Major Decision Making and Implications for Marketers - Term Paper Example

Table of Contents Table of Contents 1 Executive Summary 1 Introduction 2 Compensatory Decision Rule 3 Evaluative Criteria 4 Comparison of Decision Making 9 Appendix Number 1 15 Executive Summary The objective of this report is to analyze the consumer decision making behaviour of three respondents in choosing accommodation options. The report is based on an analysis of the three respondent’s ratings of five evaluative criteria often considered by consumers in making accommodation choices. The five criteria are security, price, distance, occupation and proximity to public transportation. The report drew on theories in demographics and personality to analyse the choices of three respondents based on the compensatory decision rule. The report established that: Consumer demographic characteristics affect demand for housing and accommodation choices. Consumer personality dictates preferences for housing attributes The report also identifies two major implications for marketers. The implication for marketers is that in marketing products and services to consumers that require complex decision making, the marketing effort should guide the consumer to make a decision by emphasizing on the balancing or compensatory effect of strong attributes. Marketers should also reverse tailor their marketing effort to facilitate consumer decision making by specifically targeting demographics and personality types. Introduction Selecting the most appropriate or suitable accommodation option is a major decision for most consumers. It normally includes consideration of many factors or influences which makes it a more complex process for consumers as compared to minor consumption activities such as purchasing a car, selecting a camera, a DVD player, book or an item of clothing. The objective of this report is to analyze the consumer decision making behaviour of three respondents in choosing accommodation options. The report is based on an analysis of the three respondent’s ratings of five evaluative criteria often considered by consumers in making accommodation choices. The five criteria are security, price, distance, occupation and proximity to public transportation. Respondents were asked to evaluate these five criteria according to importance and then rank or evaluate six different accommodation options according to their ranking of the evaluative criteria. The five accommodation options presented to the respondents were; 1. To rent/share a two bedroom apartment in Melbourne CBD 2. To buy a two bedroom apartment in Melbourne CBD 3. To rent share a two bedroom apartment in Flemington 4. To buy a two bedroom apartment in Flemington 5. To rent share a three bedroom ocean view house in St. Kilda 6. To buy a three bedroom ocean view house in St. Kilda The respondent’s ranking of these attributes will be placed in a decision matrix and the compensatory decision rule applied to determine the most likely accommodation choice by the three respondents. This report will then analyse the decisions of the three respondents by drawing from theories of personality and demographics to account for the differences in the respondents’ ranking of the evaluative criteria and to explain their preference for one accommodation option against the other. In conclusion, the marketing implications of the decision making processes described in this report will be briefly analysed. Compensatory Decision Rule The compensatory decision rule is one of the major decision rules used by consumers in evaluating different brands, options and consumption alternatives to facilitate decision making. The compensatory decision rule is often employed when the decision involves consideration of many factors and attributes. In the compensatory decision rule, different brands or alternatives are evaluated according to their performance on several relevant attributes and the importance of each attribute to the consumer. Under the compensatory decision rule, unlike other non compensatory decision making methods, an attribute with a low value or weight can be compensated for by a high value on one or more of the other attributes in consideration. For instance, in selecting evaluating housing preferences for a consumer, a house may not be in their ideal location but it may offer excellent security. Security as an attribute thus compensates for location (Goetgeluk 2011). The decision rule is used to select the most likely option by selecting the highest total combined score of each option’s performance ratings multiplied by the weights or importance assigned to each of the evaluative criteria or the option or brand with the highest weighted score (Quester and Pettigrew 2011). In this report for instance, the compensatory decision rule is used to calculate the accommodation option which each of the respondent is most likely to choose based on their decision matrix. Evaluative Criteria There are various criteria people consider when choosing their accommodation options. This report identifies five such criteria: security, price, distance, occupation and proximity to public transportation. 