Friday, 18 March 2011

Decision making (1)

For several weeks I've been making painfully slow progress through Francesco Nicosia's classic work from the 60s, Consumer Decision Processes. It's an academic work in a field where I have no formal training, so I'll forgive myself the slowness, although to be fair my eyes occasionally glaze over when reading it on the Overground after a long day at work.

I've still got a long way to go on it (estimated finish time: 2013) but although it's not always edge of the seat stuff (by page 80 the reader has just been informed that a decision starts with a goal and ends with an act) it is a carefully constructed breakdown of how decisions might work. Nicosia reviews the existing literature but it was the ideas of Paul Lazarsfeld that grabbed me.

Lazarsfeld's scheme, from 1935, basically postulates that at time T you have an individual with feelings or situations I(T) in his environment E(T). The environment acts on those feelings and situations, and helps shape them in turn. Of course, only relevant environmental concerns will have any effect on the individual.

For example, E could be anything from some word of mouth, to a change in personal circumstances, to an ad, to a change in product availability, to an event, to a product attribute. So E feeds into I, which in turn is changed, so another "set" of environmental variables will come into play, and so on in a constant iterative process, until the individual preferences reach a critical point leading to some tangible action, and the decision is made. It sounds lovely and simple, but the key point is that all these variables play off one another; so one particular variable will only have an effect on, or be relevant to, another variable depending on what stage of the process you are at.

I feel the marketing implications of this scheme are clear. Imagine first the universe of individual variables (circumstances, opinions and so forth), alongside the universe of environmental variables. The trick is to draw up some sort of infinite Venn diagram, and work out which variables interact with which other variables, and under what circumstances. The marketeer can then consider which of those variables he has control of, and apply them at the appropriate point in the decision process. But the hard bit is realising that each individual circumstance will be different; so are there patterns, or general rules, that can be drawn - and indeed are the decisions that are being taken to purchase the product in question the same or different?

Of course the environmental variables such as product attributes themselves are not constants; because it's the subjective opinion on product benefits that matters. Which neatly ties in with what Ward Edwards and others were looking at in the 50s (my progress through Nicosia is supersonic compared to the rate I'm reading Amos Tversky-edited Decision Making!) I won't pretend to know anything at all about microeconomic theory, but the key to "utility curves", marginal utility and a value-to-cost ratio is that the value or utility of a product is subjective. Even something like price is subjective; the perceived cost is more important than the actual cost when it comes to decision making.

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