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Product Design in a Market with Satisficing Customers

In: Consumer-Driven Demand and Operations Management Models

Author

Listed:
  • Matulya Bansal

    (Columbia University)

  • Costis Maglaras

    (Columbia University)

Abstract

We study the product design problem of a revenue-maximizing firm that serves a market where customers are heterogeneous with respect to their valuations and desire for a quality attribute and are characterized by a perhaps novel model of customer choice behavior. Specifically, instead of optimizing the net utility that results from an appropriate combination of prices and quality levels, customers are “satisficers” in that they seek to buy the cheapest product with quality above a certain customer-specific threshold. This model dates back to Simon’s work in the 1950s and can be thought of as a model of bounded rationality for customer choice. We characterize the structural properties of the optimal product menu for this model and explore several examples where such preferences may arise.

Suggested Citation

  • Matulya Bansal & Costis Maglaras, 2009. "Product Design in a Market with Satisficing Customers," International Series in Operations Research & Management Science, in: Christopher S. Tang & Serguei Netessine (ed.), Consumer-Driven Demand and Operations Management Models, edition 1, chapter 0, pages 37-62, Springer.
    • Handle: RePEc:spr:isochp:978-0-387-98026-3_2
    DOI: 10.1007/978-0-387-98026-3_2
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    Cited by:

    1. Philipp Afèche & J. Michael Pavlin, 2016. "Optimal Price/Lead-Time Menus for Queues with Customer Choice: Segmentation, Pooling, and Strategic Delay," Management Science, INFORMS, vol. 62(8), pages 2412-2436, August.

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