Choice Modelling: Technique of Modeling a Consumers Decision Process

A-Z of Choice Modelling Technique

Are you a dog lover? Are you more inclined towards cats? What will you say if you are asked to choose between a dog and a cat? You may choose a cat, and someone else might choose a dog. Now, would you like to buy food for your pet that comes at a low price or will you buy something that is costly? The choices you make affect the marketing strategy of a given company.

Every consumer makes their own choices that are based on several factors. Various factors like life experience, convenience, habit, perceived value, etc. are at work when a person makes a choice. At times, it becomes difficult to predict the choices of the consumers. This is where the choice modelling technique is used by marketers. Researchers use this market research tool to get advanced insights into the customer behaviour pattern. If you are a management student, you have to write papers on several choice modelling topics. Read the information below to know more about it.

What is choice modelling?

A consumer can hardly tell why they would prefer a brand to the other. One can discover this only through controlled scientific experiments and advanced analysis involving two or more variables. Choice modelling is a technique that is used to assess non-market environmental costs and benefits.

In this technique, people are asked some questions about their preferences after they experience the costs/benefits. The choice modelling is a method that can reproduce specific conditions so that a person’s choice (when faced with many options) can be predicted effectively.

How does choice modelling work?

Each of the questions which are asked to the sample of people is known as a ‘choice set.’ This presents the probable results of several alternative strategies. A common set of attributes are used to describe these alternatives. Attributes of different levels are used to differentiate the alternatives. An alternative that is related to the BAU or ‘business as usual’ option is kept constant. Every choice set consists of this constant alternative.

The attribute levels in the BAU alternatives are shared as per the experimental design. This way, a handful of people gets a broad range of future outcomes. The choices of the respondents show their willingness to exchange one attribute for the other. It is possible to predict that the respondent is willing to pay to get non-market environmental benefits’ additional units (if there is one monetary attribute among the ones used to describe the alternatives).
Examples of choice modelling
The fundamental of choice modelling states that instead of researching preferences for concepts, one should research preferences to get product attributes.

Choice Modelling in Chicken Farms: A major assumption in choice modelling lies in the fact that different levels of attributes have different levels of appeal. The word utility is more used in place of appeal in choice modelling. For example, the egg quality attribute helps researchers to analyse consumer’s preference for barn-raised eggs, caged eggs, and free range eggs. The main goal of choice modelling is to assess these utilities. In choice modelling, the actual appeal of the free-range eggs is not assessed. Instead, researchers assess the appeal of the free-range eggs as compared to the other relative attribute levels, like the eggs that have been raised in barns or caged eggs. Researchers set one of the levels with a utility 0. Generally, the attribute level that is the least appealing is given the zero utility.

Choice Modelling in Policymaking: Another use of the choice model is in policymaking. Choice modelling helps to calculate the willingness to pay (which is an important input in economic policymaking as well as in evaluating the damages in legal actions). The approach has been utilised to deal with damages in environmental cases, the violations of patents, and copyright cases. An example of the patent violation can be the phone wars that took place between Samsung and Apple.

Choice modelling in the cell phone industry: Researchers design optimal portfolios of products to understand the removal of products. For this reason, the phone market also uses the choice model. The technique assesses preferences for all the major attributes like weight, screen size, price, etc. Furthermore, the top phone models are recognised through optimisation techniques.

What is discrete choice modelling?

Researchers use the direct choice modelling technique to analyse situations that involve complex products and other product categories that are purchased in a long period of time. These are carefully controlled experiments in which existing and potential customers are asked about the products they would buy in a given scenario. This scenario includes all the services or products that are each other’s competitors in the market.

The respondents are given different marketing stimuli sets in each scenario and asked about the product or brand they will buy. The respondents’ decision type in every scenario represents real market conditions. Also, the researchers determine the importance of each variable.

What is volumetric choice modelling?

Repeat purchase volume is considered of great importance in situations that involve product categories that are bought in large numbers. Researchers apply the volumetric choice modelling technique to arrive at conclusions. The existing and potential clients are asked about the number of products they will buy in a given situation. Consumers have to choose from all the competing services and products involved. Similar to discrete choice modelling, the real world marketplace is represented by the design of the decision type of respondents. The central goal of this technique is to prepare realistic situations that show the purchasing behaviour of the consumers. Also, researchers measure the importance and role of every marketing variable with this modelling design.

What are the limitations of choice modelling?

Some of the limitations of choice modelling are as follows:

The presence of zero in the data- Consumers usually select any one of the given alternatives in this technique. Also, they show zero demand for the remaining ones. The number zero characterises consumer demand data as the most frequent response. The next one is characterised with the number 1 when the products are not even near perfect as substitutes. A big challenge is to find out what is the best way to deal with the presence of zero in the data.
Issues related to data- There are many data related problems. Sample sizes are often very small. The assessment of complicated choice models depends on the collection of data like sample sizes, choice sets, and choose alternatives. Other issues also persist. For example, there can be more than sufficient data and there can be issues regarding the quality of data.
Inherent limitations- There are some inherent limitations related to the discrete choice framework. The models here are based on an individual. This makes it very difficult to get joint decisions that come from social interactions between the units.

Choice model management

Researchers related to the marketing team of any organisation use various consumer demand models to predict future sales, assess the response to new marketing interventions, and examine behavioural theories.

Choice modelling is quite flexible when it comes to its application. As the alternatives provided to the respondents are hypothetical, it is possible for the analyst to create an application through which a variety of values can be estimated. These values can also involve the environment’s use and non-use values. This model can also analyse non-market situations, social values related to environmental management strategies, and the effects of unemployment.

Marketing researchers use choice modelling techniques to gain insights regarding the following:

Examine price sensitivity
Improve the designs of the package
Make the best use of brand strategy
Improve promotional offers
Facilitate the advertising messages
Boost push services and product features
Effectively use the advertising messages

Now you have all the basics of choice modelling covered. Use the information to enhance your knowledge and write an excellent paper. You can always take choice modelling assistance from reputed service providers in case you are struggling to write a quality paper.

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