By students, for students.

Why we buy (1/2): understanding consumer purchase decisions

In Management, Marketing on April 10, 2013 at 3:36 pm

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We live in a mass consumption society. The majority of citizens have access to a range of standardised and mass-produced goods. We can all relate to models describing the stages of consumer decision-making: need recognition, information search, evaluation of alternatives, purchase and post-purchase behaviour.

When a large proportion of our daily purchase decisions are routine and almost reflexive, it is easy to forget the complexity of the transactions occurring over tills and online shopping baskets. In fact, experts remain divided between 3 ways of thinking about consumer purchase decisions.

Model Economic Psychological Consumer behaviour
Basis Rationality Cognitive processes Mixed economic and psychological
Evidence Quantitative Qualitative Mixed
Used by Economists Sociologists Marketers

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Neoclassical economics

Over time, business has taken to each type of model and is currently enamoured by hybrid explanations of consumer behaviour drawing on economic and psychological models. The most famous of these describes demand as being based on price. This idea stems from neoclassical economics which regard the consumer as a rational actor who should demonstrate consistent preferences between goods based on value. Logically, therefore, consumer demand will increase as price decreases, with products being substituted because of a change in income or the relative price of goods.

s and d

Neoclassical Supply and Demand Curve

This curve persists as the foundation of many business decisions. For example, the prices at which Nestlé can procure coffee are determined by supply and demand calculations in world commodity markets. Setting prices according to demand affects Nestlé’s fair trading commitments. The multinational protects against this by advising producers in how to increase payment (take on processing stages, sell directly) and reduce costs (share processing/transport facilities).

However, neoclassical economics have become part of a wider picture as experts have realised that few markets exist with the perfect information required for consumers to be so logical. A more complicated picture of consumer motivations has emerged.

Consumer information-gathering process

One criticism of neoclassical readings of purchase decisions is that they assign a minimal role to marketing. Our current understanding is based on a more contextual view. Namely, the influence of marketing on a purchase decision is determined by the nature of the good in question. Phillip Nelson distinguished 3 types of consumer good.

Type Search goods Experience goods Credence goods
Definition Characteristics identifiable through inspection Features revealed by consumption Value hard to measure even after consumption
Examples Glassware, camera Wine, cosmetics Vitamins, maintenance
Impact of marketing Positive relationship between advertising and product quality Advertising plays an important signalling role Advertising plays an important signalling role

Technology can turn experience goods into search goods. Klein (1998) argues that the internet has had this effect by lowering the search costs of certain product attributes (for example, accessing a rotational view of a car without being at a showroom) and providing ways of experiencing products virtually without direct inspection (e.g. software).

CONTINUED IN PART 2 …

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