Abstract
We present a model of competitive marketing based on the notion that consumers are boundedly rational and that firms use marketing tactics in an attempt to influence consumers’ decision process. The standard model of consumer behaviour assumes that the consumer applies well-defined preferences to a perfectly perceived set of available alternatives. We retain the assumption that consumers have stable preferences but relax the assumption that they have a perfect perception of what is relevant for their consumption problem, thus allowing firms to manipulate that perception. Our aim is to explore the market implications of this departure from the standard model, especially for the way firms deploy marketing strategies in competitive environments. The cornerstone of our model is the observation that in the modern marketplace, consumers face an overwhelmingly large variety of products and therefore often use screening criteria (deliberate as well as unconscious) in order to reduce the number of “relevant” alternatives. As a result, consumers apply their preferences not to the set of objectively feasible alternatives but to a potentially smaller set which they construct at an earlier stage of the decision process. Borrowing a term from the marketing literature, we refer to this set as the “consideration set”. The basic idea underlying this term is that consumers may be unaware of some of the feasible products, and even when they become aware of a new product, they still need to be persuaded to consider it as a potential substitute to their currently consumed product.
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