[Resource of the Day] – Rethinking Consumer Behavior

This summer, I’m finishing my undergraduate degree in Business Administration (with an emphasis on Marketing) and preparing myself for graduate school, where I’ll be working towards my Master in Marketing Research (MMR) degree. I actually only needed to take three classes this summer to get enough credits to move on, but I decided to add a fourth, “Consumer Behavior,” because I thought it would be an important class to take.Sadly, the class text doesn’t have a lot of “meat” to it, and though it includes some models for consumer decision-making, they’re extremely abstract and don’t seem to reflect reality very well. At first, I thought that the problem was that I didn’t understand the subject. But coincidentally, while I’ve been taking this class, I’ve been reading a book called Sources of Power: How People Make Decisions by Gary Klein. While my consumer behavior text focuses on how consumers select goods and make purchases, this book focuses on the decision-making process in general, attempting to build a model for how decisions are made (primarily under pressure) and the steps that people take to evaluate alternatives.

What’s interesting is that the two books are entirely at odds with one another. And what’s even worse is that Sources of Power seems to be much closer to the truth. I guess I could have saved myself some time and money by reading it before I enrolled in my Consumer Behavior class. But actually, it’s valuable to know the “textbook” theories of consumer behavior… because I’ll know what to expect my competitors to do down the road.

How do you shop? Chances are good that you’ve never really thought about it. But if you’re thinking about creating products for consumers (and if you’re going into publishing, you are!), it’s really important to understand not only your own shopping habits, but those of consumers in general.

My textbook, Consumer Behavior: Building Marketing Strategy 9/e, says that consumers shop in the following way:

First, they recognize a problem: “I’m out of peanut butter,” or “I need a new laptop computer.” Next, they search for information on their purchase, whether it’s internal (“Which brands do I like? Which ones do I usually buy?”) or external (“Which laptop are the experts recommending right now?”). If the decision is not a routine purchase, the consumer will weigh the alternatives (“Which laptop gives me the most features for the least amount of money? Which brands do I trust, and which should I avoid?”). Then, the consumer will make the purchase, and afterward, the consumer will make a postpurchase evaluation (ranging from “Mm, this peanut butter is good,” to “Wow, I paid too much for this junky laptop.”)

It’s a pretty straightforward model, and it’s augmented by the distinction between what the textbook calls a “low-involvement decision,” which refers to routine purchases that consumers make almost automatically, and a “high-involvement decision,” like buying a car, house, computer, or other major item that requires a significant amount of research. Consumers will only search for information for so long, though, before they finally settle on an item, so it’s important for companies to make their information readily available.

Now, this model is fairly straightforward and might seem to be based on common sense. I remember nodding when it was presented in class, since it seemed to describe the buying process fairly accurately.

But, in the weeks since we covered it, I’ve come to realize that this model does not do a good job of explaining all purchases. It only explains purchases that require weighing alternatives, whether they’re at the grocery store or the electronics store.

And it doesn’t explain a great deal of the purchasing that happens out there.

Sources of Power takes a different, more realistic approach to decision-making. Though the book is not about consumer behavior, it is about human behavior, and specifically, how different elements of decision-making affect leadership overall. Before I begin discussing its model, let me just say that if you are interested in understanding how leadership works on a fundamental level, you should read this book. It’s not a motivational book or a guide; it’s a presentation of years of research in a very readable format.

The author of the book explains that when he began his research, he believed the theory that decision-makers often isolated two alternatives, weighed the pros and cons of each, and selected the stronger alternative. But as the author and his team began interviewing people who often were required to make tough decisions, such as firemen, military commanders and nurses, they discovered that all too often, people don’t make decisions in the traditional sense; they simply react to cues and tailor their actions accordingly. For example, a firefighter might be on a roof fighting a blaze, and realize that the roof is beginning to soften — a sure sign that it’s about to collapse. The firefighter won’t stop and weigh the alternative of fighting the fire or getting off the roof; he or she will simply get off the roof.

This leads the author to develop what he calls a “Recognition-primed decision model,” or an RPD model. The idea of this model is that a decision-maker will first experience a situation, and then perceive it as either typical or atypical. Once the decision-maker recognizes the problem, he or she will either act accordingly, diagnose the problem and confirm its existence, or create a mental simulation of the action, ensure that it will work, and then follow through with it.

In consumer terms, I might run out of Count Chocula breakfast cereal. So, as soon as I realize that I’m out, I’ll tell myself that I need more and then note it on my (mental or physical) shopping list. I won’t weigh alternatives, or consider other brands, as my consumer behavior book suggests. I’ll just buy more Count Chocula.

