Using Choice Modeling To Supercharge Your Business

Citation

Cook, G.R. (2010), "Using Choice Modeling To Supercharge Your Business", Journal of Consumer Marketing, Vol. 27 No. 7, pp. 648-649. https://doi.org/10.1108/07363761011086407

Marketing executives need to know precisely what the customer wants and what they can do about satisfying that want. This day and age does not allow for costly product/service failures! With tighter budgets and increased accountability being placed on the marketing executives' shoulders, there is little room for missteps. Thus more precise and effective decision making in evaluating customer needs is critical!

This hardback addresses choice modeling as a decision‐making process to more fully understand what target customer groups are looking for and how much they are willing to pay you for products. Choice modeling is portrayed as one of the most sophisticated market research techniques available, but Diener feels that many companies do not use it because it seems too complicated and expensive. But he fully believes that the benefits far outweigh any associated costs. He contends that the process is more predictive, actionable, and results in very accurate/relevant decisions that will positively increase ROI for the firm. The author indicates that choice modeling, (a.k.a. choice‐based conjoint analysis or discrete conjoint analysis) is not for everyone, but its wide range of applications can help many companies optimize their new or existing products. It allows firms to increase their overall marketplace competitiveness and profitability and can provide ROI analysis of marketing decisions before you finalize them. Our author provides us with 12 relatively short chapters on the subject. The following book review includes some of the key aspects of choice modeling as described by the author, by chapter with a brief summary at the end of the review. Chris Diener is a Senior Vice President for research methods with Lieberman Research Worldwide (LRW).

For sure we are in an information and data abundance stage in our economy today. The key is how we harness all of this data, making sure it is relevant to the decision at hand and then use it to the fullest extend in our overall marketing and business decision‐making scenarios. As Diener indicates, technology pervades market research and customer intelligence, and while some improvements in these various technologies will not have a direct impact on management decision making, some will go direct to the heart of competitive viability. Some feel these technological improvements are so radical and complex and not well understood that they may well avoid them, while others who have put them to use find great value in such decision‐making techniques. The author's purpose is to attempt to get companies to fully utilize this technique and gain the full value of it but it will only happen if and when decision makers clearly understand it and how it applies to their own businesses and embrace it with full confidence.

Choice modeling tends to look into the future in that we are modeling potential choices that consumers might make, understanding what might be available in terms of future products. Choice modeling can help influence and predict what potential consumers will do in terms of product choices. It helps us to understand why people make certain marketplace choices and will assist us in understanding what future choices they may actually make in terms of buying decisions. The model's intended end result is the prediction of consumers' potential future actions in the marketplace. We learn about the consumer's priorities, preferences, desires in terms of marketplace offerings, and key buying criteria. As our author states, choice modeling is like having a replica of a person's mind at your disposal or a so called map of the mind in an attempt to better understand what drives choices.

Choice modeling is a process with involving three main stages that the author describes in great detail, which he refers to as the modeling stage; the reporting stage; and the integration stage, each involving a subset of steps. Each of these steps is covered in explicit detail in Chapters 3, 4 and 5. Space in this review does not permit a detailed analysis and discussion of these various steps (those are the rewards of purchasing and digesting the book's detailed description of this exciting research process), so we will try to recap the salient points of each of the steps for you.

The author feels strongly about being able to improve the level of consumer research via choice modeling in terms of a high level of predictive applications, accuracy, and more detail and so as to replicate the customer's decision making mind to obtain more realistic causal data in terms of more accurately predicting future consumer behavior actions. It is desirable that we be able to eventually profile potential customers who are in fact most likely to purchase products, as well as to prioritize these potential customers. The positive segmentation advantage you can gain through the choice modeling process is rather obvious in that we can predict precisely which segments within the market to pursue and what elements (attributes, features, price, etc.) are relatively most important to those segment prospects. Another critical assist via choice modeling is the development of meaningful, accurate early warning systems (and intervention systems) to understand when (on a pro active basis) we might be in danger of customer defection. Customer retention continues, obviously, to be high on the priority list of marketing and top management. Within the whole advertising or promotional media planning process choice modeling can help us determine which media, what message, and the timing optimization of same.

The same advantages in the area of services can be achieved via choice modeling by creating various “service scenarios” and asking the respondent to indicate which are important and to what degree each element is important in their overall purchase process.

In today's fast moving and highly competitive marketplace the time lines are growing shorter and shorter in terms of product development, market development, marketing communications efforts, and consumer loyalty, which recently has been slipping in instances where specific consumer goods product companies had enjoyed very high consumer loyalty over an extended period of time.

Diener contends that choice modeling and its approach to consumer research is much more precise and accurate than the more traditional models we have used over time. Here we are looking for the so‐called levers to push or pull (pricing, promotion, channels, etc) to bring about the desired consumer response when the buying scenario choice is actually presented to the consumer. The value of this approach is centered on the idea of actually putting the consumer into a “choice scenario decision task mode,” an actual in store purchase scenario, and then force the consumer to make a choice based on the alternatives offered. This assists us in identifying the overall level of importance for each product attribute or element presented to the consumer in each choice scenario.

Choice modeling embraces the concept of predictive power, which reflects a research model's ability to predict future actions or behaviors by the respondent, which is a key factor for market researchers. An added advantage of this research approach is that fewer researcher assumptions are required, which should end up in less potential for error or misjudgments. Choice modeling deals with causality in the form of asking a respondent “If this scenario, combination of price/attributes, were offered – would you buy?”– And of course, competitive offerings are included from the mental perspective of the respondent in reaching his/her decision.

As our author indicates, choice modeling has been around in one form or another for some 30 years, but for the most part the more traditional research approaches have been used by market researchers. While we understand that this approach is more complex and more sophisticated from a usage standpoint, it is believed that the higher quality and more precise results far outweigh the usage complexities.

In terms of a few summary comments, choice modeling has been in use in a variety of research applications over the years – product development; service enhancement; pricing strategy and tactics; brand equity maximization; loyalty program development, etc. but not from a wide range perspective. This excellent research approach can yield very promising and rewarding results in a number of areas when you are looking to optimize the return on your marketing investment – and who isn't! Yes it is a non‐traditional approach to marketing research and it is a bit complex in terms of implementation and utilization, but for those who master it – you will be very impressed and gratified with the end point results. Those who embrace change are often pleasantly surprised with the results!