MKTG 211 Part 2

What creates a perceived need in our actual state?

1. Basic needs (i.e. need for esteem, belonging) 2. Depletion 3. Change in situation

Biases in Multi-Attribute Evaluations

- Choice set effects - Anchoring effects

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 $6 when a less attractive pen was included in the choice set

Default heuristic marketing implications

-Consumers relying on this heuristic will stick with the firm's pre-selected option -Therefore, firm selects pre-selected option (shipping method, subscription package) strategically (highest profits) -- also works for best value / recommended option, discount / special offer

What determines how much one searches for information?

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

How can we economize consideration sets?

-Learning from prior choices -Exploiting similarities among options

Takeaways

-Low-effort decision making is driven by the use of heuristics -Heuristics help ease the process of choice --This could be a problem for marketers in certain instances, like when the heuristic is to "not buy" due to choice overload -A challenge to firms is to design shopping environments that anticipate and accommodate these heuristics

Brand attribute matrix

-Marketers often offer brand attribute matrix to encourage consumers to compare brands in the way a company sees favorable

Are information searches always accurate?

-Often biased by what your prior beliefs are Confirmation bias: tendency to seek out or create information that confirms our beliefs

Weighted additive models: multi attribute model (compensatory)

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

Information search examples

-Online search -WOM: interpersonal sources extremely influential --Over 80% of online shoppers use reviews (93% for millennials) --One 5 star review on Amazon = 20 additional sales (Chevalier & Mayzlin)

Examples of how to influence consideration sets

-Organize shelf placement -End of isle displays -Allow consumers to develop customized options

Conjoint Analysis background (compensatory)

-Originally developed by Wharton professor Paul Green -One of most widely used quantitative research tools -Used by firms and marketers for --Product design --Sales forecasting --Market segmentation

Low effort decision making background

-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 ---> In low effort decisions, heuristics are used not only during active evaluation but also at the moment of purchase

Problems with direct (subjective) 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

How does customer dissatisfaction affect consumer behavior?

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

ELM Central Route

Arguments drive persuasion Types of elaboration on message argument: -Source derogation -Counterargument -Support argument 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 the brand Emotional appeals can be persuasive so long as they are related (vs. peripheral) to the product itself

Attitude behavior link

Attitudes don't always predict behavior More likely to predict behavior when: -They are more accessible -They are more specific -Consumers are more knowledgeable about the domain

How large are consideration sets

Awareness sets can be quite large, but consideration sets can be quite small (~3, usually max 5)

Good or bad when a customer does not complain?

Bad: in some sense, worst thing you can hear from a dissatisfied customer is silence -Why? --Critical to be constantly measuring customer satisfaction

Types of heuristics: Non-independence of events events heuristic

Belief that past frequency affects future likelihood for statistically independent events -Examples --Gambler's fallacy --Hot hand fallacy --Perceive trends in service experiences (e.g. if my flight was delayed I may think my next flight is now going to be less (or more) likely to get delayed

3 most important letters in marketing

CLV

Celebrity Endorsers

Can be processed through the central or peripheral routes -Central: need logical "fit" b/w brand and celebrity to prevent certain types of elaboration (source derogation and/or counterargument) -Peripheral: extent to which celebrity's attributes (attractiveness, credibility) will be persuasive

When to use central vs peripheral route

Central: audience is motivated to elaborate on the message and / or there are compelling arguments to use Peripheral: audience unmotivated to elaborate on message and / or the available arguments are weak

Multi attribute model equation

Comments: -Values in the model are subjective -Given nature of the model, even if brand b is poor on one attribute (e.g., quality), consumers may still hold a positive attitude towards b if it is good on other attributes (e.g., inexpensiveness)

High effort decision rules

Compensatory and non-compensatory -Weighted additive -Additive difference Non-compensatory

Stage 2: formation of initial consideration set

Consideration set: the subset of brands that are evaluated as potential choice options

Cognitive consistency

Consumers value cognitive coherence and are motivated to maintain consistency among their attitudes

Persuasion

Active attempt to change consumers' attitudes Two examples of theoretical models that help inform persuasion: -Cognitive consistency -Elaboration likelihood model

Availability heuristic marketing implications

Make the benefits of your product vivid so that they're easy to recall and, thus, seem more believable. How? -Provide vivid descriptions of positive product-related experiences, e.g. consumer testimonials -Encourage consumers to imagine the benefits they could derive from the product -Stimulate positive WOM (recall "truth effect" under peripheral route processing) Insurance companies try to make use of this heuristic by showing vivid instances of accidents occurring in ads

Conjoint restaurant picking example

Marriott courtyard also designed by conjoint analysis

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

Formation of initial consideration set: how can marketers influence initial consideration sets?