For a higher involvement decision, such as purchasing a new camera, I would first experience a situation that makes me aware that I need a camera, such as seeing a friend show off a cool new 8 megapixel gadget or simply breaking my old one. Once I realized that this situation needed my attention, I would plan out a course of action, which might involve researching new cameras until I found a good deal online, or simply driving to the nearest camera store and purchasing what my friend already owns. Once I settled on a plan of action that I could see myself doing, I would carry it out.

This model seems a little bit more realistic to me, because it incorporates something that the other model leaves out: uninformed and unplanned decisions. It also helps to explain why so many people buy on impulse; they have already developed a mental simulation of the kind of person that they would like to be, and when they come across an item that triggers the experience, they can imagine themselves realistically owning it and make the purchase. This also explains why consumers tend to be more persuaded to buy things which are familiar than those which are new; experience leads them to make the choice that they’ve made in the past. If that choice led to less-than-desired consequences, they’re more inclined to try an alternative. But if it was successful, they’re more likely to stick to what they know.

I’m sure this is over the heads of a lot of my readers here, but I’ll keep going for those who are keeping up. If I am rethinking this correctly, then virtually everything that is taught in business schools about branding strategy is incorrect because it approaches the issue from the wrong perspective. The idea of branding is that it creates a perception of a product in a consumer’s mind and essentially becomes the product. A consumer doesn’t just buy cola; he or she buys Coke or Pepsi. Both are just sugary carbonated water with an acidic bite. Both taste very similar. But consumers view them as completely different products that represent different lifestyles and values. That’s what a brand is good for.

But if consumers are buying products not out of preference, and not out of low-involvement decision making, but rather as a result of decision-making that stems from past experiences, then brands are less important as part of a positioning strategy and more important as part of a recognition strategy. That goes against a lot of what I’ve learned in my marketing classes, but the scary thing is that it actually makes more sense. I’ve often wondered why consumers insist on buying what they’re familiar with instead of weighing the alternatives and choosing the superior product. Framing their decision-making process this way gives me a satisfying answer.

I’m getting a little abstract here, so let me give an example to bring this all together. I used to run an EB Games video game store, and my job was to help customers locate games that would make them happy enough with their purchase that they’d come back. That wasn’t the easiest thing to do, since many customers had different tastes in video games than I did. But I realized early on that just because I didn’t like a game didn’t mean that my customers wouldn’t, and that just because a game had been a critical flop didn’t mean it had to be a commercial flop as well. So I did my best to learn as much as I could about each game we carried, and tried to tailor my recommendations to customers based on the kinds of games they indicated that they liked.

A typical sale would work this way. A customer would come in and tell me how much they loved, say, Ghost Recon 2 for the Xbox, and they would ask me what else I would recommend along those lines. My first question would be, “What did you like about it?”, since customers often liked different games for different reasons. If their answer was the violence, I could steer them one way, towards games like The Chronicles of Riddick, Doom 3 and Half-Life 2. If their answer was the realism, I could steer them another way, towards games like Rainbow Six 3, Conflict: Global Ops and Splinter Cell. If their answer was the co-op play, I could steer them yet another way, towards games like TimeSplitters 3 and Sniper Elite or Halo 2. My goal was not to just hand them a game that I felt was like the one they enjoyed; my goal was to find out what they liked about it first and then help them select alternatives.

But oddly, most people didn’t want alternatives. They wanted a recommendation of what they should play next. If I handed them two or three games, they’d generally ask me which one was best and then buy that one. If I overwhelmed them with choices, handing them eight or nine games, they often would not be able to select a game and would ask me to narrow their choices down to two or three. Rarely did customers decide for themselves without first seeking my input. A handful of customers came in knowing exactly what they wanted, but most wanted to put as much of the decision in my hands as possible.

I think it was because I intuitively understood this, and trained my sales associates to follow this philosophy, that we were so successful. I used to attribute our success to superior customer service, which we did offer. But looking back on the situation now, I realize that a large part of our success was due to helping customers isolate the experience they wanted to repeat and then offering them ways to do so.

So, how does this affect a publishing company? Profoundly, I’d say. Traditionally in publishing, there has been a huge emphasis on three strategies of selling:

1) Content is king. Get the best content, and you’ll have the biggest sales. Oddly, I’ve come to think that this is the weakest of the three strategies, and the least represented by reality.

2) Bestsellers are king. Get a book on the bestseller list and it will make the rest of your line shine, especially if you’ve got a large backlist from that author. This strategy has worked really well for folks like Nora Roberts, Michael Crichton and Janet Evanovich, and especially well for their respective publishers. Unfortunately, this strategy is not cost effective for a small publisher; it’s too expensive to buy your way into a bestseller.

3) Licensing and/or endorsements are king. If you can play off the popularity of someone else, you’ll make money. Get Oprah to recommend your book and it becomes a multi-million seller; write a book about the literary merits of Harry Potter and release it in time for the next movie and you’ll see surefire sales. Likewise, if you can license a popular story or intellectual property and produce books that go along with it, you’ll make plenty of money, and with very little extra work involved. In fact, you’ll often have the confidence of investors who are already familiar with the property.

