Consumer Decision-Making Process and the Purchase of an Appropriate Mortgage Property in London - Essay Example

? Application of the Consumer Decision Making Process to the Purchase of an Appropriate Mortgage Property in London (Tutor) (Date) Introduction Consumer decision making process and consumer behaviour are issues that have elicited much debate and research in the recent times. Customers have become the core of any business operation and as such, understanding their decision-making processes ensures that their requirements are well catered for. When a firm understands the behaviour of its consumers, it is able to serve their physical, socio-psychological, financial and psychological needs, thereby satisfying them for the mutual benefits of both the consumers and the business organization. Doing this entails a thorough understanding of the micro and macro environment that defines the given consumers that a firm needs to serve. The most important point to note is the fact that consumer buying choices and decisions making process are things that get influenced by external factors which need to be handled by internal processes that could take place through social interactions. Consumer decision-making process has more to do with the patterns of behaviour that are preceded by consumers, determining and making them follow certain decisions with the sole aim of satisfying their individual or group needs based on products and services (Wu-Chung & Tzung-Cheng, 2010, pp.3530-3540). The mortgage market is experiencing numerous changes and has grown more volatile following the current financial crisis that has been most of the times blamed on poor handling of mortgages by various firms and stakeholders. This paper looks at the consumer decision-making process for the purchase of an appropriate mortgage following acquisition of some sufficient capital sourced from an uncle. The transaction will thus be analysed based on this theory in order to establish what went on as far as my decision-making process was concerned regarding the mortgage transaction. A thorough analysis of the process will be done relying heavily on evidence based approach in order to put to light the application of the consumer decision-making theory. About the mortgage in London I decided to purchase my mortgage with the London & Country Mortgages which is one of the leading Mortgage and Insurance advisor companies in the UK. I happened to get enough information regarding the mortgage market, something that I do often before engaging myself into a purchasing process. First I sought credibility of this company as the dealer in mortgages. I then went to the industry analysis on the mortgages. I wanted also to take advantage of any incentives that would have come with choosing the best mortgage dealer. Many companies do provide mortgages but differ in various issues especially rates charged on these mortgages. There are repayment mortgages and interest only mortgages. I realized that interest on mortgages played a very important role in the choice of mortgage option. I also learnt of the mortgage regulation by the Financial Services Authority which sees to it that confidence in the financial system is maintained, public understanding is promoted, consumers are well protected and that financial crimes are avoided. There are also high interest rates on the mortgages placed by banks because of the need to cut on liquidity in the market (London & Country Mortgages, 2011). I then had to make my decision on the mortgage choice and payment. This is where things became hot! Decision-Making Process on Purchase of an Appropriate Mortgage Property in London A consumer undergoes various stages in his or her buying decision-making process which are comprised of motivation to buy the product or service, problem or need recognition that is to be addressed, search for information, evaluating alternatives that are available in the market, and making a final purchase based on the choice made. Rational decision theory indicates that consumers as decision-makers do make many strategies and tend to use some logical procedures aimed at solving buying problems depending on the nature of the decision making environment, problem at hand and the timing. As a rational consumer, I happened to seek a more rational decision when trying to purchase this mortgage. I had three options to use in my purchasing process (Peck & Childers, 2006, pp.765-769). One of the options was sticking to the pure rationality option that would let me arrive at an optimal decision and as such be able to achieve a high level of efficiency with limited time usage, small amounts of resources and knowledge during my decision-making process. In this case I would be more obliged to assume dichotomy of administration where goals are identified and achieved. The other option that I had at hand was the incremental type which is known to be less rational whereby my goals would be set depending on certain politically motivated factors and thus I would be making the decision against a comparison of many alternatives that seemed accessible to me. The last option that was very open to me was the bounded rationality model, which is simply a mix of the first two decision-making models whereby my achievement of the goal of owning the mortgage would be subject to some constraints that are considered subjective in nature (Simon, 1991, pp.125-134). In choosing which model to use, I considered their relevant theories. The first one was the utility theory which argues that the decisions made by consumers are done based on some outcomes that have been expected by them. As such, consumers like me need to