When to use discrete choice models

Learn how and when to use discrete choice models to provide better answers compared to  direct, standalone survey questions.

Should we change our pricing? Should we invest more in our online offerings?

What charitable causes could we support that would best align with our customers' values? Does this concept we are developing make sense?

Businesses are constantly faced with these types of questions. And while you may think you know the answers, or have a good hunch about the best direction to take, the reality is that your customers may not fully agree with your conclusions. 

So when these are the types of questions your company is looking to answer, then discrete choice modeling represents a wise choice as a market research methodology that can deliver solid data-driven insights.

Discrete choice modeling can provide better answers than you would likely get from direct, standalone survey questions. That’s because this model allows for a deeper, more detailed dive by looking at several factors within a decision. This forces respondents to make trade-offs among different options, resulting in having to choose what they value the most from the options provided.

What is the result? 

Data that offers richer insight into which factors our audiences find most important, thus providing you with data-driven insights to make better business decisions and investments.

So, put another way, discrete choice makes sense when your organization needs to make choices—which is pretty much all the time. Whether you want greater insight on a new product or service, or want to test out a new concept, by forcing your survey respondents to choose, life becomes easier for you because the choices that you have to make are backed by solid data. 

What is discrete choice modeling? 

Discrete choice models helps answer burning questions

By definition, a discrete choice model specifies the probability that a person chooses a particular alternative, with the probability expressed as a function of observed variables that relate to the alternatives and the person choosing.

This differs from other surveys that typically focus on “how much” questions, such as rating questions that aim to get a sense of the degree to which a survey respondent likes—or dislikes—a particular product or service.  

Mountain resort example

So if your business is a mountain resort and spa trying to get a better read on how your guests prefer to get to your facility, a discrete choice question might be “do you prefer to arrive by train, plane or automobile?” In this instance, if the train were to top the list you might look into working a deal with Amrtrak or highlighting the scenic trek that the train takes through mountains and valleys before arriving near your resort.

This provides much more insightful feedback than simply asking survey respondents of how they arrived at your destination for a particular visit. While they might have flown, perhaps they would have much rather taken the train if they were more aware that option was available.

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How to use discrete choice modeling in your survey

If your aim is to have respondents make choices, the first step in your survey process is to identify what those choices will be. You want to be thinking about factors that have the potential to make whatever you’re asking the best, while keeping in mind any limitations such as budget or complexity that would make something unrealistic to offer. 

Let’s revisit our scenic mountain resort example. Perhaps your facility is among many resorts that does the local landscape, and you want to create a spa experience that can separate you from the pack. Based on previous formal and informal feedback from customers, and your keen awareness about trends in the resort spa industry, you have a pretty good inkling of some offerings that your target audience is likely looking for. 

Let’s assume you end up with a list of five possible offerings or factors at your mountain resort. These offerings are:

  1. Full-body immersion ice water pools
  2. Mud baths using locally sourced mountain-stream mud
  3. A wine-and-unwind offering featuring local wines and a massage
  4. Combining meditation and massage
  5. A sound bath and meditation combination

Now that you have your factors or choices that have the potential to create an optimal spa experience for your guests, you can focus on a discrete modeling survey design that poses these choices to your respondents.

After you receive your results you can conduct statistical analysis to provide insight and perspective on the choices respondents made. In this instance, let’s assume the hot trend of full-body immersion in ice water pools is a top choice. With this insight from your survey, you’re now prepared to take action by investing in several ice-water pools and building a marketing campaign to promote them.

Discrete choice model examples

Discrete choice modeling can help you address a wide range of issues facing your business. By survey respondents answering the “which one?” question, they help you determine what changes or enhancements represent the best investment of time, resources and money. Below are several examples of how discrete choice modeling can play out.

Discrete choice to determine pricing and discount options

Discrete choice modeling can be particularly valuable when determining the influence that both price and product features have on how much customers’ are willing to pay for a particular product, package or service.

Let’s say a maker of stationary exercise bikes wants to determine a combination of features and price customers would value most as a means to price a new model so it is attractive to customers, competitive with other options on the market and, of course, profitable.

  • Option 1: Live instructor video training with digital health metrics monitoring, an extended warranty. The price is $1,500.
  • Option 2: Pre-recorded video training with easy-storing design, digital health metrics monitoring and an extended warranty. The price is $1,200.
  • Option 3: Digital health metrics monitoring with a super comfort seat and an extended warranty. The price is $900.

