Excerpt
Word-of-Mouth:
Influences on the Choice of Recommendation Sources
by
K Schoefer
1998
A dissertation presented in part consideration for the degree of M.A.
in Corporate Strategy and Governance.
Contents
Chapter 1
Introduction
1
Chapter 2
Literature Review
3
2.1
Consumer Decision-Making
3
2.1.1
The Decision-Making Process
4
2.1.1.1
Problem Recognition
5
2.1.1.2
Information Search
6
2.1.1.3
Evaluation of Alternatives
8
2.1.1.4
Purchase
9
2.1.1.5
Post-Purchase Evaluation
10
2.1.2
Individual Influences
12
2.1.3
Environmental Influences
15
2.1.3.1
Culture
15
2.1.3.2
Social Class
16
2.1.3.3
Reference Groups
16
2.2
Word-of-Mouth Communication
20
2.2.1
Definition
20
2.2.2
Scope and Significance
20
2.2.3
Characteristics of WOM
22
2.2.4
The Nature of WOM
24
2.2.4.1
Types
24
2.2.4.2
Process
24
2.2.4.3
Conditions
28
2.2.4.4
Motives
29
2.2.5
WOM and the Consumer Behaviour Literature
29
2.2.5.1
Adoption and Diffusion on Innovations 29
2.2.5.2
Post-Purchase Decision-Making
31
2.2.5.3
Pre-Purchase Decision-Making
33
Chapter 3
Empirical Analysis
34
3.1
The Model
34
3.1.1
Recommendation Sources
34
3.1.2
Evaluative Cues
35
3.1.3
Task Difficulty
36
3.1.4
Prior Knowledge
37
3.1.5
Hypotheses
39
3.2
Research Context
43
3.3
Method
45
3.3.1
Research Instrument
45
3.3.2
Procedure
47
3.3.3
Sample
48
3.4
Results
50
3.5
Discussion
57
3.6
Limitations
61
Chapter 4
Conclusion
62
Appendix A
Appendix B
References
Chapter 1: Introduction
The idea of understanding consumer behaviour as a sequential decision-making proc-
ess is one that is common in marketing (Engel et al., 1993; Wilkie, 1994; Solomon, 1993;
Assael, 1992; Loudon and Della Bitta, 1993; Kotler, 1997). The decision-making process it-
self is presented as a logical flow of activities, working from problem recognition to purchase
to post-purchase evaluation. This decision-making process is affected by a number of other
more complex influences. Some of these influences relate to the wider environment in which
the decision is being made while others relate to the individual who makes the decision.
In this context, ".. [o]ne of the most widely accepted notions in consumer behavior is
that word-of-mouth communication (hereafter WOM) plays an important role in shaping con-
sumers' attitudes and behaviors." (Brown and Reingen, 1987) More specifically, WOM com-
munications between consumers are a topic of interest in both the pre-purchase and post-
purchase decision-making literature. Research into the diffusion of innovations has focused
on modelling the role of WOM in product adoption at various stages of the diffusion process
(Mahajan et al., 1990). WOM has also been studied as a mechanism through which consumers
convey both informational and normative influences in the product evaluation (Arndt, 1967;
Brown and Reingen, 1987). Finally, WOM has been identified as an important post-purchase
complaining option (Day, 1984; Singh, 1990).
Although WOM plays an important role in consumer pre-purchase and post-purchase
decision-making, research into this phenomenon has been fragmented. Importantly, relatively
little attention has been directed at understanding key issues with respect to WOM recom-
mendation sources and the factors that influence their use (Brown and Reingen, 1987, Duhan
et al., 1997). The aim of the present work is to add to this small body of empirical research.
1
The main part of this paper is divided into two chapters. Chapter 2, that follows an in-
troduction to the work, is a theoretical one. It is a review of the literature on consumer deci-
sion-making and the individual and environmental influences on it. Emphasis is being placed
on WOM communication and its role in understanding consumer behaviour. Chapter 3 fo-
cuses on the choice of WOM recommendation sources. Empirical research is presented which
explores the influences on the choice over WOM recommendation sources. Finally, conclud-
ing remarks and recommendations for further research can be found in chapter 4.
2
Chapter 2: Literature Review
2.1 Consumer Decision-Making
Engel et al. define consumer behaviour as "... those activities directly involved in ob-
taining, consuming, and disposing of products and services, including the decision processes
that precede and follow these actions." (1993, p. 4). Thus, in the marketing context, the term
'consumer behaviour' refers not only to the act of purchase itself but to any pre- and post-
purchase activities (Foxall, 1985, 1997; Ennew, 1993). Pre-purchase activities would include
the growing awareness of a want or need, and the search for and evaluation of information
about the product and brands that might satisfy it. Post-purchase activities would include the
evaluation of the purchased item in use, and any attempt to reduce feelings of anxiety which
frequently accompany the purchase of expensive and infrequently bought items like consumer
durables. Each of these has implications for purchase and repurchase and they are amenable to
marketing communications and the other elements of the marketing mix. Our understanding
of both consumer behaviour and the capacity of marketing activities to influence it rest on
knowledge of the ways in which consumers form decisions (Foxall, 1985, 1997).
