Simple (Brand / Price only) Discrete Choice Models

Simple (Brand / Price only) Discrete Choice Models

To consumers, a simple discrete choice exercise that includes only brand and price usually looks identical to a BPTO exercise with the inclusion of a “None of these” option but that comparison limits the power and flexibility even a simple discrete choice model brings to pricing research

Discrete Choice Model offers marketing researcher deeper knowledge of price sensitivity and the impact of competitive action than Brand Price Trade off (BPTO)

To understand the relative strength of the new innovation in the context of existing products and brands, marketing researchers apply excellent tools such as cross-elasticity and brand or product proximities. Some marketing researcher will report these insights in a simple table of numbers, which will show marketers how much the share of brands in rows changes if the brand in the columns changes its price.

show marketers how much the share of brands in rows changes if the brand in the columns changes its price.

Averaged by row and column and presented as clout and vulnerability to determine the strength and weakness of the innovation overall

Averaged by row and column and presented as clout and vulnerability to determine the strength and weakness of the innovation overall

Mapped by frequency of their preference to determine which products are most often considered with the new product

Mapped by frequency of their preference to determine which products are most often considered with the new product

Due to its flexibility, discrete choice has the greatest advantage for competitive price situations. A discrete choice price exercise can look anywhere from a BPTO to a full virtual shelf depending on the competitive context required. An interesting note is that recent research has been inconclusive regarding any accuracy improvement using virtual full shelves compared to the partial set designs (like BOTO) the industry has tended to use. This is contrast to the face validity that full shelf exposure has in the industry, particularly for fast moving consumer packaged goods.

From a modeling standpoint, discrete choice is also generally the best alternative for competitive pricing situations because the stud design can be specified and adjusted from a simple BPTO type estimation to a design that will create interaction estimates for issues like price and product availability. No other pricing approach allows you to change the business issues so dramatically and not change the research methodology.

Discrete Choice Models (DCM) also provides the most comprehensive simulators to understand pricing scenario building. DCM pricing models can be used to create the simplest price-only simulators to full market share tools.

The complexities that discrete choice addresses also form its limitation. Frequently there is not enough external information or time to find the information to allow the researcher to fully inform the ricing scenario. Situations where the competition is poorly defined, where price ranges are loosely defined, where the competitor’s behaviors are not well known, where distribution and channel information is hard to gather are all frequently encountered.

There is also a cost constraint associated with using discrete choice modeling for all pricing research issues. DCM modeling is a specialized skill and does cost more than other pricing methods. It also requires more cognitive cost for the client to properly define the market situations (competitive context, channel, and distribution situations) than individual product approaches.

AMR Group is an expert in Vietnam and its markets. The team is local but with international training and experience, operating to global standards. AMR Group helps brands bloom in Vietnam through lean, focused & reliable marketing research from VINAMR Marketing Research & Consultants; marketing & brand strategy with AMR. VINAMR Marketing Research & Consultants provide world class lean, focused and reliable research through deep understanding of the brief, international quality field, professional data handling & decision-orientated analysis, action focused recommendation. AMR use insights from VINAMR Marketing Research & Consultants to deliver effective marketing & branding consulting, retail consulting & training, seminar & training: Brand War

Compiled by AMR Group (Marketing Research in Vietnam-Nghien Cuu Thi Truong Viet Nam) on 2014

Source: Strategic Initatives

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