Factors that determine what brands we initially consider (initial consideration set): -Prototypicality of the brand -Familiarity -Episodic / autobiographical experiences -Preference Marketers: Either through accidental discovery of the brand or by entering a person's evoked set (familiar brands)

Expectancy disconfirmation theory implications for firms

Firms must -Align "will" expectations with customers' "should" expectations -Spell out clear, definitive, and simple messages to set accurate "will" expectations -Communicate consistent messages (consistency across channels)

Hannah study (confirmation bias)

Hannah described to subjects: - Condition 1: living in an urban, low income area with fewer opportunities -Condition 2: living in a middle class, suburban setting with more opportunities -Half of subjects shown video of Hannah answering some questions right, some wrong *****People interpreted Hannah's ability in a manner that confirmed prior expectations

Conjoint analysis definition

Idea is to infer desirability of attribute levels - and thus, importance of each attribute - by observing how people's preferences for alternatives change as attribute levels are changed

Attribution theory

If a product / service fails, customers will attempt to determine the cause of the failure --> satisfaction with brand is determined by where blame is attributed

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 a child vs adult)

Choice overload

Often leads to heuristic not to buy at all

Optimizers vs Satisficers

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 the best available) -Reminders of opportunity cost ("what about all the other options I could've chosen?") -Regret ("I should have chosen a different option")

Types of heuristics: Default (status-quo) heuristic

When people aren't motivated to choose amongst a set of options (or are unsure what is best), they often go with the "default" option --Think about the organ donor example (opting in vs out)

Biases in Multi-Attribute Evaluations takewaway

When people provide direct assessments of attribute importance - or make choices among alternatives -- these evaluations may be biased by presence of other information in the task

3 factors which determine customer dissatisfaction

low level of dissatisfaction -------------------> high level 1. Focus - who's at fault? Me? Bad luck? The firm? 2. Stability - will it happen again? 3. Controllability: was this within the firm's control?

Theories of cognitive consistency: Self perception theory

People observe their own behavior and infer their corresponding attitude from the behavior -Marketing example: foot in door technique

Theories of cognitive consistency: Heider's balance theory

People will modify some attitude to make it balanced or congruent with the rest of their attitudes -Marketing example: celebrity endorsement

Procedural Justice Theory

Premised on legal notion that process should be fair regardless of outcome -Distinction between satisfaction with outcome and satisfaction with process leading to outcome -Firms must worry about managing the shopping experience ---Firms must try to make the purchasing process as easy as possible for customers -Treat them fairly (be consistent) -Explain the procedures clearly (transparency) -Give customers a voice (opportunities to express opinions)

Expectancy disconfirmation theory

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

Measuring customer satisfaction score: Net promoter score

Most popular way for firms to measure satisfaction "On a 1-10 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 a 7 or 8 -Detractors: ratings of 6 or less % of promoters - % of detractors = NPS

ELM: Peripheral Route

Superficial cues drive persuasion Source (communicator) -Attractiveness / likeability (halo effect) -Perceived credibility / trustworthiness -Perceived expertise Message -Length (# of arguments) -Emotional appeals (e.g. elicitation of happiness in ad that's peripheral to the actual product) -Pleasant stimuli -Self referencing -Repetition: can increase likability (mere exposure) as well as believability of claims (the "truth effect") Channel -Multiple sources - increases the believability of claims ---These cues influence persuasion INDEPENDENT of the arguments presented in the message

Conjunctive non-compensatory rule: 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 the threshold on AT LEAST ONE of a set of important attributes

Types of non-compensatory rules: conjunctive

-An option is chosen is 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 the threshold on all

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 ----> Think of this as the "editing" stage ****Consumers still most likely to buy brands from initial consideration set (except skincare, =)

Disjunctive non-compensatory rule: examples

-Assembling an Olympic team -Pain relievers & other medicines ***Cause of the issue with multipurpose cleaners (buy because accomplishes one thing you want to clean, when in reality not particularly good at cleaning anything)

Takeways

-Attitudes are linked, but not perfectly correlated with behavior -Can sometimes be changes through relying on basic psychological principles -Different models of persuasion - cognitive consistency (e.g. self perception theory and Heider's balance theory) and elaboration likelihood model - can help inform persuasion techniques for marketers

Additive difference model (compensatory)

-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 -Comparisons can be weighted or unweighted

Measuring customer satisfaction: surveys

-Can rate overall satisfaction, product along various dimensions, or about willingness to recommend brand to others

How to address a negative attribute

-Can try to improve brand's desirability on the attribute (increase Bib) -Reduce the importance of the attribute (decrease Ii) -Add new compensatory attribute

Types of heuristics: Familiarity Heuristic

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

Types of non-compensatory rules: Lexicographic

-Choosing an option that is best on one most important attribute Examples: -World's cheapest car -World's biggest burger

Choice overload: other applications

-Classic shoe sales adage: "never show a customer more than three pairs at a time" -Behr: suggested paint themes to compensate for overwhelming # of paint options

What do customers do when they're dissatisfied?

