While there are numerous studies conducted on consumer behavior, no single study has developed a universally acceptable model. This report evaluates the historical development of consumer science especially with regards to consumer decision making process. The paper highlights and evaluates major underpinnings as well as shortcomings of traditional models. The purpose is to evaluate which of these models bears any relevance to the post modern hospitality industry. However, upon evaluation of all existing models, the GNL as well as the Consumer’s Environmental Values Model have proved relevant. This report aims at demonstrating the applicability of these two models within the hospitality industry. Additionally, the extent to which these two models are vague is highlighted.
The question of what influences consumer decision making has been around for many years. Despite the fact that studies in consumer behavior dates back more than 300 years, there exist little evidence of empirical research on consumer behavior, conducted before the 21st century. However, in the last 100 years economists as well as marketing professionals have conducted numerous researches on consumer behavior especially, buyer decision-making.
Recent studies reveal that as marketers engage the most appropriate marketing theories to maximize consumption of goods and services, so does the consumer by deciding on which products and services to buy. Such consumer decisions are based on a number of factors, such as pricing, consumer preferences, emotional appeal, communication, available alternatives, and availability of information on products. This realization led to intensified studies in consumer behavior especially regarding consumer decision making process (Richarme 2005).
As a result of these studies, several theories have been developed, all aimed at explaining the underlying rationale which informs consumer decision making. In this regard, various consumer decision making models have been developed (Richarme 2005). Initially, studies in consumer decision making process had limited academic input. Marketers, rather than scholars did much of the research work before the 1950s.
Earlier models include Nicosia Model which mainly focuses on the communication process between the organization and the consumer. Proponents of this model suppose that the consumer and the organization are connected through a two way communication process. Within this communication process, both the organization and the consumer influence each other. The organization influences the consumer through marketing activities while the consumer influences the organization through the decision to purchase products. While the model highlights consumer feedback as vital to the consumer-organization relationship, it largely fails to highlight internal factors, such as personality and constomer perceptions, that motivate and influence consumer’s attitude towards products and services (Berkman, Lindquist and Sirgy 1997).
Howard-Sheth model is an improvement of the of the Nicosia model. This model offers a three-stage process through which a consumer makes decisions. The Howard-Sheth model takes into account three basic stages and four basic variables that influence consumer behavior. In this model, three significant outputs are said to influence consumer decision making. These are: symbolic and significative incentives, which are emphatic on the tangible material aspects such as the price, the quality and the products or service. Additionally, the social influence emphasizes on the social context within which consumer decisions are made (Sheth 2011).
Like all other traditional models, such as Engel-Kollat-Blackwell model, Bettman Information processing model among others, Howard-Sheth supposes that a consumer is a rational being, capable of making rational decisions. These models are thus based on the false notion that rationality is the basic influence which informs consumer decision making. The models also overlook other factors that influence decision making. These include religion, personality, the relationship between price and available alternatives, extrinsic motivation, new opportunities, among others (Schiffman and Kanuk 2000). These models are also not cognizant of the fact that the underlying rationale for choosing consumer goods and services is personal satisfaction rather than for appropriateness of choosing that product. Additionally, the models do not account for consumer perceptions on the value of the product as well as emerging social issues such as environmental management practices that bears heavily on consumer choice (Erasmus, Boshoff and Rousseau 2001).
These discoveries led to further studies into the actual variables that influence consumer decision making. Within these studies, it was discovered that consumer decision making models are contextual in nature; these model are only applicable within contexts based on time and place. As such, they lack universal applicability (Engel, Blackwell and Miniard 1995). Further studies reveal that consumer products influence consumer decision making. Since these studies identified so many factors, consumer science almost collapsed for lack of direction. However continued research indicated the need to further research work for the purpose of gaining improved understanding of consumer behavior.
