Consumer decision making process

From CEOpedia | Management online

Process of the consumer decision-making involves a series of behaviour of households in the market and taking action to meet its needs with limited resources. The purpose of the household is to maximize the utility gained from consumption of the goods given its particular incomes and prices of goods and services. Maximizing the utility requires they take concrete decisions mainly:

  • choice of the consumption structure,
  • choice of time spent on work and leisure,
  • decisions on the allocation of income between consumption and savings

Choosing the consumption structure

The consumer seeks to maximize the utility of goods consumed, but it must take into account various limitations. They are: limited income and the price on which the consumer has no direct effect. Usability is a subjective category, depends on feeling of a particular consumer. One good for one may be of great utility and for other may not have it at all. When choosing between two goods, the consumer will select the combination of consumption, which will give him the greatest overall utility.

Choosing the time spent on work and leisure

Income of households originate mainly from the sale of the work. The consumer must choose between leisure (free time, which has its usefulness) and the work that generates income.

Decisions on the allocation of income between consumption and savings

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Consumer must decide which portion of income he should immediately spend, and which save for future consumption. This choice also has its limitations, which are the amount of income and the interest rate. They create a specific budget constraint, also called market opportunities.

Change in the interest rate will change the consumer's decision. Higher interest rate lower current consumption level, at the same time causing an increase in savings. So there is a positive correlation between savings and changes in interest rate

Consumer decision making behavior

Consumer behavior are a process involving: acquisition of goods, its use, and disposal of it. These include not only physical actions, but also all the operations taking place in the psyche at the time of purchase. Consumer behaviour show the procedure used to satisfy the desires of individuals. Thus, they are represented as a series of systematic response to various stimuli.

Consumer decision making behavior include all activities, both mental and physical related to the acquisition, use and consumption, as well as own production (in the household), which allow the consumer achieve the objectives and thereby lead to satisfaction of needs.

Consumer on the market is everyone from small child calling for buying some toys during shopping and CEO of a large company ordering needed equipment worth millions. Similarly discrepancy is present with the products (goods consumed), which can be everything that can satisfy and fulfill desires of consumers.

Types of consumer behavior

There are two main types of consumer behavior on the market:

  • intentional, fully conscious, well thought out and towards a specific purpose, this behavior reflects attitudes of consumers and their desires,
  • unintentional, usually not conscious, performed automatically on the under the influence of the reflex. They do not reflect the real needs of the consumer.

Both types of consumer behavior can be further classified into:

  • voluntary, activities that arise from an inner desire which are not limited by anything,
  • involuntary, pressured, or arising out of compulsion. Due to restriction resulting from the difficult situation of individuals, such action may be the result of the influence of other people.

Both voluntary and involuntary behavior can be further separated into:

  • rational - that allows the consumer to the greatest possible satisfaction with purchase. Rational purchase takes place when the consumer for the given sum of money buys so many goods to be most satisfied with the purchase. Rational behavior is based on the following assumptions: consumer is able to identify his own needs hierarchy (from the most intense to the least necessary) and make choices that allow for the greatest satisfaction,
  • irrational, illogical or inconsistent with the expectation of the consumer, and he knows that at the time of purchase. Sometimes irrationality is defined as sticking to the needs even though they are harmful. It is believed that the irrational consumer making decisions about buying a particular good is guided by imitation, inspiration and impulse.

Factors influencing consumer decision making process

Consumer decision making behaviour during purchase can be classified by four factors. There are the following determinants of consumer behaviour:

  • Cultural factors which include: culture, subculture and community,
  • Social factors which are: social group, family members, status and role. Attention should be paid particularly on the family, which in a situation of increased spending will be a decision-making group, and each member will play at least one of the roles: initiator, advisor, decision-maker, purchaser and user,
  • personal factors which include the characteristics of the individual consumer, such as age and the associated phase of the life cycle, occupation, financial situation, lifestyle, hobbies and personality,
  • psychological factors, which include items such as: motivation, perception, learning, values and attitudes.

