MKTG 351 Final Exam (Guha)

Endowment effect

- The tendency of people to be unwilling to sell a good they already own even if they are offered a price that is greater than the price they would be willing to pay to buy the good if they didn't already own it - Perceived value is NOT independent of ownership

Interest (AIDA)

-Begin developing a positive association, paying more attention (especially if it's relevant to you) - The consumer becomes interested by learning about brand benefits & how the brand fits with lifestyle - How will we gain consumer's interest?

AIDA Model

A model of the series of mental stages through which consumers move as a result of marketing communications: Awareness leads to Interests, which lead to Desire, which leads to Action. - A model that outlines the process for achieving promotional goals in terms of stages of consumer involvement with the message; the acronym stands for attention, interest, desire, and action

Rank: Price [1] Quality [2] Style [3] Performance: (Sayo: [1] 3, [2] 4, [3] 5) (Sony: [1] 5, [2] 5, [3] 5) (Pioneer: [1] 4, [2] 4, [3]3) Use the lexicographic rule. Considering the data above, how many brands would be selected using this rule? A. 1 B. 2 C. 3

A. 1 (only 1 brand would be selected because Sony is the only with 5 in the first rank. If another one had 5 in 1st rank, then you would move to the 2nd rank)

Leveraging the _______ effect involves introducing an option that most consumers should find unattractive. A. Decoy B. Compromise

A. Decoy

When purchasing _______ products, tightwads and spendthrifts will be relatively less likely to differ in how much money they are willing to spend. A. Utilitarian B. Hedonic

A. Utilitarian

Rank: Price[1], Quality[2], Style[3] Cutoff Point: [1]4, [2]4, [3]3 Performance: (Sanyo: 4,5,4) (Sony: 5,1,2) (Pioneer: 4,5,5) Would using conjunctive rule and the elimination-by-aspects rule lead to same shortlist? A. Yes B. No C. More information needed

A. Yes

Amy is shopping for a dress to wear to a formal dance. She tried on several dresses, not even noticing the price of each. After about two hours of this, she tried one on and exclaimed, "This is it!" That particular dress was the one that she thought made her look fabulous, so she bought it. Which type of choice did Amy use to select this dress? A. affective choice B. rational choice C. attribute-based choice D. instrumental choice

A. affective choice

Buying Center

All the individuals and units that play a role in the purchase decision-making process. Includes: influencer, decider, buyer, user, gatekeeper, and initiator.

Unawareness Set

Alternatives the consumer does not know about

Awareness Set

Alternatives the consumer is aware of. - Evoked set: alternatives given consideration (specific alternative purchased and/or alternatives considered but not purchased) - Inert set: backup alternatives - Inept set: avoided alternatives

Brosnan et al (2007) ran a study wherein they gave chimpanzees either (i) peanut butter first, and then asked them to trade (if they wish) for popsicles, or (b) popsicles first, and then asked them to trade (if they wish) for peanut butter. They found that the chimpanzees were more likely to end up with peanut butter when given peanut butter first. This effect is termed_____ A. Asymmetric dominance B. Compromise effect C. Paradox of binary choice D. Endowment effect

D. Endowment effect

Key: [1] fuel, [2] price, [3] safety, [4] support (Toyota: 4,3,4,4) (Honda: 4,3,5,5) (Nissan: 4,4,3,3) (Subaru: 3,2,5,5) (Suzuki: 3,3,3,5) Assume that only Nissan is shortlisted. Which decision rule was used: A. Conjunctive rule (minimum standard = 4, on every attribute) B. Disjunctive rule (minimum standard = 5) C. Lexicographic rule (safety most important attribute) D. Lexicographic rule (price most important attribute)

D. Lexicographic rule (price most important attribute)

Which of the following is not an action a consumer may utilize to reduce dissonance? A. Increase the desirability of the brand purchased. B. Decrease the desirability of rejected alternatives. C. Decrease the importance of the purchase decision. D. None of the above; all of the above will decrease dissonance

D. None of the above; all of the above will decrease dissonance

Nancy usually considers price and quality when she has to make a major purchase, such as an appliance or an automobile. These two features represent Nancy's A. alternatives. B. choices. C. heuristics. D. evaluative criteria. E. motives.

