Choice Models for Product Optimization and Pricing

Chris Chapman and Elea McDonnell Feit
14 September 2017

Enterprise Applications of the R Language
London 2017

Code for this talk: http://r-marketing.r-forge.r-project.org/

Designing new products

Chevrolet Silverado

When creating a new product like this Chevrolet Silverado, designers often face tough decisions.

  • Should the truck have a smaller bed so that we can give more leg room to the passengers?
  • Should we make the truck larger, even though the fuel economy will go down?

Finding the voice of the customer

Homer Simpson Car

Better designers spend time talking to potential customers about what they want and that is sort-of helpful.


But customers typically want “everything” and if you listen to them you end up with The Homer.

https://www.wired.com/2014/07/homer-simpson-car/

Key idea

  1. Ask customers to choose among alternative products … something consumers do every day!
  2. Fit a model to infer feature and price tradeoffs from observed choices.
  3. Predict preference among alternative product designs using the model.

Example choice question