MBA PROGRAMME

SCHOOL OF BUSINESS AND MANAGEMENT

CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE

CIA III

TITLE: DECISION-MAKING PROCESS AS A CONSUMER

Submission date 23rd January 2022

Assignment submitted in partial fulfilment of the requirements for the degree of

Master of Business Administration

Under the Guidance of

Dr. ARTI ARUN KUMAR

Submitted By

RESHMA MENON

2027153
Contents

Decision Making Process – 3 Incidents/Cases ....................................................................... 3

Diffusion Decision Model ........................................................................................................ 4
Kahneman’s Systems Approach ............................................................................................. 4
System 1................................................................................................................................. 4
System 2................................................................................................................................. 6
Conclusions ............................................................................................................................... 6
Recommendations based on Neuromarketing....................................................................... 7
References ............................................................................................................................... 11
Decision Making Process – 3 Incidents/Cases

STEPS Amazon Axis MF Fitbit

Looking for an investment Need to maintain a healthier

Understand Approaching Birthday of a
to diversify current financial lifestyle and increase daily
Situation female relative
portfolio exercise goals
Requirement to buy a Requirement to invest idle
Tracking calories burned and
Define Problem thoughtful and useful funds in order to earn
daily exercise
birthday gift interest or return
Buying a portable or
Define Selection of a financial
Buying a georgette saree wearable gadget for 24x7
Objectives instrument
tracking

Which e-commerce shopping Which instrument is to be

Diagnose Which fitness tracker is to be
site is to be chosen for chosen as a viable
Problem selected
making the purchase investment

Develop The options considered are The options considered are
Alternatives Amazon and Flipkart Stock or Axis Mutual Fund
Amazon's collection
of sarees is much
larger and includes
various brands
Compared to
Flipkart, Amazon
provides a slightly
higher discount for
the same products.
Amazon Prime
membership provides
Evaluate same-day or 2-day
Alternatives delivery
Payment via Amazon
Pay provides
cashback of up to
Rs.150
Amazon refunds for
UPI payments are
processed within 2
hours, while Flipkart
refunds are processed
by end of day
Choose Best
Amazon
Alternative
The options considered are
Fitbit and Apple Watch
Individual stock
trading involves
regular monitoring,
whereas Mutual
Funds are managed
by the offering bank,
in this case, Axis
Bank
Mutual Fund
includes a
diversified portfolio
of equities (Nifty 50)
and government
securities
The Demat account
opened is with Axis
bank and, hence,
would receive a
discount on the
commission paid for
the returns
Axis MF
Fitbit allows replying
to messages directly
from the tracker
while Apple Watch
allows answering of
calls without the use
of phone
Fitbit is relatively
cheaper than Apple
Watch
Apple Watch does
not connect to
android phones.
Fitbit tracks sleep
phases and has extra
functionalities such
as ECG and Electro-
Dermal activity
tracker to measure
stress levels
Fitbit is owned by
Google, while the
other watch is from
Apple
Fitbit

Implementation Purchase
Decision making is an inherently irrational process as we cannot consider all the possible
alternatives and their potential outcomes before making a selection. The choices made in the
above three cases take place in a situation of uncertainty and ambiguity as we do not have all
the necessary information available to us.
Needless to say, the best decision involves the use of pure logic and all available information
to choose an alternative that has a high expected subjective utility to the consumer.

Diffusion Decision Model

The model proposed by Ratcliff states that the cognitive process of decision making involves
the quality of the information, which lies on a scale ranging from a lower threshold of
information to a higher threshold of information.
Lower threshold comprises common knowledge, which in this case is a georgette saree that
can be worn outside (that is, to the temple or restaurants).
Higher threshold comprises the favourite colour of the person, her preferred brand and
designer.
An informed decision will require sufficient time to gather the required information resulting
in a larger gap between the lower and higher thresholds. However, the time constraint
resulted in accepting and inclusion of only the lower threshold information to make the final
choice.
Under the state of uncertainty and ambiguity, the brain assumes that a lack of pattern is a
threat to its existence. When threatened, instead of focusing on design thinking or a creative
and innovative process, the brain focuses the energy on survival and aims at moving away
from uncertainty to certainty.
As self-control is a limited resource, it became difficult to focus on searching through
various product options available on the website resulting in short-term stress and activation
of the right ventrolateral prefrontal cortex, which acts as a 'brain braking system' as it has a
critical role in emotional regulation, in particular concerning negative feelings (Vergallito,
Riva, & Pisoni, 2018).

