Tackling Business Challenges: Explore the Depths of Consumer Decision-Making
What do you do when you are struggling with a major business problem, such as declining sales, which appears to have no immediate, easy answers? Sometimes the problem diagnosis is relatively straightforward. It could be that sales are suboptimal because your product needs quality enhancements following some cost of goods reductions that may have impacted consumer perceptions and repeat purchase. It could be that the advertising needs more work, but there was insufficient time for refinement when faced with impossible deadlines in the production schedule.
Sometimes, though, the problem diagnosis is more difficult and multifaceted. Let’s say you did your homework, such as:
- Foundational research, like concept testing, product testing, and forecasting to iteratively improve the product and prepare the team to anticipate a strong launch.
- Advertising evaluation, package testing, promotional assessments, and making improvements, but still market performance is not hitting the KPIs (key performance indicators) set by management.
What do you do when you realize that the fantastic idea forecasted to set sales records for your company is instead a complete flop? What do you do when the new company your organization just acquired is not growing the way it was expected to? How do you diagnose the issues, when all the consumer trends indicate your new product should be selling like “hot cakes,” but it isn’t?
Chances are your prep work missed a full analysis of how consumers process information to make buying decisions in your product category. It is especially important to lean into System 1 Thinking (unconscious decision making), as well as System 2 Thinking (conscious decision making). Most consumer behavior is impacted by both systems working together to help make decisions. There are many resources detailing everything you need to know about System 1 and System 2 Thinking. One of the best is “Thinking, Fast and Slow,” by Daniel Kahneman. System 1 Thinking is our human attempt to simplify our lives, saving the deep thinking, System 2, for more complex or critical decisions.
It is important to understand the unstated and underlying needs that the customer or shopper may not even be consciously aware of, sometimes described as System 1 Thinking. These types of decisions are made more automatically because they are based on habits, experiences, and emotions, among other things. They might include liking a brand of cookies because your mother introduced these cookies to you. This is literally the cookie that gives you the “warm fuzzies” when you eat it while drinking some tea or milk. You might also crave them when you are feeling a little down.
System 1 Thinking could include buying a brand of toothpaste that comes in a mostly red package, and shopping for toothpaste by looking for that specific package or that logo/brand. You are not consciously considering which toothpaste is optimal for you or your family each time you make a purchase. You probably did at some point, but it is now a “routine purchase,” and you just go for that red package. Maybe early on, you talked to your dentist or hygienist and asked for a recommendation, or perhaps you read an advertisement about the toothpaste most dentists use themselves. But now, you simply look for that red package, and you grab it and go.
System 2 Thinking would be more engaged when purchasing large ticket items and those products with complex features, such as automobiles, homes, and more expensive electronics. Most shoppers would slow down the decision-making process, engage their System 2 Thinking, and weigh multiple brands, features, and possibly bundles of features. This type of thinking is also involved frequently when evaluating options in the financial services and insurance industries.
To help diagnose the issues a product or brand is having, there are 12 options for research that we would recommend for exploring how consumers are using both System 1 and System 2 Thinking:
1. Stakeholder Interviews or Subject Matter Expert Interviews to Help Explore Key Issues, Language, Etc. These interviews could include Sales teams, Store Managers, Chefs, or Key Opinion Leaders in the Corporate Office. What are the issues that you need answers for? Does everyone agree on what questions need to be addressed? What do your experts think about how shoppers select the brands/products in this category? Are shoppers deciding quickly using System 1 Thinking, or is it more of a System 2 decision? It’s important to remember that many decisions involve a combination of both systems of thinking.
2. Social Media Monitoring About Your Brand and Competitive Brands. What are the items you may be missing or are perhaps overly sensitive to? As you monitor how consumers talk about the brand, you learn more about the type of decision making involved and whether it is more System 1 (more unconscious and quickly made decisions) or System 2 (more conscious and time-intensive decisions). This will enhance your understanding of the consumer and help plan further research steps in the future.
3. Product and Service Ratings (looking specifically for key sentiments that may have gone unnoticed or have not hit the radar yet). Have there been triers/rejectors who have moved on? Just like in social media monitoring, you will be learning more about the type of decision making involved and whether it is more System 1 or System 2. This will continue to improve your consumer and shopper understanding.
4. Observational Research (either watching consumers make purchase decisions and/or watching them use the products/services). What is difficult or challenging, even if they don’t verbalize it? How quickly are the decisions being made? What types of trade-offs are they making? At this stage, you can see your shoppers and consumers making those decisions you ultimately want to impact. These are the decisions driving your business, so the more you understand about how many of them are System 1 versus System 2, the better you can understand how to impact decisions for your brand, the channel, advertising, and pricing/promotion.
