Discrete Choice Analysis

Posted in Marketing and Strategy Terms, Total Reads: 304
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Definition: Discrete Choice Analysis

In marketing, discrete choice analysis is defined as a statistical technique to decide how the customers choose between comparable products or services based on specific features. This technique help the marketer identify the various parameters that impact the decisions of the customer.


Discrete choice analysis is perfect for

1. Product categories where only one product is purchased over a long period of time

Example- durable goods, credit cards, cellular phones


2. Complex products (i.e., products with many different possible features). In these carefully controlled experiments, current and potential users are asked which one item they would purchase, given a real life situation including all of the products or services that compete with one another in the marketplace. In each scenario, the respondent is presented with a unique set of marketing condition and asked which brand or product would be purchased. The type of decision that the respondents make in each situation is designed to mimic the real market, and again each variables’ importance is being determined implicitly. Also the survey is conducted to get the probability of various possibilities of customer buying a particular product.



y is a non-metric variable

 

Types

I. Logit model – All the variables in the right hand side are non-metric

II. Probit model

Cost of the discrete choice model is around $25k to $50K depending on the flexibility and duration of the project.


Advantage

1. Sizing markets for new products Positioning products in a competitive marketplace

2. Estimating brand values among competing products

3. Developing strategic and tactical pricing strategies

4. Isolating market segments based on product preferences

5. Determining the optimal mix of product features

6. Service bundling for different class of customers

7. Promotion techniques are developed

 

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