Consumer Behavior Final

Why are social influences so strong?

Groups provide safety and support systems Groups provide norms and acceptable standards of conduct Norms elicit one of two responses: Desire for conformity (to fit in) Desire for uniqueness (to stand out) Notice that in both cases the group is very influential - in one case you're influences to act in alignment with the group, while in the other case you're influenced to act in opposition to it

Human relationships - metaphor

Measuring love - morning consulting's brand love index Favorability score - percentage of consumers with a favorable opinion of the brand Trust score: the percentage of consumers who trust the brand to do the right thing Community impact score: percentage of consumer who say the brand has a positive impact on their local community Net promoter score: consumers are asked on a scale of 1-10 how likely they are to promote a given brand. NPS is determined by subtracting the percentage who say 0-6 from the percentage who say 0-9

How do marketers enter into consideration sets?

Unknown brands - have consumers accidentally discover your brand through motivation, ability and opportunity and exposure, attention, perception Familiar brands - get into evoked set, through memory

How are consideration set formed?

Unknown brands: found accidentally Familiar brands: evoked set Evoked from LTM

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 - face time pressure, are distracted, lack interest/involvement 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

What makes something viral?

What marketers care about is what makes content shareable Content and ideas are more likely to be shared if they contain Triggers - things that spark the urge to share Ex.: hump day Can linguistic ex.: peanut butter and jelly Active emotionality - evoke emotions that trigger us to take action (to actually share) Anxiety, anger and emotion are good, sadness is bad Social capital - we share what m us look good or cool Ex.: speakeasy, feel like you're the only one who knows about it

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 Ex.: Organ donation rates

When do attitudes predict behavior?

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

What is stage 3 in consumer decision journey?

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 Stage 3 - options are added to initial set Now consideration set is made up of unknown brands found through intentional search, unknown brands found accidentally and familiar brands in evoked set

What is persuasion?

an active attempt to change consumers' attitudes

Models that help inform persuasion

cognitive consistency and elaboration likelihood model

Two types of rules in high effort decision making

compensatory and non compensatory

Types of non compensatory rules

conjunctive, disjunctive, lexicographic

How do heuristics get learned?

- Heuristic (choice tactic) --> choice --> usage (experience) --> Outcome: reinforcement (reward vs. punishment)

What are the two ways we perceive ourself in relation to a group impact our behavior?

False consensus effect and false uniqueness effect Spotlight effect Tendency to see own behavior as typical and to assume that others behave the same way Often exacerbated in social media echo chambers False consensus effect often helps us justify bad or irresponsible behaviors (safety in number) False uniqueness effect Tendency to overestimate one's own uniqueness in social comparisons Often the result of self enhancement motive (my good qualities are unique to me) Spotlight effect You're the only one who knows you're having a bad hair day We often believe that people pay more attention to us / care about us more than they actually do Ex.: Barry Manilow t-shirt study

What are the implications for the firm in expectancy disconfirmation theory?

Firms must manage consumer's expectations by: Ideally aligning will expectations with consumers should expectations Spelling out clear definitive and simple messages to set accurate will expectations Communicate consistent messages (consistency across channels)

How might customers do well on procedural justice theory?

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)

According to attribution theory, what are thre three factors to determine whether a cutsomer is dissatisfied with a brand.

Focus: who's at fault - me, bad luck, firm Stability: will it happen again - happened just once, happens all the time Controllability: was it within the firm's control - couldn't be avoided, could have been avoided Left = low levels of dissatisfaction/anger aimed at brand, right = high level of dissatisfaction/anger at brand

explain the central route in ELM

Types of elaboration on message argument Source derogation Counter argument Support arguments Marketers must provide strong arguments when appealing to central route Facts, reasoning, evidence, logic 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

Explain the two types of expectations in expectancy disconfirmation theory.

Types of expectations Will: what the firm promises it will provide Should: what consumers believe the firm should be able to provide Will expectation are controllable by the firm; should expectations barely are

What makes videos desirable or enjoyable to watch?

Unexpectedness - get attention with surprise, hold attention with interest Emotionality - make people care, appeal to self interest and identity Story arcs - stories can tell people how to act or inspire people to act Simplicity and concreteness - help people understand and remember your message, provide a concrete context to help put people into the story

When can celebrity endorsements be harmful?

Unintended celebrity endorsements - can be harmful if a certain celebrity represents a brand but people do not like that celebrity, can make negative associations towards the brand

Explain 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

What are conjunctive rules?

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 Ex: Admit students if they meet a minimum GPA AND SAT score AND extra-curriculars Ex.: Will rent an apartment if it is below certain rent AND in a safe neighborhood

What are disjunctive rules?