1. Security Security is one of the most important evaluative criteria considered in selecting accommodation options. A person evaluating accommodation options often considers several security features such as fencing, lighting in and around the compound, presence or absence of security personnel, burglar proof features and accessibility to police and emergency services. Security also includes consideration of the neighbourhood or vicinity in terms of overcrowding, crime rate or activities which may pose security risks such as drug trafficking. 2. Price The affordability or feasibility of the accommodation is also a critical influence in evaluating accommodation options. The eventual accommodation option must be within the financial reach of the person considering it. For instance, it would not be feasible for non-income earning students to purchase a four bedroom maisonette at $750, 000. People rarely choose accommodation options outside of their income range and in most cases will consider the financial sustainability of their eventual choice in terms of issues such as land rates, mortgage payments and even maintenance costs. 3. Distance Distance is an important consideration in evaluating accommodation options. People often consider options that are a reasonable distance from their places of work or from family and relatives and the implications of residing at a certain place on their travel expenditure or time consumption. For instance, a student at CQ University is better placed finding accommodation in the vicinity of Melbourne CBD or around Rockhampton. 4. Occupation People often consider accommodation options that are sensitive and convenient to their occupation. For instance, a 20 year old student would be comfortable sharing a two bedroom house outside campus while the same may not be true for a businessman such as a restraint owner with a family. Incidentally, occupation also determines other factors such as income. 5. Proximity to Public Transportation Accommodation options which provide ease of access to means of transport are normally considered as good. This includes access to roads, airports or highways for vehicle users and or to train and bus stations for commuters. Respondent’s Ranking of Evaluative Criteria Evaluative Criteria Respondent 1 Respondent 2 Respondent 3 Security 5 5 5 Price 5 4 5 Distance 4 4 4 Occupation 4 4 5 Proximity to Public Transport 5 5 3 Accommodation Choice and Theory Demographics Stevens et al (2008) develop grounded theory on accommodation preferences based on the analysis of the housing and location preferences of Adelaide residents. They demonstrate that the preferences of a growing number of residents are shaped by demographic factors such as age and income levels their economic situation by inferring to the increased preference for detached dwellings in suburbs among middle aged Australian professionals. Their study also indicated that younger and middle aged professionals were more likely to prioritize issues of career and mobility (both in terms of flexibility of housing arrangement and access to transportation services) as factors in making accommodation or housing decisions as opposed to more mature and elderly residents who prioritize values such as security and location. Bargh (2002) also refers to demographic characteristics as having increasingly becoming “automatic” influences in making decisions on household consumption and choice of accommodation. He points to the increasing role of demographic characteristics such as occupation, income levels, age and ethnicity in determining the eventual choice of accommodation. For instance, students are automatically inclined to prioritize affordability in making consumption decisions due to their non-income earning status and in making accommodation decisions they are also more likely to be indifferent towards issues of mobility given the temporal nature of their occupation as students. Levy and Lee (2004) also indicate the role played by demographic factors such as family members on consumer behaviour and decision making in house purchases. Levy and Lee (2004) demonstrate that people with families are often constrained in their decision making when purchasing real estate as they have to factor in the various needs and interests of their families. They often have to prioritize issues such as location, proximity to educational and recreational facilities and security. In contrast, younger single people or people who live alone can exercise greater flexibility in selecting their accommodation choices and often give greater consideration to their current situation in terms of occupation and the fit of accommodation options to their personal tastes, preferences and economic situation. Closely related to this is the influence of age as a demographic variable. Green and Hendershott (1996) show that demand for housing increases with age despite the high cost of housing. Among other implications, their study shows that older people are less sensitive to housing prices and would prioritize other issues above price in their decision making. Another demographic variable which influences leisure and accommodation choices is gender. Skaburskis (1997) argues that gender plays an important role in the decision making process