Consumer Decision-Making - the Handpresso Situation - Case Study Example

Consumer Decision Making – External Factors Name College Note This paper was prepared for ---------, Section ------------, taught by Professor ----------------. Introduction Consumer decision making refers to a consumer's choice that he or she makes between two available products or services. Peter and Olson (1999) have stated that consumer decision making concerns between a consumer's final decisions to buy one of the products between two available alternatives. Of all the research that has been done so far, it has been observed that the focus has largely been on cognitive processes. Consumer decision making is a complicated process and a number of factors, both internal and external, are supposed to affect a consumer's decision making capabilities. The final decision results on account of a series of actions that are either internally or externally initiated by the consumer (Erasmus et al., 2001). It refers to the steps a consumer takes in order to decide in favour of a particular product. The decision to but in the first place is need-driven, which means unless the consumer has a desire or a need for a given product, he or she is unlikely to consider that product in the first place. Both economical and psychological factors determine the actions a consumer takes on his part. Klein and Yadav (1989) have argued that certain environmental factors stemming from cultural, social and group thoughts are largely accountable for the type of decisions consumers make. Consumers are viewed as impulsive, irrational and passive in the psychological aspect (Zaichkowsky, 1991). Rational shortcuts, presume some psychologists, are used by some consumers to reach decisions to purchase some products. Such psychologists are of the opinion that such consumers limit their information to recall and handle only and thus they are not perfect decision makers. One theory that has been propounded on consumer decision making is called the utility theory, which means consumers make such decision that enable them to measure expected outcomes. Given that such consumers estimate probabilistic outcomes means that they work on rational lines to make their decisions. The decisions that maximise their well-being are the ones that they take. Present scenario Nowadays consumer decision making has become more complicated than what it was in the past. This is because there are multiple channels of marketing at the disposal of almost every second product and there is a line of products in the same segments. There is also difference in the way different companies promote their respective products and the channels that they use to register them on the consumers' minds. Frequent the registering, greater are the chances that the product registering fast on a consumer's mind is decided in favour of as a purchase decision. Consumers are encompassed by advertisements, reports, articles and even direct mailings that not only provide large amounts of information but continuous hammering too on consumers' minds. Certain products that are otherwise to complicated to make decisions about, are, in a sense, made easier by such virtual bombardment of product-related information hit on a consumer's mind. What has further added to the jigsaw of consumer decision making is the role of immature segment which though being bash is the potential segment of consumer products. Certain products, like the Handpresso machine, are made and presented in such a manner that they first hit this than any other segment. Safiek (2009a) states that this segment has its unique attitudes and consumer behaviour. The Handpresso situation Before moving on to see what external factors affect consumer decision making, it is important to understand the philosophy underlying the Handpresso, the portable espresso machine. Handpresso is a simple machine that has challenged the whole industry with its unique selling proposition - simplicity and ease of use. Within one year of its launch, it became a global leader in its segment. This is because till then either closed pod systems or automatic machines were used for making coffee. When it was launched, it was hailed as world’s smallest espresso machine. Market analysts opine that it became so popular because it worked in the reverse direction. The best part was that it could be bought anywhere. This machine gave the customers freedom from highly expensive and sophisticated espresso machines, which look more like small nuclear power plants, not really needed for a basic thing like making coffee. This is what struck Henrik Nielsen, who wanted to make something so small that can either be tucked away in the corner of a suitcase to be taken along with or stored conveniently at home without occupying visible space. Handpresso is environmentally friendly and requires no maintenance, thus living up to its company's motto that 'simplicity is the ultimate sophistication. The machine overcomes the challenge of reducing such big coffee-making machine to such a small size by only retaining functions that are essential for making espresso coffee; it dumped the rest. However, the machine retains one important feature, and that is giving consumers the premium coffee that they so desire from big machines. Some of the core ideas on which the machine is based are what determines external factors affecting consumer decision making in its favour. Above all, this is the first hand-held portable espresso machine; that gives it the most desired advantage against all other coffee-making products in the market. Being small makes it another choice because it has rarely been seen that people carry large espresso machines wherever they go. Another big plus is that it is its less