Notice that of the three, the weakest is the one that is based on quality and content, not recognition. As sad as that may sound, it’s because consumers aren’t actually looking for quality and content when they’re looking for new things… at least, not consciously.

They’re looking for products that they think will give them the same experience they’ve had before.

Thinking about this now, it should have been obvious to me, because I’ve often seen this in friends. For example, I have many friends who enjoy the novels in the Douglas Adams series, The Hitchhiker’s Guide to the Galaxy. Fair enough — the first two books are fantastic, and the last three, while less inspired, are still fun reads. But for some reason, whenever I tell these friends to try reading Terry Pratchett – who writes in exactly the same style! – they won’t give his work a try because it’s based around a fantasy world and not a science fiction storyline. Even though Pratchett’s books will likely make them feel like they’re reading Douglas Adams all over again, they don’t think that they’ll have that experience, so they refuse to try.

I used to think that that sort of stubborn resistance came from people simply not wanting to try new things. But now, I’m beginning to suspect that it’s hard-wired into our decision-making process… that we’ll only try new things if we are seeking the thrill of experiencing something new.

So, how do marketers get around this?

Well, if you recall, I’ve likened advertising to a giant wishing well, where companies toss their money into a big black hole and hope for a return. I still feel that way about advertising, but… I now see an application for advertising that I didn’t see before. Specifically, if ads can be used to make an unfamiliar product seem familiar to people, they’re more likely to purchase it than not. And while I’ve seen ad campaigns do this in the past, I’m not sure that they’ve all done it specifically for this reason. In fact, most have still taken a sales-centric approach in their message, which is a waste of time if the consumer decision process follows the RPD model as I suspect.

No, advertising still needs to be conducted in a smart, measured way that can be accurately gauged by the company spending the money. But it is one way to make the strange familiar. It just has to be done right, and it has to reach the right audience.

Product placement is probably also a good strategy, though it needs to be sustained to have a real impact.

Stealth marketing is an excellent strategy, though it may be illegal before long since it brings up so many ethical issues.

An active media campaign is certainly a good tool, as are guerilla marketing opportunities and carefully targeted sponsorships.

Rebates and promotional pricing are actually bad strategies to use in this framework, since they focus on elements other than familiarity of the product.

Anyhow, this is a lot to chew on, and I suspect that I’ll be refining what I’m rethinking here quite a bit over the next year or two. But for now, I’ll conclude the following:

It’s much better to have a product that feels familiar than a product that strives to break new ground.

-SJJ

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Resource of the Day | SeanJJordan | July 6, 2008 12:13 am

1 Comment

By Jason Maranto, July 6, 2008 @ 7:39 am

This is all very interesting — as you know I owned a picture frame shop/art gallery for 5 years in which time I dealt with every single customer who came in.

There were a couple of truths I gleaned just from observation of the transaction:

1) Most of the customers came to me already ready to purchase — they just weren’t sure exactly what they wanted and were seeking my “expert” guidance. I would have to beat them with a stick to not get them to buy… it didn’t matter if the price was higher than they expected or the look wasn’t what they envisioned, they were determined to get it over with.

2) I was perceived as higher quality and more expensive than the “big box” stores not because of any marketing I did to that effect but simply because of the market expectations — the truth was I was cheaper and better, but often people would not bring me their less valuable items because of a perception of wasting my time — maybe possibly being embarrassed over bringing me something worthless because I’m an “expert”?

3) The customer always wanted my approval, regardless of what they thought of their decisions… in their mind I was the expert.

4) Ultimate alot of the decisions on what I sold were driven by lifestyle perceptions — the customer saw themselves living/desiring a certain lifestyle and my product helped them achieve that vision.

What that all says to me is that the most effective marking is reaching out the the clerks who deal with the customers 1-on-1 every day and who have their trust — if you can win the clerk over to you then they will become your evangelists.

That said I think quality then takes a bigger role in the success of the product because most clerks are going to be more savvy about the product seeing as they deal with it all day long — and much like movie critics they will be looking for new experiences, since they are bored from being saturated with the norm.

Of course this completely leaves of the issue of personal charisma which is the total deciding factor in the “expert” designation. If you know everything there is to know about a product but yet are repugnant to the consumer then the expert designation will not stick.

So to sum up my point I think you want a base of charismatic “experts” who like and believe in your product as a chief ingredient of successful marketing.

The bottom line is people buy from people and oftentimes it just comes down to wanting to be perceived as being wise or accepted/admired — though obviously internet and catalog sales change that dynamic some.

Best,
Jason.

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by Sean J. Jordan