Costis Maglaras

“Product design in a market with satisficing customers”

Coauthor(s): Matulya Bansal.

Editors: Serguei Netessine, Christopher S. Tang

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.

Source: Consumer-Driven Demand and Operations Management Models
Exact Citation:
Bansal, Matulya, and Costis Maglaras. "Product design in a market with satisficing customers." In Consumer-Driven Demand and Operations Management Models, 37-62. Ed. Serguei Netessine, Christopher S. Tang. New York: Springer US, 2009.
Pages: 37-62
Place: New York
Date: 2009