Kahneman's Systems Approach

The mode proposed by Kahneman divides the thinking process into two separate systems:
System 1 is the brain's quick, intuitive and automatic approach as it works on the existing
biases to search for patterns and can be considered as the default setting of the brain that uses
limited cognitive abilities (The Marketing Society, 2017).
This system uses the amygdala to operate automatically (with no sense of voluntary control)
with little to no effort and works on the principle that self-control is a limited resource and
simple tasks should not be allocated a large chunk of the brain's processing energy.
The selection of the financial instrument was based on the following biases:

Social Proof
Belonging to a financially conservative family, selecting a safer option to stocks is
considered appropriate behaviour and, hence, Mutual Funds was chosen as they are a
combination of volatile stocks and steady paying bonds
Unconscious Bias
This involves the use of System 1, wherein the shortcut of considering the discounted
cost (or commission paid to the bank) was considered and weighed against the benefit
of safe returns on the investment.

Temporal Value Discounting

This is where one tends to discount r underestimate the value of future rewards and
focuses on short term results. As a young adult, there is impatience with regards to
receiving gains or rewards from the investment.
According to research, in such situations, the ventral striatum, which is concerned
with anticipatory rewards, is activated and has a larger response in young individuals
compared to older adults.
Loss Aversion
While individual stock trading does not incur commission costs, they are highly
volatile and can result in losses.
The selection of the saree from Amazon involved the below biases:

Liking and Rapport

The colour of the saree was chosen by my mother, and due to an existing affection
and rapport with her, I agreed to buy the gift in the colour of her choice (yellow) in
order to please her

Confirmation Bias
The choice of print on the product was based on my preference which was endorsed
by my mother. The feeling of being right is reassuring and rewarding as my decision
is being validated. This helps activate the reward network and results in the secretion
of oxytocin which enhances trust and bonding between my mother and me.

Anchoring Effect
The choice of the saree among the various options (which were yellow and had
similar print) was also based on the price. The product appeared to be at a 20 per cent
discount on the website. By offering lower prices and promotional sales, sellers
induce customers to compare the sale price against the original price, which is the
anchor, and perceive the discounted price as a fair bargain and purchase the product.
System 2 does not jump to conclusions as it allocates attention to cognitive activities such as
innovative and creative thinking to design effective solutions and complex computations for
the problem.
The selection of the fitness tracker involved cognitive activities such as:
I have an android phone and, hence, to be able to link my fitness data and view it on
the mobile device Fitbit product would be a viable choice
Additional functionalities such as
o ECG – will help monitor and identify abnormal sinus rhythm
o Electro-Dermal Activity (EDA) is interesting and will help monitor stress
levels in the body
In all three cases, the alternative chosen provides the highest subjective utility or
maximum satisfaction to the consumer.

Conclusions

Studies have demonstrated that brain data can predict the future success of products
more accurately than can traditional market research tools such as surveys and focus
groups
Traditional tools do not elicit the required information as
o The responses from the target audience or participants may not be accurate as
of the subject, the person's mood, their rapport with the interviewer or other
factors
o Respondents may not always be forthcoming about their memories, feelings
and preferences
o They may have a flawed recall
o They may also lie when they are trying to please or are embarrassed
o Their perception can be influenced by how the questions are asked
However, an fMRI scan of the brain will help pinpoint the exact location that is
activated and estimate the actual data
Market testing can overcome these shortfalls, but it can also be expensive to run, risks
alerting competitors to innovations, and can be performed only late in the
development process when production and distribution systems are already in place
Biases play an important role in decision making as they help reduce stress by acting
as a shortcut for mental activities as self-control is a limited resource
 Sufficient time is necessary in order to make an informed decision by designing
creative solutions (higher threshold of information and System 2). Here, the default
network is activated as there is no psychological stress regarding time constraints,
and the brain can be at rest. The brain can focus on internal thoughts and mental
activities, stop the processing of external stimuli, and as a result, generate innovative
ideas.
Pricing is one of the primary factors that impact individuals across the demographic
and has a direct relationship with the perceived worth of the product.

