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MARKETING MODELS ASSIGNMENT

Consumer Behavior One

IB (MARKETING), BATCH 2018-20

Submitted to:
Submitted By: (Group 6)
Mr. y
Pavitra Bhandari (18020241052)
Sayondeep Roy (18020241062)
Omkar Bhoye (18020241)
Shail Vajani (18020241168)
Introduction:

The concept of consumer behaviour includes the marketing of products and services. The
essence of marketing is to satisfy consumers' needs, create values and retain customers.
Marketing strategies are formulated based on assumptions about consumer behaviour.
Consumer behaviour is linked with decision making of each individual by the time to make a
consumption choice. Cognitive psychology deals with how people gain, process and store
information. Situational factors are external to the consumer and removed from the
characteristics of the product that influence consumer purchase decisions. The four Ps of the
marketing mix are marketing factors controllable by the marketer and consist of the following
four elements: product, price, place, and promotion. Consumer research refers to the process
and tools utilized to study consumer behaviour. The family/marital status is also a relevant
factor for segmentation, the status influencing consumers' spending priorities.

5 Stages of consumer buying decision process

The marketer is responsible for selling the goods in the market so he must have the
knowledge how the consumers actually make their buying decisions. For this he must study
the consumer buying decision process or model. It involves five stages.

1.) Need recognition:- consumer buying decision process starts with need recognition.
The marketer must recognize the needs of the consumer as well as how these needs can be
satisfied. For example if a person is hungry then food is desired or if it is a matter of thirst
than water is desirable.

2.) Information search:– in consumer buying decision process information search comes
at second number. In this stage consumer searches the information about the product either
from family, friends, neighborhood, advertisements, whole seller, retailers, dealers, or by
examining or using the product.

3.) Evaluation of alternatives:– after getting the required knowledge about the product the
consumer evaluate the various alternatives on the basis of it’s want satisfying power, quality
and it’s features.

4.) Purchase decision:– after evaluating the alternatives the buyer buys the suitable
product. But there are also the chances to postpone the purchase decision due to some
reasons. In that case the marketer must try to find out the reasons and try to remove them
either by providing sufficient information to the consumers or by giving them guarantee
regarding the product to the consumer.

5.) Post purchase behavior:– after buying the product consumer will either be satisfied or
dissatisfied. If the consumer is not satisfied in that case he will be disappointed otherwise If
he is satisfied than he will be delighted. It is usually said that a satisfy consumer tell about
the product to 3 people and a dissatisfy consumer tell about the product to 11 people.
Therefore it is the duty of the marketer to satisfy the consumer.

Models Of Attitude and Preference Formation:

An attitude can be defined as an overall tendency to respond consistently favorably or


unfavorably toward and object. This are for judgments on specific attributes of the choice
object(Perceptions).

Compensatory Model:

The Compensatory Model for decision making, widely applied in consumer decision
making and in brand/product marketing (to consumers) decision making, is often defined in
conjunction with the No compensatory Model for decision making.
Compensatory modeling is based on the premise that (1) alternative good attributes and/or (2)
acceptable bad attributes can be traded off--or compensated with or by--each other within a
given decision making situation.

THE EXTENDED FISHBEIN MODEL:

Interest in Fishbein's extended model is twofold. First, the model provides a basis for studies
of the relationships between attitudes and social influence variables relative to behavior.
Second, the model may be useful for the prediction of behavior utilizing behavioral intentions
as a mediator. Much of the early research based on the intentions model was encouraging
since intentions and behavior were frequently correlated at levels above .85 (Fishbein, 1973).

The purpose of this paper is to review the theoretical framework of the extended Fishbein
model along with the research concerning it. The primary focus is on the issues associated
with use of the model in consumer research, in particular the conceptual antecedents which
underlie the model.

The ambiguous results obtained from using multiattribute models to predict behavior
prompted Fishbin and others to reassess the beliefsmodel to make I more relevant to
marketing.The most widely known extension has others, apart from the person making the
purchase, influencing the decision in some decision circumstances In particular,

B = BI = [(RHd) (RSv)] w0 + [(BH) (MC)] w1

where B = overt behavior; BI = behavioral intention; RHd = hypothesis of the distribution of


reinforcement, i.e., the degree to which the individual thinks a specific response will lead to
reinforcement or reward; RSv = the subjective value of a reinforcer, i.e., the value the
individual places on the reward; BH = behavioral hypothesis, i.e., the degree to which the
individual believes a particular behavior is expected of the individual by some specified or
generalized set of others; MC = motivation to comply, i.e., the degree of the individual's
desire to conform to a BH; and w0 and w1 are empirically determined weights.

LCA Model:

The axiom as originally formulated


Suppose that PS(R) denotes the probability (or more generally, subjective weight) that the
choice of an individual person (and in later work in economics and marketing across a group
of people), from a finite set S of alternatives, falls within the subset R⊂S . For example,
let S denote the six faces of a die and R={1,6} , then PS(R) is the probability that a person
thinks either a 1 or a 6will arise with a roll of the die. For S={x,y} the
abbreviation P(x,y):=PS=P{x,y}(x) is used; it simply denotes the probability of
selecting x over y . Then Luce (1959/2005) (abbreviated ICB) defined the choice axiom by:

Let T be a finite subset [...] such that, for every S⊂T , PS is defined.

