Chapter 9:Individual decision making

Question 1

How we make decisions

Answer 1

2 theories
neo-classical economic theory
behavioural influence

Question 2

Neo-Classical economic theory

Answer 2

a. Decisions are from careful analysis and utility maximization
- rational, selfish, utility maximizing decision makers
o How we used to think of how people make decisions (rational beings)
o Treat people as problem who needs to be solved
o Ex: I am hungry where do I eat
o Neo-classical economic theory:
 We are careful, analytic, and consistently maximize utility to purchase decisions
o Problem recognition -> information search -> evaluation of alternatives -> product choice

Question 3

behavioural influence

Answer 3

o New way of thinking
o Consumer decisions are responses to environmental cues
 Spontaneous decisions
o Response are biased
o Limited capacity for takin in information and making choices

Question 4

advice on finding customer choice Simonson

Answer 4

• Get close to your customer to understand how they make choices and deploy in all aspects of your business

Question 5

to deploy across all need certain assumptions

Answer 5

o Customers can articulate preferences
o That their preferences are stable and fixed

Question 6

customer preferences are unsafe and easily influenced by irrelevant things examples

Answer 6

Set of alternatives under consideration
 Ex: put mor expensive item on menu to make regular items look cheaper

Description of alternatives
 Ex: do not want you to ger water so give description of drinks and make prices very small and last

Timing and quality of purchase
 We want what we want rn but if we ar buying for a week we want variety

Adding irrelevant features/promotions

Question 7

Types of customer decision based on effort

Answer 7

Extended problem solving (Slow)
 Expensive product, infrequently purchased items, high involvement, unfamiliar, extensive amounts of time spend

Limited problem solving (fast)
 Limited effort invested in seeking out the good enough
 Use heuristics
* Rule of thumb, lay theories, assumptions,
o Ex: more expensive products are better quality
o Local mom and pop store give best service

Habitual problem solving
 Cheaper products, frequently, bought, low involvement, familiar, little thought and time spent

Question 8

• Satisficing vs full satisfaction

Answer 8

o Is good enough
o Looking at items really quick an buying them
o Could spend all day looking at sandwich’s but I am going to pick

Question 9

Nudges to push people along

Answer 9

• How to guide someone to a certain choice
• Nudges are not aggressive and should be easy
• Strategies to influences peoples decision making without significantly changing economic incentives or limiting options
• “To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.”

Question 10

• Digital nudges

Answer 10

Personalized recommendations:
 Amazon uses personalized recommendations to nudge customers towards additional purchases.

Social proof:
 Showing how many people have purchased a product or signed up for a service can nudge others to follow suit.

Gamification:
 Apps like Duolingo use gamification to make language learning more engaging and addictive, nudging users to keep practicing

Question 11

cognitive biases

Answer 11

more than 200
1, anchoring
- o Things relative to something as a reference point
o Ex: negotiating salaries the anchoring bias is the initial salary said as it is compare

2. bandwagon effect
   - more like to adopt if everyone else does
3. blind spot bias
   - overlook how biases play role in their decision
4. confirmation bias
   - people are more likely to accept information if it corresponds to their preconceived views
5. Conservatism bias
   - do not believe new information but rather old information

Question 12

Signals of product quality as Heuristics

Answer 12

• Price
• Presentation
• Warranty or money back
• Reviews

Question 13

The SEC classification of products and services

Answer 13

Search
o Before I buy I know
o Ex: chips, or iphone

Experience
o I buy I use then I know
o Ex: getting haircut
o 2nd most important to give quality

Credence
o Bought it, used it, and still do not know what it does
o Ex: skincare, getting car done, weight loss industry
o Most important to give quality

Question 14

brands that went generic

Answer 14

• Kleenex
• Band-Aid
• Saran wrap
• Intel chip

Question 15

• Function of brand alliances when product quality is unknown

Answer 15

o Alliances gives information of quality
o Problem for experience and credence products

Question 16

Function of brand when product quality id known

Answer 16

• Presence of additional attributes in joint brand (Pillsbury + M&Ms)
• Enhance existing attributes (Sony + Dolby)
• Provide expertise (Wrigley’s + Crest)

Question 17

Special Challenges for Ingredient Brands

Answer 17

• Invisible to end-users: ‘disappearing’ or ‘ingredient’ brands
• The importance of ‘pull’ strategies
  o Creating awareness, familiarity

Question 18

• Sets of alternatives evaluation

Answer 18

Inept set
 Customers reject as do not suit needs

Inert set
 Know about but not inclined to choose but could be options

Evoked/consideration set
 Alternatives consumer considers

Question 19

• Evaluative criteria: for comparing across brands

Answer 19

Some criteria are common
 Shared among all such as price, quality

Some of criteria are different
 Consumers have unique cerifera such as environmental sustainability while other consumers do not

Determinant criteria: the criteria really matter within brand choice?
 The determining criteria that really matters