Decision Making Process
Give the example of a recent purchase of an expensive article (hand –phone, camera or notebook computer). Explain your decision –making process and what source of information did you use in making the decision to buy the article? The decision making is the very important in our business environment because as we know many company are trying to get rare resource so we cannot do mistake in decision making to buy something expensive things . As a manager, the manager need to know how to decide the decision and need to think continuously about his decision .The manager want to the computer for his company so that he need to know the buyer decision process and need to use the process. Buyer decision processes are the decision making processes undertaken by consumers in regard to a potential market transaction before, during, and after the purchase of a product or service.
In the decision process need to imply five stages with every purchase but sometimes we can skip and reverse the some stages because we need to buy many purchase. The marketers need to concern in buying process rather than only on the purchase decision.
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In the decision making include five stages .These five stages are – 1. Need recognition Need recognition occurs when there is perceived difference between an individual’s ideal state and reality. In most situations the Initiator is also the User or Buyer. Users are inclined to identify the need for new solutions (i.
e. , new products) while Buyers are more likely to identify the need to re-purchase products. But marketer should also understand that more companies are replacing human involvement in re-purchase decisions with automated methods, thus making it more challenging for competitors to replace currently purchased products.In straight re-purchase situations, whether there is human intervention or not, the purchasing process often jumps from Need Recognition to Purchase and little search activity is performed. The needs can be assume as normal needs become a high level and strong enough to drive behavior. The needs also can be triggered by the external stimuli as the advertisement and friends. 2.
Information Search The above stage, the consumer need to search more information about the product or purchases. The consumer options available and consumer need to search about the product, price and quality.Two types of information search include . There are external and internal. The external exist – Most often used in frequent purchases. The potential buyer recalls memories and previous experiences with a product or with the company. The internal exist – Most often used when there is a lack of prior experience with a product.
The risk of making a wrong purchase decision is greater. The consumer can obtain information from any of several sources. These include personal sources, commercial sources, public sources and experiential sources. 1. Personal sources such as –friend, family and co-workers. . Market such as –commercial, print advertisement, salespeople and websites.
3. Public sources such as –media reviews, magazines and consumer reports. 4. Experiential sources such as – handling, examining or using the product. Generally, the consumers receives the most information about a product from commercial sources . Personal sources is the most effective source hat can be legitimize or evaluate product the for the buyer. If the consumers know the information as much as they can, they can aware and knowledge of available brands and features.
Marketer should need to understand consumer’s source of information and the important of each source. 3. Evaluation of Alternatives The consumers can their information as know as they can and they can even chose the better band because of their information. How consumers go about evaluating purchase alternatives depends on the individual consumer and the specific buying situation. Sometimes it has many concepts help to explain the consumer evaluation of alternatives process. In some cases, consumers use careful calculations and logical thinking.At other times, the same consumers do little or no evaluating; instead they buy on impulse and rely on intuition.
Sometimes, the consumers make buying decision by themselves and sometimes they wanna be use friend, buying or consumer guides or sales person advice. The multi-attribute attitude model explains how consumers evaluate alternatives on a range of attributes. Finally, there are ranges of ways that consumers apply criteria to make decisions. Belch and Belch (2007) explain how information is integrated and how decision rules are made including the use of heuristics.The marketing organization should know how consumers evaluate alternatives on salient or important attributes and make their buying decision. 4. Purchase Decision In this stage , Through the evaluation process discussed above consumers will reach their final purchase decision and they reach the final process of going through the purchase action e.
g. The process of going to the shop to buy the product, which for some consumers can be as just as rewarding as actually purchasing the product.Purchase of the product can either be through the store, the web, or over the phone. However, Purchase decision making process have two factor can come between purchase intention and the purchase decision. They are – 1. Attitudes of Others The attitudes of other go through the buying decision and the individual’s motivation to complete with the person’s wishes and imagine. 2.
Unexpected Situational Factors Unexpected situational factors can got the higher level when the consumer is about to act on the purchasing decision. 5.Post – purchase Behavior After the consumer purchasing, they may take the action based on their satisfaction or dissatisfaction. This simply is post purchase behavior and research shows that it is a common trait amongst purchasers of products. Manufacturers of products clearly want recent consumers to feel proud of their purchase; it is therefore just as important for manufacturers to advertise for the sake of their recent purchaser so consumers feel comfortable that they own a product from a strong and reputable organization.This limits post purchase behavior. As the example, Consumer feel reassured that they own the latest advertised product.
