MKTG 211 Exam 2

Bias: anchoring effect

- A classic bias that marketers often try to leverage - When we're asked to form an inference about an uncertain quantity, we start with an initial impression and then adjust off of that number - Anchors can be arbitrary

ELM - what makes a good celebrity endorser?

- Celebrity-audience fit - Celebrity-brand/product fit - Celebrity must have positive traits (attractive, trustworthy etc.)

Non-compensatory decision rules

- Decision policies that consider only a subset of all available information without making trade-offs (i.e., heuristics) - We typically use non-compensatory rules early in the choice process (i.e., during information gathering) when we are screening alternatives for our consideration set - We then typically use compensatory rules later in the choice process when deciding among a small set of "finalists"

Compensatory rules: Weighted-additive models--Multi-attribute model

- One of the most common types of weighted-additive models is the multi-attribute model - This model assumes that consumers form preferences for products by allocating specific weights to different attributes - This model is often used by marketers to predict whether consumers will like certain products in the marketplace

Problems with direct assessments

- People may not have good insights into their own preferences (e.g., importance of RAM relative to price) - People may not want to reveal their own preferences

three theories of customer satisfaction

- Procedural Justice Theory - Expectancy Disconfirmation Theory - Attribution Theory

Effects of Dissatisfaction on Consumer Behavior

- Switching behavior - Negative WOM (bad news travels fast) - Complaints - Returns - Tends to be enduring (losses loom larger than gains)

celebrity endorsers interpreted within ELM framework

- To extent that consumers process centrally, need logical "fit" between celebrity and brand to prevent certain types of elaboration (source derogation and/or counterargument) - To extent that consumers process peripherally, celebrity's attributes (e.g., attractiveness, credibility) will be persuasive

What Leads to Low-Effort Decision Making?

- We tend to be "cognitive misers": we try to make decisions using the lowest effort possible; - We often have low MAO—e.g., face time pressure, are distracted, lack interest/involvement

under what conditions do celeb endorsement tend to work?

- low involvement - celeb-brand fit - as long as celebrity is liked

When do attitudes predict behavior?

- they are more accessible - they are more specific - consumers are more knowledgeable about the domain

Stage 3: Active Evaluation/Information Search

As consumers search for information about alternatives - new options can be added to the initial consideration set - and/or initial options can be removed from the set Think of this as the "editing" stage

size of consideration sets

Awareness sets can be large, but consideration sets are often quite small

additive difference model

Because it can be hard to simultaneously compare many options at once, consumers sometimes make choices by forming a series of pairwise comparisons, as in a tournament These comparisons can be weighted or unweighted

Non-independence-of-events heuristic

Belief that past frequency affects future likelihood for statistically independent events - gambler's fallacy - hot hand fallacy - perceive trends in service experiences: if my flight was delayed, the next time I fly I may believe that my flight will be less likely to get delayed

Caution with decision rules

Both compensatory and non-compensatory rules require people to assess the value of alternatives along different attributes. These evaluations, however, can sometimes be biased by the presence of other information in the task. Biases in multi-attribute evaluations, e.g.: - Choice set effects - Anchoring effects

three most important letters in marketing

CLV

measuring consumer satisfaction

Can rate overall satisfaction (frequently using Likert scale: agree-disagree) Overall, I was highly satisfied with the service provided by Delta• Disagree 1 2 3 4 5 Agree Can rate the product/service along various dimensions (e.g., restaurant: food, atmosphere, service quality) Can ask about willingness to recommend brand to others

Imagine that you're a restaurant owner and you find out that customers believe that your prices are too expensive (bad on "inexpensiveness" attribute). What does this model imply about what you can do to improve attitudes towards your brand?

Can try to: - Improve your brand's desirability on inexpensiveness (increase 𝐵!") - Reduce importance of inexpensiveness attribute (decrease 𝐼!) - Add new compensatory attribute

familiarity heuristics

Choice is made based on whether an option is familiar or seems similar to previous choices The assumption underlying this heuristic is that one's past choices were most likely correct and should be repeated