D. evaluative criteria.

Disjunctive Rule

Minimum required performance for each important attribute (often high level). All brands that meet or exceed the performance level for any key attribute are accepted. *In order for a brand/product to be chosen, it only has to meet/exceed ONE of the minimum standards* - The option selected surpasses a relatively high cutoff point on any attribute

Disposition

The process by which a consumer discards an offering. -Retaining product: store, use for original purpose, use for a new purpose -Disposing product: recycle, throw away, trade in, sell, give away, loan

Status quo bias

The tendency to favor the "here and now" and to reject potential change - think of the organ donor option where if "no" is the default option, there is little to no one who will opt-in

Linear thinking

A form of thinking that implies strategic thought process, one in which step-by-step logic is employed. - Many marketers focus less on technical specifications, and focus more on consumer benefits in their ads e.g. Apple states '1000 songs' rather than 'storage 5GB' - In many cases, linkages are linear (5GB storage = 1000 songs, 10GB storage = 2000 songs). But this is not always true....

Active vs. Passive Internal Information Acquisition

- Actively Acquired: past searches and personal experience - Passively Acquired: low-involvement learning

Types of Consumer Choice Processes

- Affective Choice - Attitude-Based Choice - Attribute-Based Choice

Attention (AIDA)

- Aware of the ad and able to recall it, could be positive/negative attention - The consumer becomes aware of a category, product or brand (usually through advertising) - How do we make buyers aware of our products/services?

Final Review Class Notes: 49 questions (including name)

- Behavioral economics has 25-30 questions, post-purchase section has 6 questions, 10-12 alternative selection, and the rest is information search and "special" topics - Errors with the tables, conjunctive vs disjunctive, misreading numbers, some answers ARE "none of the above" - 1 or 2 computing questions (gas mileage) - Know ALL the decision rules in alternative selection - Post-purchase dissonance means you have some doubts but it doesn't mean that you dislike it

Decision Rules for Attribute-Based Choice

- Compensatory Rule - Non-compensatory Rule (conjunctive, disjunctive, elimination-by-aspect, lexicographic)

Compensatory vs. Non-Compensatory Rule

- Compensatory: Allows a product to make up for its shortcomings on one dimension by excelling on another *Multiply each brand's score by all of the minimum standards and ADD them up, the highest is the best option* - NC: Choose a product or service on the basis of one characteristic or one subset of a characteristic, regardless of the values of its other attributes

Low vs. High Justification

- Low justification: responses confidential - High justification: responses discussed and evaluated in class; responses need to be publicly justified

Marketing Strategies based on Information Search Patterns

- Maintenance: evoked set, nominal decision (no search) - Capture: evoked set, limited decision (limited search) - Preference: evoked set, extended decision (extensive search) - Disrupt: not in evoked, nominal decision - Intercept: not in evoked, limited decision - Acceptance: not in evoked, extended decision

Action (AIDA)

- Move buyer to interact with your company and taking the next step. The ultimate goal of any form of marketing communications is to drive the receiver to action. - The consumer forms a purchase intention, shops around, engages in trial or makes a purchase - What are the call to actions and where do we place them?

Free

- Only see the benefits, not the costs, of things that are free - People almost always want to chose the free option - Think of Hershey chocolate vs Lindt chocolate example

Choice Overload Study

- Outside library, intercepted students, chose amongst pens shown (2,4,6,.... 20) - Mix of liked/ not liked pens - Participants indicated preferred pen, told pens about $2 but could buy for $1 - DV - whether or not participant bought a pen

Behavioral vs. Neoclassical Economics

- Rationality: behavioral says individuals make systematic errors (various heuristics) - Stability of Preferences: behavioral says preferences are impacted by context (status quo bias, decoy, compromise, endowment, unit bias) - Capability for Effort: behavioral says people may not make the effort (choice overload effect, "free")

Desire (AIDA)

- The consumer develops a favorable disposition towards the brand - Showing brand personality, getting consumers to have an emotion connection with product/service - What makes our product/service desirable?

Concept #3: Post purchase processes

-define post purchase processes, and especially post purchase dissonance -understand why product non use is a serious managerial problem -understand determinants of satisfaction and dissatisfaction

Concept #2: Alternative selection and evaluation

-define types of choice processes -define evaluative criteria, and their role in the choice process -define various decision rules, and how these are applied

Concept #1: Information search

-distinguish between internal and external search -define different categories of decision alternatives, and understand why these matter -understand role of cost vs. benefit in information search

Organizational Buying Culture

1. Democratic: Most votes wins 2. Consultative: 1 person decides, but talks to others before they make the decision 3. Consensus: Everyone has to agree 4. Autocratic: 1 person decides

Reducing Dissonance after Purchase is Made

1. Increase the desirability of the brand purchased 2. Decrease the desirability of rejected alternatives 3. Decrease the importance of the purchase decision 4. Reverse the purchase decision (return before using)

Factors Affecting the Buying Process

1. The Buying Center 2. Organizational Buying culture 3. Buying situation

B2B Buying Process

1. need recognition 2. product specification 3. RFP process 4. proposal analysis and supplier selection 5. order specification 6. vendor/performance assessment using metrics