Almost all major purchases result in cognitive dissonance, or discomfort caused by post purchase conflict. Cognitive dissonance is the common problem in post – purchase behavior . So it is important to solve the problem of this cognitive dissonance . The company support the two basic groups to solve these problem. Company’s sales come from two basic groups – new customers and retained customers.After solve the problem , the consumer will happy so that a satisfied customer tell 3 people about a good product experience, a dissatisfied customer gripes to 11 people. But a bad thing is some 96 percent of unhappy customers never tell the company about their problem.
As I am a manager, I need to buy a note book computer for my company. I need to the some decision making process and need to use the five stages of decision making. .The manager should have a ability of solution upon the problem and should have need of recognition .The manager should search the information for his computer which one is better . In the computer world, there have many brand and the manager need to choice according to brand, about information of research and evaluation of brand. There have many brands such as Acer, Lenovo, Dell, Sony and Toshiba.
They have different types of features and can have some different special effect. Manager will compare the features and evaluate the notebook computer character . These are some of note book computer features such as – | | | | | | | | | | | | | | |Sony VIVO |TOSHIBA |DELL MODEL |LENOVO |COMPAQ | | | |SATELLITE |(4011023) |Think pad | | | | | | |T410 | | | | | | | | | |Screen size |17 inches |17 inches |17 inches |16. inches |17 inches | | | | | | | | |Hard Disk in |300 |250 |250 |200 |300 | |GB | | | | | | | | | | | | | |RAM in MB |3500 |3200 |3100 |3000 |3150 | | | | | | | | |Average selling | | | | | |price |$ 2000 |$ 1700 |$ 2000 |$ 1100 |$ 1300 | | | | | | | | | | | | | | | | |1 year service |1 year service |1 year service |1and half year |2 year service | |Comments | |and 1 printer |and 1 ink pad |Service | | | | |free gift |free | | | LENOVO [pic] [pic]SONY [pic] TOSHIBA [pic] DELL [pic]COMPAQ This is a comparing result upon the each brand of evaluation. As the result, I can choose the better brand according to the comparing. I will refer the better from the graph. I think Lenovo is the worst because Lenovo don’t have enough features and quality.
But the price is a little bit cheaper than rest . Lenovo may be cheaper because they don’t have enough function to display. Lenovo is not suitable for company work.This one may be spoil as soon as possible. In my choice, Lenovo is cancelled. Let see, about the Sony and Dell. Sony is very expensive and also have high quality I cannot enough money to buy Sony so that Sony may be cancelled my choice.
Dell have enough quality and function . Dell don’t have service center in Singapore so I don’t want to purchase the kind of product even have the 1 year service and 1 ink pad free . If I have a problem from Dell, I need to call Dell Company. After that Dell Company say they will send a technician to prepare my computer. As we know, we don’t have enough time to wait in Singapore. We need to go to work so that I don’t like Dell.This is a part of using my information source because I like the Compaq very much.
My friend uses the Compaq every time. I can see the friend computer every day so I interested the Compaq and Compaq’s function also. I asked my friend how about your computer? I didn’t except because he told me my computer is not good . I need to go to service room because computer cannot accept the over load. So I noticed the Compaq and he refer me for Toshiba . He says Toshiba is very hard and can use even they have overload . Toshiba is very heard to spoil .
So I interested about in Toshiba . I check the comparing graph and I can consider the Toshiba is also a good to buy .And then I see the price list, it is only have $ 1700 so I can effort to buy it. Toshiba also have the 1 year service and 1 printer will give for free . I really like this promotion. I also need to buy a printer but me no need to buy the printer because of my Toshiba. So I decided to buy the Toshiba because of my information source and evaluation alternatives.
Even I purchased Toshiba, Toshiba have a problem . Toshiba company’s know the Post – Purchase behavior so that they give the service until full of 1 year. So it is very comfortable for me. I cannot get any trouble from my computer . It is very satisfied for me . I also ready to share my friend to buy Toshiba .Toshiba is the good brand in the computer world.
