Lecture 1: Introduction / The Study of Consumer Behavior / Irrationality
What is consumer behavior?
Consumer behavior: processes involved in selecting, buying, using or disposing of
products, services, ideas and experiences to satisfy needs and wants
1. Obtaining products and services
o Deciding to buy a product, deciding between brands, where to buy, how to
pay, how you transport it
o Getting dressed (money), drinking water (money)
2. Consuming products and services
o How you use a product, how you store a product, who uses the product, how
much you consume, how a product compares with expectations
o Social media / news (time, attention à clicks), Sleeping à mattress (money)
3. Disposing of products and services
o How you get rid of remaining product, how much you throw away after use,
reselling products, how you recycle products
o Donating old products (recycling)
- Consumption: always a transaction involved at some point in time (money, time,
attention), except for example breathing oxygen (no transaction involved)
Consumer factors: internal factors à age,
gender, feelings, motivations, attitudes,
knowledge, culture, subculture, social
environment, group influences
Marketing factors: external factors à brand
names and reputations, worth of mouth (WOM),
advertising, promotions, price, service,
packaging, store atmospherics
Types/levels of consumer responses: ABC-
responses
1. A2ect: emotions or feelings about the product
2. Behavior: actions (buying/using products)
3. Cognition: thoughts about the product
Why study consumer behavior?
Why study consumer behavior?
- Understand consumers (what do they need, how do
they decide, what makes them happy)
- Predict their reaction to marketing strategies (changes to product/service, price
changes, change positioning)
Day-care center case: children should be picked up at 6pm, but many parents come
later, is paying a fine a good solution? à more people picked their kids up after 6pm,
because they ‘pay’ for picking up late, instead of being fined for picking up late.
,Intuition trap: problems with common sense
- Protection bias: the idea that people project their own attitudes and beliefs onto
others
- Confirmation bias: we are resistant to changing our prior beliefs
- Projection / false consensus bias: people tend to overestimate the extent to which
their beliefs/opinions are typical of those of others
- Make decisions based on few observations
- Infer causality from correlation
- Overconfidence
- Intuitive ideas are: easy, more vivid, appealing, well-remembered, generic
- Scientific ideas are: complex, careful, situational
Public policy: to regulate the behavior of people
- How will consumers react to regulations?
o If people know how bad something is, they will not do it à smoking warnings
- How will consumers react to market changes?
o Recession, tax cuts, changes in mortgage subsidies
- Social marketing: change in bahavior (encourage or discourage activities, eXect of
advertising on society)
How to study consumer behavior?
Methods for studying consumer behavior
- Interviews & surveys
o Interviews (qualitative): in-depth interviews, focus groups
o Surveys (quantitative): mall intercepts, telephone surveys, mail
questionnaires, internet surveys, longitudinal surveys
- Experimental research: manipulate the situation and see what the impact is
- Best to combine methods: no single best method, depends on the research question
o E.g. survey à only correlations, lab experiment à artificial, qualitative à
more richness and context but also more subjective and expensive
o Problems with interviews and surveys: self-selection, self-reports, sensitivity
to wording and order
- Qualitative: exploratory
- Quantitative: test, generalize
Consumer research: beware of common sense (intuition trap), understand the nature
of the relationship (causal or correlational), consumer research is social science
(reducing uncertainty rather than establishing certainty
Irrationality
Irrationality: people are not so rational as expected in marketing
- Preferences are clear and accessible in consumers’ minds
- Consumers make trade-oXs between quality and price
- Each product is judged on its merits alone
- Willingness to pay is the result of evaluating the object we are interested in
, - Market research instruments accurately tell us what consumers
really prefer and how much they would pay
Preference reversal: occurs when people choose one option over
another in one evaluation context (e.g., separately) but switch their
preference when the same options are compared in a diXerent context
(e.g., jointly)
Anchoring: bias where people rely too heavily on an initial piece of information (the
“anchor”) when making judgments or estimates, even if that information is irrelevant à
value depend on irrelevant anchors!
Compromise eLect: the share of a product increases when it is the intermediate
option, but decreases when it is an extreme option
Endowment eLect: owners assign greater value to a product than non-owners
Malleability of preferences: preferences are typically constructed, not revealed
- Reference dependence: every evaluation is relative
- Context dependence: people don’t know what they want until they see it in context
- Description dependence: preferences change depending on how the alternatives
are presented to them
Rationality: people consider the pleasure they obtain from consuming something (the
price they pay for it, consumers want value for money)
Choice overload: although the provision of extensive choices may sometimes still be
seen as initially desirable, it may also prove unexpectedly demotivation in the end
Standard economic model:
- How do economists think about customers>
o People are rational
o Are fully aware of all the options they have
o Always choose the option they like best
- Assumptions:
o Full internal knowledge (consumers know their preferences)
o Full external knowledge (consumers act with full information)
o Maximize utility (consumers choose best option available)
Lecture 2: Research strategies / Research validity
Research strategies
Research strategies: refer to the general approach and goals of a research study à
selection of strategy is usually determined by the kind of question you plan to address
and what you hope to accomplish
- Descriptive research strategy: describes individual variables, obtains a snapshot
(description) of specific characteristics of a specific group of individuals à data in
the form of averages or percentages (e.g. opinion polls, facts) à goal is to describe
precisely several characteristics of the U.S. population, including age, income, etc.)
