Consumer Deliberation and Product Line Design

Marketing Science, Forthcoming

27 Pages Posted: 9 Jul 2012

See all articles by Liang Guo

Liang Guo

Chinese University of Hong Kong

Juanjuan Zhang

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: July 8, 2012

Abstract

This paper studies optimal product line design when consumers need to incur costly deliberation to uncover their valuation for quality. To induce deliberation, the firm must maintain quality dispersion and cut the price of the high-end product, so that consumers are motivated to deliberate in the hope that high-end consumption fits their needs. To prevent deliberation, the firm may have to offer downgraded quality at a low price, so that an impulsive purchase will not appear too wasteful. Whether the firm should induce deliberation depends on how much surplus it creates by aligning the supply of quality with heterogeneous demand for quality, and how much surplus it captures during this process. Interestingly, equilibrium firm profit, consumer surplus, and social welfare can all increase with the cost of deliberation. We extend the model to accommodate consumers' heterogeneous prior beliefs of their valuation for quality. We also discuss how market research could benefit from taking into account the endogeneity of consumer deliberation.

Keywords: consumer deliberation, product line design, price discrimination, information acquisition, agency theory, preference construction

JEL Classification: L11, L15, M12, M31

Suggested Citation

Guo, Liang and Zhang, Juanjuan, Consumer Deliberation and Product Line Design (July 8, 2012). Marketing Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2102274

Liang Guo

Chinese University of Hong Kong ( email )

CUHK Business School
CUHK
Hong Kong
China
(852)3943-7830 (Phone)
(852)2603-5473 (Fax)

Juanjuan Zhang (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Cambridge, MA 02142
United States

HOME PAGE: http://jjzhang.scripts.mit.edu

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