Marketing Research Blog

When To Use Choice Modeling

Choice modeling is a powerful, simulation-based research technique that mimics real-world purchasing behavior, and it is one of my favorite techniques in marketing research.

For many applications, it is the gold standard that other methodologies are compared to. So far, my favorite application of choice modeling was for a client that was struggling with proper pricing and assortment of their product line at a major retailer. They needed to know what the best use of their limited shelf space was.

• What assortment of product offerings would provide the best reach (maximize consumer purchase interest)?
• What prices would maximize profitability for the retailer and manufacturer?

We were able to help them answer these and other questions through consumer research that used virtual mock shelf sets in an online survey with a choice exercise backing up the design. The research deliverables not only provided them with optimized product lines and pricing, but it also informed them that they could be more aggressive with their pricing than they believed was feasible. The results proved that out over the next year, and they were very glad they had conducted the research.

Choice modeling is powerful because it allows marketers to dig into the trade-offs consumers make among competing products (or services) and prices. It is widely used to quantify preferences and predict demand based on varying attributes.

That said, here are 10 ways you can use choice modeling in consumer research:

1. Optimize Pricing: Use modeling to determine how much consumers are willing to pay for specific features or attributes.
2. Predict Market Share: By including competitive brands and products in the simulation, you can estimate how your product or service will perform against them in the market.
3. Aid New Product Development: Modeling can identify the best combination of features, brands, and price prior to launching a new product.
4. Optimize Features: Like #3 above but for existing products, understand what features, individually or collectively, will have the highest or lowest impact on purchase interest.
5. Test Product Line Extensions: Look at purchase interest for product line extensions (e.g., new flavors, sizes, and so on) alongside existing products to determine their overall impact on sales.
6. Evaluate A Bundling Strategy: What combination of additional services or products should you put together that will be of most interest to consumers?
7. Assess Brand Equity: Do you know what strengths your brand has relative to competitors? How important is the brand to consumers when deciding which product or service they want?
8. Test Messaging: This is similar to other applications but focuses on which message or combination of messages will impact the most consumers.
9. Segment The Market: You can use consumers’ preferences for specific attributes (e.g., price-sensitive vs. quality-conscious) to group them together and market them to consumers appropriately.
10. Drive Customer Retention: Modeling can help identify the key drivers (e.g., great service, long lasting, lowest price) that attract or repel loyal customers.

Choice modeling is a great tool to have in your toolkit. If, like me, you aren’t comfortable designing and executing a choice exercise study on your own, be sure to find an expert who can help you do it properly. You may not even know if you’re doing something wrong unless you let an experienced professional review it. I’m lucky that I work with an outstanding Advanced Analytics team to design and analyze our choice exercises. They are a wonderful resource for us and our clients. I’m sure they would love to help you, too, if you have questions. Best of luck out there!

P.S. For more information about choice modeling, please visit our Choice Modeling Designs page and feel free to connect with Dr. Beth Horn of our Advanced Analytics group.

Tom Allen

Senior Vice President

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Tom has over 20 years of research experience spanning several industries, including retail, restaurants, consumer packaged goods, and financial services. He earned a Bachelor of Business Administration from The University of Texas at Austin and a Master of Business Administration in Marketing from The University of Texas at Arlington.