5. Qualitative Research Can Follow Observational Research. What are the deeper motivations consumers have? Why do consumers do what they do? Especially if this is a one-on-one interview, the moderator can delve deeply into the purchase journey and decision-making process. They can determine when the consumer first purchased this category, which brand, and for what occasion. They can find out who introduced them into that brand (such as a family member, friend, or mentor in their career, etc.). By uncovering more of these elements, you can better understand how the shopper/consumer is making decisions using System 1 Thinking or System 2 Thinking (or a combination). As previously mentioned, this would impact branding, channel, advertising, package design, and pricing/promotional strategies.
6. Segmentation to Identify Groups for New Product Development and Messaging. This can be addressed with a process and is best capped off with an Activation Workshop, which is particularly important for getting the most out of segmentation. With some modifications in the questioning, the segmentation process works quite well for products/brands that are selected by System 1 Thinking (more unconscious and quickly made decisions), as well as System 2 Thinking (more conscious and time-intensive decisions). It has also been applied very successfully to business-to-consumer and business-to-business products.
7. Innovation to Develop New Products to Help Extend the Brand and Product Line Further and Bring in New Buyers/Users. Does your brand need breakthrough new ideas to excite the current users? Or to extend to a new target audience? What is the white space where your brand has permission to play for the next 3 years? What about over the next 5 years? Consumers typically have a difficult time coming up with new products, and therefore you need an innovation process to encourage them. Innovation pushes consumers beyond typical thinking processes, even for highly creative individuals with the right moderators and the right stimuli and guides. The better we understand the shopper/consumer decision process in terms of System 1 Thinking and System 2 Thinking, the better and more tailored we can design the innovation process to be.
8. Concept Testing With Volumetrics to Develop an Optimal Product Line. To tap into System 1 Thinking, collect “quick feedback” on overall reactions. Respondents can select the smiley face or frowny face that best represents their sentiments as they read/watch the stimulus (depending on the product category, of course). Then, respondents can report why they feel that way. Leaning more toward System 2 Thinking, respondents would be asked about their likelihood to purchase, number of products to be purchased, purchasing habits during various times of year, etc. All of these inputs would be utilized to help determine a volumetric forecast.
9. Choice Modeling to Identify Optimal Pricing and Promotional Strategy. Choice Modeling methodology measures both System 1 and System 2 Thinking, depending on the way the task is presented to the respondents. The respondent selects between 3 to 4 choices at a time on a screen, which represent what could be available on a shelf or together in the real world. Respondents could be trading off some aspects or variables that are conscious (like price or size), and they could be trading off other aspects or variables that are more unconscious (like brand/package or imagery/positioning). These results are then modeled, which provides an estimate of what would happen in terms of market share/take rate in the real world. This approach generates more realistic results, as it aligns decision making more closely with actual shopper experience.
10. Advertising Evaluation Among Key Target Audiences. Respondents can participate in a shopping exercise (in-store or online) as part of advertising evaluation. The speed at which consumers select a product from the category in a shelf set (indicating they would buy that product) is a measure of System 1’s impact. The number of packages consumers read the side panels or back panels of are measures of System 2’s impact. Some advertising does a better job of promoting more habitual product purchase (System 1) versus methodical product purchase (System 2). The trick is to design the advertising to fit the path to purchase for your product type.
11. Key Driver Analysis. Another important way to understand the unstated motivations that drive decision making is to build KDAs into your quantitative research analysis plan when possible. It is a relatively simple yet highly effective way to keep tabs on the unstated drivers of purchase intent, recommendation behavior, or satisfaction.
12. Biometrics and Other Physiological Response Measurements. These can be added to either qualitative or quantitative research as additional ways to measure the unstated reactions of decision-makers. These methods can be helpful but require additional time and budget. However, the time and monetary investment add to your knowledge of System 1 decision making, as the methods used inherently measure the unstated.
Whether your primary shoppers are using mostly System 1 or System 2 Thinking, you can diagnose the issues that are holding your product or brand back and course-correct them. Then, it will be a matter of tracking your progress over time to see how these modifications are working in the marketplace.
What are your first steps when there is Big Trouble? How will you turn your Big Troubles into Major Opportunities? I would love to hear about any challenges you are currently facing.
Date: October 5, 2023
Author: Bonnie Janzen
Source: Decision Analyst