Video Lecture: Building Insight into Customer Decision-Making

This video gives a brief overview of broad factors associated with customer decision making.

Transcript: Building Insight into Customer Decision-Making

The first thing to remember about building insight into how customers make decisions is that there’s no correct answers. There’s no one right way that people make decisions. And there is no existing research that will definitively confirm what customers need and how we can help them.

But we do have some core tools to help us learn.

[0:20] Core tools for building customer insight

The first tool is curiosity. In our day-to-day lives, we often fall back on using ourselves as our market research sample of one. We assume others would approach decision-making the same way we do. So being curious about customers, willing to take the time to observe them, talk with them, to understand how the world looks from their shoes, is the first step to customer insight.

We then have three tools that help us think in a structured, systematic way about what we’re observing. Conceptual models are the first of these tools. When we build a conceptual model, we abstract out some common factors from a range of observations and organize them into a simplified picture that we think captures important characteristics of what we’ve observed.

Our conceptual models are built from a series of hypotheses, which are educated guesses, or testable assumptions, about the relationships between the concepts or factors in our model. Two different factors tend to vary together? Does one cause another? The more prior knowledge or evidence we can draw on, the more confident we can be about our hypotheses and the models that build on them.

But we won’t rely only on prior knowledge or evidence. We’ll also test our hypotheses by gathering new observations and seeing how the results compare to what our conceptual models predict. Two broad types of testing used in developing customer insight are empirical models, including statistical and AI models, and experiments.

The process of formally developing models, hypotheses and tests is beyond the scope of this course. But even at a conceptual level, keeping this set of tools in mind is useful as we think about trying to predict how customers make decisions. With that in mind, let’s take a look at two conceptual models supported by existing research on buying decisions. ​

[2:12] A model of potential influences on individual buying decisions

The first is a model about factors that influence individual decision-making. If we’re making a decision for ourselves, how do we decide what we want? What factors go into making that decision? There are lots of them. So there’s no one right answer to that question. However we can usefully classify factors into two broad groups.

If you’re making a decision for yourself, there are things about yourself. Your existing knowledge, the knowledge you’re willing to learn. Your motivation for making a decision. Your perceptions of the world around you. And preferences and habits that you bring with you to the decision.

There are also things about the world around you, the situation you’re currently in that influenced your decision. Current economic conditions, or tools or technologies available to you may expand or constrain your options. Laws and regulation add formal decision constraints while cultural factors and social pressures at informal, but equally powerful ones.

So, if we’re trying to predict how someone’s going to make a decision in a particular situation, we would start by structuring our thinking about possible reasons into these two groups of factors. These factors are broadly supported by consumer behavior research, in turn supported by research from economics, psychology and sociology.

We then systematically think about how each of these factors in these groups might affect the decision, in order to build a specific model in the context that is interesting to us. There are some broad research findings we can draw on to guide us.

[3:44] Three broad research findings

The first is that habit is the most powerful overall factor. Of all the things that are going on here. What you’ve chosen in the past is the best predictor for what you’re going to choose in the future. There’s lots of reasons for that. It’s not always true. But it’s a really good place to start. If I want to know what someone’s going to do, observe what they’ve done.

Second, the influence of other people around us is incredibly powerful, too. Again, the strength of social influence varies across individuals, but in general pressures to fit in with others, compete with others, or rank ourselves relative to others, are pervasive influences on decision-making and all contexts. If I want to know what someone’s going to do, observe what those around them do.

The third is that these two sets of factors interact. For this reason, if we’re trying to predict a decision, we always want to try to define our unit of analysis as a person in a specific situation. The same people make different decisions in different situations.

[4:49] Demographics as proxies

Finally , and related to the interaction between individual and environmental factors, it’s worth noting what isn’t on this list. Demographics.

But in practice, marketers, talk about demographics all the time. Why aren’t they here? The answer lies in the difference between creating and testing conceptual models. Recall that conceptual models, as their name implies, are constructed from abstract concepts or factors. But to test our models, we need to be able to observe these factors in the real world.

The individual factors on our list above are not directly observable. Neither are key environmental factors like culture and social pressures. So to test our models, we need to have a way to infer these unobservables using things we can observe. Since some demographic factors can sometimes very systematically with factors on these lists. Marketers often use demographics as observable substitutes, or proxies, for true factors that are unobservable.

But if you’re going to use demographics to test your models, it’s good practice to be specific about your hypothesized relationship between the observable demographic and the unobservable factor that’s actually influencing behavior. And remember because people make different decisions in different situations, demographic characteristics are generally not useful factors in conceptual models.

[00:06:06] A model of additional influences on B2B buying decisions

Our conceptual model for organizational decision-making builds on our individual decision-making model, drawn from research from consumers as well as research from organizational behavior.

We have the individual factors. They still matter. And the environment still matters, but our social pressures present a little differently. There are now a new set of social pressures at the organizational level. The first are competitors are providing alternatives to our customers, and so our pressing us to deliver better value. The second are stakeholders, employee, shareholders, regulators, other people in the marketplace and society in general, that pressure us to act in certain ways.

And then inside the organization, we add two new groups of factors, organizational factors, and interpersonal factors. And organization itself doesn’t make decisions. It’s a mechanism by which people in it coordinate group decision-making. This need to coordinate across people introduces more formal decision-making processes than when we make individual ones. Building additional conceptual models to understand these more formal buying processes is a core skill for B2B marketing and sales teams.

That said we can map some of the factors we see at an individual level against some of the factors that people who study organizations identify, and we can find some similarities. We have organizational level knowledge, and organizational objectives and strategies, which you could frame as its motivations. We have systems and structures and procedures and culture that are all like the habits of the organization. These are the ways the organization works consistently, either formally, because they have procedures and structures that organize them that way, or inform or informally, because that’s the way the culture works.

And then inside the organization, multiple people are generally involved in making buying decisions. So that adds one more level of factors to consider, interpersonal dynamics, that are going on between members of the organization.