involved in selecting housing options and is a statistically significant determinant of housing demand in many cities. For instance, Skaburskis suggests that an increase in women’s income prospects is correlated with a decline in family formation and fertility rates. This in turn has implications for housing demand as such women would chose accommodation options or demand housing which is more suited to their personal preferences. Conversely, increases in men’s income prospects imply increased family formation and indirectly influences their choice of housing. Personality Theories In addition to demographic theory, personality theories can also be used to analyse consumer decision making in accommodation choices. As Collen et al (2002) and Collen and Hoekstra (2001) argue, micro level personality factors such as goals and values also have a considerable influence or are determinants in housing choice. Collen and Hoekstra (2001) explore the impact of such micro level factors on stated preferences for housing attributes using personality theories such as means-end theory. They argue that personality characteristics and motivation significantly influences their evaluation and preferences of certain housing attributes such as price, location and size. The means-end theory can be used to explain housing preferences from the perspective of the motivation and objectives of an individual. The means-end theory implies that a person would prefer housing attributes that enable them achieve a personally valued end-state which could mean independence and solidarity for one person or sociability for another. For instance, an introvert would state a preference for housing attributes which accentuate privacy features while an extrovert would prefer housing attributes that accentuate social interaction which may include shared housing or shared fences. Switzer and Taylor (1983) further demonstrate the role of personality in individual choices. Their study of freshmen in transition from dorm environments to non-dormitory environments confirmed the hypothesis that people with strong affiliative needs and who were more involved with their co-residents were more likely to chose living arrangements that offered the potential for more interaction. Conversely, as argued above, people who are reclusive and introverts are more likely to choose living arrangements which suit their preference for privacy (Vinsel et al 1980). Walker and Li (2006) also show that lifestyle-the way people want to live, determine their choice of residence in terms of whether they prefer to be urban dwellers, suburban dwellers or rural dwellers. There are other personality theories which have been used to explain accommodation choices and preferences such as the personal construct theory. Preston and Taylor (1981) apply the personal construct theory to analysis of residential choices. The theory posits that residential choice or preference of certain attributes is determined at the individual level and that residential cognition is a product of the individual’s experiences. Simply put, in choosing accommodation options, an individual will evaluate the attributes based on their own perception of what is best for them in light of their own experiences. Sirgy et al (2005) have used self congruity theory to argue that homebuyers are more likely to purchase homes which have attributes that reflect their own self image. Comparison of Decision Making Respondent 1 Respondent 1 is Jack, a 34 year old hairdresser working in the Melbourne CBD who earns an income of $3800 a month. In his ranking of the evaluative criteria, Jack considers price, security and proximity to public transport as the most important attributes of an accommodation choice. Based on the compensatory decision rule, Jack would most likely choose to share rent a two bedroom house in Melbourne CBD. The option to rent a two bedroom house in Melbourne CBD suits his occupational interests since he works in Melbourne and is financially feasible given his income level. Respondent 2 Respondent 2 is Jess, an overseas student in Melbourne CBD TAFE School. She earns most of her income from her parents abroad and from a part time job at a 711 convenience store in Flemington. Being an overseas student in a foreign country, Jess prioritizes security and proximity to public transport as compared to price, occupation and distance. Her most likely option based on the compensatory decision rule is to rent share a two bedroom apartment in Flemington. This is primarily based on the fact that rental apartments in Flemington are cheaper which is consistent and appropriate for her low income level. She also prioritizes accessibility to transport since she needs to access the TAFE School. Respondent 3 Respondent 3 is David, a 42 year old restaurant owner of a restaurant in Brighton, near St Kilda, whose income is estimated at over $ 200000 a month. David prioritizes his occupation, security and price as evaluative criteria. As a restaurant owner, David prefers to be close as close as possible to his restaurant and therefore is most likely to select the three bedroom ocean view house in St Kilda. David also earns an above average income and can afford to make a longer