An option is chosen if it is above some threshold on AT LEAST ONE of a set of important attributes Ex.: Painrelievers Ex.: Problem with multipurpose cleaners

Representativeness heuristic

Any event seems more likely if it more closely resembles similar predecessors Key question that often guides this heuristic. Does it look like a prototype? In a marketing context, this heuristic has implications for branding and packaging - generic brands

Social exchange theory

Argues that people evaluate the value of a relationship according to the rewards and costs, which correspond to the positive and negative things derived from the exchange The relationships we choose to create and maintain are the ones that maximize our rewards and minimize our costs Value or worth of a relationship is determined by Subjective cost benefit analysis Value (or worth) = benefits - costs Comparing worth vs expected worth Should expectations Comparing worth vs worth of available alternatives In addition to seeking out relationships where the subjective benefits derived are greater than the subjective costs, people seek out relationships where the exchange between parties is equitable or fair Inequity arises when My costs > firm's costs or my benefit < firm's benefit -> resentment My costs < firm's costs or my benefit > firm's benefit -> guilt Goal: equitable exchange - customer's costs/benefit is approximately equal to firm's cost / benefits Key is fairness

What is the elaboration likelihood model?

Asserts that there are two 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 Easily processed cues that are unrelated/peripheral to the product

Why are consideration sets small?

Basic idea: evaluating many options is effortful, so we want to make choice as easy as possible When do we tend to economize (keep consideration sets small) When costs of a mistake are low When we have low need for variety When retailers restrict variety How can we economize? Learning from prior choices Exploiting similarities among options

What is 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 Can be weighted or unweighted

Non independence of events heuristic

Belief that past frequency affects future likelihood for statistically independent events Examples: Gambler's fallacy: e.g., 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 Hot hand 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 Perceive trends in service experiences: e.g., if my flight was delayed, the next time I fly I may believe that my flight will be less likely to get delayed

What are the biases in multi attribute effects? Explain them.

Bias: choice set effects Items can be made more appealing when compared to an inferior or flawed alternative Bias: Anchoring effects 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

Religion metaphor

Brands are behaving like organized religions Key features of religions Core values Ex.: Just do it Rituals Starbucks Communities Apple Why? Origins in developmental attachment theory Apple customers are increasingly attached to brand during COVID

What makes a good celebrity endorser?

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

Familiarity heuristic and marketing implication

Choice is made based on whether an option seems 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 Increase the likelihood that customers will repeatedly buy the same brand (particularly for low involvement purchases)

What are lexicographic rules?

Choosing the option that is the best on the one most important attribute Ex.: world's cheapest car Ex.: world's biggest burger When would we use this rule? When choices are made in a hurry When choices are overly complex When only one attribute matters A tie breaker when options are equally valued

What is cognitive dissonance and its key assumptions?

Cognitive dissonance - An unpleasant state of arousal that results when two cognitions, or a cognition and a behavior, are in conflict Key assumptions Cognitions and behaviors can be consistent or inconsistent Inconsistency is unpleasant and produces dissonance Dissonance is unpleasant and we are motivated to reduce it The greater the dissonance, the more motivation we have to reduce it We reduce dissonance by changing out thoughts, behavior or attitudes or by rationalizing the conflict

What makes a price seem acceptable or fair?

Comparisons to alternatives Competitors' price for product Prices paid by other customers for the same product Comparisons to expectations Past experiences (price is higher than you've paid in the past) Pricing norms and procedure In certain product categories price fluctuations considered normative (airline) Markup over cost is also considered normative But, within reason: want equitable exchange (buyer's benefit/cost ratio proportionate to seller's benefit/cost ratio)

What might a consumer do if they're dissatisfied with a firm?

Complain to firm Avoid firm Take more overt actions, such as spreading negative word of mouth (write negative customer review)

How can firms/marketers leverage social influence?

Compliance tactics Reciprocity You are nice to me so I will be nice to you as well Giving people a mint with their bill substantially increases tips Free samples (costco) Champagne when enter store Firm is offering you gift so you feel obligated to reciprocate (buy their products) Liking We want to agree with people we like (and disagree with those we dislike) Think of someone you respect and like a lot. If they expressed an opinion that you disagreed with, how might you react? This could possibly change your feelings about the person or your opinion on the issue Ex.: associate brand with well liked figures (celebrity endorsement) Ex.: sales rep can establish similarity with customers (familiarity breeds liking) Ex.: Tupperware parties Ex.: Research has shown that consumers are more willing to purchase an insurance policy from a spokesperson who is similar to them in age, religion, politics or even smoking habits Authority Experts provide shortcuts to decisions requiring specialized information Ex.: influence marketing Often helps if expertise is noticeable Uniforms Diploma on wall Scarcity Items and opportunities become more desirable as they become less available Social proof We determine what is correct in part by finding out what others think is correct Ex.: New York Times Best selling Fortune 100 fastest growing companies

What is conjoint analysis?