Additionally, research discovered that new variables gradually emerge, and which increasingly bears on consumer decision making. Coupled with the fact that consumer science has grown significantly, interest in consumer behavior has increased in the last 50 years. Additionally, the traditional models of consumer decision making largely fail to address issues in the post modern consumer era (Erasmus, Boshoff and Rousseau 2001). As such, to evaluate post modern influences on consumer decision making process, further studies have been conducted resulting to the development of models. These models emphasize context and products vs. alternative choice as the basic influences of consumer decision making. Therefore, a foray into some of the post modern consumer decision making process models seems relevant.
Post Modern models of consumer decision making process
Modern models of consumer decision making process are more complicated than the traditional models. This is because modern models deviate from the linear approach adopted by traditional theorists and analyze the complex relationship between all variables involved in consumer decision making process. Additionally, modern methods deviate from the traditional approach which focused on rationalization of consumer decision-making process. Theorists analyze the interrelatedness of context based consumer decision making influences. Most of these theories stipulate that deciding to purchase a product and service is less of a rational decision.
Buying is determined by the prevailing factors within a given context. Such factors include prices of goods, the products available, the location of the products and other emerging social issues. Even though these theories are complex they are applicable in various contexts especially in the post modern hospitality industry. Thus the choice of Generalized Nested Logit Model GNL as well as Consumer’s environmental values model seems justified since these two models avoid the traditional rationalization of the consumer. Additionally, the two models are developed in response to emerging issues which influence consumer decision making process in the post modern era.
Generalized Nested Logit Model GNL
Theorists who propose this model stipulate that consumer decision making process is complex, and not influenced by a single factor. Additionally, pro GNL theorists stipulate that in a given context, the relationship between the prevailing stimuli (factors) largely influence the consumer decision making. This implies that decision making process is subject to existing factors. Additionally, pro GNL theorists stipulate that even though one of the stimuli may override others, the relationship between all the prevailing stimuli is the absolute determinant (Chintagunta 2001).
There are a number of influences which determine consumer’s decision making. These include the products, the price, the location of the product and the alternative products. Many organizations within the hospitality industry classify products and services based on prices or location. There are three major locations which may influence consumer choice. These are near the airport, inside metropolis cities and within the periphery of urban areas. Basic GNL rule stipulates that consumers may perceive all services and products as belonging to the same choice category regardless of price and location. This theory is informed by the fact that decision making is instantaneous and as such a consumer has to make decision to buy a product or a service available at a particular location in a given time, since products cannot be in two places at the same time. In this regard consumer makes decisions depending on price followed by location.
Further studies reveal that decision making is not merely based on location or price alone. There are complex scenarios, in which consumer choices are determined by a combination of products, location and prices. For instance consumers may show preference for products favorably located than those unfavorably located but of the same price. Similarly consumers may be influenced to choose a product that is unfavorably priced but in a favorable location than a product that is favorably located but unfavorably priced.
This scenario becomes much more complex when there are numerous products in different locations that compete on price. As such, portraying consumer decision making as only determined by prices and location alone does not take into consideration the intricate relationship between location, prices, products and consumer preferences (Venkataraman and Kadiyali 2005; Chintagunta 2001).
To put the complex nature of the GNL model in perspective, proponents hypotheses that a suitable alternative can be located in different nests (locations). If this is to happen, choosing between the preferred products and the alternative shifts from product location to price and consumer perceptions about the quality. In addition, these alternatives may overlap, further complicating the decision making process. This indicates that identifying the right mix of factors that influencing consumer decision making process is complicated (Venkataraman and Kadiyali 2005).
Consumer’s Environmental Values Model
Societies keep changing as a result of emergence of new values. These values change peoples’ approach to life. Since decision making is a major component of life, social changes largely affects the ethics and rationale of decision making. At the turn of the 21st century the idea of sustainable development especially related to business management accelerated and become one of the parameters for measuring business success as well as a business’ awareness of its social responsibility. This led to the evolution of green business management practices, aimed at not only maintaining strong corporate image but also to appeal to increasing number of consumers, aware of the purpose of sustainable environmental management (Choe, Lehto and Day 2011).