There have been many attempts to create models of consumer decision-making such as
those proposed by Howard and Sheth (1969), Nicosia (1966) and Engel et al. (1968). Since a
review of these models would be beyond the scope of this chapter, a simplified approach has
been adopted to guide the discussion. A diagram of this approach is presented in figure 1.
3
Figure 1: Consumer decision-making framework [adapted from: Dibb et al., 1997]
Reference to figure 1 reveals that it is made up of three major sections: (1) the con-
sumer's decision-making process, (2) individual determinants of behaviour, and (3) environ-
mental variables influencing behaviour. These major sections will be examined in more detail
below.
2.1.1 The Decision-Making Process
As shown in figure 1, a major part of consumer behaviour is the decision process used
in making purchases. This decision-making process, according to Engel et al. (1993), includes
five stages: (1) problem recognition, (2) information search, (3) evaluation of alternatives, (4)
purchase, and (5) post-purchase evaluation. An obvious criticism of this conceptualisation,
however, would be that not every purchase will involve such an extensive decision-making
exercise. The extent to which each of these steps is followed in the precise form and sequence
can vary from one situation to the next. Some decisions are rather simple and easy to make,
whereas others are complex and difficult. Consumer decisions can thus be classified into one
of three broad categories: routine response behaviour, limited decision-making and extensive
decision-making (Howard, 1977; Brassington and Pettitt, 1997; Loudon and Della Bitta,
1993; Solomon, 1993; Wilkie, 1994).
Individual influ-
ences
Environmental
influences
Problem recog-
nition
Information
Search
Evaluation of
alternatives
Purchase
Post-purchase
evaluation
Decision-Making Process
Feedback
4
Routinised-response behaviour occurs in purchasing situations which the consumer is
likely to experience on a regular basis. The items that fall into this category do tend to be low
risk, low priced, frequently purchased products such as food and household products. In this
situation, the actual identification of a need may not occur explicitly; there may be little or no
information search and the consumer may rely heavily on brand loyalty. Over-time, the repeat
purchase becomes habitual, with little or no re-evaluation of the decision. Consumers engage
in limited decision-making when they buy products occasionally and when they need to ob-
tain information about an unfamiliar brand in a familiar product category. This type of deci-
sion-making requires a moderate amount of time for information gathering and deliberation.
Typical examples include electrical goods, furniture and holidays. Finally, extensive decision-
making comes into play when a purchase involves unfamiliar, expensive or infrequently
bought products like cars or houses. Extensive decision-making is usually initiated by a mo-
tive that is important to the buyer's self-concept and the eventual decision is perceived to
carry a high degree of risk. Moreover, the consumer will engage in extensive information
search and evaluation prior to purchase and the purchase itself will be a relatively long proc-
ess (Brassington and Pettitt, 1997; Loudon and Della Bitta, 1993; Solomon, 1993; Wilkie,
1994; Ennew, 1993).
2.1.1.1 Problem Recognition
Problem recognition represents the beginning of a consumer's decision-making proc-
ess. At this stage the consumer perceives a need and becomes motivated to solve the problem
that he/she has just recognised. Once the problem is recognised, the remainder of the con-
sumer decision-making process is invoked to determine exactly how the consumer will go
about satisfying the need (Wilkie, 1994). Conceptually, problem recognition occurs when the
consumer identifies a discrepancy between his/her actual and desired state. However, the
5
presence of need recognition does not automatically activate some action. This will depend on
two factors. First, the recognised need must be of sufficient importance. Second, consumers
must believe that a solution to the need is within their means. If need satisfaction is beyond a
consumer's economic or temporal resources, for instance, then action is unlikely (Engel et al.,
1993; Ennew, 1993).
Need recognition can be triggered by internal or external stimuli. In the former case,
one of the consumer's personal needs - hunger, thirst, sex - rises to a threshold level and be-
comes a drive. In the latter case, a need is aroused by an external stimulus such as advertising.
Additionally, changes in one's actual or desired state are likely to create new needs (Kotler,
1997; Wilkie, 1994; Ennew, 1993). For example, the birth of a child may create a need for
baby-care products that were not needed before.
2.1.1.2 Information Search
After a need has been recognised, the consumer may then engage in a search for po-
tential need satisfiers. Information search, the second stage of the decision-making process,
can be defined as the motivated activation of knowledge stored in memory or acquisition of
information from the environment (Engel et al., 1993). As this definition indicates, informa-
tion search can be either internal or external in nature.
