What is a dummy variable?
- Content Type:
- Glossary
Dummy Variable Definition
A dichotomous variable which indicates the existence (and lack of existence) of a characteristic or group of characteristics in a case (e.g.. 0 or 1).
A dummy variable is a categorical, or qualitative, variable that represents various categories or groups. It also is known as an indicator variable or binary variable. It indicates the existence, and lack thereof, of a characteristic or group of characteristics in a case. It takes on the values of 0 or 1 to indicate the presence or absence of a certain characteristic or attribute. For instance, it could be used to represent gender – 0 for male, 1 for female – or product preference – 0 for Product A, 1 for Product B. In marketing research, dummy variables address the limitations of treating categorical variables as continuous, thus allowing for more nuanced insights. Proper use of dummy variables can lead to more effective marketing campaigns and personalized customer experiences.
Who relies on dummy variables?
Marketing professionals, researchers and analysts use dummy variables to quantify and analyze categorical data. That can translate to insights into consumer behavior, preferences and patterns.
Why should I care about dummy variables?
In marketing research, dummy variables permit the use of categorical data in statistical models. That can lead to more precise predictions and marketing strategies. What’s more, by incorporating demographic, geographic or behavioral factors into research, entities can uncover correlations that drive better decision making.