The resulting survey should generate data that reveals what customers value most and what they are willing to pay for that value—the premium high-tech live instruction, the convenience of easy storage or the comfort of a cushy seat. Note that the options share some attributes, but there are distinctive elements that differentiate each package of features, which forces respondents to choose which they like most and would be willing to pay for. 

Discrete choice to predict outcomes based on competitor actions

Let’s say you run a successful coffee shop in a small town and you learn that your top competitor is planning on opening a new location pretty close to your shop. You don’t have the budget to open a new location or expand your current one, but want to make sure you have a strategy to respond. By using a discrete choice model you could assess what might help develop customer satisfaction, and attract some new ones. For example, options might include:

  • Buy four cups of coffee and get the 5th cup free
  • Morning Joe to your door that costs $45 per month for 15 door deliveries
  • Brew and bagel club that includes a free bagel for every five cups of coffee

Based on the responses you receive, you should get some clear direction on what addition to your business your customers would value the most—and what might keep the competition at bay.

Discrete choice to develop advertising messages around product features 

You’re part of a marketing team at a software company that is developing a new product aimed at helping people manage at-home businesses. The software offers a range of benefits—so many that it’s hard to know which features and benefits will resonate most effectively with your target audience.

To get a clearer idea of which message has the best chance of triggering a buying decision, you ask survey respondents what they would value most in the product. Here’s an example:

For an at home business management system, what would be most important to you?

  • Easy-to-use and on-demand customer support
  • Replace the need to hire accountants and other support
  • Strong mobile capabilities so you can manage business on the go
  • Powerful tools to help with management and strategic planning

The nice thing is that the software offers all of the benefits listed as choices—and all of these messages can be woven in some way in your marketing messages and descriptions of the product. Yet by learning what respondents value the most, you can tailor your high-level marketing and advertising messaging to highlight their top priorities.

Discrete choice using scenarios

Imagine you run four fitness centers located throughout a medium-sized city and the COVID-19 crisis has prompted you to re-think your business model. To get insights from members on how you should proceed to grow your business you present two scenarios, both of which are priced at the same monthly price. You then ask survey respondents which they prefer:

Scenario 1:

Hybrid at-home/on-site training

  • Full access to your nearest on-site location
  • One day a week at-home personal training
  • Personalized training program based on your at-home gym
  •  A two days per month pass valid at all four locations

Scenario 2: 

Enhanced on-site training and convenience

  • Full access to all five on-site locations
  • Two days a week on-site personal training
  • Personalized training program using facility equipment
  • Expanded on-site hours—open 24 hours

Through the data and insights you collect from this survey, you can answer the critical “which one” question that discrete choice modeling poses. Your members can provide valuable direction if you should invest in establishing a hybrid model or make more enhancements at your on-site locations.

Advantages of discrete choice models

There are several distinct advantages to using discrete choice models that should be considered as you determine your market research approach. 

  • Obtain more realistic estimates of the value (significance) of individual attributes that respondents are associated with
  • Learn which attribute values or their combinations may discourage the consumer from buying any of the products available on the market
  • Effectively develop strategic and tactical pricing strategies with greater precision
  • Identify the optimal mix of  product features to create the offering consumers would value most at the price they would be willing to pay
  • Simulate different scenarios to determine the optimal bundle to offer given competition, cost and market size

Disadvantages of discrete choice models

Like any analytical method,  discrete choice has its limitations as well.

  • It typically produces less informative data than the ranking or rating assessment procedures
  • Discrete choice models often require the collection of a large number of observations to assure statistical significance
  • The costs and time commitment can potentially be higher than other approaches.

Analyzing results

Once you have captured your data from a discrete choice survey, the depth of your analysis will depend on different factors based on the complexity of the question, or questions, you aim to answer. 

The common thread is that the analysis that is done aims to draw inferences from the pattern of choices that groups of people make. While it is impossible to completely understand what lies behind a single individual’s buying decision, by analyzing your data you can identify trends and generate insights that can provide a clear direction of what most of your target market values. This lays the foundation for more informed decisions and actions that are not based on gut reactions, but rather statistically significant data.

So clearly discrete choice modeling has a wide range of potential benefits and applications for just about any business. It should be the go-to tool in your market research program when you’re faced with needing to answer the “which one” question. Through discrete choice modelling, your survey respondents can help provide some good answers to the hard questions.

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Interested in learning more? Move forward with custom services developed specifically for your needs. Whether you need help with discrete choice modeling or general survey training, work with SurveyMonkey’s research experts to optimize your products or services and drive higher sales.

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