So I like Toshiba brand ever for my rest of life. Question 2. Explain the usefulness of Pareto Analysis as a tool in inventory management. Illustrate its applications. Pareto Analysis in inventory management Pareto Analysis (G) is a statistical technique in decision making that is used for the selection of a limited number of tasks that produce significant overall effect. It uses the Pareto Principle (also know as the 80/20 rule) the idea that by doing 20% of the work you can generate 80% of the benefit of doing the whole job. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%).
This effect, known as the 80: 20 rules, can be observed in action so often that it seems to be almost a universal truth. As several economists have pointed out, at the turn of the century the bulk of the country’s wealth was in the hands of a small number of people. This fact gave rise to the Pareto effect or Pareto’s law: a small proportion of causes produce a large proportion of results. Thus frequently a vital few causes may need special attention wile the trivial many may warrant very little. It is this phrase that is most commonly used in talking about the Pareto effect – ‘the vital few and the trivial many’. A vital few customers may account for a very large percentage of total sales. A vital few taxes produce the bulk of total revenue.
A vital few improvements can produce the bulk of the results. The Pareto effect is named after Vilfredo Pareto, an economist and sociologist who lived from 1848 to 1923. Originally trained as an engineer he was a one time managing director of a group of coalmines. Later he took the chair of economics at Lausanne University, ultimately becoming a recluse. Mussolini made him a senator in 1922 but by his death in 1923 he was already at odds with the regime. Pareto was an elitist believing that the concept of the vital few and the trivial many extended to human beings. The Pareto analysis also known as ABC analysis.
The ABC concept is derived from the Pareto’s 80/20 rule curve.It is also known as the 80-20 concept. We can split up our inventory into three basic categories; A, B and C. The A materials will be the 20% that are most crucial to your process. Depending upon your business, the A materials could be less or more than 20% of your inventory. The classification of ABC analysis or The Pareto analysis . ABC Analysis have 3 types to classified .
They are such as – • 10-20% of the items (‘A’ class) account for 70-80% of the consumption • the next 15-25% (‘B’ class) account for 10-20% of the consumption and • the balance 65-75% (‘C’ class) account for 5-10% of the consumption [pic] ABC analysis graph formationDuring inventory control, we need to know the Pareto Analysis or ABC Analysis to control our stock effectively. As the result, we know the ABC analysis so that we can actually know our stock position. Our stock that we keep when the stock can finished and when the stock keep for long time. We can also know how many months need to sell for each stock and how many months can keep in the inventory. We also know about why our stock cannot be sold and kept in our inventory for a long time. Illustration of Pareto Analysis or ABC Analysis in inventory management Let see, the Pareto analysis of inventory management. We could start from the list of our stocks.
We can also determine the stock as know as you can and you can also put the unit cost definitely. Item |Production Codes |Total Stocks |Unit Cost ($) |Total Cost ($) | |1 |SPF 001 |300 |200 |60,000 | |2 |SPF 002 |50 |17 |850 | |3 |SPF 003 |180 |11 |1,980 | |4 |SPF 004 |85 |52 |4,420 | |5 |SPF 005 |400 |50 |20,000 | |6 |SPF 006 |225 |25 |5,625 | |7 |SPF 007 |315 |80 |25,200 | |8 |SPF 008 |90 |5 |450 | |9 |SPF 009 |100 |10 |1,000 | |10 SPF 010 |150 |115 |17,250 | |11 |SPF 011 |80 |14 |1,120 | |12 |SPF 012 |75 |25 |1,875 | |13 |SPF 013 |40 |16 |640 | |14 |SPF 014 |45 |25 |1,125 | |15 |SPF 015 |20 |15 |300 | |16 |SPF 016 |200 |15 |3,000 | |17 |SPF 017 |180 |35 |6,300 | |18 |SPF 018 |150 |10 |1,500 | |19 |SPF 019 |10 |13 |130 | |20 |SPF 020 |30 |20 |600 | | | | | |153,365 | After we got the list of our stocks, now, we have to sort the items in descending from the highest cost to the lowest cost and determine which items are A classes, B Class, or C Class. Items |Production Code |Total Stocks |Unit Cost ($)|Total Cost ($) |Cumulative Cost |% of Cumulative Cost | |1 |SW 001 |300 |200 |60,000 |60,000 |39 % | |5 |SW 005 |400 |50 |20,000 |105,200 |68. 5 % | |17 |SW 017 |180 |35 |6,300 |128,750 |83. 9 % | |4 |SW 004 |85 |52 |4,420 |138,795 |90. 4 % | |3 |SW 003 |180 |11 |1,980 |143,775 |93. % | |18 |SW 018 |150 |10 |1,500 |147,150 |95.
