Why Study Problem Recognition?Why Study Problem Recognition?

�� Market offerings are responses to consumer Market offerings are responses to consumer

problems, whether problems, whether real or unrealreal or unreal..

–– Of importance is the consumer’s Of importance is the consumer’s perceivedperceived

difference between a difference between a desired and actual statedesired and actual state..

�� Marketers Can Influence?Marketers Can Influence?

–– What consumers see as problems.What consumers see as problems.

–– What consumers see as possible solutions.What consumers see as possible solutions.

–– Consumers’ search for solutions.Consumers’ search for solutions.

Some “Problems” and SolutionsSome “Problems” and Solutions

�� My car is not fast enough!My car is not fast enough!–– Buy a faster car.Buy a faster car.

–– Buy a car that Buy a car that lookslooks faster.faster.

�� I am going bald!I am going bald!–– Get hair implants.Get hair implants.

–– Wear a hat.Wear a hat.

�� I am not cool.I am not cool.–– Buy trendy clothes.Buy trendy clothes.

–– Get drunk and smoke.Get drunk and smoke.

Ideal StateIdeal State

�� Where we want, or think we want, to be.Where we want, or think we want, to be.

�� Based on:Based on:

–– Simple expectations.Simple expectations.

–– Aspirations.Aspirations.

�� Moderated by:Moderated by:

–– Culture.Culture.

–– Life Changes:Life Changes:

�� Promotion, birth of child, etc.Promotion, birth of child, etc.

Actual StateActual State

�� Where we are now.Where we are now.

�� Based on:Based on:

–– Basic Consumer Needs.Basic Consumer Needs.

–– Simple Physical Factors:Simple Physical Factors:

�� Depletion and wearDepletion and wear--out.out.

�� Product malfunctions.Product malfunctions.

–– External Stimuli:External Stimuli:

�� Advertising and reminders.Advertising and reminders.

�� Comparison to others; peer pressure.Comparison to others; peer pressure.

Creating Problems for ConsumersCreating Problems for Consumers

�� Create New Desired State:Create New Desired State:

–– Fashion (everFashion (ever--changing).changing).

–– Software.Software.

�� Create Actual State Dissatisfaction:Create Actual State Dissatisfaction:

–– Fear of crime:Fear of crime:

�� Buy club, guns, pepper spray, alarms. Buy club, guns, pepper spray, alarms.

–– Fear of aging: Fear of aging:

�� Buy healthcare products.Buy healthcare products.

�� Join a gym.Join a gym.

�� Buy antiBuy anti--aging cream.aging cream.

How Consumers How Consumers Search for InformationSearch for Information

INTERNALINTERNAL:

Searching informationSearching information

from memoryfrom memory

EXTERNALEXTERNAL:

Acquire informationAcquire information

from outside sourcesfrom outside sources

PurchasePurchase DecisionDecision

Internal SearchInternal Search(Passive)(Passive)

�� Definition: Definition:

–– Searching for information from memory.Searching for information from memory.

–– Effort depends on importance, motivation, Effort depends on importance, motivation, and experience.and experience.

�� Biased by (among other things):Biased by (among other things):

–– Confirmation Bias: Confirmation Bias:

�� Seeking or interpreting information in a way Seeking or interpreting information in a way partial to one’s own expectations or beliefs.partial to one’s own expectations or beliefs.

–– Mood:Mood:

�� Frame of mind towards an object.Frame of mind towards an object.

External SearchExternal Search(Active)(Active)

�� Types:Types:

–– Prepurchase:Prepurchase: in response to problem recognition.in response to problem recognition.

–– Ongoing:Ongoing: on regular basis.on regular basis.

�� Sources of Information:Sources of Information:

–– Retailers, media, interpersonal, independent, Retailers, media, interpersonal, independent, and experience.and experience.

–– Internet:Internet:

�� Search AdvertisingSearch Advertising

�� Display/Banner Ads.Display/Banner Ads.

�� Classifieds.Classifieds.

..

