in making choices — they tend to go around the decision, suggesting reasons and explanations but failing to choose among the alternatives. Thoughts (calculations and reasoning) get mixed with emotions and feelings but there is no pre-condition for their order of occurrence: We may deliberate until we get inclined to choose a particular alternative and then feel good about it, endorsing that brand-model as our favourite. However, we often get hooked on a certain branded item that we fall in love with, thereafter we may just look for supportive evidence and “logical” reasons to justify its purchase. A consumer needs to feel confident and happy enough about a chosen TV set for buying it, but may fancy a particular clothing item out of affection for its aesthetic look before “analysing” it too much. Emotions and feelings may alert, inform, or moderate our thoughts and actions. We may “use” them as guides, yet they may cause disruption.

 

Waiting in the rain for an iPhone at Apple Store
Waiting in the rain for an iPhone at Apple Store

 

Consumer research requires scholars and practitioners to combine and integrate between the approaches of  behavioural psychology and cognitive psychology, including  models of information processing theory. The behaviourist viewpoint regained clout since the turn of the 21st century with the development of new technological possibilities and improved methods and techniques for storing, accessing and analysing huge amounts of data in various types ascribing to consumer activity, captured offline and online — a domain we have come to know as Big Data. However, a behavioural approach can tell us only part of the story; we cannot properly understand the courses of consumer behaviour without learning about consumers’ mind-set, attitudes and intentions, thoughts as well as feelings, and the paths they go through to reach their decisions. (Intentions, inaccurate as they may be, still tell us about a person’s goals and where one thinks of heading.) Furthermore, knowledge emerging from the neurosciences (neurophysiology, neuropsychology) can complement both fields above by revealing some of the neural activity that correlates with cognition, emotion and overt actions, and implicating the “responsible” brain structures or areas engaged in them.

Thus, a behavioural approach observes or records what consumers do (e.g., buy in a brick-and-mortar store, write a post in social media, browse a website); a cognitive approach sheds light on what consumers have in mind, how they process information and make their decisions, on their feelings in given situations, and on their plans for the future — inasmuch as they can consciously report and are willing to share; and a neuropsychological approach may help better understand the neural processes that lead to — precede or occur simultaneously with — unconscious and conscious cognitive or emotional responses and overt actions. One should importantly notice that the latter approach provides information on neuro-correlates but cannot suggest for instance the content of thoughts or inferences. Hence marketing researchers and practitioners should benefit from combining evidence and insights from those different tracks to construct a more complete and meaningful picture of consumer decision-making and behaviour.

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