than half-a-kilogram in weight, requires no batteries and uses raw material ten times less than average machines. By eliminating some of the features found in other machines, Handpresso has achieved a new value curve. People have appreciated the company's courage to eliminate some features found otherwise and yet claim its best possible utility in making espresso coffee. The only impediment, however, with this machine was that since coffee needs hot water to be sued and this could not produce anywhere; but that deficiency is sort of nullified since it is not difficult to find hot water anywhere. Hot water is available almost everywhere or can be produced even by holding a kettle on a bonfire. The sheer magic of its features make it a choice of wider territories as against the traditional espresso machines that are normally confined to kitchens and offices. Handpresso's territories include outdoor, picnic, camping, trekking, living room, dining room, garden, boat, car, golfing, fishing, skiing apartment, hotel room, and even kitchens and offices. Handpresso's small size is its dynamicity in addition to the company's consolidation and innovation; no wonder it now operates in 15 countries world over. The fact that the company has been able to garner such word-of-mouth and other publicity, almost everyone, be he a coffee freak or an amateur willing to dabble in coffee making, is willing to fall for the product (Nielsen, 2009). Relevance of five steps in the decision making Consumers take themselves through five steps when making decisions to buy a product or a service. All these five steps are first influenced by social, cultural, individual and psychological factors. The steps are: i) need recognition, ii) information search, iii) evaluation of alternatives, iv) purchase, and v) postpurchase behaviour. The first one arises if consumers find an imbalance between what they desire and what they have. An external or internal stimulus helps consumers recognise this imbalance; the stimuli tell them the difference between the preferred and the present status of their need. The stimulus is one or more inputs derived from the sense of sight, taste, smell, touch and hearing. This is followed by the recognition of unfulfilled wants which the consumer perceives when his current product is not working properly, or when he is running out of the same, or when he finds another product superior to his existing one. Superiority can be measured in many different ways, but primarily in the way that fulfils a consumer's basic needs by using a product. Handpresso falls in this category. Most of the consumers have espresso machines in their kitchens, but not the only they can carry along with. This is followed by the information search, which can either be a recall from the memory or an external information search that can originate from either marketing controlled sources or non-marketing controlled sources. From the group of evoked brands, one that stands out and is a favourite among the masses is the one that matters. Consumer decisions are steered by less involvement and more involvement behaviour. From less to more involvement the response behaviour includes routine response behaviour, limited response behaviour and extensive decision making. In all there are five factors that influence decision making and these include: i) level of involvement on part of the consumer, i) time taken to make a decision, iii) cost of the product or service, iv) degree and level of information search, and v) number of available alternatives. It should be noted here that Handpresso is the only product of its kind available in the market with such reputation gained in so little time. It is favoured by extensive decision making and that involves level of involvement that is high, appropriate cost, lack of other brands in the same category for competitive evaluation, and absence of cognitive dissonance. It is not one of such products that get routine response behaviour from the consumers, which involve little involvement. Since word-of-mouth publicity works in favour of Handpresso, the consumer involvement is more. There are a number of factors determining the level of involvement. These include previous experience (Handpresso is gaining popularity with every second consumer who buys), interest (since it is new and innovative product, the interest is high, received), risk of negative consequences (none reported so far; benefits outweigh disadvantages, if any), situation (it is surrounded by a positive one as coffee is a favourite among all, and having the freedom to have it anywhere a good opportunity), and social visibility (the product is widely talked about now). Factors affecting decision making Consumer decision making process is influenced by a number of factors. These include Cultural factors Social factors Demographic factors Geographic factors Cultural factors This refers to the traditions, values, taboos, basic attitudes on the whole environment in which a consumer lives. Individuals normally associate themselves with certain cultures, nationalities and religious identities. It can be defined as set of attitudes, values norms, and other meaningful symbols that tend to shape human behaviour and the products or artefacts, of that behaviour as they are passed on from one generation to the next. Consumer decision making is largely included by the culture of a consumer in which he lives. For example, an Australian is more likely to but Handpresso than someone in Dubai because coffee has so well permeated in Australian culture. It is a coffee-drinking nation. An individual assimilates cultural norms from the very childhood and retains the same throughout his life. Several cultural influences work their way up on decision