Global Internet StatisticsGlobal Internet Statistics

RegionsRegions PopulationPopulationInternet Internet UsageUsage

PenetrationPenetrationPercent Percent of World of World UsageUsage

GrowthGrowth20002000--20072007

AfricaAfrica 933,448,292933,448,292 32,765,70032,765,700 3.5%3.5% 3.0%3.0% 625.8%625.8%

AsiaAsia 3,712,527,6243,712,527,624 389,392,288389,392,288 10.5%10.5% 35.6%35.6% 240.7%240.7%

EuropeEurope 809,624,686809,624,686 312,722,892312,722,892 38.6%38.6% 28.6%28.6% 197.6%197.6%

Middle EastMiddle East 193,452,727193,452,727 19,382,40019,382,400 10.0%10.0% 1.8%1.8% 490.1%490.1%

North AmericaNorth America 334,538,018334,538,018 232,057,067232,057,067 69.4%69.4% 21.2%21.2% 114.7%114.7%

Latin Latin America/CaribbeanAmerica/Caribbean

556,606,627556,606,627 88,778,98688,778,986 16.0%16.0% 8.1%8.1% 391.3%391.3%

Oceania / AustraliaOceania / Australia 34,468,44334,468,443 18,430,35918,430,359 53.5%53.5% 1.7%1.7% 141.9%141.9%

WORLD TOTALWORLD TOTAL 6,574,666,4176,574,666,417 1,093,529,6921,093,529,692 16.6%16.6% 100.0%100.0% 202.9%202.9%

Perceived Costs and Benefits of Perceived Costs and Benefits of Consumer Search Guide Search EffectConsumer Search Guide Search Effect

Perceived Costs and Benefits of Perceived Costs and Benefits of Consumer Search Guide Search EffectConsumer Search Guide Search Effect

Benefits Benefits

vs. vs.

CostsCosts

(Worth it?)(Worth it?)

YESYES

NONO

Benefits Obtained:Benefits Obtained:

FinancialFinancial

GratificationGratificationPhysicalPhysical

ProductProduct

ContinueContinue

SearchSearch

Terminate Terminate

SearchSearch

Costs of Search:Costs of Search:

ExpensesExpenses

StressStressTimeTime

Activities MissedActivities Missed

Brand Consideration Sets Brand Consideration Sets

�� Awareness Set:Awareness Set:

–– Brands the consumer is Brands the consumer is aware ofaware of through recall or through recall or from searching.from searching.

�� Evoked / Consideration Evoked / Consideration Set:Set:

–– Brands the consumer Brands the consumer mightmight consider purchasing.consider purchasing.

�� Inert Set:Inert Set:

–– Brands the consumer feels Brands the consumer feels indifferentindifferent about.about.

�� Inept Set:Inept Set:

–– Brands the consumer does Brands the consumer does notnot want.want.

Awareness SetAwareness Set

All brands in product classAll brands in product class

Unknown brandsUnknown brands Known brandsKnown brands

Brands Brands

found found

accidentallyaccidentally

Brands Brands

found throughfound through

searchsearch

BrandsBrands

recalledrecalled

from memoryfrom memory

UnrecalledUnrecalled

brandsbrands

Inept SetInept Set(unacceptable)(unacceptable)

Inert SetInert Set(indifference)(indifference)

Evoked SetEvoked Set(consideration)(consideration)

ChoiceChoice

How Do Consumers Choose How Do Consumers Choose After Recognizing a Problem?After Recognizing a Problem?

Alternative EvaluationAlternative Evaluation

�� Consumers compare and contrast Consumers compare and contrast different solutionsdifferent solutions to the to the samesame problem.problem.

��Often based on quick processing:Often based on quick processing:

––Heuristics. Heuristics.

��Other times requires effortful processing:Other times requires effortful processing:

––Compensatory.Compensatory.

––NonNon--compensatory.compensatory.

Low Effort DecisionLow Effort Decision--making:making:HeuristicsHeuristics

��Mental shortcuts for quick decision.Mental shortcuts for quick decision.

��Often based on:Often based on:

––Price.Price.

––Brand Reputation.Brand Reputation.

––Normative Influences.Normative Influences.

––Product Features / Presentation: Product Features / Presentation:

��Used car example.Used car example.

Encouraging Heuristic PurchasesEncouraging Heuristic Purchases

�� PointPoint--ofof--purchase displays.purchase displays.

�� Reduced prices.Reduced prices.

�� InIn--store coupons or specials store coupons or specials (e.g., loyalty cards).(e.g., loyalty cards).

�� MultipleMultiple--item discounts.item discounts.

�� Packaging.Packaging.

�� Demonstrations or free Demonstrations or free tasters (experiential).tasters (experiential).

�� Salespeople:Salespeople:–– Empathy.Empathy.

–– Perspective Taker.Perspective Taker.

High Effort DecisionHigh Effort Decision--making:making:Evaluative AttributesEvaluative Attributes

�� Evaluative Attributes:Evaluative Attributes:––Means by which consumers compare Means by which consumers compare product classes, brands, vendors, etc.product classes, brands, vendors, etc.

�� Tangible Attributes:Tangible Attributes:––Based on things such as price, color, size, Based on things such as price, color, size, shape, and performance.shape, and performance.