Types of non-compensatory rules: Lexicographic

Choosing the option that is the best on the one most important attribute When would consumers use this rule? - When choices need to be made in a hurry - When choices are overly complex - When only one attribute matters - A tie-breaker when options are equally valued

effects of procedural justice theory on marketing

Consumers can often buy the same product at multiple stores Thus, even if consumers are satisfied with product, if they're dissatisfied with the shopping experience at your store, they will simply repurchase the product elsewhere Firms must worry not only about products but also about managing the entire shopping experience

what does heider's balance theory look like

Consumers have triads of relations that they want to keep in balance Triad consists of you, your perceptions of an attitude object, and your perceptions of some other object

Adding alternatives to the initial consideration set

Consumers more likely to buy brand from initial consideration set across all these sectors... - except for skincare—here, consumers are similarly likely to buy brand from initial consideration set as brand added from active evaluation stage

marketing implications of confirmation bias

Consumers often search for information in a manner that confirms their prior beliefs iPhone owner considering purchasing a new smartphone - Even if consumers engage in search (i.e., avoids loyalty loop per se) they will tend to discount positive information discovered about Samsung products, and overweigh information that confirms their established preference for Apple.

marketing implications of default heuristic

Consumers relying on the default heuristic will stick with the firm's pre-selected default option Therefore, firms often select their default option strategically Firms can also provide implied defaults by recommending an option (e.g., "best value option") Sometimes firms create implied defaults by drawing attention to specific options: This tactic is common among digital service providers introductory offers

cognitive consistency

Consumers value coherence among their cognitive structures (attitudes, thoughts, beliefs, feelings etc.) - This is because we store so much information in LTM—want to simplify organization of concepts in semantic network As a result, consumers often motivated to maintain consistency among their attitudes

What determines how much one searches for information?

Cost of making a mistake Cost of search Felt involvement Need for cognition

attribution theory

According to attribution theory, if product/service fails, customers will attempt to determine the cause of the failure Satisfaction with brand is determined by where blame is attributed - company? - yourself? - uncontrollable situations?

Marketing implications of availability heuristic

Make the benefits of your product vivid so that they're easy to recall and, thus, seem more believable. - Provide vivid descriptions of positive product-related experiences, e.g. consumer testimonial - Encourage consumers to imagine the benefits they could derive from the product - Stimulate positive WOM (recall "truth effect" under peripheral-route processing)

elm affect on marketing

Marketers must provide strong arguments when appealing to central route, - Facts - Evidence - Reasoning - Logic - Celebrity spokespeople can be effective so long as they "fit" logically with brand - Emotional appeals can be persuasive so long as they are related (vs. peripheral) to the product itself

multi-attribute model applications

Marketers often encourage consumers to evaluate brands this way by offering a brand-attribute matrix (e.g., attribute checklist)

the holy grail of marketing

Develop a deep commitment by consumers towards the brand so that, with each trigger, there is a (hopefully automated) decision to repeat-buy, which does not involve active consideration of alternatives

elaboration likelihood model

Developed by two psychologists in the 1980s—Richard Petty and John Cacioppo Asserts that there are two routes to persuasion: central and peripheral

peripheral route - superficial cues drive persuasion

Easily processed cues that are peripheral to the product itself can drive persuasion These cues influence persuasion INDEPENDENT of the arguments presented in the message (vs. central route)

expectancy/disconfirmation theory - implications for firms

Firms must manage consumers' expectations by: - Ideally aligning "will" expectations with customers' "should" expectations - Spelling out clear, definitive, and simple messages to set ACCURATE "will" expectations Communicate consistent messages (consistency across channels)

procedural justice theory implication for firms

Firms must try to make process as pleasant as possible for consumers - Treat them fairly (be consistent) - Explain procedures clearly (transparency) - Give customers a voice (opportunity to express opinions)

marketing implications of familiarity heuristic

Increases the likelihood that customers will repeatedly buy same brand (particularly for low-involvement purchases)

confirmation bias

Information search is often affected by "confirmation bias", which is: - A tendency to seek out or create information that confirms our beliefs.

Are information searches always "accurate"?

Information search is often biased---and tends to be biased by what our prior beliefs are.

why are consideration sets small?