Recommendations based on Neuromarketing

Companies should invest in projects and research opportunities that focus on

identifying the location of the "Buy Button" in the brain, which persuades consumers
and impacts their buying decision
The neurophysiological changes in the complex neuronal network during a simple
decisional process involved in the purchase of a specific product is to be studied. The
response to advertising (that is, how the message is encoded) matters more than the
stimulus (the advertisement itself) because the response is what the ad leaves behind
an experience with the consumer
Based on the Plassmann study, the brain scans of test subjects as they tasted three
wines with different prices showed that their brains registered the wines differently,
with neural signatures indicating a preference for the most expensive wine. While in
actuality, all three wines were the same.
When consumers see a price, it may change their mental calculation of value; In the
study, the neural data differed when the price was displayed before and after the
exposure to the product, suggesting two different mental calculations:
o "Is this product worth the price?" when the price came first, and
o "Do I like this product?" when the product came first.
Hence, companies should try changing the perceived worth of their product through
innovative ad campaigns to make their products appear expensive and luxurious
Based on the 2004 Emory University research wherein Coca Cola and Pepsi were
served to subjects in an fMRI machine, brand awareness elicits enhanced activity in
the limbic structure (brain areas associated with emotions, memories and unconscious
processing), demonstrating that knowledge of the brand can alter how the brain
perceives a product.
Companies like Amazon can identify the preferred brand of consumers and provide
promotional discounts for those products to increase sales and customer views on the
site.
For example, young adults who have grown up consuming
Maggi and Nestle's ad campaign with mothers or siblings
elicit familiar memories and induce a sense of nostalgia
among the viewers.