think and act rationally and in this way, I should be able to make a probability estimate of outcomes related to my uncertain decisions and at the same time select the best outcome which gives me the opportunity to maximize my well-being. However, it is not all the time that consumers are rational, consistent or aware of the decision-making elements. It might also be hard to translate some relative frequencies into probabilistic estimates. I considered the satisficing theory in which I had to approximate the outcome and stop there with my decision-making process. I found this to be an interesting decision-making process since I could simply evaluate the mortgage in London based on some distance from my point of reference to that location and once I get that mortgage, I stop there and buy as long as it is good enough and could meet my needs. Lastly, I considered the prospect theory which built on utility and satisficing theory. In this theory, need for value overrides utility and the factor of endowment are considered (Alet, et al., 2001, pp.82-88). Being a mortgage buyer, I considered myself as a prospective investor. As such, my thinking and decision-making process was based on the bounded rationality model. For me to purchase this mortgage in London, the first thing that I considered was its value and too this as my main reference point. As such, I did evaluate all my costs, benefits and losses based on value of this mortgage as my point of reference. When doing this, I realized that the benefits and losses had an increment from value that was marginally decreasing. I also considered endowment, whereby I considered the possibility of my owning a given option of mortgage against someone else owning it. I needed a mortgage that would endow me with much advantage over someone else owning it. If I would get more value from buying the given mortgage option in a certain location than someone else, then I considered that to be one of the best options and listed it. As an investor in the mortgage industry, I decided to simplify my process of making decision while trying to make a choice that would guarantee me satisfaction in my investment choice as far as the mortgage options were concerned. For this reason, I did not think that maximizing my decision would be of greater benefits to me than achieving satisfaction of my investment. I realized that if my decision-making process is in line with what is considered rational or logical, then I would have made a rational decision on investing in my mortgage. I thus did identify the demand for that mortgage in the location it was situated; I also became cognitive of the financial implications that seemed to fall within my budget, and evaluated this against the other alternatives that I had at hand. I tried my best to avoid the behavioural biases that are characteristic of many mortgage investors like me (Huei-Wen, 2011, pp.1630-1641). Strategic thinking was very important while considering my choices. One of the main strategies that I applied in this process was the equal weight strategy. In this strategy, I had to consider the fact that future maintenance costs and expenses would impact on the choice of the best mortgage which in this case was of value to me and endowed with my needs. If the future maintenance cost and expenses on this mortgage would be higher, then that meant that I should drop the mortgage option and choose another that is bale to guarantee both value in the two considerations. I thus chose one that would not give me many financial implications in future maintenance but guaranteed value for my money. I also applied the weighted additive strategy. In this case, both the two considerations were important in that, I needed value and endowment while at the same time the aspect of incurring less maintenance costs and expenses in the future was equally important. As such, I had to place much importance on maintenance costs and expenses than I did for the value and endowment since the options at hand all seemed to weigh above my set threshold for value and endowment. The other strategy that I applied in my decision-making process in the transaction was the non-comparatory strategy where I happened to evaluate each and every mortgage option based on its attributes in comparison to the other mortgage options’ attributes independently. In this case, I was able to eliminate most of the mortgage options considering their ability to satisfy, needed aspects and endowment. After eliminating the mortgage options and remained with three, I decided to apply the Lexigraphic strategy whereby I chose a superior mortgage option from the three and stopped from there. The reason as to why I was applying these strategies was because I am a risk adverse person but I still needed to gain more by taking advantage of a better deal. If I did not apply these strategies in my decision-making process, that means that I would end up taking a huge risk on a property that might not give me value and endow me as envisaged. All risk averse consumers still desire to make gains. If I were buying a low value item such as a bottle of soft drink, I would not mind the decision-making process I use because such a product is more standardised and purchase depends of issues such as thirst and taste that I prefer. This will not follow the model outlined here. In my decision-making process, I did apply the proposed model with one clear fact in mind. This was the idea that consumers tend to be indiscriminate in their use of the consumer decision-making models in the process of carrying out their purchase transactions. The assumption of rationality was still subject to many factors