Customer Choice Model

What you put in... What you get out...
  • Customer's choice data for alternative offerings
  • Customer ratings of alternative offerings on their key attributes
  • Purchase probabilities, predicted and observed choices of customers
  • Factors influencing customer choice, including brand as well as performance attributes

The Customer Choice (Logit) model is an individual-level response model that helps to analyze and explain the choices individual customers make in the market. The Customer Choice model helps firms to understand the extent to which such factors as price of a brand or its ease of installation influence a customer's choice of a brand. A brand's purchase probability at the individual level is equivalent to the brand's market share at the market level.

Firms can use Customer Choice analysis to develop marketing programs that are tailored to specific market segments, or even tailored to individual customers.

This model uses the following input:

  • Single Alternative/Boolean
    This method analyzes only one option instead of choosing one among several alternatives. For this analysis, only one brand's data is required.
  • Multiple Alternatives
    This method considers customer response across a subset of related competitors. For this analysis, the following data is required for all competing brands involved in the study.

For each customer, the data that goes into this model is a set of ratings on various attributes of each alternative (either single alternative "yes/no" response, or multiple alternatives "chose one of N" response) involved in the study, and the alternative that the customer chose in each period. For the "Single Alternative/Boolean" option, this would be a 1 or 0, depending on whether or not the customer chose this alternative. For the "Multiple Alternatives" option, one alternative would be a 1 to indicate the alternative chosen during this period, while the others remain 0 to indicate that this particular customer did not choose the other alternatives.

Associated Videos

The following video(s) are archived recordings of previous webinars discussing the Customer Choice model.These videos are intended for instructor viewing only as many times they discuss actual business case solutions.

Videos are only available for Registered Instructors

Technical Note - Customer Choice Model

The Choice model technical note is a supplement to the material provided in the Principles of Marketing Engineering. This note provides additional analytic background to the model and may be freely distributed to your students.

Choice-Modeling-Technical-Note-thumb

To view other technical notes, please visit our Technical Notes page.

Business Cases - Customer Choice Model

The following business cases are available to demonstrate the Customer Choice Model using Marketing Engineering for Excel software:

  1. ABB Electric Case - Using the Customer Choice model and given past choices by the firm's customers, students must determine which customers should be targeted with a supplementary marketing campaign.
  2. Bookbinders Book Club - Using the Customer Choice model, students must decide which of several possible methods (RFM, regression or binary logit) is best for prioritizing customers to target and how large a campaign should the company launch.