Customers can never be fooled. Anyone who has worked in sales or has sat across a negotiation table knows just how smart customers are. Yet, even the most proficient marketing manager and salesperson may not comprehend customers' decision-making. As experienced buyers, customers develop a rational decision rule. Understanding these rules can be critical in developing a marketing strategy and the marketplace's competitive dynamics.
Only a few customers make buying decisions based on classic economic theory. On the contrary, bulk of the customers do not line up all possible options and compare them on all potential attributes to find the optimal alternative. Even if it were viable for a customer to do so, only a few would take the opportunity owing to the time and effort involved in such a gruelling routine of data gathering and analysis.
Rationale behind
Most customer decision-making involves two phases:
- In the initial screening phase, one or two key product characteristics are used to reduce the set of all choices to a small number, usually 2-3.
- In the evaluation phase, the small set of other alternatives is compared on a few critical attributes.
This approach to decision-making is not just found when dealing with consumer products but business-to-business also. In the business-to-business context, developing a preferred provider list or establishing minimum, competitive requirements depict a particular type of screening.
Understanding customers' decision-making is a good start for devising a good marketing strategy. The initial stage in developing such understanding is determining how the customer describes the market and what choices the customer deems acceptable. This is not always as evident as it may seem. Marketers often define competitive substitutes as similar products rather than similar benefits, whereas the benefit steers decision-making.
Manufacturers of retail cleaning products may define alternatives as other retail cleaning products, but consumers are likely to include various homemade cleaning products. For example, consumers used lemon and vinegar as household cleaning agent long before it was put into retail products.
Once the entire set of choices is known, the next step in comprehending how customers make decisions is to determine how customers screen. Most often, they start with a single critical feature. For example, a consumer may eliminate all options above a specific price or that do not have a distinctive feature.
The factors involved in this screening phase need not be identical for all customers, though this is a relatively small number in most markets. However, in decision-making, the customer screening phase has two critical implications.
Firstly, a product that does not get through a consumer's screen does not receive further consideration and, as a result, is not purchased. Furthermore, a product that is superior in many features may fail because it is not perceived to pass the screen. This means the marketer must change the applicable product attribute used for screening or change how customers screen.
Gaining edge
The second critical implication is that a screen can be a brand name, which is a decisive competitive advantage.
The consumer who says, "I want an iPhone," has already eliminated the competition. Sometimes, the screening phase is the only phase in decision-making. The customer, who wants a specific brand, always buys what is on sale or in stock and needs no further evaluation of the products.
However, suppose a particular screen does not reduce the choice set enough. In that case, another screen can be added to the process until either one alternative is left or a few other options to consider. There is plenty of evidence that myriad customers use such sequential screening in many purchase scenarios.
If remaining product alternatives are left after the screening stage, the customer generally compares them on 2 - 3 critical characteristics, then decides based on this comparison. Knowing these vital characteristics, or determinant attributes often called, and how products compare to these characteristics is critical for marketers.
The determinant characteristics and the screening criteria need to be the central focus of marketing communications because this is the information consumers want. Weaknesses concerning determinant attributes or screening criteria are indications of the need for product improvement. Finally, consumer differences in the determinant attributes and screening criteria suggest segmentation and product differentiation opportunities.
Understanding customer decision-making is not tricky. While there are analytical tools for decision-making, much can be comprehended just by conversing with customers about how they make decisions. A recipe for failure is operating in a market without a keen insight into how customers make decisions. Therefore, knowledge of customer decision-making provides direction to succeed and gain a competitive advantage.