Initial consideration sets often just consist of 2 brands, rarely more than 4 or 5 Basic idea: evaluating many options is effortful, so we want to make choice as easy as possible

Stage 1: The Trigger (problem recognition)

Triggered to buy something when we perceive a need - Need = Perceived difference between an actual state and an ideal state What determines our ideal state? - Expectations (e.g., informed by experiences with past products) - Aspirations (e.g., driving luxury car) - Life change (e.g., ideal state as child vs. adult)

attribution theory - Implications for firms

Try to minimize the number of things where blame can be attributed to your brand - Fix any flaws in product design, make sure service personnel are qualified, etc. If firm is to blame, reduce expectations of future failures by reframing bad experience as: - Unstable ("it happened just once") - Uncontrollable ("it couldn't have been avoided")

expectancy/disconfirmation theory - types of expectations

Types of expectations: - "Will": What the firm promises it will provide - "Should": What consumers believe the firm should be able to provide - Will" expectations are controllable by the firm; "should" expectations rarely are

What leads to low-effort decision making pt 2

Optimizing may lead to better objective outcomes but will it lead to better subjective outcomes? Are optimizers happier than satisficers? Not necessarily—post-choice, optimizers often experience: - Rumination (keep questioning whether your choice was actually the best available) - Reminders of opportunity cost ("What about all of the other options I could've chosen?") - Regret ("I should have chosen a different option!")

conjoint analysis

Originally developed by a professor at the Wharton School (Paul Green) - Conjoint is one of the world's most widely used quantitative consumer research tools•Used by firms and marketers for: - Product design - Sales forecasting - Market segmentation

Stage 3: Information search—External search

WOM: Interpersonal sources enormously influential - Over 80% of online shoppers use reviews (Jupiter Research) - 93% of Millennials read reviews and 97% of those trust reviews (U.S. Trust Insights) - One five-star review on Amazon = 20 additional sales (Chevalier & Mayzlin) - Yelp and TripAdvisor extremely powerful in determining which restaurants/hotels customers decide to visit

why are consideration sets so small?

When do we tend to economize (i.e., keep consideration sets small)? - When costs of a "mistake" are low (e.g., toothpaste) - When we have low need for variety (e.g., dishwashing liquid) - When retailers restrict variety How can we economize?: - Learning from prior choices - Exploiting similarities among options ("toothpastes are toothpastes")

Default (or status quo) heuristic

When people aren't motivated to choose amongst a set options (or are unsure which is best) they often go with the "default" - organ donation rates example

What leads to low-effort decision making?

People also differ in the degree to which they are "satisficers" versus "optimizers" - Satisficers= seek a good-enough option - Optimizers= seek the best or optimal option On average, satisficers (vs. optimizers) are more likely to engage in low-effort decision making

low effort decision making

People are not always so motivated to process information Low-effort decisions are defined by the use of simplifying heuristics to make decisions (i.e., "satisficing" rules)• Note that although we may sometimes use heuristics for high-effort decisions (particularly during information gathering), low-effort decisions are entirely based on heuristics - That is, in low-effort decisions, heuristics are used not just during active evaluation but also at moment of purchase (vs. high-effort decision making)

persuasion

an active attempt to change consumers' attitudes two models: - cognitive consistency - elaboration likelihood model

central (systematic)

attitude change based on careful and effortful analysis of "arguments" presented in a message

peripheral (superficial)

attitude change based on simple reactions to superficial cues in message i.e., easily processed cues that are unrelated/peripheral to the product itself

what do customers do when they're dissatisfied

complain to firm avoid firm take overt actions, such as: - spread negative WOM - encourage others to boycott

what creates perceived need in our actual state?

depletion change in situation

hot hands fallacy

if a player makes a number of shots in a row, s/he may believe that the next shot is more likely to go in than actually is

Gambler's fallacy

if a series of 10 coin flips have all landed on heads, might predict that the next coin flip will be more likely to land on tails

Do attitudes predict behavior?

not always - sun worshippers know danger of sun - 92% of americans think pollution is bad, but do little more than recycle - honesty is an important value, but 91% of americans lie regularly

how can marketers further influence consideration sets

organize shelf placement end of aisle displays Allow consumers to develop customized options

self perception theory

people observe their own behavior and infer their corresponding attitude from the behavior

Heider's Balance Theory

people will modify some attitude to make it balanced or congruent with the rest of their attitudes

consideration set

the subset of brands that are evaluated as potential choice options

example of self perception theory in marketing

foot in the door technique small request --> larger request would you try this sample --> can we call you in a few days

The Hannah Study

those who believed Hannah was affluent rated her performance more positively than did those who believed that Hannah was poor. Proves that when we consider evidence, what we see depends on what we expected to see

central route - arguments drive persuasion

types of elaboration on message argument - source derogation - counterargument - support arguments

Theories of cognitive consistency

self perception theory heider's balance theory

how are consideration sets formed?

unknown brands: found accidentally familiar brands: evoked sets both part of the initial consideration sets typically initial consideration sets are mostly comprised of familiar brands evoked from LTM

marketing implications of representativeness heuristic

generic brands try to look and package like known brands

choice overload

having so many options that a thoughtful choice becomes difficult, and regret after making a choice is more likely

If the main goal of marketers is to make a sale, why should we care about what happens post-purchase?

