Buyer decision process
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More generally, decision-making is the cognitive process of selecting a course of action from multiple alternatives. Common examples include shopping and deciding what to eat. Decision-making is a psychological construct. This means that although a decision can not be "seen", we can infer from observable behaviour that a decision has been made. Therefore we conclude that a psychological "decision-making" event has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to effect the action.
There are generally three ways of analysing consumer buying decisions:
- Economic models - largely quantitative and are based on the assumptions of rationality and near perfect knowledge. The consumer is seen to maximize their utility. See consumer theory. Game theory can also be used in some circumstances.
- Psychological models - psychological and cognitive processes such as motivation and need recognition. They are qualitative rather than quantitative and build on sociological factors like cultural influences and family influences.
- Consumer behaviour models - practical models used by marketers. They typically blend both economic and psychological models.
Due to normal psychology, there are five stages consumers experience with a purchase:
- Problem/Need Recognition - Recognize what the problem or need is and identify the product or type of product which is required. Page text.
- Information Search - The consumer researches the product which would satisfy the recognized need.
- Evaluation of Alternatives - The consumer evaluates the searched alternatives. Generally, the information search reveals multiple products for the consumer to evaluate and understand which product would be appropriate.
- Purchase Decision - After the consumer has evaluated all the options and would be having the intention to buy any product, there could be now only two things which might just change the decision of the consumer of buying the product that is what the other peers of the consumer think of the product and any unforeseen circumstances. Unforeseen circumstances for example in this case could be financial losses which led to not buying of the product.
- Post Purchase Behaviour - After the purchase the consumer may experience post purchase dissonance feeling that buying another product would have been better. addressing post purchase dissonance spreads good word for the product and increases the chance of frequent repurchase.
Nobel laureate Herbert A. Simon sees economic decision-making as a vain attempt to be rational. He claims (in 1947 and 1957) that if a complete analysis is to be done, a decision will be immensely complex. He also says that peoples' information processing ability is limited. The assumption of a perfectly rational economic actor is unrealistic. Consumers are influenced by emotional and nonrational considerations making attempts to be rational only partially successful.
Models of buyer decision-making
In an early study of the buyer decision process literature, Frank Nicosia (Nicosia, F. 1966; pp 9–21) identified three types of buyer decision-making models. They are the univariate model (He called it the "simple scheme".) in which only one behavioural determinant was allowed in a stimulus-response type of relationship; the multi-variate model (He called it a "reduced form scheme".) in which numerous independent variables were assumed to determine buyer behaviour; and finally the "system of equations" model (He called it a "structural scheme" or "process scheme".) in which numerous functional relations (either univariate or multi-variate) interact in a complex system of equations. He concluded that only this third type of model is capable of expressing the complexity of buyer decision processes. In chapter 7, Nicosia builds a comprehensive model involving five modules. The encoding module includes determinants like "attributes of the brand", "environmental factors", "consumer's attributes", "attributes of the organization", and "attributes of the message". Other modules in the system include, consumer decoding, search and evaluation, decision, and consumption.
Some neuromarketing research papers examined how approach motivation as indexed by electroencephalographic (EEG) asymmetry over the prefrontal cortex predicts purchase decision when brand and price are varied. In a within-subjects design, the participants were presented purchase decision trials with 14 different grocery products (seven private label and seven national brand products) whose prices were increased and decreased while their EEG activity was recorded. The results showed that relatively greater left frontal activation (i.e., higher approach motivation) during the predecision period predicted an affirmative purchase decision. The relationship of frontal EEG asymmetry with purchase decision was stronger for national brand products compared with private label products and when the price of a product was below a normal price (i.e., implicit reference price) compared with when it was above a normal price. Higher perceived need for a product and higher perceived product quality were associated with greater relative left frontal activation.
For any high-involvement product category, the decision-making time is normally long and buyers generally evaluate the information available very cautiously. They also utilize an active information search process. The risk associated with such decision is very high.
Cognitive and personal biases in decision-making
It is generally agreed that biases can creep into our decision-making processes, calling into question the correctness of a decision. Below is a list of some of the more common cognitive biases.
- Selective search for evidence - We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
- Selective perception - We actively screen out information that we do not think is salient.
- Premature termination of search for evidence - We tend to accept the first alternative that looks like it might work.
- Conservatism and inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.
- Experiential limitations - Unwillingness or inability to look beyond the scope of our past experiences; rejection of the unfamiliar.
- Wishful thinking or optimism - We tend to want to see things in a positive light and this can distort our perception and thinking.
- Recency - We tend to place more attention on more recent information and either ignore or forget more distant information.
- Repetition bias - A willingness to believe what we have been told most often and by the greatest number of different of sources.
- Anchoring - Decisions are unduly influenced by initial information that shapes our view of subsequent information.
- Group think - Peer pressure to conform to the opinions held by the group.
- Source credibility bias - We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like.
- Incremental decision-making and escalating commitment - We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision-making.
- Inconsistency - The unwillingness to apply the same decision criteria in similar situations..
- Attribution asymmetry - We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.
- Role fulfillment - We conform to the decision-making expectations that others have of someone in our position.
- Underestimating uncertainty and the illusion of control - We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do.
- Faulty generalizations - In order to simplify an extremely complex world, we tend to group things and people. These simplifying generalizations can bias decision-making processes.
- Ascription of causality - We tend to ascribe causation even when the evidence only suggests correlation. Just because birds fly to the equatorial regions when the trees lose their leaves, does not mean that the birds migrate because the trees lose their leaves.
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