In the internal search, the consumers search their memory for information about prod-
ucts that might solve the problem. This information may be based on past experience of the
product, information that has been absorbed form past marketing campaigns, or information
collected from WOM recommendations. If they cannot retrieve enough information from their
memory for a decision, they seek additional information in an external search. The external
search may focus on communication with friends and colleagues, comparison of available
6
brands and prices, marketer dominated sources, such as television or press advertisements,
and public sources (Engel et al., 1993; Loudon and Della Bitta, 1993; Ennew, 1993; Dibb et
al., 1997). According to Bloch et al. (1986), external search can be subdivided into purposeful
and ongoing search. The first mode, purposeful search, refers to external search that is driven
by an upcoming purchase decision, whereas the second mode, ongoing search, refers to in-
formation acquisition that occurs on a relatively regular basis regardless of sporadic purchase
needs.
The amount of information that is collected depends on the nature of the decision pro-
cess. An extensive problem-solving process will usually entail a considerable amount of
search. The consumer may consider a number of brands, visit several stores, consult friends,
and so on. Information overload, however, may cause problems for the consumer. There is
evidence to suggest that consumers cannot cope with too much information and, in fact, tend
to make poorer choices when faced with large amounts of information (Keller and Staelin,
1987). At the other extreme is routine-response behaviour. Here the consumer minimises
search time and effort by relying on past knowledge of the product or the brand name. Other
sources of information are ignored. Information search under a limited problem-solving proc-
ess falls between these two extremes (Loudon and Della Bitta, 1993; Engel et al., 1993;
Ennew, 1993).
A successful information search yields a group of brands that a consumer views as
possible alternatives. This group of products is sometimes called the consumer's evoked set
(Dibb et al., 1997).
7
2.1.1.3 Evaluation of Alternatives
As the consumer is engaged in search activity, he/she is also actively engaged in in-
formation evaluation. At this stage of the decision-making process, the consumer evaluates
alternatives to make a choice. Four tasks are involved: the consumer must (1) determine the
evaluative criteria to use for judging alternatives, (2) decide which alternatives to consider, (3)
assess the performance of considered alternatives, and (4) select and apply a decision rule to
make the final choice (Engel et al., 1993).
When evaluating the products in the evoked set, consumers may employ a number of
different evaluative criteria in making their decision. These criteria are the characteristics or
features that the consumer wants (or does not want). Evaluative criteria will usually vary in
their importance or salience. Price, for example, may be a dominant dimension in some deci-
sions and yet rather unimportant in others. The salience of evaluative criteria depends on a
host of product, situational and individual factors (Loudon and Della Bitta, 1993; Kotler et al.,
1996; Engel et al., 1993).
Consumers must also determine the set of alternatives from which a choice will be
made (that is, the evoked set). In some situations, the evoked set will depend on the con-
sumer's ability to recall alternatives from his/her memory. On other occasions, alternatives
will be considered if they are recognised at the point of purchase. If consumers lack prior
knowledge about choice alternatives , they must then turn to the environment for assistance in
forming their evoked set (Engel et al. 1993).
A consumer may also rely on his/her existing knowledge for judging the performance
of choice alternatives along salient evaluative criteria. Otherwise, external search will be re-
quired to form these judgements. In judging how well an alternative performs, ranges for ac-
8
ceptable values ('cut-offs'), that a consumer imposes for evaluative criteria will strongly de-
termine whether a given alternative is perceived as acceptable. Additionally, judgements
about choice alternatives can depend on the presence of certain cues or signals. Such is the
case when price is used to infer product quality (Engel et al., 1993).
Finally, the procedures and strategies used for making the final selection from the
choice of alternatives are called decision rules. These rules may be stored in memory and re-
trieved when needed. Alternatively, consumers may built constructive decision rules to fit
situational contingencies (Engel et al., 1993). Decision rules vary considerably in their com-
plexity. They can be very simplistic (for example, buy what I bought last time) but they can
also be quite complex, such as when the rule resembles a multi-attribute model. Another way
to differentiate among decision rules is to divide them into compensatory and non-
compensatory ones. Non-compensatory rules, such as conjunctive, lexicographic, and elimi-
nation-by-aspects, do not permit product strengths to offset product weaknesses. Compensa-
tory rules, in contrast, do allow product weaknesses to be compensated by product strengths
(Solomon, 1993; Loudon and Della Bitta, 1993; Assael, 1992; Engel et al., 1993; Wilkie,
1994).
2.1.1.4 Purchase
The outcome of the alternative evaluation stage is an intention to buy (or not to buy).
The fourth sequence in the decision-making process involves purchasing the intended prod-
uct. In general, this will be the product which has the most satisfactory performance in rela-
tion to the evaluative criteria (Assael, 1992; Ennew, 1993).