making. It has been noted that if two different individuals have to make purchase decisions on the same product, their reaction to it would be different. This is because; as Berry (1976) has argued long back, both are driven by their respective cognitive styles drawn from their respective cultures. It cannot be said that there is conclusive research that points in this direction, but results available from some empirical studies and culture-theoretical models indicate the relationship. Three factors need to be mentioned on the culture-theoretical side (Badke-Schaub & Strohschneider, 1998; Strohschneider & Güss, 1999) Environment's Predictability and "planability": Cultures are capable of predicting economic, social and public life of people. The same even affect their private lives. This predictability of all these spheres of their lives is assumed to impact their decision making skills as well. If the consumers' environment is predictable, the decision making that results is not as complex as it is when the environment is not predictable. It is worth noting that if the environment is in a flux, like that in rapid economical change or in situations fraught with political unrest, the consumer predictability is affected and so are the decision making parameters. Exposure: If the culture is adept at problem-solving in different areas of social life, the same can go in favour of decision making parameters. Exposure is considered as a function of dominant value system and accountability of the environment. For example, cultures that are highly individualistic promote self-reliance and independence. Therefore most of the age groups from these cultures encounter different sets of problem-solving instances in their day-to-day lives. For people from such cultures, purchase decision making is seldom a problem. Such people do not only make decisions on their own, but they are also mentally ready to bear the consequences. In the area of decision-making, they are likely to be to develop greater expertise in comparison to those who are unlike them. The people who belong to highly collectivist cultures are unlike them. It is because they are driven by and brought up with norms that are conformist and obedience-structured. Such people follow role models and need advice on decision making. If they are to buy a product as small as Handpresso, they are likely to think multiple times, seek suggestions and then make decisions. It is important to note that differences in collectivism and individualism influences the decision making styles greatly. Ohbuchi, Fukushima and Tedeschi (1999) have remarked that people from individualistic cultures reinforce confrontational approaches and risk taking which can maximise their personal benefits at others' cost. On the contrary, collectivist cultures do not value personal benefits as much if others' values are hampered or endangered and if the group harmony is affected. Management experts opine that people with collectivist mentality need to tread cautiously on the decisions that they take. Social hierarchy and power distance These are cultural dimensions and are supposed to influence decision making. Power distance, for example, rests on the premise that decision making should sound sensible only when a person is given a leeway not only in making a decision but also in taking it to a conclusive end. This idea is captured by a 'notion' known as control span. Cultures that have high power prevalent among them are likely to limit individuals from exercising right degree of freedom to make decisions on their own. This has its roots n the hierarchical system of a culture. The one at the top would not want the one at the bottom to take a decision on his own. This, though, should not imply that cultures that are based on the hierarchical system take poor decisions; it is to say that the power to make decisions is vested in only a select few members of the culture. This affects the popularity and sale of a product drastically. It is so because the process of decision making is rather conservative and long before a decision is taken; its social implications are counted beforehand. The attitude is risk-avoidant (Sinha, 1997). Social factors Social factors have a profound impact on the decision making capabilities of consumers. By nature, human beings are social. It is in their inherent character to interact with people and in the process of interaction determine what are good and bad market-oriented decisions. When human beings are driven by certain socially-acceptable norms and ideals, the attribute gets passed on to how they buy or not buy products. This has a lot to do with social regulations and laws prevalent in a community. The typical make-up of a social factors include small group of consumers, the family as a whole and their social status and roles. From the marketing point of view a group consist of two or more people who interact in such a manner that their mutual or individual goals are met. They find a point of concurrence. Meeting a desire or a need is one such mutual goal, which reflects in their willingness to buy the same product or service. However, it should not be construed as a presumption that only one group affects decision making choices of an individual; it could be more than one group. If the group favours a specific product, the decisions that run across individuals in the group or groups are almost identical. Groups that influence decisions are known as reference groups. These groups serve the purpose of being either indirect or direct points of comparison. They, sort of, help build reference points in favour or against a particular product. The reference is what affects consumer attitudes and behaviours. These groups play certain typical roles. The first