term purchase of a family home. Demographics Using the compensatory decision rule David’s choice of accommodation is a three bedroom house in St Kilda. According to Stevens et al (2008) and Bargh (2002), David’s decision could be rationalized by considering his age, his occupational needs and those of his family. As argued by Levy and Lee (2004), people in David’s age and family situation must factor in family considerations while making home purchases. Green and Hendershott (1996) also demonstrate that at 42 years of age and income levels of over $ 200000, David’s demand for housing is not suppressed by prices. In contrast, lower income earners such as Jess and Jack are more constrained by their income levels as is characteristic of people their ages. On the other hand, Jack and Jess’s preferences are less constrained by family decisions. Jess’s primary consideration of security is characteristic of the needs of most international students in foreign countries. Personality Jack is an extrovert by nature and is therefore indifferent towards sharing rent in a two bedroom apartment as is usual of extroverts. He is also an ambitious person and believes that he can further his goals by residing in the Melbourne CBD. His decision is influenced by his personal goals and values as argued by Coolen and Hoekstra (2001). On the other hand, Jess is an introvert and shy by nature since she has no close family and friends in Melbourne or even Australia. However, she also has affiliative needs in terms of associating with others for social support and security and would therefore be inclined to seek shared accommodation (Switzer and Taylor). Her personal values are those of hard work as reflected by her part time employment at a 711 to raise extra income. Therefore, she prioritizes affordability and suitability of her residential location in light of her goal to complete her education and achieve self sustenance (Coolen et al 2002; Coolen and Hoekstra 2001). David’s choice of a three bedroom mansion is also consistent with self congruity and personality construct theories (Preston and Taylor 1981; Switzer and Taylor 1983). Being a locally successful restaurant owner and family man, he is most likely to choose accommodation that closest reflects his personality as a successful family businessman and the expensive three bedroom ocean view house is a close approximation of his experience and achievement. Marketing Implications There are several marketing implications from the analysis of the consumer decision making processes described in this assignment. First, from the use of the compensatory rule, marketers should realize that in making major decisions consumers balance between the negative and positive attributes of a product. Therefore, the marketing effort should guide the consumer to make a decision by emphasizing on the balancing or compensatory effect of strong attributes. In marketing real estate properties, marketers should draw attention to the attributes that appeal most to consumers. For instance, while a house in the CBD of a major city may be expensive and for prospective consumers, marketers can emphasize its other attributes such as accessibility to public transport and security (Quester and Pettigrew 2011). From the description of accommodation choice and demographic or personality theory, marketers should reverse tailor their marketing effort to facilitate consumer decision making. For instance, in advertising real estate properties, marketers should have an accurate idea of their target market and subsequently tailor their campaigns towards the specific target market. For instance, in marketing low cost off campus accommodation for students, marketers can tailor their advertising to appeal to college or university students by indicating features conducive to student life such as furnishings and accessibility of transport to campus (Quester and Pettigrew 2011). Conclusion This report analysed the consumer decision making process of three respondents in accommodation choices using the compensatory decision making rule. The report required three different respondents to evaluate five criteria in choosing accommodation- security, price, occupation, distance and proximity to public transport. The three respondent’s most likely choices were calculated using the compensatory decision rule. With justification from theories of demographics and personality, it was demonstrated that characteristics such as age, income, family situation and personality traits influence major decision making processes and explain differences in decision making behaviour of people various characteristics. The implication for marketers is that in marketing products and services to consumers that require complex decision making, the marketing effort should guide the consumer to make a decision by emphasizing on the balancing or compensatory effect of strong attributes. Marketers should also reverse tailor their marketing effort to facilitate consumer decision making by specifically targeting demographics and personality types. Bibliography Bargh, A., 2002, ‘Losing consciousness: Automatic influences on consumer judgment, behavior and motivation’, Journal of Consumer Research