Consumer’s Environmental Values Model proposes the following complex as having a significant influence on consumer decision making process. A consumer’s attitudes towards environment issues play vital roles in enhancing an organization’s attitudes towards environmental management. Similarly, an organization’s green management practices have significant influences on a consumer’s decision making process. Furthermore, a consumers perceptions of a hotel’s environmental management practices influences consumers behavior towards the organization.
Like the Generalized Nested Logit Model, Consumer’s environmental values model indicates a complex relationship between the consumer belief values system on environmental matters and the products choice. Additionally, Consumer’s Environmental Values Model deviates from the traditional approaches since it portrays consumer decision making as a product of interrelated variables, rather than a logical process. This model also shows that emerging social issues contribute significantly to consumer decision making.
Generalized Nested Logit Model and the Consumer’s Environmental Values Model are some of the modern business decision making models relevant within the hospitality industry. Numerous research lend to this assertion. Furthermore, the two models seem to address modern issues concerning consumer decision making process. As a result the following hypothetical statement seems relevant:
- Generalized Nested Logit Model and the Consumer’s Environmental Values Model are applicable within the modern hospitality industry.
To fulfill the above hypothesis, the following objectives questions seem relevant.
- To what extent are the two models applicable to the postmodern hospitality industry?
- Are the two models all encompassing?
- In what areas are the two models vague?
The purpose of this report is to critically analyze at least two consumer decision making models. Since the report is not for the purpose of testing practical application of new model concepts, Archival Research seems relevant for this study. Existing Literature on the traditional models is organized in chronological order and the underlying perceptions identified. Weaknesses in each of these models are evaluated, especially with regards to vagueness.
Additionally, attempts are made to evaluate how these models complement each other. The chronological evaluation of the theoretical foundation of these models helps to gain deeper understanding of the development of consumer science, especially with regards to consumer decision making. With the shortcomings of traditional models identified, effort is made to identify post modern models, which address these shortcomings. From within the existing literature, the theoretical underpinnings of these theories are sought. Additionally, evidence on their applicability within the hospitality industry is sought from within existing research findings. Particular attention is paid to two major areas: the extent to which these models are applicable within the hospitality industry and the extent to which the two models are vague. Valid conclusions are finally made on the relevance of the two models within the hospitality industry.
Test for Generalized Nested Logit Model in the postmodern hospitality industry.
As explained earlier, recent studies reveal that, even though traditional consumer decisions making theorist developed models projected towards universal application, these models were context based. Coupled with the findings of the emergence of new consumer trends, researchers and economists have deliberated on the most appropriate methods to study consumer behavior. Latest developments in consumer science stipulate that the use of aggregate data is most likely to generate valid results. As a result, the research testing the Generalized Nested Logit Model used aggregate data to test consumer decision making process within hotels in the Austin, Texas, United States of America. The study focused on the choice of hotel with regards to location, alternative products and price.
From this study, the results support the price based, location and product mix as having a significant influence on consumer decisions making process. These findings reveal that there are two main types of nests (locations) within which hotels are classified: those within 10 mile radius to the airport and those within 5 mile radius to downtown Austin. The study reveals the existence of hotels of the same status within the two nests. However, prices for boarding facilities vary depending on the nest within which the hotel is located: prices for downtown hotel were more than double for those near the airport. To further complicate the price concern, as expected, the type of service offered determines the prices. Limited service are priced low ($ 49), while full service hotels charged $ 85. Extended service are priced highest at us $ 93.
Suffice to say that these are aggregate prices for the period beginning 1991 to 2003. From these studies, it is evident that consumers are willing to pay expensively for services in hotels near downtown Austin than near the airport. These studies also reveal that the location of a hotel between the airport and downtown Austin had significant influence on consumer decision. Consumer’s choice of hotel increase as the difference in distance between the airport and downtown Austin decrease. Additionally, the prices of services and product significantly determine the choice of hotels within this nest. Consumers tend to show preference for hotels with low to average prices. When price expensively, alternative are sought from other nests (Venkataraman and Kadiyali 2005).
