Discrete-Choice Analysis Overview

Watch an AMA spot on StatWizards discrete-choice products

From a business perspective, the family of discrete-choice models (DCM) represents the decade's most significant breakthrough in quantitative business tools. By analyzing the way in which customers make choices, either in a controlled or real-world setting, DCM can infer how customers trade off product features and pricing in a competitive environment. Why is this important? Because the right combination of features and pricing can improve product positioning and add millions of dollars to a firm's bottom line.

For most business people, the end product of a DCM analysis—indeed the most valuable part—is the market simulator. This software allows managers to simulate how prospective or repositioned products would fare in a competitive market. Managers can describe the marketplace in some detail, changing among competing products features, form factors, advertising messages and other elements of the marketing mix, depending on how the study is designed. The example below illustrates a StatWizards simulator built in Microsoft Excel®.


Users enter assumptions about competitive products and the target population. The simulator projects potential market share, sales and revenues. Specific market segments can be isolated to examine differences in feature preference, purchase rates and price sensitivity. In the hands of a skilled product manager, this is a powerful tool.

Excel was chosen as a platform for this and all StatWizards products because of its great extensibility and ubiquitous presence in the business world. Combined with the power of DCM, StatWizards' Excel-based simulator provides businesses with a valuable tool for addressing critical business problems.

For a working example of an Excel-based discrete-choice simulator, click here. If you see a yellow bar with the title Protected View at the top of your spreadsheet, click the Enable Editing button. Use our help page for guidance. In the left-hand pane, click on "Using the simulator" and proceed from there.

Next: Phases in a discrete-choice project.

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