9 % | |11 |SW 011 |80 |14 |1,120 |149,395 |97. 4 % | |2 |SW 002 |50 |17 |850 |151,245 |98. 6 % | |20 |SW 020 |30 |20 |600 |152,485 |99. 4 % | |15 |SW 015 |20 |15 |300 |153,235 |99. % | |Total | | | |A |1, 7, 5, 10 |80 % | |B |17, 6, 4, 16 |12. 4 % | |C |3, 12, 18, 14, 11, 9, 2, 13, 20,|7. 6 % | | |8, 15, 19 | | After we classified the items into classes, now we know that items in A class can affect 80 % of the cost.
That’s why, now we can concentrate on the A class items. Items |Production Code |Holding Stocks (unit) |3 Months Sales (unit) |Holding (months) | |1 |SW 001 |300 |100 |9 | |7 |SW 007 |315 |300 |3 | |5 |SW 005 |400 |200 |6 | |10 |SW 010 |150 |150 |3 | By this graph, we can know how long our stocks can finish and why we need to keep stocks in small quantity. We can ask the marketing manager about their stock and we need to ask the manager to get definitely explanation from him so we can take their stock more than precious and we need to A class items because those items affect about 80% of the value. Remark of stock ITEM 1 (SPF 001) Item 1 need to store until 9 month . So we need to store this item very long time.We are not happy to keep this item to quite long time . We need to ask the question to the manager why he kept the stock for a long time.
He need to explain the key point to our . He explain like this, this items will be sold out in the biggest event in Singapore, Chinese New year was coming soon . After that we can make this item to sold out. We can consider as a good explanation so we can accept his explanation. ITEM 7 (SPF 007) Item 7 need to store until 3 month . So we need to store this item quite long time . We don’t want to store this item very long time .
We have a question upon the manager why he kept the stock for long time . He need to explain the key point to our .He explain like this ,this item will be sold out during the Chinese New year holidays . In holidays , everybody are free so they may go shopping so this item may be sold out during holidays . He explained very well the key point. We need to accept this explanation as a good reason. ITEM 5 (SPF 005) Item 5 need to store until 6 month .
So we need to store this item in our inventory so that we don’t want to kept this kind of stock in our inventory . This stock can be waste our place and time . So we want to sell finishes this item as soon as possible . We also have a question for this stock so we need to ask the question to manager why he kept the stock . He need to give a acceptable explanation.Let say , this item will sold out in Valentines Day because all over the world have the Valentines day so we also have . Our stock will be sold out in these days .
The manager answer is acceptable so we need to accept his answer for our stock. ITEM 10 (SPF 010) Item 10 also need to store until 3 month. So we have many item in our store . We don’t want to store anymore this stock in our inventory . This is no more place to store this item but we can store this item at least 3 month after 3 month we don’t want to store any more so we need to sold out this item as soon as possible. We need to ask the specific question to manager why this stock need to keep. The manager also need to give specific answer to our.
He say like this ,this item will be sold out definitely before Valentines Day because people want to buy the gift before the valentines . So this stock must be sold before Valentines Days . We enjoy in his answer and we definitely like his answer and accept his answer. Conclusion In conclusion, we know how to control our stock . we also know how to manage our inventory . The Pareto Analysis or ABC Analysis are very important in our inventory management. We can know every about the inventory management whatever we want and we can also understand how to keep our stock and how can I sell faster .
We also can get the more other opportunities . We know all analysis so that we can do effectively in our management and cannot waste in our management . The Pareto or ABC analysis is very important for me and I think it is very important to everyone.Reference: 1. Mark M. Davies and Nicholas J. Aquila no (1991).
Production Management. Printed in New York , Hill Higher Education 2. BHARATK. MAJUMDAR (1998). Inventory Management. Printed in Delhi ,Anmol Institute of Education 3. Ober, Scot, Ph.
D (1991). Principles of Marketing. Printed in USA at Houghton Mifflin College USA. 4. Chase Aquilano Jacobs (1976). Operation Management. Printed in US 5.
NORMAN GAITHER (1996). Operation and Production Management. Printed in USA at Wasdsworth College USA.
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