What is consumer behavior?
Consumer behavior: processes involved in selecting, buying, using or disposing of
products, services, ideas and experiences to satisfy needs and wants
1. Obtaining products and services
o Deciding to buy a product, deciding between brands, where to buy, how to
pay, how you transport it
o Getting dressed (money), drinking water (money)
2. Consuming products and services
o How you use a product, how you store a product, who uses the product, how
much you consume, how a product compares with expectations
o Social media / news (time, attention à clicks), Sleeping à mattress (money)
3. Disposing of products and services
o How you get rid of remaining product, how much you throw away after use,
reselling products, how you recycle products
o Donating old products (recycling)
- Consumption: always a transaction involved at some point in time (money, time,
attention), except for example breathing oxygen (no transaction involved)
Consumer factors: internal factors à age,
gender, feelings, motivations, attitudes,
knowledge, culture, subculture, social
environment, group influences
Marketing factors: external factors à brand
names and reputations, worth of mouth (WOM),
advertising, promotions, price, service,
packaging, store atmospherics
Types/levels of consumer responses: ABC-
responses
1. A2ect: emotions or feelings about the product
2. Behavior: actions (buying/using products)
3. Cognition: thoughts about the product
Why study consumer behavior?
Why study consumer behavior?
- Understand consumers (what do they need, how do
they decide, what makes them happy)
- Predict their reaction to marketing strategies (changes to product/service, price
changes, change positioning)
Day-care center case: children should be picked up at 6pm, but many parents come
later, is paying a fine a good solution? à more people picked their kids up after 6pm,
because they ‘pay’ for picking up late, instead of being fined for picking up late.
,Intuition trap: problems with common sense
- Protection bias: the idea that people project their own attitudes and beliefs onto
others
- Confirmation bias: we are resistant to changing our prior beliefs
- Projection / false consensus bias: people tend to overestimate the extent to which
their beliefs/opinions are typical of those of others
- Make decisions based on few observations
- Infer causality from correlation
- Overconfidence
- Intuitive ideas are: easy, more vivid, appealing, well-remembered, generic
- Scientific ideas are: complex, careful, situational
Public policy: to regulate the behavior of people
- How will consumers react to regulations?
o If people know how bad something is, they will not do it à smoking warnings
- How will consumers react to market changes?
o Recession, tax cuts, changes in mortgage subsidies
- Social marketing: change in bahavior (encourage or discourage activities, eXect of
advertising on society)
How to study consumer behavior?
Methods for studying consumer behavior
- Interviews & surveys
o Interviews (qualitative): in-depth interviews, focus groups
o Surveys (quantitative): mall intercepts, telephone surveys, mail
questionnaires, internet surveys, longitudinal surveys
- Experimental research: manipulate the situation and see what the impact is
- Best to combine methods: no single best method, depends on the research question
o E.g. survey à only correlations, lab experiment à artificial, qualitative à
more richness and context but also more subjective and expensive
o Problems with interviews and surveys: self-selection, self-reports, sensitivity
to wording and order
- Qualitative: exploratory
- Quantitative: test, generalize
Consumer research: beware of common sense (intuition trap), understand the nature
of the relationship (causal or correlational), consumer research is social science
(reducing uncertainty rather than establishing certainty
Irrationality
Irrationality: people are not so rational as expected in marketing
- Preferences are clear and accessible in consumers’ minds
- Consumers make trade-oXs between quality and price
- Each product is judged on its merits alone
- Willingness to pay is the result of evaluating the object we are interested in
, - Market research instruments accurately tell us what consumers
really prefer and how much they would pay
Preference reversal: occurs when people choose one option over
another in one evaluation context (e.g., separately) but switch their
preference when the same options are compared in a diXerent context
(e.g., jointly)
Anchoring: bias where people rely too heavily on an initial piece of information (the
“anchor”) when making judgments or estimates, even if that information is irrelevant à
value depend on irrelevant anchors!
Compromise eLect: the share of a product increases when it is the intermediate
option, but decreases when it is an extreme option
Endowment eLect: owners assign greater value to a product than non-owners
Malleability of preferences: preferences are typically constructed, not revealed
- Reference dependence: every evaluation is relative
- Context dependence: people don’t know what they want until they see it in context
- Description dependence: preferences change depending on how the alternatives
are presented to them
Rationality: people consider the pleasure they obtain from consuming something (the
price they pay for it, consumers want value for money)
Choice overload: although the provision of extensive choices may sometimes still be
seen as initially desirable, it may also prove unexpectedly demotivation in the end
Standard economic model:
- How do economists think about customers>
o People are rational
o Are fully aware of all the options they have
o Always choose the option they like best
- Assumptions:
o Full internal knowledge (consumers know their preferences)
o Full external knowledge (consumers act with full information)
o Maximize utility (consumers choose best option available)
Lecture 2: Research strategies / Research validity
Research strategies
Research strategies: refer to the general approach and goals of a research study à
selection of strategy is usually determined by the kind of question you plan to address
and what you hope to accomplish
- Descriptive research strategy: describes individual variables, obtains a snapshot
(description) of specific characteristics of a specific group of individuals à data in
the form of averages or percentages (e.g. opinion polls, facts) à goal is to describe
precisely several characteristics of the U.S. population, including age, income, etc.)