If P(x,y)≠0,1 for all x,y∈T , then for R⊂S⊂T

PT(R)=PS(R)PT(S);(1)

If P(x,y)=0 for some x,y∈T , then for every S⊂T

PT(S)=PT−{x}(S−{x}).(2)

In modern notation S−{x}=S∖{x} .

Subsequently, the issue of not confusing this axiom with the very important,
mathematical axiom of choice may have led some authors to start calling, at least, Part (1) of
(1), Luce's choice axiom (LCA); Part (2) is often ignored.

In recent work on the utility of gambling, was derived from other axioms as a property
holding for non-additive subjective weights. Because it was not postulated, they called it the
<<choice property>>.

If the size of the subsequent literature means a work can be described as seminal, then a
check via, e.g., Google, makes clear that this 150 page monograph warrants that adjective.

Formulations related to Part (1) of LCA

Summaries of some of the issues are found in Marley (1997, especially the chapters by Estes,
Nosofsky, Suppes, and Yellott). Some of the detailed issues are:
Resemblance to conditional probability

noted this resemblance because one can rewrite (1) as

PS(R)=PT(R)/PT(S).(3)

But this is not formally conditional probability because LCA does not assume T is a universal
sample space. For example, suppose that T= the possible chance outcomes of rolling a die
and T′= the possible chance outcomes of spinning a roulette wheel. Each may be a local
sample space without T∪T′ necessarily also being one. Relevant to this issue are experiments
of Batsell & Lodish (1981) as well as theoretical work of Suppes (1997) and Narens (2003,
2008).

Ratio scale representation

equivalent to the existence of a positive ratio scale (i.e., unique up to multiplication by a


positive constant) v on T such that

PS(x)=v(x)/∑y∈Sv(y).(4)

When finite additivity is no longer assumed, (4) may hold but with ∑y∈Sv(y) replaced
by v(S) . There is a sense in which the function v replaces the role of a universal probability
measure over a universal sample space. ICB noted that Bradley and Terry (1952) and earlier
papers had studied the binary case of (4), and for a time some psychologists, at least, referred
to LCA as the Bradley-Terry-Luce (BTL) theory. The form of (4) has repeatedly reappeared
in various models. In one such model, the v measure is modified to represent both a response
bias and a similarity measure (e.g., Luce, 1963; Nosofsky, 1984, 1997; Townsend & Ashby,
1982). Nosofsky (1997) summarized his extensive research program on applying these ideas
to his generalized context model of categorization and to extensions in the study of response
times.

Product rule

Suppose that T={x,y,z} , then (4)

P(x,y)P(y,x)P(y,z)/P(z,y)P(z,x)P(x,z)=1,(5)
which is called the product rule. It can be rewritten as

P(x,z)/P(z,x)=P(x,y)/P(y,x),P(y,z)/P(z,y),(6)

which makes clear that the role of y simply "cancels" when evaluating P(z,x)/P(x,z) . This is
closely related to the next inference.

Independence from irrelevant alternatives (IIA)

One feature of (1) (noted on p. 9) that follows immediately from (4), is:

P(x,y)/P(y,x)=PS(x)/PS(y).(7)

This means the elements in S∖{x,y} are irrelevant in the right ratio, a form of IIA. Debreu's
(1960) review of ICB included an example that made clear that, in some contexts, (7) is an
empirically unsatisfactory feature of the axiom. His example involved both parts of the
axiom. A widely cited alternative that rests just on Part (1) plus a concept of similarity is:
Let x= a bicycle, y= a red bus, z= a blue bus. Suppose a boy is indifferent pairwise between
rides on a bicycle, a red bus, or a blue bus. When confronted with choosing among all three,
his preference remains 50:50 between a bus or a bicycle ride because he is indifferent to the
bus color, i.e., 12,14,14 , whereas Part (1) of the choice axiom predicts 13,13,13 . Of course,
such examples led to various attempts to generalize the axiom to be rid of IIA, with, perhaps,
the most important being Tversky's elimination by aspects (EBA) model (Tversky, 1972;
Tversky & Russo, 1969). In EBA it is assumed that each alternative is a vector of aspects and
that choices are achieved by comparing aspects and dropping partially dominated
alternatives.

Random utility representation

Subsequent work, especially by E. Holman & A. A. J. Marley (see footnote 7 of Luce &
Suppes, 1965), McFadden (e.g., 2003), and Yellott (1977, 1997), led to the idea of a random
variable representation that was parallel to Thurstone's discriminal processes but with the
double exponential, sometimes called logit, (cumulative) distribution exp(e−αt+β) replacing
Thurstone's Gaussian distributions. Some authors, e.g., McFadden (2003), identify the model
as the logit or multinomial logit. Note that the Gaussian arises as the limit distribution of the
sum of independent random variable whereas the double exponential arises as the limit
distribution of their maximum value. The latter density is quite asymmetric whereas the
Gaussian is symmetric.