These findings prove that Generalized Nested Logit Model is applicable to the post modern hospitality industry especially within hotels that offer boarding facilities. However the applicability is limited as far as prices, product quality and location are concerned. The study also reveals a complex relationship between these variables in influencing consumer decision making process.
Test for Consumer’s environmental values model
Consumer’s Environmental Values Model is a relatively new model. However, numerous studies postulate that the model is applicable within to the post modern hospitality industry. The model is based on the planned consumer behavior theory. According to Woodall (2003) consumer’s attitudes are primarily shaped by beliefs and values regarding a product and the issues that relates to that product. The desire to purchase products is directly linked to a consumer’s attitude towards the products.
Hotels are widely adopting green management practices in response to consumers’ increased awareness of green management practices. Consumers’ attitudes towards environmental management significantly influence a consumer’s choice of hotels and related services. Research reveals that consumers are increasingly exhibiting increased awareness of environmental management practices within the hotel industry (Tzschentke and Kirk 2004). Such awareness is influencing the consumer’s attitudes towards green products. As such, consumers are increasingly showing the tendencies to reward hotels which have implemented green management practices. This is characterized by the willingness of consumer to pay extra cost for products and services that are compliant to green management practice guidelines (Tsai and Tsai 2008).
Similarly, a consumer attitude towards green products is having a direct influence on the hotels approach to sustainable management. An increasing number of hotels show efforts to align their management practices along customer expectations on green management. These efforts include adopting green management policies as well as actively participating in environmental management initiatives (Choe, Lehto and Day 2011).
Suffice to state that these studies were conducted on actual consumers and indicated variance between intention and action. While a majority of consumers portrayed a high level of intension and willingness to purchase green products, there was no corresponding action to match the high level of willingness. The decision to purchase green hotel products was not as high as the willingness exhibited by consumers (Choe, Lehto and Day 2011). This implies that Consumer’s environmental values model has limited effects on consumer decision making process.
Practical shortcomings for Generalized Nested Logit Model
Even though then GNL makes an attempt to explain the complex nature of consumer decision making process, it ignores certain basic assumptions. For instance, the model ignores the concept of hotel demand. Clearly, it is evident that some hotels are in demand more than others due to a combination of various factors. Data on hotel demand was hard to obtain and could thus not be aggregated in this study. Additionally, the demand for hotel services and products varies depending on the type of products and services on offer. Similarly data on this phenomenon was hard to obtain and thus not part of aggregate data.
The GNL model focuses on price product and location relationship. However, the model does very little to account for consumers awareness of price and product variance. The model assumes that consumers are aware of all the products range and the price differences and as such make the best choice. Furthermore, the studies were based on market capitalization rather studying the actual consumer behavior (Venkataraman and Kadiyali 2005).
In doing this, GNL proponents have assumed that market capitalization is an absolute indicator of consumer preferences. The model also makes assumption of the fact that all types of hotels are included within the same nest. Suffice to state that there exist other types of hotels, but located outside the nests factored in this study. The factors that influence a consumer to choose hotels located within the area of study rather than those located without the area of study are not considered (Wen and Koppelman 2001). Additionally, other variables such as religion, personal tastes and preferences, economic factors significantly influence consumer decision making process. Therefore, while the GNL model is applicable within certain contexts, it is vague to the extent that the factors mentioned above are ignored.
Practical shortcomings of the Consumer’s environmental values model
Even though the model addresses one of the newest social issues that concerns consumer behavior, the model is not universal applicable. This is because the model ignores fundamental factors. For instance, the model ignores the influence of underlying economic factors in consumer decision making. Consumers’ perception on the economic value of product is equated to the products prices. Since green products are highly priced, consumers are likely to opt for cheaper alternatives. This complex is further complicated by popular perceptions that green products are unnecessarily expensive. As such, most of the consumers may not see the economic sense of choosing green products (Choe, Lehto and Day 2011).