Class A: at the beginning, students given a coffee mug. At the end, given option to trade for a bar of Swiss chocolate. Class B: students given a chocolate bar. At the end, given option to trade for a coffee mug. Class C: at the beginning, offered a choice between a chocolate bar or coffee mug. In which class will the choice share of chocolates likely be the highest? A. Class A B. Class B C. Class C

B. Class B

Assume Dell is one of the brands shortlisted. Which decision rule was used? A. Conjunctive rule (minimum standard on any attribute = 3) B. Disjunctive rule (min. standard on price or weight or battery life = 4) C. Could be either, above

B. Disjunctive rule (min. standard on price or weight or battery life = 4)

Assume Lenovo is only brand selected. Which decision rule was used? A. Elimination-by-attributes (processor most important attribute, cutoff = 4) B. Lexicographic rule (after-sales support most important attribute) C. Could be either, above

B. Lexicographic rule (after-sales support most important attribute)

Assume Dell is only brand selected. Which decision rule was used? A. Lexicographic rule (quality most important attribute) B. Lexicographic rule (price most important attribute) C. Could be either, above

B. Lexicographic rule (price most important attribute)

The Evaluation Process

Below minimum expectation level: better perceived performance = satisfaction, same performance = non-satisfaction, worse performance = dissatisfaction Above minimum expectation level: bettwe perceived performance = satisfaction/commitment, same performance = satisfaction, worse performance = dissatisfaction

Transactional vs. Relational Exchanges

Buyers can be segmented by their approach to the seller and the decision. Sellers must adapt strategies for these different buyer types. Transactional Exchange: Centers on timely exchange of basic products at highly competitive market prices. Short term and few relational investments, lack of loyalty. Relational Exchange: Recognition, by both buyer and seller, that each transaction is merely one in a series of purchase agreements between a buyer and a seller. Long term and high relational investments, strong loyalty

Lexicographic Rule

Consumer ranks the criteria in order of importance, then selecting the brand that performs best on the most important attribute. - If two or more brands tie, they are evaluated on the second most important attribute. This continues through the attributes until one brand outperforms the others.

Elimination-by-Aspect Rule

Consumers choose the product based on a specific feature. Starting with the most important feature, consumers eliminate products that don't meet the cutoff on that feature.

Spendthrifts

Consumers who derive pleasure from large-scale purchasing, enjoying nothing more than buying everything in sight. Key is to emphasize the experience for STs. Feel too little pain -> spend more money than they should

Tightwads

Consumers who experience emotional pain when they make purchases, hating to part with their money and actually experience emotional pain when they make purchases. Men are more likely to be tightwads than women, and TWs outnumber STs. Hide the price for TWs. Feel too much pain -> spend less money than they should

Which of the following is not a decision rule used by consumers? A. conjunctive B. disjunctive C. lexicographic D. compensatory E. conjoint

E. conjoint

Conjunctive Rule

Establishes a minimum required performance for each evaluative criteria. Selects first (or all) brands that meet or exceed minimum standards. *Must meet or exceed ALL of the minimum standards to be selected*

Choice overload effect

Experiencing more satisfaction after choosing among few as compared to many options - Think of the jam example - # of Choices Economics: More variety is better - individuals can buy exactly what they need - # of Choices Behavioral Economics: Less variety may be better - individuals may then end up actually making a choice

Decoy effect

The phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated.

Amount of External Information Search

External information search is skewed toward limited search, with the greatest proportion of consumers performing little external search immediately prior to purchase.

Use Innovativeness

Finding use for a product that differs from the product's original intended usage -Example: Arm&Hammer's "countless uses for under $1" campaign

Dissatisfaction Responses

Firms need to satisfy consumer expectations by: 1. Creating reasonable expectations through promotional efforts 2. Maintaining consistent quality so the reasonable expectations are fulfilled.

Affective Choice Process

Focus on feelings, more holistic in nature. The brand isn't decomposed into distinct components for separate evaluation. Evaluations generally focus on how they'll make the user feel as they're used. - Choices often based primarily on immediate emotional response to product/service - Ex. Fiat ad: "bigger isn't better, it's just harder to park"

Concept #4: Behavioral economics (not in textbook)

For (i) decoy effect, (ii) compromise effect, (iii) endowment effect, (iv) 'free' items, (v) choice overload effect, and (vi) status quo bias - define these, understand how and why these impact purchase intentions

Miles per Gallon (MPG) example of linear thinking

Imagine you manage a vehicle fleet. There are two types of vehicles in the fleet. Vans get 10 MPG and cars get 20 MPG. Equal number of vehicles in the fleet. Each vehicle travels 10,000 miles/ year. To save gas usage, which option is better: - Replace 10MPG vans by 20MPG vans (10MPG improvement) - Replace 20MPG cars by 100MPG cars (80MPG improvement) - Vans -> 10 MPG = 10 GP100M -> 20 MPG = 5 GP100M -> Savings 5 GP100M - Cars -> 20 MPG = 5 GP100M -> 100 MPG = 1 GP100M -> Savings 4 GP100M - Seems like cars would save more, but doing the calculation shows that the Van replacement saves more

External information is solely and actively acquired through...