Conjoint analysis - another way to measure attribute level desirability/attribute importance weights Used by firms for: product design, sales forecasting, market segmentation Idea: infer desirability of attribute levels - and thus, importance of each attribute - by observing how people's preferences for alternative change as attribute levels are changed

What is stage 2 in consumer decision journey?

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

Marketing implications of confirmation bias

Consumers often search for information in a manner that confirms their prior beliefs Even if consumers engage in search (avoid loyalty loop) they will tend to discount positive information discovered about Samsung products, and overweight information that confirms their established preference for Apple

Leveraging the default heuristic

Consumers relying on the default heuristic will stick 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 (best value option) Sometimes firms create implied defaults by drawing attention to specific options This tactic is common among digital service providers Lure of introductory offers

What is cognitive consistency?

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

What are the main types of social influence marketers care about?

Customer generated reviews Displaying 5 reviews for a product increases purchase likelihood by 270% vs not displaying reviews One five star review on Amazon =20 additional sales Reviews particularly impactful for higher involvement products (more expensive) Social media Whereas before private consumption dominated consumers' lives, social media has created an environment where we increasingly engage in public consumption This makes us not only more susceptible to social influence, but also makes us potentially more influential to others In turn, social media has had a transformative effect not only on how consumers influence one another but also on how marketers can reach their intended audience

What is CLV? Variables that matter?

Customer, lifetime, value Retention rate, margin, interest, acquisition cost

What are non compensatory rules?

Decision policies that consider only a subset of all available information without making tradeoffs (heuristics) We use non compensatory rules early in the choice process (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

What creates a perceived need in our actual state?

Depletion Change in situation

How firms can manage brand loyalty

Discounts (supermarkets) Targeted offers (CVS) Cumulative points Punch cards (coffee shops, carwashes) Reward points (airline frequent flier programs, Hilton honors) Loyalty programs - cumulative points - goal-gradient effect Cumulative points programs tend to be effective because of goal gradient effect Perceptions of progress impact one's motivation to pursue a goal The closer you get to a goal, the faster/harder you work to attain the goal

How does post purchase dissatisfaction affect consumer behavior?

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

Downsides of established loyal customers

Expect more and better service Demand lower prices Less likely to spread WOM (already settled with the brand so they're less motivate to propagate good WOM to others) Firm may overinvest in them

What determines our ideal state?

Expectations (informed by experiences with past products) Aspirations (driving luxury car) Life changes (ideal state as child versus adult)

Holy grail of marketing

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

How do you get people in on loyalty programs?

How do I deal? Giving people a head start Implied illusion of progress, which is enough to motivate people

How does one develop this kind of loyalty?

Human relationships Religion Attachment theory Economic exchange (social exchange theory)

Why is social media such a powerful tool for influence?

In addition to its scale, it is targeted Social media provides a very powerful tool for marketers to target certain customers But by targeting these customers marketers also hope to benefit from network effects (user to user influence) Can be persuasive because of the types of social influence that are at play on social media Informative Normative Emotional

Explain the types of social influence of social media?

Informational Other people seen as sources of information Thus we might change our attitudes and behavior because of information gained from others Normative Norms: social standards or rules that describe what constitutes appropriate behavior in a given social context We often act in ways that are consistent with group norms because of the implicit reward and punishments controlled by the group (recall desire for conformity) Emotional We compare our feelings, attitudes, and behaviors to those of other people Aspirational - upward Ego/motivational - downward

Are information searches always accurate?

Its often biased and tends to be biased by what our prior beliefs are Information search is often affected by confirmation bias - a tendency to seek out or create information that confirms our beliefs

Availability heuristic and marketing implication

Judgment of the probability of an event occurring is influenced by the ease with which past instances of that event can be recalled Ex.: winning the lottery Marketing implications of availability heuristic 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 (consumer testimonials) Encourage consumers to imagine the benefits they could derive from the product Stimulate positive WOM (recall truth effects under peripheral route processing) Ex.: Insurance companies try to leverage this heuristic by providing vividly depicted instances of different accidents occurring in their ads

What are low effort decisions defined by?

