What do search, the customer decision process, and NYC taxi cabs have in common?

One would think that searching online, how customers select products to purchase, and NY taxi cabs have very little in common. Or, that it’s the start of a joke. Actually both statements are wrong—a quick look at NY taxi cabs reveals a lot about customer behavior.

As Duncan Simester—NTU Chair in Management Science and Professor of Marketing at MIT Sloan School of Management—pointed out in his MIT Sloan Executive Education webinar, “Understanding the Customer Decision Process: Why Good Products Fail,” “Customers exhibit some basic behaviors when they make purchasing decisions: they search for information, they make inferences, and when they can’t search, they use observable information. But this process invariably means tradeoffs.”

It’s often a very complex process of balancing the cost of the purchase (or risk) with the benefit of the product. As Simester noted, when Boeing purchases new planes, or when the average consumer purchases a new house, there’s a lot of research that goes into the process. The price of making the wrong decision could ultimately be higher than the original price.

However, in some cases, despite the risk of a wrong decision, customers lack the ability to do any research on their decision. This is where we imagine ourselves in NYC. Imagine you’ve just emerged from the depths of Penn Station and are in line for a cab. How often do you think about your choice of cab? Chances are, seldom. It turns out that 40% of NYC taxis have an injury or accident each year. Standing in line, you simply don’t have the time or resources to research that cab you’re about to get into. But, knowing there’s a high risk to a poor decision, you make some inferences about the cab. Does it have scratches or dents? Is the cab new or old? Is it in good condition? Those inferences can have an impact on your decision to hop in the first cab, or grab another one. Often, a decision like this is a very subconscious one.

There are several different types of customers and how they approach a product search and the decision-making process. The challenge for marketers today is to truly understand their customers (or target customers) and how they go about researching and selecting products.

Duncan Simester is NTU Chair in Management Science and Professor of Marketing at MIT Sloan. He teaches in the MIT Sloan Executive Education programs, Driving Strategic Innovation: Achieving High Performance Throughout the Value Chain, Strategic Marketing for the Technical Executive, and in Global Executive Academy.  He was the featured speaker for the MIT Sloan Executive Education webinar, "Understanding the Customer Decision Process: Why Good Products Fail."

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