Consumer Behaviour: Part 7: Consumer Decision Making (Ch. 9 & 10)

MF-205 Consumer Behaviour
Part 7: Consumer decision making (Ch. 9 & 10)

Dr Michal Krol
The Problem of Choice
We make a lot of choices every day, but consumer product choices are hard,
in that there are usually many alternatives, each characterised by several
attributes.
Faced with too many choices under a time
or cognitive resource constraint, many
people prefer to opt out (hyper- or
overchoice).
The optimal number of choices depends on
the product’s importance vs. complexity.
The Problem of Choice
Hyperchoice may not only increase
the stress and dissatisfaction of
consumers, but also increase the
likelihood that they might revert to
heuristics that are undesirable from
the sellers’ perspective, like
focusing on the price.
Thus, it is crucial to simplify the
consumer’s choice process!
The Cognitive Model of
Consumer Decision-Making
• People with a moderate level of product

knowledge exert most effort when
choosing.
• Experts know what to focus on and engage
in selective search and evaluation (narrow
attribute consideration sets).
• Novices rely on heuristics and the
opinions of others.
Simplifying the choice
According to sequential sampling, attentional drift-diffusion models of choice,
information is sampled until a decision threshold is reached.
It is important to help consumers to

narrow down the search, so that
they can accummulate enough
evidence on any single alternative,
or to nudge them towards the
threshold before decision fatigue
sets in.
The frames are made of plastic, which is why they are
very comfortable and more resistant to damage than
metal frames. Thanks to the the material they are made
of, they are much more expressive than metal frames.
The frames are made of metal, so are very light and

more comfortable than plastic frames. Metal frames are
chosen by men, as they express professionalism and
elegance, and are more subtle than plastic ones.
• Google helps people narrow down the search by ranking the results by
relevance. This is what makes search engine optimization so important for
firms.
• Similarly, product categorization is crucial: it is
best if the product can fit into several narrow
categories.
• The downside is that it is then harder to identify the

full set of potentially very different competitors.
• It is also harder for a multi-category product to

become a category exemplar.
The 'Save More Tomorrow' (SMarT) program
Interestingly, people often overestimate their ability to exert a choice effort

in the future, and underestimate their propensity for inertia.
Benartzi & Thaler (2004) asked workers to

join a saving scheme where part of their
next wage increase would be
automatically saved (it would be possible
to opt out at any time).
Savings quadrupled compared with asking

to save part of the existing wage.
from the FAQ section:
Why do I need a payment method to

start a free trial?
We ask for a payment method to ensure

you don't have any interruption in
service after the free trial.
Decision rules
Under high cognitive involvement, people follow compensatory decision
rules.
The fact that the product scores high (is

good) on some attribute dimensions
can compensate for the fact that scores
low (is bad) on others.
Attributes can be weighted in terms of

their relative importance.
Noncompensatory rules
• lexicographic: choose the product that is best
in terms of the most important attribute; in
case of a tie move to the next most
important attribute
• elimination-by-aspects: eliminate all

products that do not meet a specific cutoff
point on the most important attribute, then
move on to the next one
• conjunctive: pick a product that meets all

specified cutoff points across all attributes
Heuristics
Under low cognitive involvement, we may opt for
satisficing solutions, based on simple (System 1)
heuristics, in order to preserve cognitive
resources.
E.g., a common heuristic is to choose the same

product as usual (habitual decision making).
This form of inertia differs from brand loyalty, which

would entail choosing the brand even if that means
„Perfect is the enemy of good.”
more effort. Voltaire
A list of common market beliefs
(compiled in 1990)
Generic heuristics affecting consumer decisions...
I. Context effects: whereby the preference between options A

and B depends on what other options are present;
an example of this is the decoy effect, where an
inferior decoy increases preference for the
target it is superior to.
In fact, even an unavailable
(„phantom”) decoy works.
I. Context effects: a closely related phenomenon is the

compromise effect, where and option is popular as a
compromise between two
extreme options
e.g., iPhone 8 vs. 8+ vs. iPhone X
II. Loss aversion: whereby losing something (relative to the

expected status quo) is felt more strongly than gaining the
same thing
identified by Amos Tversky

and Daniel Kahneman
(prospect theory)
III. Sunk-cost fallacy: people are more determined to continue an

endeavor once they invested money, effort, or time into it, even if
it would make more sense to pull out.
IV. Confirmation bias:

the tendency to
search for, interpret,
favor, and recall
information in a way
that confirms prior
beliefs.
This means we will not
only seek to validate our
purchase decisions, but
also interpret new
evidence in favour of the
leading alternative prior
to choice.
V. Anchoring: where an initial piece of information forms an „anchor”

for subsequent judgments. Future negotiations, arguments,
estimates, etc. are discussed in relation to the anchor and are
overly dependent on its value.
e.g., in experiments, people estimate that:

1x2x3x4x5x6x7x8 ≈ 512
8x7x6x5x4x3x2x1 ≈ 2250
(actually, both are = 40,320)
AI nudging
The latest trend is to use AI to build chatbots
to interact with customers.
This can not only reduce customer service

costs, but the bots can potentially get much
better at reading customer behaviour
patterns and exploiting the humans’
heuristics to nudge them.
AI nudging
Though existing applications are quite primitive, Google recently built on their
previous, Duplex Assistant project, releasing the Meena chatbot in early 2020.
Meena is an open-domain bot that

doesn’t lose context and stays
meaningful until accomplishing the
task.
It is said to improve on OpenAI’s

GPT-2... but is dwarfed by GPT-3.
Bad news?
As early as 2013, it was already
estimated that AI would replace human
Advertising & Retail Salespeople, as well
as Market Research Analysts and
Marketing Specialists
(https://willrobotstakemyjob.com).
The impact of mood
When in a good mood, we process information in
a less effortful, heuristic manner, with less
attention to specifics. We tend to remain in this
state if allowed to:
• click on an item for a pop-up with more detail
• add the item to cart without leaving the page
• “feel” merchandise through better imagery
• enter all purchase data on one page
• mix and match product images on one page

Mobile shopping apps
Smartphone apps can be a useful decision-support tool, helping users locate
a product in a physical store, learn about it via augmented reality, but also get
targeted alerts (i.e., nudges).
Thus, they can be used by retailers

to stimulate spontaneous
(unplanned / impulse) buying, in
addition to traditional tricks like
placing impulse items at checkout.
The sharing economy
Another way of facilitating decisions (by lowering the decision threshold) is
to allow customers to rent items instead of buying (collaboartive
consumption).
Especially beneficial for items costly to

produce but infrequently used (like power
tools).
Knowing that others used and liked the

item can also reduce the cognitive cost of
information search.
Nudging can backfire
While nudging customers may be tempting, research shows it can also
produce the opposite of the desired behavior when people notice they are
manipulated.
It can also reduce postpurchase
satisfaction via expectancy
disconfirmation.
People will also be less likely to

rationalise a bad „nudge” purchase than
one made under high involvement.
Finally, as usual, nudges can be based on non-replicable research.
E.g., in 2012, researchers showed (?) that when people sign at the START
of a tax form rather than the END, they are more likely to declare their
income truthfully.
Various government agencies have

adopted this practice.
In 2020, the same researchers failed

to replicate the effect.
This can also lead to a perceived lack of social responsibility.
It is increasingly argued that the solution to the waste crisis is not recycling
but a change in consumer habits.
Rather than getting people to buy

products they do not really want,
incentivised nudges can assist in
responsible product disposal.

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MF-205 Consumer Behaviour

Part 7: Consumer decision making (Ch. 9 & 10)

• People with a moderate level of product

It is important to help consumers to

The frames are made of metal, so are very light and

• The downside is that it is then harder to identify the

• It is also harder for a multi-category product to

Interestingly, people often overestimate their ability to exert a choice effort

Benartzi & Thaler (2004) asked workers to

Savings quadrupled compared with asking

Why do I need a payment method to

We ask for a payment method to ensure

The fact that the product scores high (is

Attributes can be weighted in terms of

• elimination-by-aspects: eliminate all

• conjunctive: pick a product that meets all

E.g., a common heuristic is to choose the same

This form of inertia differs from brand loyalty, which

I. Context effects: whereby the preference between options A

I. Context effects: a closely related phenomenon is the

II. Loss aversion: whereby losing something (relative to the

identified by Amos Tversky

III. Sunk-cost fallacy: people are more determined to continue an

IV. Confirmation bias:

V. Anchoring: where an initial piece of information forms an „anchor”

e.g., in experiments, people estimate that:

This can not only reduce customer service

Meena is an open-domain bot that

It is said to improve on OpenAI’s

• click on an item for a pop-up with more detail

• add the item to cart without leaving the page

• “feel” merchandise through better imagery

• enter all purchase data on one page

• mix and match product images on one page

Thus, they can be used by retailers

Especially beneficial for items costly to

Knowing that others used and liked the

People will also be less likely to

Various government agencies have

In 2020, the same researchers failed

Rather than getting people to buy

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