Models of consumer behavior

  • Structural Nicosia model showing the relationship between the company and the customer, who constantly interact.
  • Howard-Sheth model shows the process of acquiring goods using the following variables: input variables, information about what impact of stimuli; hypothetical variables that are involved in the mental process of deciding on the purchase of the product and show how they performed motivating activities; output variables include the visible effects of the earlier processes (i.e. resignation from the purchase or change a decision).
  • Bettman model shows the decision-making process as processing of the collected data, done according to a specific plan, controlled by the customer.
  • EBK model - consumer behavior is a process consisting of the following: identification of the problem, finding the relevant information to verify the ability to choose, actual decision on the purchase and effects of decisions.
  • Markov model is a stochastic model and its main objective is to formulate that consumer behavior as an ongoing decision-making process, where you can distinguish the states in time and the decision made in a particular state is dependent on the results attained in the earlier periods.

Examples of Consumer decision making process

  1. Need recognition: The first step in the consumer decision-making process is for the consumer to recognize a need. The need can be triggered either by an internal or external stimulus. Internal stimuli include hunger, thirst, or any other physiological needs. External stimuli include advertisements, peer influence, or any other external cues.
  2. Information search: After the need is recognized, the consumer searches for information related to the product or service that can satisfy the need. A consumer can search for information from various sources such as personal sources (e.g., family, friends, and colleagues), commercial sources (e.g., advertisements, and salespeople), and public sources (e.g., consumer magazines and websites).
  3. Evaluation of alternatives: Once the consumer has identified the alternatives, he/she evaluates each option based on factors such as price, quality, and convenience. This helps the consumer to identify which product or service best meets his/her needs.
  4. Purchase decision: After evaluating the alternatives, the consumer makes a purchase decision. This is the most important step in the consumer decision-making process as it involves the consumer actually making a purchase.
  5. Post-purchase behaviour: After making the purchase, the consumer engages in post-purchase behaviour, which is the evaluation of the product or service. This helps the consumer to determine whether the product or service meets his/her expectations. If the consumer is satisfied with the purchase, he/she may become a repeat customer.

Advantages of Consumer decision making process

Each household's consumer decision-making process is an important step to meeting its needs, providing advantages for the household and the market. The advantages of the consumer decision-making process include:

  • Increased efficiency in the market by allowing the household to find and purchase goods and services that best meet its needs and wants.
  • Improved consumer satisfaction through the ability to make informed decisions that are tailored to individual needs and wants.
  • Increased access to goods and services, as households are able to shop around for the best deals and take advantage of sales and discounts.
  • Increased competition in the market, as more households are able to compete for goods and services.
  • Greater transparency in the market, as households are able to compare prices and services offered by different suppliers.
  • Improved consumer protection, as the consumer decision-making process allows households to make informed decisions and protect themselves from scams and fraud.

Limitations of Consumer decision making process

The consumer decision-making process involves a series of behaviours and actions taken by households to meet their needs with limited resources. However, there are certain limitations to the process which can impact the effectiveness of decision making. These limitations include:

  • Time Constraints: Consumers may be limited in terms of the amount of time they have to make decisions, which can affect the quality of their decisions.
  • Limited Information: Consumers may not have access to all the necessary information they need to make an informed decision, leading them to make decisions based on incomplete or inaccurate information.
  • Cognitive Biases: Consumers may be influenced by cognitive biases, such as confirmation bias and sunk cost fallacy, which can lead to irrational decision making.
  • Limited Resources: Consumers may have limited financial resources, which can limit their ability to purchase the goods or services they desire.
  • Social Influences: Consumers may be influenced by their peers or family members, leading them to make decisions that are not in their best interest.

Other approaches related to Consumer decision making process

One of the most important steps in the consumer decision-making process is understanding the various approaches related to it. These approaches include:

  • Rational Model: This model is based on the idea that consumers will logically weigh the costs and benefits of any purchase decision and then choose the option that maximizes their utility.
  • Emotional Model: This approach views decision-making as an emotional process, which is heavily influenced by a consumer’s feelings and desires.
  • Cognitive Model: This model is based on the idea that decision-making is a cognitive process based on a consumer’s knowledge and understanding of the market.
  • Social Model: This model takes into account the influence of social factors on decision-making. It views decision-making as heavily influenced by the opinions of family, friends, and peers.

In summary, the consumer decision-making process involves understanding the various approaches to decision-making, such as the rational, emotional, cognitive, and social models. Each of these models offers a unique perspective on how consumers make decisions and can help marketers better understand their target markets.


Consumer decision making process — recommended articles
Factors influencing consumer behaviour — Consumer buying behaviour — EBK model — Sales techniques — Nicosia model — Hierarchy of effects model — Client satisfaction — Customer satisfaction — Post-purchase dissonance

References

Author: Krzysztof Wozniak

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