Rank orderings:

Section F to raised the question of how rank orderings relate to binary choice probabilities.
To that end, let σ denote a ranking of T . Let RT(σ) denote the probability of a person making
the ranking σ , and let x≻y denote the set of rankings of T in which x precedes y . Suppose
that σ ranks alternative x∈T first and let σ−x denote the ranking of over the remaining
subset T∖{x} .Then the following ranking postulate was partially investigated:

R{x,y}(x≻y)=P(x,y)(8)

RT(σ)=PT(x)RT∖{x}(σ−x)

Some results were derived which, as subsequent work made clear, were very partial. One
issue concerned when the induction from best to worst was, or was not, the same as that from
worst to best. Marley (1968) and Yellott (1977, 1997, 1980) made further progress on the
issue, but that work was quite incomplete and not fully satisfactory. Nonetheless it raised
issues that others, especially Block & Marschak (1960), Georgescu-Roegen (1958, 1969),
Fishburn (1994), Marschak (1960), and Marley (1968), found tantalizing and clarified
somewhat, as outlined (to that date) by Luce (1977).

Matters went fairly dormant until Saari (2005, 2008) took it up again. He had worked
extensively on understanding social rankings, as in the Arrow and Sen impossibility
theorems, by recasting the problem into geometric concepts, and he applied that perspective
in a very detailed fashion to clarify the relations between the choice axiom and rankings. He
showed that IIA essentially nullifies the power of other assumed properties, such as
transitivity of individuals. He concludes by saying "Indeed, while the geometric approach
introduced here leads to a richer selection of alternative computational approaches, where the
subject uses more information, and a significant relaxation on the choice of ranking
probabilities, it is only an indication of what is possible."

Extensions and applications:


A great many applications of LCA, including some that seem somewhat questionable, have
appeared. Luce (1977) presented a quite detailed summary of work, but limited mainly to
psychology, in the ensuing 20 years\footnote{This dates the choice axiom to 1957, which is
when it was circulated as a technical report among a number of mathematical psychologists.
That report, which had red covers, led to some confusion about its relation to probability
theory, and some people referred to it as the "red menace", whence the color of the 1959
edition.}. Most notable are rejections of IIA and attempts to weaken the axiom, e.g., the EBA
proposal of Tversky (1972) (see 2.d). The representation (4) and the logit representations are
both frequently invoked without reference.

Some of the areas in which applications have appeared include, of course, psychology where,
as one might expect, a good deal of attention has been paid to issues of violations of IIA for
individuals. At the same time, from early on a number of attempts have been made by others,
including Tversky (1972), to modify the representation (4) to explain various phenomena. For
summaries, see Marley (1997).

A second major area of applications has been in economics. There the logit representation
form has been the main tool. For example, McFadden (1974, 1976) invoked it, with credit, in
his extensive and penetrating theoretical developments that led to his being awarded the
Nobel prize in 2000. His Nobel address (2003) is generous in crediting Luce and others.

And a third area has been in marketing research where there have been fairly extensive
applications and generalizations, even though ICB had emphasized the point that even if each
person satisfies the axiom, their average data will not in general. Apparently, Huff (1962)
first did so; moreover, his was the first multi-attribute version. Perhaps Richard R. Batsell is
the person most continuously active, beginning in 1980s, working in marketing on uses of
LCA, generalizations of it such as EBA, testing them on extensive individual and group data
set, and developing greatly improved parameter estimation schemes (Batsell & Lodish, 1981;
1982; Batsell, Polking, Cramer, & Miller, 2003). Other relevant references are in these
papers. During the same period, some developments were tied in with (additive) conjoint
measurement and that has been widely developed and applied to real problems. See for
example Currim (1982) and Louviere, Hensher, & Swait (2003) and the many references
there.

Nested logit model :


Subsets of alternatives [AI(q)] which are similar are grouped in hierarchies or nests. •Each
nest in turn is considered as a composite alternative (NI) which competes with the other
alternatives [A(q) –AI(q)] available to the individual.

First estimate an MNL for the AI(q) alternatives of the lower nest, taking care of omitting all
those variables (z) which take the same value for this subset of options.

The utility of the composite alternative has two components:

–One that consists of the expected maximum utility (EMU) of the lower nest options, and

–Another which considers the vector z of attributes which are common to all members of the
nest

EMU has the following expression: EMU = log Σj exp(Wj) Where, Wjis the utility of
alternative Ajin the nest Therefore, the composite utility of the nest is: VI= φ EMU + α αα
αz Where, φ and α αα αare parameters to be estimated

At the higher nest, an MNL consisting of all composite alternatives representing lower
hierarchies and alternatives which are nonnested at that level is estimated. •The probability
that individual q selects option Aj∈AI(q) is computed as the product of the marginal
probability of choosing the composite alternative NI (in the higher nest) and the conditional
probability of choosing option Aj(in the lower nest).

Formula:

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