-Complain to firm -Avoid the firm -Take overt actions, such as: --Spread negative word of mouth --Encourage others to boycott ***Customers much more likely to make a repeat purchase if firm responds to complaint quickly

Takeways

-Consideration set formation and information search are the two most critical steps in the consumer choice process -The set of ultimately considered options tends to be quite small; often just 2, rarely more than 4 or 5 -Information search can be biased, which sometimes leads to misbeliefs about product attributes -Both consideration set and search can be influenced by marketer actions

Marketing implications of confirmation bias

-Consumers often search for info in way that confirms prior beliefs --Apple and Samsung example: Even if the consumer engages in search, he/she will tend to discount positive information discovered about Samsung products and overweigh information that confirms his/her establishes beliefs for Apple

Non-compensatory rules

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

Elaboration likelihood model

-Developed by Richard Petty and John Cacioppo 2 routes to persuasion: -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

Why are consideration sets so small?

-Evaluating many options is effortful, so we want to make choice as easy as possible

Takeaways

-From a marketing perspective what happens after choice is often more critical than what happens before - Management of purchase experience, expectations, and attributions is critical -The study of customer journeys is a helpful tool in understanding the source of dissatisfaction

Takeways

-High-effort decision rules can be either compensatory or non-compensatory in form -The most well known compensatory rule is the weighted multi-attribute rule, which is widely used to model consumer preferences in practice (e.g. conjoint measurement) -When interpreting outcomes of high-effort decision rules, important to keep in mind that people's evaluations can be biased by other information in the task

Formation of initial consideration set: what factors determine which brands are evoked from LTM?

-Prototypicality --Sometimes moderate incongruence with prototypical expectations is better -Familiarity -Episodic / autobiographical experiences -Preference

Choice overload: Participation in 401k plans

-Study: the effect of the number of investment choices available in a 401K plan on people's rates of participation in the plan -On average, plan participation declines by 2% for every 10 options added to a plan (Iyengar, Jaing, & Huberman 2003) —When confronted with too many choices, people often employ the heuristic of not choosing at all, even for more consequential decisions

Choice overload: Chocolate lab study

-Subjects were presented with either a large (30) or small (6) assortment of Godiva chocolates and were asked to choose one chocolate from the set in order to sample it -At the end of the task, they could then choose between receiving as compensation either $5 or a box of Godiva chocolates (worth $5) -Dependent variables: Satisfaction with the chocolate they chose to sample; and percentage of people who chose the chocolate over $5 compensation ***More likely to be satisfied with and take home chocolate with limited choice

Attribution theory implications for firms

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

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 -People also differ in the degree to which they are "satisficers" vs. "optimizers" --Satisficers: seek a good enough option --Optimizers: seek the best possible option -Satisficers more likely to engage in low-effort decision making

When would consumers use Lexicographic non-compensatory 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

When do we tend to economize consideration sets?

-When costs of a mistake are low -When we have a low need for variety -When retailers restrict variety

Anchoring effects

-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

Journey Maps steps

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

How are consideration sets formed?

1. Unknown brands: found accidentally 2. Familiar brands: evoked set ---Typical consideration sets are mostly comprised of familiar brands evoked from LTM

What drives customer satisfaction?

3 theories of satisfaction -Procedural justice theory -Expectancy disconfirmation theory -Attribution theory

Types of heuristics: 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? -In marketing context, this heuristic has implications for branding and packaging, e.g. of generic brands (similar packaging to popular, mimicked brand) *********Think dumb starbucks example

How does post-purchase satisfaction affect consumer behavior?

Effects on consumer behavior -Repeat purchase --CaC 5x more than customer retention -Positive word of mouth --81% of customers rely on online WOM when making purchase decisions

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 the firm to identify where things go wrong and how to fix it

Types of heuristics: Availability Heuristic

Judgement of the probability of an event occurring is influenced by the ease with which past instances of that event can be recalled

Choice overload: Lyengar and Lepper (2000) Jam Study

Set up jam stand at store, 6 jams on display some days, 24 on other days - consumers offered a coupon to buy a jar -Consumers more likely to approach but much less likely to buy with extensive options

How does one generate extreme customer loyalty?

Theories of brand loyalty often draw on metaphors -Human relationships -Religion -Attachment theory -Economic exchange (social exchange theory)