vol.29, no 2, pp 280–285. Coolen, H. & Hoekstra, J 2001, ‘Values as determinants of preferences for housing attributes’, Journal of Housing and the Built Environment, vol. 16, no.3-4, pp 285-306. Coolen, H, Boelhouwer, P. & van Driel, K., 2002, ‘Values and goals as determinants of intended tenure choice’, Journal of Housing and the Built Environment, vol. 17, no.3, pp 215-236. Green, R. & Hendershott, H. 1996, ‘Age, Housing Demand and Real House Prices’, Regional Science and Urban Economics, vol. 26, no. 5, pp 465-480. Goetgeluk,W., 2011, ‘The Decision Plan Nets Method’ , in Coolen et al (eds), The Measurement and Analysis of Housing Preference and Choice, Amsterdam: Springer Netherlands, pp 57-73. Levy D. S. & Lee,C., 2004, ‘The influence of family members on housing purchase decisions’, Journal of Property Investment & Finance, vol. 22, no 4, pp.320 – 338. Preston, V. & Taylor, M., 1981, ‘Personal Construct Theory and Residential Choice’, Annals of the Association of American Geographers, vol. 71, no. 3, pp 437-451. Quester, P., Pettigrew, S. & Hawkins, D., 2011, Consumer Behaviour: implications for marketing strategy, 6th edn. McGraw Hill, North Ryde. Sirgy, J., Grzeskowiak, S. & Su, C., 2005, ‘Explaining housing preference and choice: The role of self-congruity and functional congruity’, Journal of Housing and the Built Environment, vol. 20, no. 4, pp 329-347. Skaburskis, A., 1997, ‘Gender Differences in Housing Demand’ Urban Studies, vol. 34, no. 2, pp. 275-320. Stevens, A, Baum, S. & Hassan, R 1992, ‘The Housing and Location Preferences of Adelaide Residents’, Urban Policy and Research, vol. 10, no. 3, pp 6-22. Vinsel, A., Brown, B. B., Altman, I., & Foss, C, 1980, ‘Privacy Regulation, Territorial Displays, and Effectiveness of Individual Functioning’ Journal of Personality and Social Psychology, vol. 39, no.6, pp. 1104-1115. Walker, L. & Li, J., 2006, ‘Latent lifestyle preferences and household location decisions’, Journal of Geographical Systems, vol.9, no. 1, pp 77-101. Appendix Number 1 Respondent number 1 matrix Respondent’s name: Jack Interview date: 21/12/2011 Leisure Pursuits Evaluative Criteria 1. Rent share 2 bedroom apartment in Melbourne CBD (4) 2. Buy 2 bedroom apartment in Melbourne CBD (2) 3. Rent share 2 bedroom apartment in Flemington (3) 4. Buy 2 bedroom apartment in Flemington (1) 5. Rent share 3 bedroom ocean view house in St Kilda (5) 6. Buy 3 bedroom ocean view house in St Kilda (1) Price (5) 20 10 15 5 10 5 Distance (4) 16 8 12 4 8 4 Occupation (4) 16 8 12 4 8 4 Security (5) 20 10 15 5 10 5 To public transportation (5) 20 10 15 5 10 5 Overall rating of each option 92 46 69 23 46 23 The appendix number 1 Jack, age: 34, Jack is a hair dresser working in Melbourne CBD, Income: 3800 per month. Each evaluative criteria is ranked from 1-5. A rank of five (5) indicates a high level of importance is attached to that criteria. For example, Rent share 2 bedroom apartment in Melbourne CBD is 4 point in rank 1-5, that is very important for Jack, because he is working in Melbourne CBD, and the price is 5 point in rank 1-5, indicates that it is really important for Jack, because the price is important. Then 4*5=20, that is one option rating. Then the number 1 matrix overall rating of each option are 92. Jack respondent number 1 matrix. The number 1 matrix is very important for him, and that’s his choice. Appendix Number 2 Respondent number 3 matrix Respondent’s name: Jess Interview date: 27/12/2011 Leisure Pursuits Evaluative Criteria 1. Rent share 2 bedroom apartment in Melbourne CBD (3) 2. Buy 2 bedroom apartment in Melbourne CBD (1) 3. Rent share 2 bedroom apartment in Flemington (4) 4. Buy 2 bedroom apartment in Flemington (2) 5. Rent share 3 bedroom ocean view house in St Kilda (3) 6. Buy 3 bedroom ocean view house in St Kilda (1) Price (4) 12 4 16 8 12 4 Distance (4) 12 4 16 8 12 4 Occupation (4) 12 4 16 8 12 4 Security (5) 15 5 20 10 15 5 To public transportation (5) 15 5 20 10 15 5 Overall rating of each option 66 22 88 44 66 22 The Appendix Number 2 Jess, age: 20, Jess is an oversea student and studying in Melbourne CBD TAFE School, almost income from parents, and she has part time job working in Flemington 7 11 shop. Flemington rental is cheaper than Melbourne CBD. Jess respondent number 3 matrix, the overall rating is 88, that’s Jess choice. Appendix Number 3 Respondent number 6 matrix Respondent’s name: David Interview date: 29/12/2011 Leisure Pursuits Evaluative Criteria 1. Rent share 2 bedroom apartment in Melbourne CBD (1) 2. Buy 2 bedroom apartment in Melbourne CBD (1) 3. Rent share 2 bedroom apartment in Flemington (3) 4. Buy 2 bedroom apartment in Flemington (2) 5. Rent share 3 bedroom ocean view house in St Kilda (3) 6. Buy 3 bedroom ocean view house in St Kilda (5) Price (5) 5 5 15 10 15 25 Distance (4) 4 4 12 8 12 20 Occupation (5) 5 5 15 10 15 25 Security (5) 5 5 15 10 15 25 To public transportation (3) 3 3 9 6 9 15 Overall rating of each option 22 22 66 44 66 110 The Appendix number 3 David, age: 42, David is a restaurant owner and the restaurant in Brighton, Brighton is near St Kilda, Income: more than 20000 per month. Jess respondent number 6 matrix, the overall rating is 110, that’s David choice. Read More