Predictive Model Tutorial - Overview

Overview

Predictive modeling is a tool to develop individual-level response models that help analyze and explain the choices customers make in a market, i.e., how they select between various choice alternatives (e.g., brands, products, different actions taken by customers).  A predictive model helps firms understand the extent to which various factors such as product features, customer characteristics, or contextual factors influence customers’ choices (more generally, their behaviors).  The model predicts the choice probability for each alternative for each choice alternative available, which can then be aggregated across customers for predicting market-level behaviors (e.g., a brand’s market share).

Firms also can use predictive modeling to develop marketing programs tailored to specific market segments, or even to individual customers.  They can also address various questions about customers’ choice behaviors:

• Does a customer’s gender influence their purchase decision regarding our product(s)?
• Do competitor’s promotions affect the purchase of our product(s)?
• How do our promotions affect our sales?