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[C988]Consumer Decision Making Process

by Michal Moreno, Mic

When trying to understand the online consumer behavior, we first need to know the Internet audience – who uses the web, who shops, and why they buy?

In general, Internet usage rate is constantly rising, although in the past few years the growth rate has decreased. People who go online engage in a wide set of activities varying from sending e-mail, to browsing for fun, and getting news.

The demographic profile of Internet and e-commerce has changed since 1995. Up until 1999, single, young, college-educated males with high incomes dominated the web. In recent years, there has been an increase in Internet usage by females, minorities, and families with modest incomes.

What’s new about online purchasing is the new marketing communications capabilities afforded by the web - community tools, chat rooms, forums, banner ads, e-mails, search engines, and online product reviews. The web offers the marketer a vast array of marketing options to approach his consumer, and supply him with a very rich information and purchasing environment.

Consumer behavior online and offline have both similarities and differences. The stages of the consumer decision process are basically the same whether online or offline. However, there are still a few modifications to the model requiring taking into account new factors.

The point is that in order to influence the customer’s decision-making process, the planner of B2C marketing needs to consider a web-purchasing decision making process, which is quite similar to the traditional model, but not exactly the same.

1.Need recognition
A key difference with use of the Internet as a marketing medium is that the consumer has more control of the information. TV commercials, for example, show the marketer’s choice, while when searching the web, the consumer can decide what he wants to know, and at what order of importance. Unless the consumer experiences a felt need, he will not necessarily access various pages to learn about new products the way he may notice them on store shelves or on TV commercial ads. Therefore, marketing tools traditionally used to arouse a sense of need must be reconsidered.

Need recognition has so far been stimulated by mass media, TV, Radio and print media. In online environments, the stimulants are: targeted banner ads, targeted event promotions and newsgroups discussions, as well as shopping agents and event notification services. The latter two services help the online shopper in identifying an opportunity to purchase the required product at a specific price, when available.

2.Information Search
Under the traditional model, consumers exert varying levels of energy to seek out and process information as they learn about the products available from which they will eventually choose.
The Internet makes the information search much easier:

-Through the use of newsgroups consumers can interact with other consumers and exchange all negative and positive product information freely –this third party information is considered the most credible by consumers. Newsgroups also supply the marketers with critical information as to their products.

-Visiting multiple online shops is much easier than visiting a number of physical shops. Furthermore, with one click the consumer can access more detailed product information, or just move to another e-shop. This nonlinear process allows nearly unlimited freedom of choice, and greater control for the consumer in comparison to physical stores and shopping.
Current research indicates that users believe that websites provide better purchase related information than traditional vendors .

-Comparative shopping is made easier as all alternatives are presented in close proximity to one another. Thus search costs are again reduced.
During this stage, online product search and comparison engines can be very helpful, as well as virtual catalogs, structured Q&A sessions, Links to external sources, web directories, external & website internal search mechanisms, and focused directories and information brokers.

3.Evaluation of alternatives
Alternative evaluation is the comparison of brands against standards and specifications set by consumers. For high-risk products, where there is a use of compensatory strategies to determine the preferred brand, the Internet can make those decisions automatic.

In the case of too many brands to evaluate, or a low risk product, consumers usually use heuristics (brand name for example) for their choice. In an evaluation cost-free environment, those heuristics are reduced .

Marketers find that arenas of differentiation based on perception or heuristics fade quickly as consumers gain easy access to comparative information.

Trial is an important part of the consumer decision-making process, and it reduces consumer’s risk. Where the product can be delivered online (e-book, software), the Internet can support trial in the form of a trial period, or a demo edition. In other products, the Internet serves as an information-defined transaction space, where information about products replaces products .
The specific tools for evaluation of alternatives when shopping online consist of FAQs, samples and trials, consumer testimonials, Newsgroups discussions, and cross- site comparisons.

4.The Purchase Decision
Making a physical purchase is for many people associated with disdain - standing in line, stock outs, and crowds are a few aspects many consumers would gladly give up . The Internet eases all those aspects of the purchase process, and more:

-The consumer may post an online question directly to the provider, who usually has more expertise than the retailer.

-The order is scanned online, credit card is also checked as well as stocks, and the customer receives a detailed purchase authentication containing shipment date which he can follow online.
In this stage, what assists the purchase progress are billing and delivery arrangements, electronic cash and virtual banking, and logistics providers and package tracking options. Convenience in ordering, payment and receipt of goods is a major competitive factor. Responses to inquiries directly from the manufacturer are with some products viewed by customers as a key advantage to shopping online.

5.The Purchase Evaluation
Conventional wisdom is that a dissatisfied customer will tell nine of his friends of a negative experience – now he has the ability to tell 10,000 potential customers or so worldwide. Warning e-mails and newsletters regarding bugs in specific software were spread within the shortest period of time, to a nearly unlimited number of peers. Shoppers seeking advice on a product purchase simply post a question to a newsgroup and receive detailed account of others’ past experience.
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Bibliography:

1. Laudon, K., Guercio-Traver, C., E-Commerce: Business, Technology, Society. Pearson Addison Wesley: Pearson Addison Wesley: 2003.