�� Intangible Attributes:Intangible Attributes:––Benefits based on things such as brand Benefits based on things such as brand image and ownership feelings.image and ownership feelings.

Compensatory RulesCompensatory Rules

�� Simple Additive:Simple Additive:

–– Total scores on Total scores on allall product attributes for product attributes for eacheachalternative and the highest score wins.alternative and the highest score wins.

–– Assumes all criteria of Assumes all criteria of equalequal valuation.valuation.

�� Weighted Additive:Weighted Additive:

–– Assign relative weight to Assign relative weight to eacheach product attribute product attribute based on perceived importance and then multiply based on perceived importance and then multiply the score by the weight to arrive at a weighted the score by the weight to arrive at a weighted score, then sum scores and highest score wins.score, then sum scores and highest score wins.

Simple Additive and WeightedSimple Additive and WeightedModel ExamplesModel Examples

Decision: Choose CanonCanon

EpsonEpson CanonCanon Weight Weight (1(1--5)5)

EpsonEpson CanonCanon

PricePrice 55 33 55 2525 1515

WeightWeight 33 44 22 66 88

ProcessorProcessor 55 55 55 2525 1515

Battery Battery LifeLife

11 33 33 33 99

After Sales After Sales SupportSupport

33 33 11 33 33

Display Display QualityQuality

33 33 33 99 99

TOTALTOTAL 2020 2121 7171 5959

Decision: Choose EpsonEpson

NonNon--compensatory Rulescompensatory Rules

�� Disjunctive: Disjunctive: –– Decide Decide whichwhich attributes attributes are or are not are or are not determinant and then establish a minimum score determinant and then establish a minimum score for each one. for each one.

–– Meet minimum “in” or do not and “out”.Meet minimum “in” or do not and “out”.

�� Example Example -- Selecting a Course:Selecting a Course:–– Important attributes: Important attributes:

�� Cuteness of the professor.Cuteness of the professor.�� Easiness of the class.Easiness of the class.

–– Establish a minimum for each:Establish a minimum for each:�� Have a chili pepper.Have a chili pepper.�� At least 3 / 5 easiness.At least 3 / 5 easiness. Rate My Professors

NonNon--compensatory Rulescompensatory Rules

�� Conjunctive: Conjunctive:

–– Consider Consider allall attributes as determinant and then attributes as determinant and then establish a minimum acceptable score for each. establish a minimum acceptable score for each.

–– Meet Meet allall minima “in” otherwise “out”.minima “in” otherwise “out”.

�� Example Example -- Selecting a Course:Selecting a Course:

–– Establish a minimum for Establish a minimum for allall attributes:attributes:

�� Have a chili pepper.Have a chili pepper.

�� At least 3 / 5 easiness.At least 3 / 5 easiness.

�� At least 4 / 5 overall quality.At least 4 / 5 overall quality.

NonNon--compensatory Rulescompensatory Rules

�� Lexicographic:Lexicographic:

–– Rank Rank eacheach attribute in order of importance.attribute in order of importance.

–– Compare alternatives using Compare alternatives using mostmost important important attributes with highest score winning.attributes with highest score winning.

–– If tie for high score, subsequent most important If tie for high score, subsequent most important attributes evaluated until “winner” emerges.attributes evaluated until “winner” emerges.

�� Example Example -- Selecting a Course:Selecting a Course:

–– Most important attribute = easiness = enroll.Most important attribute = easiness = enroll.

Evaluative AttributesEvaluative Attributes

�� Typically consumers use from Typically consumers use from 44--66 criteria:criteria:–– Increased importance and product Increased importance and product experience result in a experience result in a greatergreater number of number of criteria used.criteria used.

–– Increased importance results in Increased importance results in fewerfeweracceptable alternatives.acceptable alternatives.

�� Criteria may be used in combination.Criteria may be used in combination.

Evaluative Attributes (Cont.)Evaluative Attributes (Cont.)

�� Use of price varies by product category.Use of price varies by product category.

�� Price can give sense of Price can give sense of valuevalue regardless of product regardless of product quality (e.g., $1,000 suit).quality (e.g., $1,000 suit).

�� Price can give sense of Price can give sense of qualityquality regardless of product regardless of product quality (e.g., wine research).quality (e.g., wine research).

�� Acceptable price is influenced by past purchases:Acceptable price is influenced by past purchases:

–– Arbitrary Price Coherence.Arbitrary Price Coherence.

–– Coherent Price.Coherent Price.

�� Discount Range:Discount Range:

–– Reciprocal Altruism.Reciprocal Altruism.

Evaluative Attributes (Cont.)Evaluative Attributes (Cont.)

