Reading I NEED HELP ON MY HOMEWORK 2
LULULU
160dm_12-JDMII_w24.pdf
CONSUMER BEHAVIOR (IN A DIGITAL WORLD)
JUDGMENT AND DECISION-MAKING II
TODAY’S AGENDA
1. Review • System 1 and System 2
2. Judgments Based on System 2 • ”Optimal” Decision-making • Evaluating Alternatives
3. Reason-based Choice • Compromise effect • Decoy effect
REVIEW
UP NEXT:
17 X 26 =
One way thoughts come to mind
Another way thoughts come to mind
TWO “SYSTEMS”
SYSTEM 1 AND SYSTEM 2
SYSTEM 1: RULES OF ASSOCIATIVE MEMORY
SYSTEM 2: LOGIC
System 1
System 2
SYSTEM 1 AND SYSTEM 2
Kahneman, 2003
INTUITION SYSTEM 1
REASONING SYSTEM 2
Associative Fast
Parallel Effortless
Slow-learning Emotional Automatic
Rule-governed Slow Serial
Effortful Flexible Neutral
Controlled
Efficient “Optimal”
• System 1 (automatic associations) continuously generates “suggestions” for System 2 (logical reasoning): impressions, intuitions, intentions, and feelings.
• When all goes smoothly, which is most of the time, System 2 adopts the suggestions of System 1 with little or no modification.
• Most of what you think and do originates in System 1, but System 2 takes over when things get difficult.
Kahneman, 2011
SYSTEM 1 AND SYSTEM 2
JUDGMENTS BASED ON SYSTEM 2
UP NEXT:
GOALS OF EACH SYSTEM
SYSTEM 1: REDUCE EFFORT
SYSTEM 2: MAXIMIZE (expected) UTILITY
VALUE MAXIMIZATION
Value Maximization (VM) underlies classical economic theories of the consumer • VM assumes that each alternative has a utility or
subjective value and the consumer selects the alternative with the highest value
• VM assumes that the preference between alternatives is independent of the context, as defined by the set of alternatives under consideraton.
“OPTIMAL” DECISION-MAKING 1. Identification of all relevant factors
All relevant pieces of information must be acknowledged
2. Assessment of factor values Values for the pieces of information must either be recalled from memory or processed from an external source
3. Assessment of factor weights The importance of each piece of information must be determined
4. Integration of information for each alternatives [JUDGMENT] The weighted values of each factor must be summed to yield an overall value or utility for each alternative (e.g., product, service, behavior)
5. Comparison and selection of alternatives [DECISION] All alternatives must be compared, and the alternative with the highest value should be selected
EVALUATING ALTERNATIVES True Brand Universe • All existing brands
Perceived Brand Universe • Brands consumers are aware of
True Utility Function • Actual satisfaction from using, consuming
Perceived Utility Function • What consumers believe his/her utility will be
SYSTEM 2 IS ERROR-PRONE
System 2
System 1
Although the goal of system 2 is to maximize expected utility, it is not an error-free system.
REMEMBER: WHAT IS THE VALUE OF THIS MUG?
-mug
-
- +
+
Losses Gains
Subjective Value
+mug
Pleasure from gain
Pain from loss
REASON-BASED CHOICE
Judgments based on System 2 are difficult, and consumers often experience uncertainty.
Consumers use cues from the environment to evaluate alternatives.
RELATIVE JUDGMENTS
RELATIVE JUDGMENTS
$275
What will make this bread maker worth buying?
$275 $429
Offer another that costs much more:
RELATIVE JUDGMENTS
$275 $429
SALES
Very few sold
Offer another that costs much more:
RELATIVE JUDGMENTS
RELATIVE JUDGMENTS
How good of a deal is the bread maker? (1-7)
M = 2.6
M = 4.2
Data from Class SurveyRELATIVE JUDGMENTS
Everything is relative.
$275 seems less expensive relative to $429
$275 $429 Orange dot seems smaller
relative to bigger dots
Everything is relative.
$275 seems less expensive relative to $429
$275 $429 Orange dot seems smaller
relative to bigger dots
EFFECT OF CONTEXT ON CHOICE
Participants selected a product to purchase from a list of alternatives.
IV: Number of options: two or three DV: product choice
Simonson and Tversky (1992)
EFFECT OF CONTEXT ON CHOICE
What increased sales of the $239 camera?
Simonson and Tversky (1992)
Options Product Choice
50%
50%
EFFECT OF CONTEXT ON CHOICE
What increased sales of the $239 camera?
Simonson and Tversky (1992)
Options Product Choice
22%
57%
21%
EFFECT OF CONTEXT ON CHOICE
Tradeoff contrast states that the tendency to prefer an alternative is enhanced or hindered depending on whether the tradeoffs within the set under consideration are favorable or unfavorable to that option
Extremeness aversion, states that the attractiveness of an option is enhanced if it is an intermediate option in the choice set and is diminished if it is an extreme option
Simonson and Tversky (1992)
COMPROMISE EFFECT
What will increase sales of the $99 earbuds?
$49 $99
Data from Class Survey
How about adding a more expensive option?
$49 $99 $169
Data from Class SurveyCOMPROMISE EFFECT
63%
36%
41% 44%
15%
Data from Class SurveyCOMPROMISE EFFECT
COMPROMISE EFFECT
Compromise effect occurs when consumers exhibit a preference shift toward a particular option when presented with a third option that is asymmetrically dominated.
You are about to buy a cup of coffee. There are three sizes available for different prices. Which one do you choose?
a) 12oz - $3.00 b) 16oz - $3.50 c) 20oz - $4.00
a) 8oz - $2.50 b) 12oz - $3.00 c) 16oz - $3.50
COMPROMISE EFFECT
COMPROMISE EFFECTSize
Lower Cost
COMPROMISE EFFECTSize
Lower Cost
57%
43%
Kivetz et al. (2004)
Kivetz et al. (2004)
28%
72% 0%
Value
Lower Cost
Print and Web
Web OnlyInferred relationship between cost and value
DECOY EFFECT
Value
Lower Cost
Print and Web
Web Only
Print only
Inferred relationship between cost and value
DECOY EFFECT
DECOY EFFECT
Decoy effect occurs when consumers' preferences between two options change in favor of one option when a third, less attractive option is added to the choice set.
TAKEAWAY
• To develop effective marketing strategies, marketers need to know the types of problem-solving processes their customers use to make purchase decisions.
• Marketers that target several consumer segments may have to develop multiple strategies to influence different decision outcomes.
• Many buying decisions are routinized. However, when consumers do engage in extensive decision making, marketers must recognize and satisfy their needs for information.