Low effort decisions are defined by the use of simplifying heuristics to make decisions (satisficing rules) Low effort decision making is entirely based on heuristics Used at active evaluation and also moment of purchase

Under what conditions to celebrity endorsements tend to work under?

Low involvement products Celeb brand fit As long as celebrity is liked

What is multi attribute model?

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 Values in model are subjective Given the nature of the model, even if brand b is poor on one attribute, consumers may still hold a positive attitude towards b if it is good on other attributes

When do we use peripheral route versus central route for advertisements?

Motivated to elaborate on the message (high involvement) - and if there are compelling arguments to use, then use central route Unmotivated to elaborate on message (low involvement) - and/or if the available arguments are weak - then use peripheral route Ideally design for both

Two types of compensatory tules

Multi attribute model and additive difference

Optimizing may lead to better objective outcomes but will it lead to better subjective outcomes? Are optimizers happier?

Net 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've chosen a different option)

choice overload

Often happens when we're confronted with choice overload Ex.: Jam study Ex.: Never show a customer more than three pairs at a time What do you do with choice overload? Simplification by suggested themes Visualization apps

How can marketers influence consideration sets?

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

Downsides to loyalty programs

Overjustification - people attribute their choice behavior to the reward, not the intrinsic value of the option Can have negative implications for brand loyalty ( I don't buy this brand because I'm loyal, I buy it because of the discounts I get) This over-justification can be explained by cognitive dissonance

What are the problems with direct assessments in attributes?

People may not have good insights into their own preferences People may not want to reveal their own preferences

What are the implications for a firm of Attribution theory?

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 (happened just once) Uncontrollable (couldn't have been avoided)

Explain procedural justice theory

Premised on legal notion that process (trial) should be fair regardless of outcome (verdict) For the same guilty verdict, jurors are more satisfied with that outcome if they think process leading up to it was fair There is a distinction between Satisfaction with outcome (product performance) and Satisfaction with process leading to outcome (shopping experience) If consumers are dissatisfied with the shopping experience, this may decrease their satisfaction with the product purchased Even if consumers are satisfied with the product, if they're dissatisfied with the shopping experience at your store, they will simply repurchase the product elsewhere Firms most worry not only about products but also about managing the entire shopping experience

What are the three theories of satisfaction? (aka what drives customer satisfaction)

Procedural justice theory Expectancy disconfirmation theory Attribution theory

How do you improve satisfaction and NPS?

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 Step 1: identify consumer segments and personas Step 2: map the journey Step 3: identify the company side factors that affect satisfaction

How does post purchase satisfaction affect consumer behavior?

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

What is expectancy disconfirmation theory?

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

What are the theories of cognitive consistency?

Self perception theory: people observe their own behavior and infer their corresponding attitude from the behavior Ex.: "foot in the door" technique in sales - say yes to small request so will say yes to larger request Heider's balance theory: people will modify some attitudes to make it balanced or congruent with the rest of their attitudes Consumers have triads of relations they want to keep in balance Triad consisting of you, your perceptions of an attitude object, and your perceptions of some other object People dislike unbalanced attitudes and will work to balance them by changing attitude or changing attributions (celebrity endorsement)

How to build a successful social media campaign?

Send a message in the hopes that it spreads With traditional advertising marketers need to pay for eyeballs Pay huge amounts of money to advertise during the Superbowl The number of people who see my print ad is a function of the number of print ads I pay for With social media the upfront cost of grabbing eyeballs is quite low - the key is to rely on the initial customers you've attracted to do the job for you - grab the eyeballs of other customers (by sharing your content, WOM) Network effects Identify tactics that maximize spreading (increase likelihood that your content will go viral)

What are the ways to use peripheral route?

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

Explain stage 1 of consumer decision journey

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

How do you measure customer satisfaction?

Surveys can rate overall satisfaction (frequently using Likert scale - agree disagree) Can rate product/service along various dimensions Can ask about willingness to recommend brand to others Automated sentiment analysis on customer generated content (social media posts) Net promoter score Most popular way for firms to measure satisfaction "On a scale of 0-10, how likely is it that you would recommend this brand to a friend or colleague?" Promoters - people who respond with 9 or 10 Passives - people who respond with 7 or 8 Detractors - ratings of 6 or less % of promoters - % of detractors = NPS

Explain the steps of the consumer decision journey

Trigger -> initial consideration set -> active evaluation -> moment of purchase -> post purchase (trigger can have loyalty which goes straight to moment of purchase)

Explain the peripheral route in ELM

superficial cues drive persuasion Easily processed cues that are peripheral to the product itself can drive persuasion