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

• Author: Natalya Vinokurova
• DOI: http://doi.org/10.1002/smj.3074
• Date: 01 December 2019
• Published date: 01 December 2019

RESEARCH ARTICLE

Reshaping demand landscapes: How firms change

customer preferences to better fit their products

Natalya Vinokurova

Management Department, The Wharton

School, University of Pennsylvania,

Philadelphia, Pennsylvania

Correspondence

Natalya Vinokurova, Management

Department, The Wharton School,

University of Pennsylvania, Philadelphia,

PA, USA.

Email: natalyav@wharton.upenn.edu

Abstract

Research Summary:What strategies do firms use to

change their customers' preferences? This paper addresses

this question by developing a conceptual model that com-

bines the representation of customer preferences as a

demand landscape with research on marketing and psy-

chology. I suggest that in addition to changing their prod-

ucts to accommodate customer preferences, firms also

change the distribution of customer preferences to accom-

modate the firms' products. Specifically, I argue that firms

alter customer preferences by adding, removing, and trans-

forming the dimensions of the demand landscape. I illus-

trate 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 land-

scape to promote the acceptance of MBS as bonds.

Managerial Summary:Managers often assume that cus-

tomer 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' prefer-

ences. In this paper, I consider two approaches firms can

take to changing customer preferences to better accommo-

date their products. One approach is to convince the cus-

tomers 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.

Received: 28 November 2017 Revised: 21 June 2019 Accepted: 26 June 2019 Published on: 4 September 2019

DOI: 10.1002/smj.3074

Strat Mgmt J. 2019;40:2107–2137. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 2107

KEYWORDS

customer preferences, demand landscapes, demand-based view,

historical case study, mortgage-backed securities

1|INTRODUCTION

A long-standing tradition in strategy conceptualizes the firms operating environment as a fitness

landscape. In this conceptualization, the firm's performance is an outcome of searching the landscape

for an optimal position (Gavetti & Levinthal, 2000; Levinthal, 1997). In addition to considering

firms' search of stable landscapes for optimal positions, scholars in this tradition have also modeled

how firms adapt to changes in the shape of the landscape (Li & Csaszar, 2019; Siggelkow & Rivkin,

2005; Levinthal & Warglien, 1999). More recent contributions to this literature put forward the possi-

bility of firms not just searching a landscape shaped by other actors, but also reshaping the landscape,

that is, changing the topology of the landscape to improve a focal firm's position on the landscape

and, with it, the firm's performance (Gavetti, Helfat, & Marengo, 2017). This suggestion expands the

repertoire of strategies available to firms.

In parallel with the developments in landscape modeling discussed above, strategy scholars have

advocated for a more explicit recognition of the role of demand-side considerations in firms'

decision-making (Priem, Li, & Carr, 2012; Priem & Butler, 2001). Scholars taking the demand-

driven view of strategy have suggested that incorporating an understanding of customer preferences

into the strategy literature can shed light on how firms decide to pursue a range of strategic options

including, for instance, the role played by demand-side synergies in firm diversification decisions

(Ye, Priem, & Alshwer, 2012). More broadly, scholars adopting this perspective have focused on the

implications of customer preference heterogeneity for firm strategy (Adner, 2002; Adner & Zemsky,

2005, 2006).

Technology strategy scholars invoked the metaphor of market landscapes (MacMillan &

McGrath, 2000) and demand landscapes (Adner, 2002; Adner & Levinthal, 2001) to describe the dis-

tribution of customer preferences. These researchers used the landscape metaphor to argue that firms'

success at getting customers to adopt technological breakthroughs depends on the distribution of cus-

tomer preferences. For instance, research on demand landscapes has identified the existence of mar-

ket segments receptive to a technology breakthrough as an important prerequisite to the adoption of a

new technology. Work in this tradition has also considered the effect of changes in customer prefer-

ences on firm strategy, suggesting that firms need to adapt their strategies to such changes

(Tripsas, 2008).

To date the research on demand landscapes has taken the shape of the landscape as a given,

implicitly assuming that firms operate on exogenously determined landscapes (i.e., firms' only option

is to change products to accommodate customer preferences). Taking a different perspective, I pro-

pose that firms can reshape the demand landscapes for their products (i.e., change customer prefer-

ences to accommodate their products). Specifically, I draw on research on customer preferences in

marketing and psychology to suggest that firms can improve their products' positions by reshaping

the demand landscape. I argue that greater insight into how firms shape demand landscapes would

expand both scholars' and practitioners' understanding of the range of the strategies available to

firms.

2108 VINOKUROVA