�� Brand Reputation: Brand Reputation:

–– Brand names may serve as an indicator of quality Brand names may serve as an indicator of quality and/or consistency of satisfaction, thereby and/or consistency of satisfaction, thereby lessening risk.lessening risk.

�� CountryCountry--ofof--Origin:Origin:

–– Globalization has resulted in the growing Globalization has resulted in the growing importance of product origin as a signal for importance of product origin as a signal for quality and status (e.g., luxury goods).quality and status (e.g., luxury goods).

AntiAnti--NationismsNationisms DefinedDefined

–– “a predisposition to hostility toward the XX and XX’s “a predisposition to hostility toward the XX and XX’s society, a relentless critical impulse toward XX society, a relentless critical impulse toward XX social, economic, and political institutions, social, economic, and political institutions, traditions, and values...” (Hollander 1992).traditions, and values...” (Hollander 1992).

–– “an unfavorable predisposition towards XX, which “an unfavorable predisposition towards XX, which leads individuals to interpret XX’s actions through leads individuals to interpret XX’s actions through prepre--existing views and negative stereotypes, existing views and negative stereotypes, irrespectively of the facts… which may or may not irrespectively of the facts… which may or may not affect political [affect political [or consumeror consumer] behavior.” (] behavior.” (MeunierMeunier2005).2005).

Forms of AntiForms of Anti--NationismsNationisms

�� Structural: Structural: longlong--term sentiment that is rooted in major term sentiment that is rooted in major ideological, cultural, and religious differences.ideological, cultural, and religious differences.

–– Difficult to address due to the nature of the Difficult to address due to the nature of the differences and that the feelings are often heavily differences and that the feelings are often heavily engrained in the psyche of the people having engrained in the psyche of the people having developed over a long period of time. developed over a long period of time.

�� Particularistic:Particularistic: relatively shortrelatively short--term sentiment which is term sentiment which is reactive to a specific event.reactive to a specific event.

–– More easily addressed as feelings have had little More easily addressed as feelings have had little time to fester.time to fester.

Some Sources of AntiSome Sources of Anti--NationismsNationisms

�� Foreign PolicyForeign Policy: people either disagree : people either disagree with it or do not identify with it.with it or do not identify with it.

�� Effects of GlobalizationEffects of Globalization: people : people exploited by global expansion. exploited by global expansion.

�� Cultural PervasivenessCultural Pervasiveness: many feel : many feel global cultures promote values that global cultures promote values that are in conflict with local norms. are in conflict with local norms.

�� Hatred of the political establishmentHatred of the political establishment..

�� Just BecauseJust Because. .

Business ImpactsBusiness Impacts

�� BoycottsBoycotts (active and passive). (active and passive).

�� Erosion of Brand Power.Erosion of Brand Power.

�� Weakened Trade Position.Weakened Trade Position.

�� Inability to Recruit Workers.Inability to Recruit Workers.

�� Increased Security.Increased Security.

�� Loss of Market Share:Loss of Market Share:

–– Competitor Opportunities.Competitor Opportunities.

Responses to antiResponses to anti--NationismsNationisms

�� Government involvement.Government involvement.

�� Businesses playing down Businesses playing down their their national rootsnational roots..

�� Businesses distancing Businesses distancing themselves from themselves from government policy.government policy.

Direct and CollateralDirect and CollateralBrand DamageBrand Damage

Rational v. Irrational DecisionsRational v. Irrational Decisions

��Consumers are Consumers are notnot always rational.always rational.

��Examples:Examples:

––Arousal Study.Arousal Study.

––Credit Study.Credit Study.

––Free Study.Free Study.

Credit StudyCredit Study

�� Neoclassical economics assumes consumers make Neoclassical economics assumes consumers make rationalrational decisions.decisions.

–– PricePrice is assumed to serve as a rationalizing signal.is assumed to serve as a rationalizing signal.

�� Research using experiments and FMRIs found:Research using experiments and FMRIs found:

–– Consumer behaviour has piggybacked on ancestral neural Consumer behaviour has piggybacked on ancestral neural circuits regarding reward anticipation and hazard avoidance.circuits regarding reward anticipation and hazard avoidance.

–– Consumers Consumers do not do not weigh present utility against future weigh present utility against future alternatives, as assumed by neoclassical economics.alternatives, as assumed by neoclassical economics.

�� Research postulates that credit modulates behaviour:Research postulates that credit modulates behaviour:

–– Cognitively switches the Cognitively switches the concon side of the purchase to a side of the purchase to a propro..

–– Credit makes an Credit makes an irrational purchase a seem rationalirrational purchase a seem rational..