As long as the consumer's circumstances or the circumstances in the marketplace re-
main stable, the decision to purchase will lead to an actual purchase (Kotler et al., 1996;
9
Ennew, 1993). However, in executing a purchase intention, the consumer may make up to
five purchase sub-decisions or instrumental actions, i.e. brand decisions, vendor decisions,
quantity decisions, timing decisions and payment-method decisions (Kotler, 1997; Assael,
1992). The extent of instrumental action is likely to vary for different degrees of complexity
of the decision-making process (Assael, 1992). For example, buying salt gives little thought to
the vendor or payment method.
2.1.1.5 Post-Purchase Evaluation
The consumer decision-making process does not end when a purchase has been made.
Once the product is purchased, the will evaluate its performance in the process of consump-
tion. The outcome is one of satisfaction or dissatisfaction. Whether the consumer is satisfied
or dissatisfied depends on the relationship between the consumer's expectations and the prod-
uct's perceived performance. If the product exceeds expectations, the consumer is delighted; if
it meets expectations, the consumer is satisfied; if it falls short of expectations, the consumer
is dissatisfied (Kotler, 1997; Kotler et al., 1996). These feelings determine whether consumers
make a complaint, purchase the product again or talk favourably or unfavourably about the
product to others (Dibb et al., 1997).
Shortly after the purchase of an expensive product, the post-purchase evaluation may
result in cognitive dissonance. This, in very simple terms, can be understood as doubts that
occur because the consumer questions whether the right decision was made in purchasing the
product. Since such psychological discomfort is not pleasant, the consumer will be motivated
to act to reduce the amount of dissonance he/she is experiencing. Thus, a consumer may at-
tempt to return the product or may seek positive information about it to justify the choice. An
important role of marketing, therefore, is reminding the consumers that they have made the
10
correct decision (Loudon and Della Bitta, 1993; Assael, 1992; Brassington and Pettitt, 1997;
Foxall, 1997; Dibb et al., 1997; Ennew, 1993).
11
2.1.2 Individual Influences
The manner in which the individual consumer influences the decision-making process
is central to an understanding of consumer behaviour. Following Kotler (1997), these influ-
ences can be broadly categorised into psychological and personal factors.
Psychological factors operating within individuals partly determine people's general
behaviour and thus influence their behaviour as consumers. The primary influences on con-
sumer behaviour are (1) personality and self-concept, (2) motivation, (3) learning, (4) percep-
tion and (5) the impact of attitudes.
Personality and self-concept provide the consumer with a central theme. That is, they
provide a structure for the individual so that a consistent pattern of behaviour can be devel-
oped (Kotler et al., 1996; Brassington and Pettitt, 1997; Kotler, 1997; Dibb et al., 1997).
Motives are internal factors that energise behaviour and provide guidance to direct the
activated behaviour. They will affect which needs a consumer regards as important and there-
fore the priority in which they should be satisfied. Maslow's theory of motivation, for exam-
ple, suggests that needs are arranged in a hierarchy, from the most pressing to the least press-
ing. According to this theory, a consumer would seek to satisfy lower needs (e.g. physiologi-
cal needs) before progressing to higher needs such as self-esteem or status (Feldman, 1989).
Most human behaviour is learned. Consequently, what consumers learn, how they
learn and what factors govern the retention of learned material in memory are all issues of
considerable importance for understanding consumers. Not only do consumers acquire and
remember product names and characteristics, but they also learn standards for judging prod-
ucts, places to shop, problem-solving abilities, behaviour patterns and tastes. Such learned
12
material, stored in memory, significantly influences how a consumer reacts to each situation
that he/she faces (Engel et al., 1993; Wilkie, 1994).
Perception represents the process of selecting, organising and interpreting information
inputs to produce meaning. Information inputs are the sensations received through the senses,
i.e. sight, taste, hearing, smell and touch. However, each consumer receives, organises and
interprets this sensory information in an individual way. Consequently, three perceptual proc-
esses can be distinguished: selective attention, selective distortion and selective retention.
Selective attention refers to the selection of inputs that people expose to their awareness. Se-
lective, on the other hand, is the changing and twisting of currently received information. Fi-
nally, selective retention is the process of remembering information inputs that support per-
sonal feelings and beliefs and of forgetting those that do not (Dibb et el., 1997; Kotler, 1997;
Brassington and Pettitt, 1997).
Attitudes guide a consumer's basic orientation toward objects, people, events and
his/her activities. As such, attitudes strongly influence how consumers will act and react to
products and services, and how well they will respond to communications that marketers de-
velop to convince them to purchase their products (Kotler, 1997; Dibb et al., 1997).
As indicated earlier, there is another category of individual factors influencing con-
sumer decision-making: personal factors. These personal factors include demographic and
situational variables.
Demographic variables are individual characteristics such as sex, age, race, ethnic ori-
gin, income, family life cycle and occupation. A consumer's income, for example, determines
13
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