Additionally, the model ignores other influences such as convenience of green products, consumer tastes and preferences as well as products quality. These variables have significant influence on consumer decision making than the greenness of product (Russo and Fouts 1997). Studies also reveal that green management policies vary from hotel to hotel. This is because those policies are informed by the owner’s attitudes and beliefs on environmental management (Choe, Lehto and Day 2011). As such, this creates doubt amongst the consumers on the ability of green management practices towards effective management of the environment.
The numerous studies conducted on factors that influence consumer behavior reveal a complex mix of factors which bear heavily on consumer decision making process. Various models have been developed to this effect. These models are universally applicable to the extent that they address consumer decision making processes within major industries. However, criticism to these models reveals that their applicability is limited to given time and place contexts. In this regard, a consumer decision making model may be applicable in a given context but fail in a difference context, within the same industry. Such realization has lead to continued research.
Traditional models of consumer decision making process were largely theoretical and linear: they postulated that consumer decision making process follow linear steps. These models assumed that consumers are largely rational beings. Additionally, by proposing linear steps to consumer decision making process, the models falsely concluded that consumers are usually rely on rationalization in deciding to purchase a product. Traditional models also overlooks other factors that influence decision making such as religion, personality, consumer perceptions on product value, the relationship between price and alternative products, extrinsic consumer motivation, new opportunities among others. These models also fail to recognize the fact that consumer satisfaction is the main factor that influences consumer decision making process.
Due to the shortcomings of traditional models, new models have been developed. This report focuses on Generalized Nested Logit Model and Consumer’s environmental values model. The choice of these two models is appropriate for this paper since the two model deviate from the linear approach adopted by the traditional consumer decision making models. These two models suggest a mix of interrelated variables whose complex relationship significantly influence consumer’s decision making regarding the products and services to buy.
Upon testing, the two models are applicable within the hotel industry. Generalized Nested Logit Model was tested within hotels located in Austin, Texas and found to work to the extent that the complex relationship between price, products and location is concerned. Within this study, it is revealed that consumer decision making process is influenced by a combination of location of the hotel between the airport and down town Austin, the price of products and service as well as the alternatives within and without given nests. Additionally, products range within a given nest is found to have a bearing on the consumer decision. Despite the practical applicability, Generalized Nested Logit Model has a number of shortcomings, thus lacking universal acceptance. GNL proponents ignore other influences such as the prevailing economic factors, consumer preferences, hotel demand among others. As such, this model is vague to the extent that it ignores these variables.
Similarly, Consumer’s environmental values model, despite having been tested within the hotel industry and proven applicable has major flows. Proponents assume that consumer decision making process is influenced by consumer belief value systems. While consumer belief systems bear on decision making, there are other factors which have significant influence on decision making process. Consumer decision making largely involves, convenience, the economic values of the purchase, consumer perceptions about the products and services and other available alternatives. Additionally, consumers do develop doubts about the effectiveness some of the hotels green management practices towards enhancing environmental sustainability. As such, consumers are likely to opt for non-green products.
From the already existing evidence the following conclusion can be made. Generalized Nested Logit Model and Consumer’s Environmental Values Model of consumer decision making process are applicable within the hospitality industry. However, this report is only able to verify their application within the hotel industry. As such, this report only makes valid assumption as far as the hotel industry is concerned. Their applicability within the wider hospitality industry is subject to further research. Additionally, these two models are only applicable to the extent of their theoretical underpinnings. Major flows exists necessitating further studies.
Consumer decision making is a complicated concept which cannot be addressed through a single theory. Additionally, consumer decision making process is highly fragmented (Gabriel and Lang 1999) and with the increasing complexity of the post modernity, the theories cannot be all encompassing. To fully gain a deeper understanding of the post modern consumer decision making process, it is imperative to consider more than one theory and the specific concepts addressed by each.
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