Independent groups, personal contacts, marketer information, experiential

Internal vs. External Search

Internal: his or her own memory and knowledge about the product, past experiences External: the buyer seeks information outside personal knowledge

DMU Product Life Cycle

Introduction: large DMU, engineering and R&D influence the purchase decision. Growth: medium DMU, influencing functions include production and top management. Maturity: small DMU, purchasing influences the purchase decision.

Attitude-Based Choice

Involves the use of general attitudes, summary impressions, intuitions, or heuristics; no attribute-by-attribute comparisons are made at the time of choice. - Consumers form overall evaluations and general impressions of brands

Buying Situations

New buy: buying something for the first time. Modified rebuy: reordering from the same company but with slight modifications. Straight rebuy: reordering the same product in the same quantity that one purchased the last time.

Types of Search for Nominal, Limited, and Extended Decisions

Nominal: there is no search, consumer buys their regular product/brand that they always go with Limited: there is a limited search for the product Extended: the consumer goes through extensive search

Postpurchase Dissonance

Occurs when a consumer has doubts or anxiety regarding the wisdom of a purchase made and is a function of the following: -The degree of commitment or irrevocability of the decision -The importance of the decision to the consumer -The difficulty of choosing among the alternatives -The individuals's tendency to experience anxiety

B2B Markets

Participating businesses include manufacturers and service providers, resellers, institutions, and the government.

Attribute-Based Choice

Requires the knowledge of specific attributes at the time the choice is made, and it involves attribute-by-attribute comparisons across brands. - Consumers compare the specific attributes or features of each brand

Product Use

Retailers can frequently take advantage of the fact that the use of one product may require or suggest the use of other products (think dresses and shoes) -Retailers can promote such items jointly, display them together, or train sales personnel to make relevant complementary sales

Postpurchase Consumer Behavior

Satisfaction can lead to committed customers, repeat purchases, increased use, brand switching, or discontinued use -Dissonance can lead to product disposal and then complaint behavior or nonuse

Compromise effect

Simonson (1989) first introduces the concept of compromise effect. The essence of compromise effect is that "an alternative would tend to gain market share when it becomes a compromise or middle option in the choice set" - Think of the TV example with the expensive/high quality TV added to get more people to buy the middle-quality TV.

Pain of payment

Spendthrifts versus Tightwads: they do NOT differ in terms of income distribution, but differ in terms of spending (related to differences in terms of the 'pain' they feel when they spend equivalent amounts of money). "Pain" is related to physical pain, the same part of brain activated for both pain of payment and physical pain.

Dissatisfaction Process

Take no action: less favorable attitude Take action: complain to store/manufacturer, stop buying from brand/store, engage in negative word of mouth, complain to private/government agencies, or initiate legal action

Spendthrifts and Tightwads

The extent to which typical spending habits diverge from desired spending habits. When people see prices, the area of the brain associated with pain becomes activated. Nucleus Accumbens: experience or anticipate something pleasant (making money or eating yummy food). Seeing the product you want activates this part of the brain with spendthrifts, but there is little activation for tightwads. Insula: experience something bad. Little activation for ST, lots of activation for TW

Decision-Making Units (DMUs)

The individuals (representing functional areas and management) within an organization who participate in making a purchase decision. They function as buying centers when they consist of individuals from various areas (engineering, accounting, marketing...)

Utilitarian

These are needs, less painful when spending money on these products. Example: therapeutic massage for back pain

Hedonic

These are wants, more painful when spending money on these products. Example: massage at spa

Product Nonuse

When a consumer actively acquires a product that is not used or used only sparingly relative to potential use What marketers can do: send a reminder, advertise usage, remove barriers (simplify returns)

Net Promoter Score (NPS)

is an indirect word-of-mouth (WOM) measure of true attitudinal loyalty. There are three categories of consumers: 1. Promoters 2. Passively Satisfied 3. Detractors (NPS=promoters-detractors)

Compensatory Decision Rule

the brand that rates highest on the sum of the consumer's judgements of the relevant evaluative criteria will be chosen (Rb = summation of (Wi * Bib)) - Rb = overall rating of brand b - Wi = importance/weight of criteria i - Bib = evaluation of brand b on evaluative criteria i