Reports

The 4 Minds of the Customer: A Framework for Understanding and Applying the Science of Decision Making

Ryan Hamilton and Uma R. Karmarkar, 2017, 17-109-05

Suppose a retailer with a reputation for high quality and great service, but also high prices, is selling a bike for $350. What does the science of decision making say about how customers will react to this price?

  • Research on reference points would say that customers have an expectation of how much bikes like these should cost, based on their own previous experience.
  • Research on transaction utility would say that people adjust their reference points based on where they are shopping. Thus, people would come in expecting to pay more, and evaluate prices from that perspective.
  • Research on “halo effects” would say that a customer’s overall impression (for example, “this store is expensive...”) extends over his or her evaluations of a specific element of that setting (“…therefore this particular price is probably expensive.”).

In other words, well-supported scientific theories of decision making often conflict with each other, with marketing implications that point in different directions.

Here, Ryan Hamilton and Uma Karmarkar develop a “4 Minds” framework as a diagnostic tool to help managers to identify which area of decision-making research is most likely to apply to their firm, market, and customers. They group the last 50 years of research on judgment and decision making into four broad categories describing different decision mindsets: Ideal Point, Market Comparison, Local Comparison, and Image. Each is characterized on two dimensions: type of evaluation and points of comparison.

The Ideal Point Mind uses the customer’s perfect (hypothetical) option as the point of comparison for evaluating any option under consideration. It is a subjective type of evaluation made in comparison to an internal reference point. This customer would choose the alternative that is closest to his or her ideal point.

The Market Comparison Mind relies on evaluations of individual attributes based on internalized reference points developed through experience or research. The chosen option would be the one evaluated as most attractive relative to what else is being sold in the marketplace, where attractiveness is determined by comparing the objective performance to the internal reference points.

The Local Comparison Mind makes comparisons among just the set of options under consideration at that moment. These customers use external reference points and make objective evaluations. Options that are attractive relative to what else is on the store shelf would tend to be chosen.

The Image Mind relies on overall impressions to guide specific attribute evaluations. A customer in this mindset uses external reference points and makes subjective evaluations. The option chosen would tend to be the one benefiting from the most favorable reputation or general impression.

Managerial implications

The 4 Minds framework can inform specific segmentation, targeting, positioning, and persuasion approaches. At the same time, it is important to recognize that customers may shift between mindsets and that marketing efforts may need to appeal to multiple decision-making minds when simultaneously trying to appeal to different target segments in terms of positioning and persuasion.

Walmart, for example, combines an Image mindset approach with a price-focused marketing strategy designed to work with Local Comparison customers, in particular with those that are price sensitive.

In another example, the 1990 Nutrition Labeling and Education Act (NLEA), which required all packaged foods to carry the Nutrition Facts label, assumed that customers make eating choices from a Market Comparison perspective. More successful policy making might combine this with the Image mindset that characterizes most consumers and the Local Comparison mindset evoked by the specific “menu-based” context choices.

Overall, the 4 Minds framework can serve as a diagnostic tool to help identify which clusters of decision-making research are most likely to apply in any given situation. By learning how these decision-making  minds differ—and the factors and environments that precipitate each—marketers can better anticipate and serve their intended customers.

Ryan Hamilton is Associate Professor of Marketing, Goizueta Business School, Emory University. Uma R. Karmarkar is Assistant Professor of Business Administration, Harvard Business School.

Related links

Gleaning Marketing Insights from Brain Data (2014) [Article]

Consumer Insights: Findings from Behavioral Research
Joseph Alba, ed. (2011) [Book]

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