Post-purchase satisfaction has important effects on consumer behavior and profits.

procedural justice theory

Premised on legal notion that process (trial) should be fair regardless of outcome (verdict) - For the same guilty verdict, jurors more satisfied with that outcome if they think process leading up to it was fair There is a distinction between - Satisfaction with outcome (e.g., product performance) - Satisfaction with process leading to outcome (e.g., shopping experience)

how the multi-attribute model works

Present objective values Next, elicit people's subjective assessments of the attributes and brands: - Rate importance of each attribute from 1 to 7 (Ii) - Rate desirability of each brand on each attribute from -3 to +3 (Bib) calculate values

How to improve satisfaction and NPS: Journey Maps

Recognize that dissatisfaction is usually not driven by just one thing - There are many potential "pain points" throughout the customer journey that can lead to dissatisfaction In response, create "Journey Maps" that describe how a purchase is made, and where satisfaction can go awry - Detailed visual depictions of a given customer's unique set of experiences with the brand - Allows firm to identify where things go wrong and how to fix it

Effects of Satisfaction on Consumer Behavior

Repeat purchase - Customer acquisition costs 5x more than customer retention Positive word-of-mouth (WOM) - 81% of customers rely on online WOM when making purchase decisions

expectancy disconfirmation theory

Satisfaction determined by the difference between expectations and actual performance - Dissatisfaction: Expectations > Actual performance Satisfaction: Expectations = Actual performance Expectations < Actual performance

measuring customer satisfaction: net promoter score

Most popular way for firms to measure satisfaction is NPS "On a 0-10 scale, how likely is it that you would recommend this brand to a friend or colleague?" Promoters: people who respond with a 9 or 10 Passives: people who respond with 7 or 8 Detractors: ratings of 6 or less % of Promoters - % of Detractors = NPS

ELM pieces

Source( communicator) - Attractiveness/likability (halo effect) - Perceived credibility/trustworthiness - Perceived expertise (status of communicator) Message - Length (# of arguments) - Emotional appeals (e.g., elicitation of happiness in ad that's peripheral to the actual product) - Pleasant stimuli (visuals, music, etc.) - Self-referencing - Repetition: can increase likability (mere exposure) as well as believability of claims (the "truth effect") Channel (e.g., multiple sources—again, increases believability of claims)

journey maps steps

1. Identify consumer segments and personas 2. Map the journey 3. Identify the company-side factors that affect satisfaction

multi-attribute model

1. Values in model are subjective, not objective 2. Given the nature of the model, even if brand bis poor on one attribute (e.g., quality), consumers may still hold a positive attitude towards bif it is good on other attributes (e.g., inexpensiveness)

Representativeness heuristic

An event seems more likely if it more closely resembles similar predecessors Key question that often guides this heuristic: Does it "look like" the prototype?

Types of non-compensatory rules: Conjunctive

An option is chosen if it is above some threshold on ALL of a set of important attributes Sometimes called a "satisficing rule"—an option doesn't have to be the best on any or all attributes, just above threshold on all examples: - Admit students if they meet a minimum GPA AND SAT score - Will rent an apartment if it is below certain rent AND in a safe neighborhood

Types of non-compensatory rules: Disjunctive

An option is chosen if it is above some threshold on AT LEAST ONE of a set of important attributes Example: - assembling an Olympic team - Pain relievers - Problem with multipurpose cleaners

Bias: Choice set effects

Items can be made more appealing when compared to an inferior or flawed alternative Simonson and Tversky study showed that: - 36% of people chose Cross pen versus getting $6, but - 46% chose Cross pen versus getting $6 when a less attractive pen was included in the choice set

availability heuristic

Judgment of the probability of an event occurring is influenced by the ease with which past instances of that event can be recalled - case information - odds of winning lottery

What factors determine which brands are evoked from LTM?

Prototypicality Familiarity Episodic/autobiographical experiences Preference