2. Spool, J., The customer sieve, User Interface Engineering, 31/1/02 http://www.uie.com/articles/customer_sieve/

3. Gupta S., “Hermes project WWW consumer survey", March 6, (1995), URL: http://www-personal.umich.edu/~sgupta/hermes/

4. Rayport, J.F., Sviokla, J.J. Managing in the Marketspace. Harvard Business Review; November-December; 1994.

The traditional model of consumer decision-making is a model of five stages: 1. Need recognition, 2. Information search, 3. Evaluation of alternatives, 4. The purchase decision, and, 5. The purchase evaluation. In all five stages, there is a certain consumer behavior, which is affected by influencing factors as detailed in the previous article.
In the online marketplace, there are no significant changes to the traditional model, although some of the influencing factors are different. However, the online environment supplies the consumer as well as the marketer with abilities that enforce changes in the rules of the game, carrying advantages as well as disadvantages as follows:

Need recognition

Traditional Shopping –
The marketer can decide on what product characteristics to promote.
The advertisement is being pushed to the consumer (TV, radio, printed ad)
Online Shopping –
The consumer may get any information he wants according to his personal preferences and interests.
The consumer may choose not to view (block) ads.

Information search

Traditional Shopping –
High search costs, involves physical visits to shops.
In a low involvement-low risk purchase, the consumer will limit the resources he puts to the search, and vice-versa.
Limited access to 3rd party information resources – the potential consumer may only ask people he knows.
The consumer may only compare between brands he noticed on the shop’s shelf, or remembers from other shops.
Online Shopping –
Lowered information search costs – easier to find specific information.
The consumer will still act the same, although because of lowered search costs, he will gather more information.
Unlimited access to 3rd party information resources – the potential consumer may consult many other consumers who bought the product.
Comparative information search is much easier with comparison engines, or changing between web-shops within a click.

Evaluation of alternatives

Traditional Shopping –
Heuristics (brand name for example) used for choice.
The consumer may test the product at the shop in order to lower the risk.
The consumer may only compare between brands he noticed on the shop’s shelf, or remembers from other shops.
Online Shopping –
In an evaluation low cost environment, those heuristics are reduced
Trial is only available for products which can be supplied online (software, e-books). Information about products replaces products.
Comparative information search is much easier with comparison engines, or changing between web-shops within a click.

Purchase decision

Traditional Shopping –
The consumer may ask the salesperson or department manager, but has no guarantee as for the credibility of supplied information.
The order has to be manually checked into the cash register, while the consumer may stand in line.
Low accessibility to handicapped persons.
The shop may not have all product brands available.
The customer takes the product with him from the store- immediate supply.
The salesperson can identify what type of shopping orientation the customer has, and can change his approach accordingly.
Online Shopping –
The consumer may post an online question directly to the provider, who usually has more expertise than the retailer.
The order is scanned online, and credit card checked.
With appropriate software and hardware, all crowds can be served. Allows handicapped persons independent shopping.
Stocks are checked, and the online shop can actually function as a mediator without carrying its own supply – simply by ordering it from the manufacturer on demand.
No immediate supply - the customer receives a detailed purchase authentication containing shipment date which he can follow online. Some products are available for supply within a 24-hour range.
There are no personalization mechanisms that comply with the customer’s shopping orientation.

The purchase evaluation

Traditional Shopping –
Return policies are much easier to implement for both the consumer and shop.
Customer support systems have high costs, and are less accessible.
Complaining has a higher cost for the consumer – it takes more time, but sometimes the human interaction may compensate for that.
A dissatisfied customer may tell nine of his friends.
Online Shopping –
Returns have a shipping cost to the consumer, shop or both, even in the cases where a return can be made to a physical shop (for example: The GAP).
Online customer support systems have low costs, and are more accessible.
Easier to complain about a product, but the human interaction is limited to web-based interfaces.
A dissatisfied customer may tell a nearly unlimited number of potential customers.
Lowered dissonance due to the unlimited amount of information a consumer may get about a product, dissonance is sometimes higher because of the missing ability to feel/try the product before purchase.

