Problem Recognition Comes first Types of Risk Perceived negative outcomes associated with a course of action and the uncertainty about which path to take o Financial Cost of the product itself o Social What will others think of the purchase o Performance Will the product perform as expected o Physical Safety concerns and likelihood of harm o Time Time spent searching for the product plus service maintenance Routine problem solving Low risk cost Frequently bought items Low importance Extensive problem solving High risk cost Unfamiliar with product Infrequently bought items Very important Consideration vs Inert vs Inept Set Consideration total set of alternatives considered most important typically 3 4 Inert Rejected options Inept Options not yet considered Actual State Can occur from depletion or change in situation Ideal State Can change without the actual state changing comprised of expectations aspirations and life changes Need perception occurs when there is a perceived difference between the ideal and actual states Causes of Problem Recognition Inventory runs out Family life cycle e g children may need different things Changing reference groups Dissatisfaction New needs Ads new products can influence this Boredom novelty seeking How Marketers Influence Problem Recognition Educate consumers about the problem products that are novel complex risky or durable Remind consumers about the problem products that are common well understood or frequently purchased Exaggerate the problem Non risky products and products where the problem is underestimated by the consumer Consumer search goals Optimizers search for the best solution to a problem satisficers search for a solution that is good enough Information Search Pre Purchase Search Situational involvement problem specific often temporary Ongoing Search Motivational involvement not problem specific long term search search itself is sometimes the consumption activity Internal vs External Search Internal Uses experiences and beliefs o Brands Consideration set based on prototypical brand familiarity o Attributes Accessibility and salience o Evaluations experiences External Magazines salespeople word of mouth consumers engage in surprisingly little external search o High MAO o Pre purchase search stems from problem recognition o Ongoing search Enduring involvement o Amount of external search goes from very little for people with little prior knowledge to a lot of external search with middling amounts of prior knowledge to very little external search for those with high prior knowledge Amount of Search influenced by Involvement and opportunity Consumer expertise Product risk Search goals Confirmation Bias Tendency to interpret seek out and create information that confirms our beliefs Behavioral Confirmation Self fulfilling prophecy behaving in ways that elicit the outcome we expect phone study High Effort Decision Making Evaluative vs Determinant Criteria choice that is made Features vs Benefits Evaluative Attributes features or potential benefits that consumers consider when evaluating possible solutions to a problem Determinant Evaluative criteria most carefully considered and directly related to the actual Features are performance characteristics Benefits are perceived favorable outcomes that result from the presence of a particular feature Compensatory Models Good attributes can make up for bad greatest number of positive features o Multi attribute model rate importance of each attribute then rate each brand s performance on that attribute o Additive Difference Compare brands two at a time take ratings and subtract 1 brand from the other and reject the brand with the lower total Non Compensatory Models Reject negative features o Elimination by Aspects Compare brands on an attribute chosen probabilistically more importance means it s more likely to be picked reject alternatives that don t meet the minimum standard o Conjunctive Set a minimum acceptable cutoff level for each attribute select the brand that meets the minimum o Disjunctive Set an acceptable standard usually higher than a minimum level for each attribute choose the first alternative that meets this standard on one attribute o Lexicographic Choose the brand that performs best on the most important attribute When are different models used Number of alternatives Marketers can structure info the way they want consumers to process them we process info the way it is displayed First consideration set Non compensatory methods reduced consideration set compensatory method choice Low Effort Decision Making Heuristics Resource saving rules of thumb low MAO for low effort decision making Reinforcement leads to continued use of heuristics Complexity More choices lead to increased interest limited choices increased sales satisfaction dependent on satisficing optimizing attitudes Different Heuristics o Availability Relying on readily available knowledge rather than examining other alternatives o Representativeness Evaluation of an item event is affected by the resemblance of that item event to its category people overestimate the importance of how well someone represents a category o Anchoring and Adjustment Initial and often irrelevant starting points for estimations people tend to under adjust o Compromise Effect Intermediate brands seem like safe bets to consumers o Asymmetric Dominance Specific change in choice between 2 options when a 3 rd is present 3rd option is dominated by only 1 of current options decoy effect o Defaults Consumers anchor on defaults o Framing How you frame a question or statement affects people s preference Heuristics in Consumer Choice o Affect How do I feel about it o Normative Choose what others are using o Variety Seeking Choose something new o Habit Choose what you normally choose o Price Choose the least most expensive Behavioral Finance Anticipated Regret Constructive Preferences and Price Inertia State of imbalance between the ideal state and the actual state Economics Preferences are fixed Marketing People often construct their preferences between alternatives on the spot Value is subjective and relative Prospect Theory Value Function People tend to assign more weight to the negatives High risk caused by o MAO o Low levels of financial literacy o Complexity context o Cognitive misers Heuristics save resources o Ego motivational need for control o Emotions o Reference Point Value is segmented into gains and losses relative to a reference point o