Positive brand associations can literally override the basic pleasure response
received from the taste or smell. For example, Coca Cola's advertisement of "share a
coke" relates to the emotional aspect of family, meeting with friends and showing
kindness to others.
Studies have found that brain scans taken while participants watched antismoking
advertisements predicted the call volume to smoking-cessation hotlines, whereas
traditional surveys of ad effectiveness did not.
Language used in advertisements has an influence on the memories formed in the
brain. The neuromarketing technique is called hippocampal headlines, where a
familiar phrase is slightly altered, the hippocampus is
activated, resulting in piqued attention and recalling
memories in the individual. The Mutual fund
advertisement with the slogan "Mutual Fund – Sahi hai"
uses a colloquial term for 'alright' or 'fine' and reinforces
the idea that investment in the fund is safe or right.
Companies should focus on better segmentation – more effective segmentation of the
market can be carried out, which in turn leads to improved marketing of products by
considering individual product and brand preferences as well as consumer behaviour
in general
Marketers must focus on understanding which portions of a population are most
open to their advertising and branding efforts. This segmentation is traditionally
performed according to demographics (age, wealth and so on) or psychographics
(impulsivity). It may be more fruitful to segment consumers by brain differences: a
study by neuroscientists in INSEAD found differences in the brains of people who are
easily influenced by marketing cues.
Sleep nudging – Neuroscientists have learned that humans are susceptible to
influence in our sleep. A 2015 study found that exposing smokers to the smell of
cigarettes mixed with rotten eggs during "phase 2" of sleep (when the body prepares
for deep sleep) led to a reduction in smoking for several days. Since then, similar
work has shown the ability to increase preference for certain products or promote
certain behaviours.
Hormone manipulation or even strategising ad campaigns to trigger hormonal
reactions may be an effective method of capturing the market.
According to the 2015 study, consumers with increased testosterone preferred luxury
brands and, hence, led the researchers to the hypothesis that luxury goods represent
social markers and that testosterone makes people more sensitive to status. An
increase in the perceived status level activates the reward network, which in turn
results in the secretion of dopamine and lowering of the baseline cortisol levels.
Targeting advertisements related to luxurious products to fitness enthusiasts or Gym
members could be one way of triggering a hormone-based buying behaviour.
The way of presentation of certain decisions made by, for instance, role models in an
advertisement can have tremendous effects on the actual decision made by a
consumer, the attractiveness of an advertisement and its correlated activation of brain
areas
By making use of neuromarketing tools, researchers have concluded that more
attractive advertisements activate the ventromedial prefrontal cortex and ventral
striatum, which are responsible for emotions in the decision-making process and the
cognition of rewards. These brain regions were not activated when a less attractive
advertisement was presented.
Positive facial expressions are crucial and highly necessary in order to produce an
attractive advertisement to the consumers, and determining which images cause which
response in the medial prefrontal cortex should enable advertisers to increase sales.
Unattractive ads could be correlated with changes in brain activity in the anterior
insula, which was found to be involved in the processing of negative emotions.
Altering the anterior insula may help to manipulate the emotions and turn the negative
into a positive
Brand memories influence behaviour – The researchers found significantly greater
activation in the brain's reward circuits (that is, the ventral striatum, orbitofrontal
cortex and anterior cingulate) when looking at sports cars, which are considered as
symbols of social status, than sedans or small cars.
Pricing is a key indicator with regards to the presentation of a product and its
appearance to consumers; it is a vital indicator in the decision making process as it
involves evaluating and comparing the costs incurred against the benefits received
from the decision. Therefore, it may also be possible that consumers are being misled
by higher prices since they simply expect higher quality which may not be the case.
Willingness to pay – the maximum price that a consumer is ready to invest in
exchange for a certain product or service.
However, there is a problem with the expression "willingness to pay" as consumers
are relatively often not in the position to retrieve prices of certain products and maybe
may not be able to exactly determine how much they would be willing to pay for
certain products. Big data analysis will help identify this by tracking the number of
times an item is viewed (eye-tracking software can be employed), added to a wish list
and finally purchased on the site, and marketers can adjust prices accordingly.
Confronting test persons with products and a choice of different prices can also help
gauge willingness to pay. One can then ask which of the presented prices would
represent the maximum willingness to pay and analyse the brain activity as well to see
if regions of pain or happiness are being activated.
Branding and loyalty of consumers to their preferred brand is interconnected with
intense emotions in the decision-making process compared to other brands.
Customers using the most favourite brand can generate emotions that can influence
the decision-making process, which is called the winner take all effect.
They are more likely to act loyal to their preferred brand as there is a compelling
difference in brain activity between common brands and preferred brands
Based on the UK Royal Mail's research to investigate how the brain processes
physical marketing materials, such as direct mail, compared to virtual (or digital)
materials presented on a screen, tangible materials leave a deeper footprint in the
brain, physical materials stimulate both sight and touch, the material shown on cards
generated more activity within the area of the brain associated with the integration of
visual and spatial information. This suggests that physical material is more "real" to
the brain and has a meaning and a place as physical material involves more emotional
processing, which is important for memory and brand associations
Physical materials produced more brain responses connected with internal feelings,
suggesting greater internalisation of the advertisements.
The brain's default network appeared to remain more active when viewing direct
mail. Activity in default network has been associated with a greater focus on a
person's internal emotional response to outside stimuli. This suggests that the
individuals were relating information to their own thoughts and feelings. Hence,
greater emotional processing is facilitated by the physical material than by the virtual.
The "real" experience that the physical media provides means it's better at becoming a
part of the consumer's memory. It generates more emotion which should help to
develop more positive brand associations. The real experience is also internalised,
which means the materials have a more personal effect and therefore should aid
motivation.
Using more mobile solutions such as EEG (electroencephalograph) headsets,
combined with eye-tracking technology to capture precise data on how the brain
reacts when presented with certain scenarios. Hence, applied neuroscience can be
used primarily during one of the following points in a new project – either at the onset
while defining the business problem or later in the cycle while seeking new solutions
for users.
References

The Marketing Society. (2017). SYSTEM 1 AND SYSTEM 2 THINKING. Retrieved from The
Marketing Society: https://www.marketingsociety.com/think-piece/system-1-and-
system-2-thinking
Vergallito, A., Riva, P., & Pisoni, A. (2018). Modulation of negative emotions through
anodal tDCS over the right ventrolateral prefrontal cortex. Neuropsychologia, 10-15.