Conclusions
In the online shopping arena, the rules of the model are basically the same, but the implications and influencing factors are somewhat different. There are many books that praise e-commerce, and call it the commerce arena of the future, where the market is most efficient, all information is at the hands of the consumer, and information search costs as well as advertising costs are lowered to a minimum. However, the fact is that the greater part of shopping worldwide is still physical shopping- apparently there still are some barriers that limit the extent of online shopping, and the online shopping growth rate is not developing as may be expected.
The explanations to this fact may be many – Internet penetration rate is slowing down, people do not purchase as many computers as they did, the costs are too high, and many more, but I would like to focus on the process fall-downs for consumers who have already decided to make an online purchase. Research shows that one of the major problems with e-commerce sites is that they fail in supporting the customers in this process , so that only 34% of consumers who intended to make an online purchase, reach the purchase evaluation stage. So, the explanation lies in the consumer decision-making process, and how online shopping still fails to deliver a better experience than physical shopping, as I will elaborate.
From tests of consumer commerce sites, researchers have discovered that the online buying process acts as a sieve, where customers are inadvertently filtered out at each stage of their decision-making process. UIE's studies show that out of 100 purchase-ready customers completely intended on buying a product, only 34 will accomplish their goals.
At the information search stage, 9% wasn't able to find the products they were looking for because they couldn't identify the right product category or find product options using the search facility.
8% of the shoppers who succeeded in finding products gave up because the product lists didn't provide enough information to identify purchase options, or because they were confused by going back and forth between product lists and product description pages in order to decide if the products would fit their basic needs.
When compared to physical shopping, online shopping theoretically has the advantage of low search costs, but that advantage is failing to promote online sales, because artificial intelligence has not yet created any semantic connotation system to replace human interaction. Online stores and search mechanisms have not yet come to the stage where a consumer may ask a question like “Do you have that knife the naked chef recommended on his last show?" which physical salespersons obviously have.

At the evaluation of alternatives stage, the major problems occur when customers want to evaluate their product alternatives. Only 25% of the shoppers who reached this stage proceeded to the next. Some stopped because they realized that none of the products would fit their needs, but most because the product information was so inadequate that they couldn't tell if the products they were interested in satisfied their needs.
The online shopping environment is supposedly where information about a product replaces product trial. However, many times the product specifications cannot supply all the required information for the consumer, and the ability to touch and feel the product has not been replaced by the complete information available for every product on the web.
Of course, there are some product segments where an online trial is available, but the experience may be incomplete even in those cases- a trial version of a computer game will never be as appealing as the ability to play the game in the computer store.
Furthermore, despite the complete and objective information on the web, there is still usually no one to ask questions at the store, and in order to get an answer to your specific question, you must post it at a consumer review site or forum, and wait for an answer – that process creates yet an even thinner sieve.
Commerce sites still fail to supply all the needed information for all consumers and consumer types at this stage.
At the purchase decision stage, 13% dropped out because they didn't want to go through the required registration process or because they were disappointed by poor shipping charge policies. At this stage emphasis should be on providing the easiest possible way for the customers to carry their orders through.
When compared to physical shopping, this stage supposedly has the greatest advantages to the consumer: no standing in line, no waiting to see if the product is in stock, etc. However, we see here another set of obstacles that filter yet another 13% of intended consumers.
These obstacles consist of: Too many private details the online shops gather which makes some of the potential consumers drop out, poor shipping charge policies, and a long shipping wait for the consumer.
Mainly for marketing reasons, online shops try and gather as much information as possible. What these online shops are missing is that in their private data collection process, many consumers are being filtered out because of privacy concerns. So, The online environment does not support anonymous or at least private shopping in any form – currently there are no purchase options for consumers who want to stay anonymous (pay in cash and leave) or keep their privacy (charge a credit card, sign it and leave the store) - and apparently this kind of shopping is needed by consumers.
The advantage of not having to wait in line, is suppressed by poor shipping charge policies and a long shipping wait for the consumer: most online shops make shipping charges compulsory, and so raise the price of the product de facto, and only show the updates shipping price at checkout. There’s nothing more frustrating to a consumer than to meet even a 5$ shipping payment addition for the book he wanted to purchase for 20$.
Furthermore, the relatively low effort the consumer puts in the purchase, and the low cost of information search, also make it very easy for the customer to leave the shop at this point: in the online environment it is much easier to fill up two shopping carts with the same products at two different shops, and so, at the moment of payment, discarding one of the carts, or even both is cheaper in terms of search costs.
There was also a surprisingly high amount of problems in the purchase evaluation stage. 11% percent of the shoppers where either so unhappy with a product that they returned it, didn't receive the product at all, or got the wrong product. Some of the shoppers said that they returned a product because it wasn't what they expected , which suggest a failure in setting up the right expectations in the product evaluation stage.
And so, when trying to assess the factors that so drastically lower the consumer purchase rate, it seems that despite all the online shopping advantages to the consumer, online shopping fails in supporting the consumer decision making process, and the parts that have not yet been replaced are those having to do with human interaction. The question that follows, is: is it possible for online shops to replace the human interaction involved in physical shopping, and will that make the change in online consumption.
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Bibliography:

Olsen, H., Supporting customers’ decision making process, The interaction designer’s coffee break, 4/03 http://www.guuui.com/issues/02_03.php

Spool, J., The customer sieve, User Interface Engineering, 31/1/02 http://www.uie.com/articles/customer_sieve/

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