Editor's note: Michael Lieberman is founder and president of Multivariate Solutions, a New York research consulting firm.
Consumers do not usually make purchase decisions based on one single condition. More often, consumers examine a range of features or attributes and then make judgments or trade-offs to determine their final purchase choice. Choice modeling is a market research tool that outlines this decision process. Within the context of a product or brand, choice modeling incorporates attributes such as cost, prestige and environmental impact to predict purchase decisions of individuals or market segments.
There are many statistical methods that can be used to perform this analysis. The main challenge for market researchers is determining which one is most appropriate in a given situation. This article will give an overview of the five most common choice models employed in market research, describe when to use them and outline their advantages and disadvantages.
Paired-comparison analysis is the most basic type of choice model. Essentially, a respondent sees two choices and then determines which one he prefers. He then sees two more and the exercise repeats.
Paired-comparison is useful when there are small numbers of products or brands to compare – five or fewer. Comparisons contain no outside attribute information, such as prices, which limits the analysis.
Paired-comparison analysis helps the researcher work out the importance of a number of options relative to one another. It also helps the researcher set priorities where there are conflicting demands on resources.
For example, a major medical foundation is choosing between several different projects that are asking for funding. To maximize impact, it only wants to contribute to a few of these and the board of the foundation has been given the following four options.
A: End-of-life closureB: Health careers futuresC: ...