role is that of an initiator, who is the one who initiates further action on a product by suggesting it to the rest of the group members. Then jumps in the influences. He holds a key position in the sense that he advocates the product and thus includes decision making. The influencer becomes, in a way, key opinion leader., He possesses special skills, in-depth knowledge and a powerful personality, so much so that he is able to exert social influence on any one or more group members. His characteristics as an influencer are significant. Ever since the social media platforms like Facebook, YouTube, and Twitter etc have taken a centre stage among communities of today, this opinion leader has taken the decision making of his peers in his control. The rest depends on the decider, who is the ultimate buyer of the product. Decider must have financial authority and power to make an informed decision. In actuality, he is the one who has a need and he also is the one who is capable of fulfilling his need. Decider may or may not be the buyer, If he isn't, there is another person who is the final buyer; buyer in the sense that he executes the transaction. Buyer is what is referred to as the consumer in this paper. Buyer may or may not be the ultimate use. User can be someone else too. User is the one who finally uses the product; he gets the firsthand experience on the same and he is the one who propagates the products attributes word-of-mouth. Consumers mimic the users and get influenced if the product he uses fulfils their needs and desires as well. It is a trait-driven characteristic. Prospective buyers want to "be like" the user. Handpresso machine, for example, influences people because they have either seen the user use it on a picnic or visualise themselves as doing so. In the social context, though it is the family groups that are considered as an important link between what is bought in the society and the products available in the same. When marketing strategies are developed, one of their key focuses is the family groups; each group comprising of different members. Previously these decisions were influenced by the husband-wife model relationship, but as families evolve in tandem with modern ways of living, the groups have started taking centre stage. though it cannot be denied that in many cultures it is the wife who is the decision maker when it comes to buying household items including products as this, clothing and consumer durables. This has now changed because more women are now seen enter different spheres of life as workers. There are numerous societal changes going on and marketers continuously look out for these changes so as to change their developmental and marketing models and strategies. For them it is a challenge to understand these dynamic societal transformations as they affect products, services and above all buying decision making choices. Of significant importance in a family group is the age of its members. married individuals, for example, exhibit greater interest in buying products as more than their own needs they want to see the needs of their family members being met in order to see them happy. Demographic factors Demography refers to the age, gender and race of the consumers. Young consumers, for example, exhibit different decision making traits towards buying a product as compared to adult consumers. The difference is even remarkable between a 19 year-old and 25-year-old. For example, Nabil and Imed (2010) have stated that the difference is perceivable even among the consumers of the same age group. He gives examples of young consumers some of whom were bothered about whether or not the product was labelled, where for others it hardly mattered. There are remarkable gender differences as well. Females, for example, will prefer to buy the products that have a direct relevance to them as housewives. They would value quality; men would not value it as much. Ahasanul, Ali & Sabbir (2006) and Safiek (2009b) have stated that for all consumers though things as brands, label and quality have an impact on the decision making. Information and education about the products is considered equally by men and women. Since this is the age of online shopping, women who are not so familiar with the same rely on recommendations by others to influence their decisions (Chiao and Yang, 2010). Certain scholars have even argued that environment and atmosphere have also a profound effect on the consumer decision making choices. Wilson (2003) went even to say that females felt greatly influenced by music in restaurants than men. Syed (2003) has remarked that while men are prepared to take risks, women are not - they play safe in making decisions. The decisions are also influenced by ethnicity. Not two ethnic groups behave the same way in making decisions. Geographical factors This is a new area of interest being explored in the consumer attitudes and decision making choices. Locations where products are manufactured and produced have psychological impact on consumers in other regions. If the origin of production is valued and held in high esteem by the other country where the product is being sold, the product will also be held in such esteem. Even the place where the product is sold does influence decision making. Siti and Nurita (2010) showed that people preferred to buy, for example organic products, from malls and supermarkets than the farms where they were produced. Conclusion As can be seen, there are a number of external factors that affect someone's decision making capability. Decision to buy is influenced by each one of these factors, more here, less there, but all of them mould a consumer's opinion for or against a product. 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