including the fact that the consumer will be sane at the time of purchase and that will respect personal needs as opposed to the seller’s needs. The decision process during purchase by consumers might always appear drastic and disorderly but the truth is it follows some functional procedure and is very adaptive to the environment and the kind of item to be bought. Perhaps what made the difference between me and some buyer who might be considered disorderly and impulsive might be the fact that I took time to grasp the information on what I needed to purchase. Arming one with the necessary information gives him or her best chance to make informed decisions and avoid future regrets. It is important that consumers avoid impulsive purchases in order to buy in a way that caters for their needs in full. The view of consumers buying impulsively has some proof. Most consumers who would be in my case would buy through emotional decision-making processes. In this regard, they end up associating the emotions like love, joy, fear, fantasy, sexuality, and magic in making certain consumer decisions on what items to buy. I was equally likely to make impulsive purchase of the mortgage had I not taken time to carefully search for the mortgage, deliberate on the type and provider for such mortgage, and making evaluations on the alternatives that were available to me before making the purchase (Acker & Duck, 2008, pp.1815-1824). After having critically gone through this decision making process as a consumer, I managed to choose the mortgage option that I was convinced would serve me better and fell within the budget I had set aside as per my uncle’s grant. I must admit that the purchase process was tasking given the fact that these funds were granted through goodwill and thus I was required to show maturity and appreciation to my uncle by purchasing a mortgage that is more beneficial to me and convince him that I actually did a good job. This just adds to the environmental factors that shape the decision-making process for any buyer. I thus decided to purchase the Mortgage in London, which I deemed to be the best having both value and endowment factors. Conclusion As it has been established, the buying process encompasses rational thinking by the consumer although; there are various factors that would make a consumer deviate or even shorten the rational thinking process. These could be due to time, peers, and other social issues. Rational decision-making must also be backed up by availability of funds to finance such a purchase. In cases where the money is insufficient, then the consumer, however rational, would resort to a lower degree product that might not necessarily meet his/her rational thoughts. Such occurrences might be seen as constituting irrational buying behaviours. Impulsive buying could also form a bigger portion of this process. However, impulsive buying has been exhibited by consumers on tours and travels or for those products and services that do not require parting with huge chunks of money. In these cases, a consumer might consider buying them petty and meeting short term needs such as bottled soft drinks that are meant to quench thirst (Gutierrez, 2004, pp.32-56). Environmental factors also play an important role in shaping the decision-making process exhibited by a consumer. For instance, consumers in foreign places have been known to shop irrationally maybe due to technicalities brought about by currency exchange ignorance or simply excitements of having seen new and foreign items. The mortgage purchase is however; a huge investment purchase and thus needed a thorough consideration of many factors. This is why it became important for me to choose an appropriate model in my decision-making process. The consumer decision-making process is very essential to both the marketer and the consumer. To the marketer, it helps him or her achieve customer satisfaction levels that are required by tailoring the products to an extent of being able to elicit excitement to the customer and convince him or her to buy. While to the customers, it helps them avoid after purchase regrets due to missed values and endowments. When a consumer masters how to manage his or her purchasing process by effectively applying decision-making models for consumers, the customers stand to gain a lot in terms of needed values and endowments just like I did when making the purchase of this mortgage property. List of References Acker D, & Duck NW (2008). Cross-cultural overconfidence and biased self-attribution. J. Soc. Econ. 37: 1815-1824 Alet C Erasmus, Elizabeth Boshoff & Rousseau GG (2001). Consumer decision-making models within the discipline of consumer science: a critical approach. Journal of Family Ecology and Consumer Sciences, Vol. 29: 82-88 Gutierrez BPB (2004). Determinants of Planned and Impulse Buying: The Case of the Philippines. Asia Pac. Manage. Review, 32-56 Huei-Wen Lin (2011). Elucidating rational investment decisions and behavioural biases: Evidence from the Taiwanese stock market. African Journal of Business Management Vol. 5(5): 1630-1641 London & Country Mortgages Ltd (2011). L&C Mortgages best buys. Retrieved on 3rd November 2011, from http://www.lcplc.co.uk/best-buys/ Peck J, & Childers T.L 2006. If I Touch it I Have to Have it: Individual and Environmental Influence on Impulse Purchasing. J. Bus. Res., 59(6): 765-769 Simon HA (1991). Bounded Rational and Organizational Learning. Organ. Sci., 2(1): 125-134 Wu-Chung Wu & Tzung-Cheng Huan (2010). The effect of purchasing situation and conformity behaviour on young students’ impulse buying. African Journal of Business Management Vol. 4(16): 3530-3540 Read More