Reference no: EM13854512

Decision making part 2 (Decision models)

In order to choose a brand or product among several alternatives, consumers will apply decision rules (models) to evaluate brands and use (or not) very simple or more complex decision rules. In general, as decisions are usually very demanding in terms of cognitive work, consumers will have a tendency to simplify their decision process by using short cuts instead of processing all the available information. These decision rules (shortcuts) are called heuristic. They are a very important components of the decision making process in consumer behavior and each of these decision rules will be described hereafter.

We all use common heuristic without even noticing it. For instance, when we always buy the same brand of soft drinks, the heuristic used is brand name. A soon as we see the brand we are loyal to, we choose it. This is our own simplifying rule that allows us not to process any other information for competing brands (price, taste...). Another example of a simplistic heuristic would be to purchase a wine only based on its country of origin. We eliminate all other wines from our decision making process, making it easier.

However, heuristics are not always that simple. Here are the most common heuristics used by consumers classified in two broad categories: Compensatory and non compensatory models.

Compensatory Model

In a compensatory model, the heuristic is quite demanding for consumers as consumers evaluate and compare all available pieces of information and positive features as well as negative features are taken into account before taking the decision. Consumers balance the good and the bad before taking a decision. It is usually used in high involvement situation where a drastic short cut may hinder the decision and overlook some key issues. The most common compensatory rule applies a weighted sum model as depicted in the table below. To calculate the score of each brand, each attribute is evaluated (from 1: Poor to 4: excellent) and is attributed a weigh depending on its importance when making the decision. These features are taken into account by calculating a weighted sum for each alternative. For instance, Brand 1 has an average quality (2) but quality is a very important attribute (4) so its weighted score is 8 on quality (4 * 2). This calculation is done for each attribute for a given brand to reach a final weighted score (For Brand 1: 24). The brand with the highest score is chosen (Brand 2) and in this model bad features can be compensated by positive features, particularly if important for the consumers. The relative comparisons of brands help to make a choice even if it requires high cognitive work.

Discussion question: Describe the latest important purchase you have made using a compensatory approach.

Non Compensatory Model

Four (4) types of non compensatory models are detailed below. In all cases, the consumer considering making a purchase (a stereo) has collected information on the brands available on the market and the attributes he considers before buying the product. This table of information is presented below:

With the same information, this consumer may however make different choices depending on the decision rule he chooses to apply. Here are four non compensatory rules.

• Conjunctive Model (also called the AND model)

Using this heuristic, consumers set minimum standards (characteristic) that a brand should have on each attribute they consider when purchasing the product. The chosen brand should surpass this minimum standard on ALL attributes considered (AND rule). In the case below, the chosen brand should have:

Applying this rule, the only brand that fulfills all this criteria in the table of information is RCA and this brand will be chosen. If no brand had fulfilled ALL these criteria, no brand would have been chosen using this rule. If more than one brand would have satisfied all the criteria, consumers would have retained these brands and apply another rule to come up with only one choice.

• Disjunctive Model (also called the OR model)

Using this heuristic, consumers set minimum standards (characteristic) on each attribute they consider when purchasing the product. The chosen brand should surpass this minimum standard an ANY ONE attributes considered (OR rule). In the case below, the chosen brand should have:

Applying this rule, all the brands fulfill at least one criterion in the table of information. The consumer will not be able to choose or even discard any brand using this decision rule. In this case, this decision rules would not help to make a decision.

• Elimination By aspect (EBA) Model

Using this heuristic, in addition to setting up minimum standards (characteristic) on each attribute they consider when purchasing the product, consumers also rank these attributes by order of importance (1 being the most important and 5 the least important one for example). Consumers will then eliminate all brands that do not fulfill their criteria, STARTING BY LOOKING AT THE MOST IMPORTANT ATTRIBUTE. As soon as only one brand remain (even if we do not look at the entire set of attributes), it is the chosen brand. In the case below, the chosen brand should have:

Applying this rule, only RCA remains after eliminating all the other brands with the first four attributes.

• Lexicographic Model

Using this heuristic, consumers only rank attributes by order of importance (1 being the most important and 5 the least important one for example). There are no thresholds in this decision rule. Consumers will simply choose the best alternative on their most important attribute. In case of a tie with the first attribute, consumers will then look at the next most important attribute to separate the remaining brands. As soon as one brand is superior on the other ones (even if we do not look at the entire set of attributes), it is the chosen brand. In the case below, the chosen brand should have:

Applying this rule, once again RCA is chosen.

Discussion question: What can be the drawbacks of using a non compensatory rules (such as the lexicographic rule) to make purchase decisions? Explain and give an example.