Reshaping demand landscapes: How firms change customer preferences to better fit their products

Research Summary What strategies do firms use to change their customers' preferences? This paper addresses this question by developing a conceptual model that combines the representation of customer preferences as a demand landscape with research on marketing and psychology. I suggest that in addition to changing their products to accommodate customer preferences, firms also change the distribution of customer preferences to accommodate the firms' products. Specifically, I argue that firms alter customer preferences by adding, removing, and transforming the dimensions of the demand landscape. I illustrate the model with an historical case study of the U.S. market for mortgage-backed securities (MBS) between 1968 and 1987, a period during which MBS issuers succeeded in reshaping the bond demand landscape to promote the acceptance of MBS as bonds. Managerial Summary Managers often assume that customer tastes are fixed and that the only way to improve a product's appeal to customers is to change the product's attributes to better accommodate the customers' preferences. In this paper, I consider two approaches firms can take to changing customer preferences to better accommodate their products. One approach is to convince the customers that the combination of attributes offered by the firm's product is more valuable than that in a product a customer is used to buying. An alternative approach is to manipulate the customer's perception of similarity between a product she is used to and the firm's product.