July 31, 2008
average reference price)
Day 4 Notes – Buyer Behaviour
THREE HEURISTICS
A) Availability Heuristic (2 parts)
1. Easily remembered information is more
important.
2. Easily remembered information is more true.
B) Framing Effect
-same info is framed either negative or positive
-negative scares off people much more than pos
information motivates people
--unless there is some reason to frame negatively (eg
milk fat)
C) Anchoring & Inadequate Adjustment
-mind is programmed to use anchors; final reference
point tends to be closer to the anchor
-date experiment: number of dates = anchor; happiness
was then measured
--surprisingly (to Prof), correlation was negative (-0.37)
-eg giving people an anchor, early on, will have an effect
on later behaviour …quoting higher price on e-bay as
the initial asking price
-eg including a higher (eg American) price in the same
ad that highlights your (Canadian price)
-anchors repel if the gap is too large (gap between the
anchor and what is realistic for you)
(FOURTH HEURISTIC – judgment)
D) Decoy Effect
-in product line, the middle option is usually chosen
since one is getting the “best of both worlds”
-eg Carnival – the Fun Ships (trips): 3 day, 4 day, and 5
day  the 5 day trip increases the average reference
price
-eg flat screen TVs
-eg Accord, Civic, Fit
-eg Williams-Sonoma adding a larger, more expensive
$400 bread machine to its catalogue increased sales of
its $275 bread machine (Prof says this is increasing the
HIGH EFFORT JUDGMENT HEURISTICS
-Anchor & Don’t Adjust (Anchoring & Adjust’t): C
-Weight Negative > Positive (Framing): B
-Decoy (Compromise): D
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PROSPECT THEORY
-explains the heuristics
-“losses loom larger than gains”
-theory describes how individuals evaluate potential
losses and gains. In the original formulation the term
prospect referred to a lottery.
- The theory describes such decision processes as
consisting of two stages, editing and evaluation.
-In the first, possible outcomes of the decision are
ordered following some heuristic. In particular, people
decide which outcomes they see as basically identical
and they set a reference point and consider lower
outcomes as losses and larger as gains
Eg Lotto Winners vs. Paraplegics
-two groups asked many questions, including “how
happy are you?”
-after 5 years, both groups coming close together
(winners’ happiness went down; paraplegics’ happiness
went up)
shows that each group’s reference points had
changed
--
Presentation: Chie & Tuesday – Low involvement
Decisions
Presentation: Yousef & Mario – Influence Tactics
--
 Prof: REPEAT CUSTOMERS
Based on Customer Satisfaction &
Repeat Purchase (loyalty)
-many good things that come from repeat purchase
flow from customer satisfaction
-but, they may repeat because there is lack of
competition, or because the price is being constantly
lowered (you can’t rely on these, though, in the long
run)  better to rely on customer satisfaction
-increase in incomes & material wealth has not tracked
increase in happiness over time
-actually, men are becoming slightly more happy;
women are becoming less happy
What influences satisfaction?
-with life
-with people
-with products
GAP MODEL
-it’s really just TORA + Expectations / Gap
Things that drive Customer Satisfaction
 performance (functional attributes)
 expectations (exp’n 1 + exp’n 2)
 feelings (hedonic attributes)
 GAP: functional gap (actual – expected) + hedonic
gap (actual – expected)
….so, marketers want to increase positive gap to
increase customer satisfaction
….accordingly, it may make sense to “hold back” some
attributes, so that you can surprise the customer and
increase the gap, and increase satisfaction
it’s a way of getting customers hooked at the
beginning, after which company can use maintenance
tactics
ATTRIBUTION MODEL
-to explain lost satisfaction…it’s
a special case of the GAP Model
(see slides)
-eg people stuck on tarmac for 8 hours….people want to
know (attributions for negative gap in satisfaction)
* who is to blame?
* what is being done to fix this?
Negative info
-people remember negatives more than positives
-also, they are more likely to tell others about problems
they have with a brand
EQUITY MODEL
-corporate actions also count
 people want to ensure the whole value chain is
being treated fairly
 Starbucks highlighting CSR aspects;
 BASF also highlighting environmental friendliness
(bio-degradable plastic);
 American Apparel is “sweatshop free”
People care about
-environment (eg Apple computers avoid the landfill)
-fairness to workers (Starbucks has fair trade coffee)
-social causes (charities)
--
BIASES IN SATISFACTION JUDGMENTS
 subject to….
Confirmation Bias
-eg price guarantee is not well exploited by customers
(they just want to believe they got a good deal and
avoid finding out that the price decreased)
First Impressions Count
-losses loom larger than gains
-harder to “fix” first negative impression (takes more
interactions to change, eg 9); than to “lose” first
positive impression (takes fewer interactions to change,
eg 6)
The “Psychic Effect”
-confirmation bias stronger when
* expectations are open-ended
* expectations are non-falsifiable
* expectations is perceptual, not quantifiable
Error of Attribution
-when things go wrong, one’s first tendency is to blame
to most concrete, obvious thing… so firms are blamed
when causes are actually external
 Complaints as Opportunities?
 accept responsibility
 quick action: replace, repair, refund, exchange
 exceed compensation expectations?
Recovered Complaint  higher expectations /
satisfaction
Presentation: The Customer’s Revenge
-Luchian & Francois
Atida Motors case
-good reputation for style and performance, less so for
customer service (but improving)
-new customer service manager opened a new state-of-
the art call centre in Bangalore
-new model of car was introduced
“Andromeda”….experiencing a lot of complaints
-how to address customer complaints?
Recommendations
-meet expectations and perhaps surpass them
-offer reimbursements
-presenters are stressing that in the age of YouTube,
customers have more power to get back at companies
SOCIAL PRESSURE (SP)
-used to be that marketing got producers 1 week of
movie sales, regardless of quality of movie
-now, it is just a day or two
-advertising is less important nowadays, with VIRAL
advertising (word-of-mouth) taking more prominence
For what kind of product is SP most influential?
 Publicly consumed stuff: clothing, watches, auto,
shoes (because they are used socially)
 SP is less influential for purely functional products
(not used socially)
 Luxury goods (by definition, they are not functional)
How do Groups change our mind? When do we
separate ourselves from the group?
 small group interaction experiment – discussion of
controversial topic for 1 hour….
 One will either go towards “groupthink” or
“polarize” (away from the group)
HIGH issue importance  Polarization
-one is more subject to confirmation bias to confirm his
own opinion (on that highly important topic)
LARGE group size (& small gap)  Groupthink
HIGH Group Expertise  Groupthink
--
IMPORTANCE OF CHILDHOOD
-opinions on topics of work, religion, achievement,
relationships, food appear to be formed during
childhood
 children will tentatively accept what they are told
(eg stereotypes)
 repetition = truth (availability heuristic)
Group Presentation – Nature vs. Nurture
(Harris Article)
 Parents  traditional view was that this is what
matters (psychological determinism, Freud)
 Harris suggests that friends are more determinative
 Also, genetics play a very important role: twin
studies where twins have been separated, suggests
that parents’ behaviour have little effect on their
offspring’s behaviour
 But Cinderella effect: ability to adapt behaviour to
environment
 “Peer Trumps Parents” – helps to explain why kids
of divorced parents more likely to drop out of
school / get pregnant (since they have to change
peer groups, have less stable peer group)