Do You Know How Your Customers Make Their Decisions?
Knowing Customers Decision Rules Can Tell You Where You are Vulnerable
Despite what you may read in the popular press and even in some academic treatises, customers are not morons who are easily fooled. Anyone who has had serious experience in sales or has sat across a negotiation table knows just how smart customers are. However, even the most experienced marketing manager and sales person may not understand just how complex or simple the decision making of customers can be.
With experience as buyers, customers develop very rational and habitual decision rules.
Understanding these rules can play an important role in developing marketing strategy, in creating of marketing communications, and in understanding competitive dynamics in the market.
It is the case that few customers make decisions according to classic economic theory. Customers do not line up all possible alternatives and compare them on all potentially important characteristics in an effort to find the optimal choice. Even if it were possible for a customer to do so, few would take the opportunity because of the time and effort involved in such a laborious exercise in data gathering and analysis. Nevertheless, research makes it very clear that what customers do when they make decisions is usually very close to optimal in an economic sense without the intense effort to compare every alternative on every characteristic.
Most customer decision making involves two stages: an initial screening stage in which one or two key product attributes are used to reduce the set of all alternatives to a small number, usually 3 – 4, and an evaluation stage in which the small set of alternatives are compared on a few important, or determinant, attributes. This approach to decision making is not just found when dealing with consumer products; business-to-business product decisions are made in the same way. Indeed, within a business-to-business setting the development of a preferred provider list or the establishment of minimum competitive requirements represents a type of screening stage.
The development of an understanding how customers make decisions is a good beginning for the development of marketing strategy. The first step in developing such understanding is identification of how the customer defines the market, that is, what alternatives does the customer consider acceptable. This is not always as obvious as it may seem. Marketers often define competitive substitutes in terms of similar products rather than similar benefits, but it is the benefit the drives decision-making. Makers of commercial cleaning products may define alternatives as other commercial cleaning products but consumers are likely to include various homemade cleaning products as well. For example, vinegar was used as a household cleaning agent by consumers long before it was put into commercial products. The reason it is important to identify market substitutes from a consumer perspective is because the product characteristics that customers use in decision making are defined by the characteristics of the total relevant set of potential alternatives.
Once the full set of alternatives is known the next step in understanding how customers make decisions is to identify how customers screen.
Most often they begin with a single important characteristic. For example, a consumer may eliminate all alternatives above a particular price or that does not have a particular feature. The factors involved in this screening stage need not be the same for all customers but in most markets there are a relatively small numbers. Such differences in the screening factors used by customers is a first order segmentation of the market.
There are two strategic implications of the customer screening stage in decision-making. First, a product that does not get through a customer’s screen does not receive further consideration and, as a result, is not purchases. A product that is otherwise superior on many attributes may fail because it is not perceive to pass the screen. This means the marketer must either change the relevant product attribute that is used for screening or change the way customers screen. The second strategic implication is that a screen can be a brand name. This is a powerful competitive advantage.
The consumer who says “I want an Apple iPhone” has eliminated the competition. Making brand a screen is an important strategic objective.
Sometimes the screening stage is the only stage. The customer, who wants particular brand, always buys the cheapest or what is on sale, or what is immediately in stock has no need for further evaluation of products. In any case, if a particular screen does not reduce the choice set enough, another screen can be added to the process and another, until there is either one alternative left or there are only a few left to consider.
Finally, for whatever remaining products are left after the screening stage the customer typically compares them on 3 – 4 important characteristics, then makes a decision based on this comparison. Knowing these important characteristics, or determinant attributes as they are often called, and how products compare on these characteristics is also vital for marketers. It is the determinant attributes, as well as the screening criteria, that need to be the focus of marketing communications. Weaknesses with respect to determinant attributes or screening criteria are indications of the need for product improvement. Finally, differences among consumers in the determinant attributes and screening criteria they use suggest opportunities for segmentation and product differentiation.
Understanding customer decision-making is not difficult.
While there are very sophisticated analytic tools for examining decision making much can be learned from detailed conversations with customers. Operating in a market without a keen understanding of how customers make decisions is a formula for failure. Knowledge of customer decision-making provides direction for success and competitive advantage.
